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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Ades International Holding Plc | LSE:ADES | London | Ordinary Share | AEDFXA1EN018 | ORD USD1.00 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 12.35 | 12.00 | 12.70 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMADES
RNS Number : 0666I
ADES International Holding
19 March 2018
For the purpose of the Transparency Directive the Home Member state of the issuer is the United Kingdom.
ADES International Holding Ltd
FY2017 Earnings Release
London, 19 March 2018
ADES International Holding Ltd Results for the year ended 31 December 2017
(London & Dubai, 19 March 2018) ADES International Holding ("ADES" or "the Company"), the London-listed company providing offshore and onshore oil and gas drilling and production services in the Middle East and Africa through its subsidiaries, announces today its full-year results for the year ended 31 December 2017.
FY2017 Headline Figures
Hot Features
Premium
Revenue Adjusted EBITDA(1) Normalised Net Profit(2)
USD 158 million USD 80 million USD 50 million
18% y-o-y 11% y-o-y 31% y-o-y
Number of Rigs Av. Fleet Utilisation Backlog as at 31 December 2017
in FY2017(3)
14 rigs 78%
as at 31 December 2017 >90% since 2012 USD 427 million
Summary Income Statement
(USD '000) 2017 2016 % change ------------------------------ -------------- ----------- --------- Revenues 157,590 134,116 17.5% ------------------------------ -------------- ----------- --------- Gross Profit 79,267 70,843 11.9% ------------------------------ -------------- ----------- --------- Gross Profit Margin 50.3% 52.8% -2.5 pts ------------------------------ -------------- ----------- --------- Adjusted EBITDA(1) 80,318 72,227 11.2% ------------------------------ -------------- ----------- --------- Adj. EBITDA Margin 51.0% 53.9% -2.9 pts ------------------------------ -------------- ----------- --------- Net Profit 44,574 38,013 17.3% ------------------------------ -------------- ----------- --------- Net Profit Margin 28.3% 28.3% 0.0 pts ------------------------------ -------------- ----------- --------- Normalised Net Profit(2) 49,637 38,013 30.6% ------------------------------ -------------- ----------- --------- Normalised Net Profit Margin 31.5% 28.3% 3.2 pts ------------------------------ -------------- ----------- --------- Earnings per Share (USD) 1.16 1.19 -3.0% ------------------------------ -------------- ----------- --------- No. of Shares 38,553,620(4) 31,900,000 ------------------------------ -------------- ----------- ---------
(1) Adjusted EBITDA - Operating profit for the year before depreciation and amortisation, employee benefit provision and other provisions and impairment of assets under construction
(2) Normalised Net Profit - Net Profit for the year before the one-time IPO expense of USD 5.1 million during FY2017
(3) Utilisation rate - Extent to which ADES' assets under contract and available in the operational area are generating revenue throughout the contract, calculated by dividing utilisation days by potential utilisation days
(4) Based on weighted average number of shares
Financial Highlights
-- Revenue grew 17.5% year-on-year, from USD 134.1 million in 2016 to USD 157.6 million in 2017.
-- Gross profit grew 11.9% year-on-year, from USD 70.8 million in 2016 to USD 79.2 million in 2017.
-- Adjusted EBITDA recorded USD 80.3 million in FY2017, up 11.2% year-on-year and delivering an adjusted EBITDA margin of 51.0%.
-- Net profit rose 17.3% year-on-year to USD 44.6 million in FY2017. -- Normalised net profit excluding the one-time IPO expense in FY2017 stood at 49.7 million.
-- Cash balances including cash equivalents stood at USD 137.0 million at 31 December 2017, supported by funds raised at IPO.
-- Net debt stood at USD 75.5 million as at 31 December 2017.
Operational Highlights
-- Maintained an exemplary safety performance, recording over 4.34 million man hours with a Recordable Injury Frequency Rate ("RIFR") (per 200,000 working hours) at 0.41, below the IADC worldwide standard rate of 0.56 as at 31 December 2017.
-- FY2017 utilisation rate recorded 78%, which takes into account planned recertification and upgrading projects on two offshore rigs in Egypt and two offshore rigs in the KSA during the year. ADES maintained a six-year average utilisation rate of 90%, above the current average Middle East Jack-up utilisation rate of 75%(5) .
-- Total backlog as at 31 December 2017 stood at USD 427 million, compared to USD 501 million as at 31 December 2016.
-- New contract awards for Admarine III with General Petroleum Company (GPC), Admarine 88 with Belayim Petroleum Co. (Petrobel), while Admarine VIII was awarded a farm-in agreement with Suez Oil Company (SUCO). Revenues from Admarine 88 and Admarine VIII contracts are expected to commence in the first half of 2018.
-- Contract renewals and extensions, including a three-month extension for the Admarine II jack-up barge with the Gulf of Suez Petroleum Company (GUPCO) as well as an extension of GUPCO's existing contract for ADES' jack-up rig, Admarine IV, for a further six months. Admarine V was also renewed for a six-month period on a call-out basis with an option to extend the contract for a further six months, while GPC renewed its existing contract for ADES' Admarine VI jack-up rig for a two-year period.
-- Acquisition of three operational jack-up rigs located in the KSA for a total purchase price of USD 83 million - payable in a combination of cash and ADES shares - from a subsidiary of Nabors Industries Ltd (Nabors), subject to the satisfaction of conditions precedent including the novation and renewal of the rigs' existing drilling contracts with a current major client. Upon completion, the transaction will double ADES' Arabian Gulf fleet and number of contracted rigs.
-- Long-term agreement to establish a joint venture (JV) with a subsidiary of Vantage Drilling International (Vantage), which will see ADES operate Vantage's deepwater drilling units in Egyptian waters on a bareboat charter agreement basis in line with ADES' asset-light model and is a natural development of its strategy.
-- Finalised exclusive marketing agreements with leading shipyards enabling ADES to market new-build offshore jack-up rigs, including high-specification rigs, that will allow it to deploy these assets on a revenue-sharing basis once contracted, broadening ADES' service offering and allowing it to penetrate new markets as well as capture a larger market share.
(5) Source: Clarksons Research - Offshore Drilling Rig Monthly (February, 2018)
Current Trading and Outlook
-- We expect 2018 to deliver continued organic growth from existing operations with realisation of several of the Company's strategic efforts during 2017, including the commencement of new contracts and securing new tenders across the region. The Nabors acquisitions, once completed, will add to the Company's revenue and earnings, and as a result of the expected timing of completion, we expect overall Company revenues to be weighted materially towards the second half of the year.
-- The Company is committed to putting in place the necessary debt arrangements to secure and support its current operation and future expansion. Further information on debt transactions will be made available to the market once concluded.
-- Management is actively evaluating acquisition opportunities that meet ADES' criteria of being located in the MENA region, within our core line of business and will provide accretive value to shareholders.
Commenting on the full-year performance, Dr. Mohamed Farouk, Chief Executive Officer of ADES International said:
"In our first full-year results following our IPO on the London Stock Exchange in May 2017, ADES has successfully sustained its growth trajectory and delivered a strong operational and financial performance.
Our top-line recorded growth of 18% to USD 158 million was on the back of continued high rig utilisation rates, well above the current average Middle East jack-up utilisation rate of 75%(6) . This growth was supported by our increasingly diversified revenue mix across geographies.
In addition, ADES' low-cost business model saw us maintain EBITDA margins in excess of 50% and deliver a net profit growth rate of approximately 17% year-on-year. Most importantly, we continued to set the benchmark for service quality and safety performance, with an RIFR rate of 0.41, well below the IADC worldwide standard rate of 0.56 as at 31 December 2017.
ADES' continued success is driven by our three-pillar growth strategy of replenishing our backlog; actively participating in tendering activities to expand our footprint and increase market share; and targeting smart and value accretive acquisition opportunities. 2017 saw the Company make significant progress on all three fronts, having been awarded new contracts while securing renewals and extensions for existing contracts; participated in tenders across existing and new markets; and continued to grow our fleet, with the recent signing of a PSA to acquire three operating offshore jack-up rigs in the Arabian Gulf.
In line with our post-IPO growth strategy of scaling-up operations in existing and target markets, ADES will continue to leverage its demonstrated purchasing power and streamlined decision-making process to swiftly act on acquisition opportunities that meet our criteria for delivering long-term sustainable growth. To expand the range of opportunities we are able to consider, the Company is committed to putting in place the necessary debt arrangements to bolster our already strong cash position following the IPO.
We expect 2018 to deliver organic growth from existing operations, with the realisation of several of our strategic efforts during 2017, including the commencement of new contracts and securing new tenders across the region, as well as from the Nabors acquisitions, which once completed, will add to our revenue and earnings.
Given the timing of completion of the Nabors transaction and the resulting contribution of the three rigs to revenues, we expect overall company revenues to be weighted materially towards the second half of the year."
(6) Source: Clarksons Research - Offshore Drilling Rig Monthly (February, 2018)
Conference Call
ADES' management team will present the FY2017 Results and will be available for a Q&A session with analysts and investors today at 14:00 BST. For conference call details, please email ades@instinctif.com
Enquiries
ADES International Holding
Hussein Badawy
Investor Relations Officer
ir@adesgroup.com
+2 (0)2527 7111
Instinctif
David Simonson
Laura Syrett
George Yeomans
ades@instinctif.com
+44 (0)20 7457 2020
About ADES International Holding (ADES)
ADES International Holding extends oil and gas drilling and production services through its subsidiaries and is a leading service provider in the Middle East and Africa, offering onshore contract drilling as well as workover and production services in Egypt, Algeria and Saudi Arabia. The Group is pre-qualified in markets including Egypt, Saudi Arabia, Algeria, India, Mexico and the Saudi-Kuwaiti Neutral Zone. Its over 1,200 employees serve clients including major national oil companies ("NOCs") such as Saudi Aramco and Sonatrach as well as joint ventures of NOCs with global majors including BP and Eni. While maintaining a superior health, safety and environmental record, the Group currently has a fleet of nine jack-up offshore drilling rigs, three onshore drilling rigs, a jack-up barge, and a mobile offshore production unit ("MOPU"), which includes a floating storage and offloading unit. The Group is the largest offshore drilling operator in Egypt by number of rigs. investors.adihgroup.com
Shareholder Information
LSE: ADES INT.HDG
Bloomberg: ADES:LN
Listed: May 2017
Shares Outstanding: 42.2 million
Forward-Looking Statements
This communication contains certain forward-looking statements. A forward-looking statement is any statement that does not relate to historical facts and events, and can be identified by the use of such words and phrases as "according to estimates", "aims", "anticipates", "assumes", "believes", "could", "estimates", "expects", "forecasts", "intends", "is of the opinion", "may", "plans", "potential", "predicts", "projects", "should", "to the knowledge of", "will", "would" or, in each case their negatives or other similar expressions, which are intended to identify a statement as forward-looking. This applies, in particular, to statements containing information on future financial results, plans, or expectations regarding business and management, future growth or profitability and general economic and regulatory conditions and other matters affecting the Company.
Forward-looking statements reflect the current views of the Company's management ("Management") on future events, which are based on the assumptions of the Management and involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. The occurrence or non-occurrence of an assumption could cause the Company's actual financial condition and results of operations to differ materially from, or fail to meet expectations expressed or implied by, such forward-looking statements.
The Company's business is subject to a number of risks and uncertainties that could also cause a forward-looking statement, estimate or prediction to differ materially from those expressed or implied by the forward-looking statements contained in this prospectus. The information, opinions and forward-looking statements contained in this communication speak only as at its date and are subject to change without notice. The Company does not undertake any obligation to review, update, confirm or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise in relation to the content of this communication.
Chairman's Statement
Having served on ADES' Board of Directors since its inception, I have committed to focusing the Board's efforts both on transforming the Company into a leading regional player and rooting its success in sound governance standards. The Board has provided key oversight and guidance to the Company's management as it enters its first full year as a listed company on the London Stock Exchange.
Since then, ADES has made strong progress in realising its key strategic platforms, managing to deliver exceptional results and reaffirm its position as the number one player in the Egyptian offshore drilling market by number of rigs, while simultaneously growing its regional presence. Our fast-growing KSA operation and expanding footprint in Algeria are helping accelerate our transformation into a more regionally diversified Company.
Meanwhile, with oil & gas markets stabilising in recent months and as strengthening regional emerging economies become an increasing driver for demand, we are aiming to replicate our success and proven growth strategy across new geographies in the region. ADES' long-standing relationship with its clients and exemplary safety record, its active participation in regional tenders and its strong balance sheet put the business in an ideal position to capture further contract wins.
The Board has throughout the year adhered to its role of developing and cultivating ADES' values and ethics, along with setting and meeting its strategic goals to position the Company for long-term growth. The Board is committed to good corporate governance practices and has put in place a framework that enables the effective and sustainable running of the Company, in line with our growth and vision. We are confident that we have developed effective risk management frameworks and ensured that the necessary resources are in place to meet ADES' goals. We believe these efforts are a key element of our success and central to our long-term growth and driving shareholder value.
I have great confidence in the direction of our business, which has been driven by CEO Dr. Mohamed Farouk. Along with the senior management team, his effective leadership and day-to-day running of the firm has delivered a solid platform from which we are well positioned to build on.
Mr. Ayman Abbas,
Chairman of the Board
Chief Executive Officer's Report
In our first full-year results following our May 2017 IPO on the London Stock Exchange, ADES has successfully sustained its growth trajectory and delivered a solid operational and financial performance.
Our top-line recorded growth of 18% to USD 158 million was on the back of continued high rig utilisation rates, above the current average Middle East Jack-up utilisation rate of 75%(7) . This growth was supported by our increasingly diversified revenue mix across different regional geographies.
In addition, ADES' low-cost business model saw us maintain EBITDA margins in excess of 50% and deliver a net profit growth rate of approximately 17% year-on-year. Most importantly, we continued to set the benchmark for service quality and safety performance with an RIFR rate of 0.41, well below the IADC worldwide standard rate of 0.56 as of 31 December 2017.
ADES' continued success is driven by our three-pillar growth strategy of replenishing our backlog, actively participating in tendering activity to expand our footprint and increase market share while targeting smart and accretive acquisition opportunities. 2017 saw the Company make significant progress on all three fronts.
We closed the year with a total backlog of USD 427 million as at 31 December 2017, reflecting the realisation of value from contractual agreements with the addition of new contract awards and renewals, which continue to refill the backlog. In Egypt, we maintained our market-leading position having renewed and been awarded new contracts from leading oil nationals and joint ventures including GPC, Petrozenima and Petrobel securing multi-million dollar revenue streams for ADES in the upcoming years. Our ability to sustain our backlog at a time of lower oil prices is due to our customer-centric approach that delivers a tailored service with superior quality and an impeccable safety record at highly competitive rates.
ADES is also actively participating in tenders across existing and new MENA region markets, with the aim of securing several new contracts in the coming months. Our goal is to grow market share and expand our presence in our target markets while building on the success of recent ventures into Algeria and KSA. In just one year, revenues from our KSA operation have grown significantly and now constitute over 34% of our total revenues. We are working to replicate this success in new markets across the MENA region. Active participation in tenders is also supported by our exclusive marketing agreements with leading shipyards to market new-build and offshore jack-up rigs on a revenue-sharing basis. This innovative model helps broaden our service offering and strengthen our ability to enter new markets while maintaining our low-cost model.
We were also pleased to sign a long-term agreement to establish a JV with a subsidiary of Vantage, which will see ADES operate Vantage's deepwater drilling units in Egyptian waters on a bareboat charter agreement basis. We expect FY2018 to be a year of tendering for the JV and therefore do not expect any material revenue during the coming year.
ADES' underlying competitive edge is its ability to execute smart acquisitions and build a fleet of high-quality legacy rigs that deliver a superior service and can be deployed at attractive day rates. In December 2017, we signed a PSA with Nabors Drilling International II Limited to acquire three operating offshore jack-up rigs in the Arabian Gulf. This USD 83 million deal - payable in a combination of cash and ADES shares - will double our Arabian Gulf fleet and number of contracted rigs, further strengthen our backlog and have an immediate positive impact on revenues and cash flow-generation.
In-line with our post-IPO growth strategy of scaling-up operations in existing and target markets, ADES will continue to leverage its purchasing power and streamlined decision-making process to swiftly act on acquisition opportunities that meet our criteria for delivering long-term sustainable growth. To expand the range of opportunities we are able to consider, the Company is committed to putting in place the necessary debt arrangements to bolster our already strong cash position following the IPO.
Outlook
We expect 2018 to deliver organic growth from existing operations with realisation of several of our strategic efforts during 2017, including the commencement of new contracts and securing new tenders across the region as well as from the Nabors acquisitions, which once completed, will add to our revenue and earnings. Given the timing of completion of the Nabors transaction and the resulting contribution of the three rigs to revenues, we expect overall company revenues will be materially weighted towards the second half of the year.
ADES will continue to deliver on our main strategic pillars and build our backlog through contract renewals and extensions while actively participating in tenders across MENA. We have made significant progress on the latter, which we expect to update shareholders on in the coming months, in line with our objective to scale up our operations and penetrate new markets.
ADES is also currently evaluating financing options to enhance its purchasing power, alongside the proceeds from the IPO, which will position it to take advantage of a wider range of opportunities, a key element of ADES' growth strategy. The Company will provide an update on the progress of these discussions in due course.
The current recovery and stabilisation of global oil prices reinforces ADES' ability to maximise value from its business model. We will continue executing our strategy to expand our presence in existing markets, venture into new high-growth MENA geographies and pursue accretive acquisition opportunities, all with the ultimate aim of sustaining our growth trajectory and continuing to deliver returns.
Dr. Mohamed Farouk, Chief Executive Officer
(7) Source: Clarksons Research - Offshore Drilling Rig Monthly (February, 2018)
Operational & Financial Review
Revenue
Consolidated revenue grew 17.5% year-on-year from USD 134.1 million in 2016 to USD 157.6 million in 2017, with most of our growth attributed to the high utilisation of our employed rigs. Growth was also driven by the realisation of the full-year impact of drilling and workover operations of our three offshore rigs in the KSA (deployed in November 2016), our MOPU operations in Egypt through Admarine I (deployed in February 2016) and our onshore drilling operations in Algeria, through ADES 3 (deployed in October 2016).
Revenue by Country
(USD '000) FY2017 FY2016 % change ------------- -------- -------------------------- --------- Egypt 82,298 108,502 -24% ------------- -------- -------------------------- --------- KSA 53,738 11,552 365% ------------- -------- -------------------------- --------- Algeria 21,554 14,062 53% ------------- -------- -------------------------- --------- Total 157,590 134,116 18% ------------- -------- -------------------------- ---------
Revenue from Egypt fell by 24% year-on-year to USD 82.3 million in 2017 due to scheduled upgrade projects performed on Admarine II and Admarine VI during 2017. Although in absolute terms operations in Egypt remained the largest for 2017, its contribution fell 29 percentage points from 81% in 2016 to 52% in 2017 as we increasingly diversify our geographical revenue mix with increasing contributions from Algeria and KSA. Management will continue to expand its operations into new markets as an important strategy to reducing the financial risk of any significant economic or regulatory challenges faced in any of our markets.
Our operations in the KSA have quickly become an important contributor to our total revenue after just one full year of operations. Revenues grew considerably from USD 11.6 million in 2016 to USD 53.7 million in 2017, representing a year-on-year growth of 365% and was the highest contributor to our top-line growth for the period. KSA's contribution to revenues grew by 25 percentage points to 34% in 2017, representing the impact of our three offshore rigs, Admarine 261, Admarine 262 and Admarine 266, which were deployed in the country in November 2016. Management expects KSA's contribution to further increase in the coming years, particularly as upgrade works on Admarine 261 and Admarine 266 were completed in 2017, with both rigs now expected to operate at higher utilisation rates. It is also worth noting that Admarine 262 is scheduled for upgrade projects in 2018.
Revenue from our operations in Algeria grew significantly between 2016 and 2017, from USD 14.1 million to USD 21.6 million and representing 14% of revenue in 2017. Growth was primarily driven by revenue generated from our third new rig addition, ADES 3, which came online in October 2016. ADES 3 generated revenues of USD 10.8 million in FY2017, up a significant 227.4% year-on-year compared to the USD 3.3 million recorded in FY2016.
Revenue Contribution by Country
FY2017 FY2016 % change
------------------- -------------- ------- ---------
Egypt 52% 81% -29 pts
------------------- -------------- ------- ---------
KSA 34% 9% 25 pts
------------------- -------------- ------- ---------
Algeria 14% 10% 4 pts
------------------- -------------- ------- ---------
Assets by Country & Type as at 31 December 2017
MOPU Offshore Rig Onshore Rig
------------------------------------ ------------- ------------- ------------
Egypt 1 7 -
------------------------------------ ------------- ------------- ------------
KSA - 3 -
------------------------------------ ------------- ------------- ------------
Algeria - - 3
------------------------------------ ------------- ------------- ------------
Total Assets 1 10 3
------------------------------------ ------------- ------------- ------------
Revenue by Segment
(USD '000) FY2017 FY2016 % change -------------------------- -------- -------- --------- Drilling & Workover 117,868 99,472 18% -------------------------- -------- -------- --------- MOPU 25,853 15,694 65% -------------------------- -------- -------- --------- Jack-Up Barge & Projects 9,901 14,593 -32% -------------------------- -------- -------- --------- Others 3,968 4,357 -9% -------------------------- -------- -------- --------- Total 157,590 134,116 18% -------------------------- -------- -------- ---------
Drilling & Workover (75% of revenues in FY2017)
Drilling & Workover, which includes onshore and offshore drilling as well as workover services, is the Company's main source of revenue. ADES' maintained focus on servicing clients in the development and production phases, particularly well maintenance and workover services, has allowed the Company to enjoy long-term, sustainable contracts in a sub-sector that is less susceptible to oil price fluctuations.
Drilling & Workover revenue grew by 18.5% year-on-year from USD 99.5 million in 2016 to USD 117.9 million in 2017. Despite its modest growth, this segment is the largest contributor to top-line growth due to its considerable contribution to ADES's revenue, which remained stable at 75% in FY2017 compared to the previous year.
Revenue growth in this segment was primarily driven by the full-year impact of new rigs which were deployed during the latter half of 2016. These included three offshore rigs, Admarine 261, Admarine 262 and Admarine 266 deployed in the KSA in November 2016 and the commencement of operations by ADES 3 in Algeria in October 2016.
MOPU (16% of revenues in FY2017)
MOPU services, which were launched in February 2016, generated USD 25.9 million in revenues in 2017 and recorded year-on-year growth of 64.7% during the period. We currently provide MOPU services, such as crude oil processing and storage, to Petrozenima through the deployment of Admarine I in the Gulf of Suez. The rig was production-ready in October 2016, allowing ADES to catch the full-year effect of production-related day rate additions during 2017. Its contribution to total revenue grew from 12% in 2016 to 16% in 2017.
Jack-Up Barge & Projects (6% of revenues in FY2017)
As part of its offshore services, ADES leases its offshore jack-up barge, Admarine II, which is currently leased to GUPCO in the Gulf of Suez area in Egypt. Additionally, ADES generates project revenue primarily from contracting fees charged for clients' outsourcing of various operating projects to third party personnel, including maintenance, construction and repair services. Revenue from the Company's Jack-Up Barge & Projects contributed a combined 6% to total revenue, recording USD 9.9 million in FY2017, down 32.2% year-on-year versus the USD 14.6 million recorded in FY2016. This decrease was partly attributed to planned upgrade works on Admarine II, leading the barge to be taken out of operation, as well as an overall decline in project activity during the year.
Others (3% of revenues in FY2017)
Other revenue includes catering revenue and the rental of essential operating equipment that the client has not supplied. Other revenue recorded USD 4.0 million in 2017, representing 2.53% of total revenues.
Gross Profit
Gross profit grew 11.9% year-on-year from USD 70.8 million in 2016 to USD 79.2 million in 2017. Our gross profit margin (GPM) fell by 2.5 percentage points, from 52.8% in 2016 to 50.3% in 2017. The slight contraction in our GPM is attributed to the launch of our operations in the KSA, where salary costs are higher than in Egypt. Management is actively implementing a plan to ensure more Saudi nationals are employed in the KSA over foreign nationals, ahead of our planned further expansion into the country.
Operating Profit
Operating profit for the year recorded USD 58.8 million in 2017, up 15.5% year-on-year from USD 50.9 million in 2016. Operating profit growth was driven by capitalising on significant economies of scale at the administrative level. As most of ADES' administrative staff are remunerated in local currencies while our revenue is predominantly USD-denominated, ADES' operating margin was further enhanced by the November 2016 devaluation of the Egyptian pound, with the Company maintaining administrative expenses as a percentage of revenue at 12%. This saw adjusted EBITDA increase by 11.2% year-on-year to USD 80.3 million in 2017 (USD 72.2 million in 2016), with an EBITDA margin of 51.0%.
Management also expects that the growth in our KSA operations as well as entry into new markets over the coming few years will allow ADES to benefit from economies of scale as we apportion our existing on-the-ground management and crew across a growing number of rigs without compromising on the quality and reputation of our services or safety of our employees.
Net Finance Charges
Our finance cost amounted to USD 16.6 million in 2017, representing a 75.5% year-on-year increase from USD 9.4 million in 2016. This was the result of the USD 55 million KSA syndication facility taken out in November 2016 to fund the acquisition of Admarine 261, 262 and 266.
In addition, ADES recorded a finance income of USD 7 million in 2017, representing a net-of-tax return from investing USD 120 million in Egyptian Treasury Bills; this effectively offset the increase in finance cost bringing net charges to USD 9.5 million in FY2017 in-line with FY2016 levels.
IPO-Related Expenses
One-time IPO expenses, in relation to the successful completion of ADES' IPO in May 2017, stood at USD 5.1 million.
Normalised Net Profit
Normalised net profit, which excludes the one-time IPO expense of USD 5.1 million, grew from USD 38.0 million in FY2016 to USD 49.6 million in FY2017. The ramp-up in revenues from ADES' entry into the KSA and our operations in Algeria, combined with improved economies of scale and the November 2016 devaluation of the Egyptian pound, resulted in the expansion of our normalised net profit margin of 3.2 percentage points to 31.5% in FY2017.
Balance Sheet
Assets
Total assets stood at USD 587.9 million as at 31 December 2017, representing a 47.4% increase year-on-year from USD 398.8 million as at 31 December 2016. Growth in our cash & cash equivalents, resulting from our May 2017 IPO, was the main attributor to asset growth during 2017. An increase in our net fixed assets, which grew from USD 290.7 million as at 31 December 2016 to USD 322.4 million as at 31 December 2017, was driven by capital expenditures related to upgrade works on ADES' rigs, as well as the acquisition of ADES 1 for USD 5 million. Accounts receivable increased from USD 50.8 million as at 31 December 2016 to USD 66.0 million as at 31 December 2017 resulting primarily from the growth in the Company's revenue. The Accounts receivables balance decreased by USD 5.3 million from USD 71.3 million as at 30 June 2017, demonstrating the positive trend in collections.
Liabilities
Noncurrent liabilities consist solely of the Company's long-term loans, which saw a decrease between 31 December 2016 and 31 December 2017 from USD 190.0 million to USD 155.8 million. The decline came as the Company settled the current portion of its long-term loans (CPLTD), amounting to USD 30.4 million as at 31 December 2016.
Current liabilities increased slightly from USD 103.9 million as at 31 December 2016 to USD 114.1 million as at 31 December 2017. The increase was due to a USD 5.2 million overdraft facility drawn by the Company as well as an increase in the CPLTD by USD 5.6 million associated with the Company's new KSA syndicated loan. Despite the substantial growth in the Company's operating costs, trade and other payables only increased slightly from USD 27.9 million in FY2016 to USD 31.2 million at the close of FY2017.
Net Debt decreased from USD 230.5 million as at 31 December 2016 to USD 75.5 million, mainly driven by the Company settling the current portion of its long-term loans (CPLTD), amounting to USD 30.4 million and the growth in our cash & cash equivalents.
Principal Risks and Uncertainties
As in any corporation, ADES is exposed to risks and uncertainties that may adversely affect its performance. The Board and senior management agree that the principal risks and uncertainties facing the Company include the political and economic situations in Egypt, Algeria, KSA and the rest of the Middle East, foreign currency supply and associated risks, changes in regulation and regulatory actions, environmental and occupational hazards, failure to maintain the Company's high quality standards and accreditations, failure to retain or renew contracts with clients, failure to recruit and retain skilled personnel and senior management, pricing pressures and decreased business activity in the oil and gas industry, among others.
Going Concern
The directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, the directors continue to adopt the going concern basis in preparing the condensed financial statements. The Company's Financial Statements for the full year ended 31 December 2017 are available on the Company's website at investors.adihgroup.com
Statement of Directors' Responsibilities
Each of the Directors confirms that, to the best of their knowledge:
-- The preliminary financial information, which has been prepared in accordance with International Financial Reporting Standards ("IFRS"), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and
-- The preliminary announcement includes a fair summary of the development and performance of the business and the position of the Group.
After making enquiries, the Directors considered it appropriate to adopt the going concern basis in preparing the consolidated financial statements.
A list of current directors of the Company is maintained on the Group's website at investors.adihgroup.com.
On behalf of the Board
Dr. Mohamed Farouk
Chief Executive Officer
Terms and Definitions
Adjusted EBITDA - Operating profit for the year before depreciation and amortisation, employee benefit provision and other provisions and impairment of assets under construction
Backlog - The total amount payable to the Company, based on firm commitments represented by signed drilling and services contracts, during the remaining term of an existing contract plus any optional client extension provided for in such contract, assuming the contracted rig will operate (and thus receive an operating day rate) for all calendar days both in the remaining term and in the optional extension period
KSA -The Kingdom of Saudi Arabia
MENA - The Middle East and North Africa
Normalised Net Profit - Net Profit for the year before the one-time IPO expense of USD 5.1 million during FY2017
Recordable Injury Frequency Rate (RIFR) - The number of fatalities, lost time injuries, cases or substitute work and other injuries requiring medical treatment by a medical professional per 200,000 working hours
Utilisation Rate - The Company's calculation of its utilisation rate refers to its measure of the extent to which its assets under contract and available in the operational area are generating revenue under client contracts. The Company calculates its utilisation rate for each rig by dividing Utilisation Days by Potential Utilisation days under a contract.
Net Debt - Total interest-bearing loans and borrowings minus cash and cash equivalents.
ADES International Holding Ltd
and its Subsidiary
CONSOLIDATED
FINANCIAL STATEMENTS
31 DECEMBER 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2017
USD Notes 2017 2016
-------------------------------- ------ ------------- -------------
Revenue 5 157,590,031 134,116,116
Cost of revenue 6 (78,323,458) (63,273,396)
------------- -------------
GROSS PROFIT 79,266,573 70,842,720
General and administrative 7,
expenses 29 (19,032,975) (14,713,106)
End of services cost 20 (623,817) (101,368)
Provision for impairment
of trade receivables 14 (579,115) (2,362,197)
Impairment of assets under
construction 16 - (765,291)
Provisions (274,647) (2,027,004)
------------- -------------
OPERATING PROFIT 58,756,019 50,873,754
Finance costs 8 (16,550,209) (9,428,294)
Finance income 12 7,015,552
Provision for impairment
of dividends receivable 15 (245,000) -
Loss on disposal of property
and equipment - (7,537)
Other income 2,461,500 100,794
Other expenses (1,395,025) -
Other taxes 29 (1,573,448) (241,721)
IPO expenses 9 (5,063,369) -
------------- -------------
PROFIT FOR THE YEAR BEFORE
INCOME TAX 43,406,020 41,296,996
Income tax credit/ (expense) 10 1,167,919 (3,284,273)
------------- -------------
PROFIT FOR THE YEAR 44,573,939 38,012,723
OTHER COMPREHENSIVE INCOME
Other comprehensive income
to be reclassified to profit
or loss in subsequent periods - -
Other comprehensive income
not to be reclassified to
profit or loss in subsequent
periods - -
------------- -------------
TOTAL COMPREHENSIVE INCOME 44,573,939 38,012,723
============= =============
Profit for the year and
total comprehensive income
attributable to equity holders
of the Parent 44,573,939 38,012,723
Earnings per share - basic
and diluted attributable
to equity holders of the
Parent (USD per share) 23 1.16 1.19
============= =============
The accompanying notes 1 to 29 form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2017
USD Notes 2017 2016
----------------------------------- ------ ------------ ------------
ASSETS
Non-current assets
Property and equipment 16 322,441,975 290,661,449
Intangible assets 17 544,540 15,265
Available for sale financial
asset 11 1,950,000 1,950,000
------------ ------------
Total non-current assets 324,936,515 292,626,714
------------ ------------
Current assets
Inventories 13 20,919,477 17,777,071
Accounts receivable 14 65,987,303 50,789,113
Due from related parties 25 305,616 277,117
Prepayments and other receivables 15 38,773,075 32,152,163
Cash and cash equivalents 12 136,964,417 5,192,864
------------ ------------
Total current assets 262,949,888 106,188,328
------------ ------------
Total assets 587,886,403 398,815,042
============ ============
EQUITY AND LIABILITIES
Equity
Share capital 21 42,203,030 1,000,000
Share application money 21 - 30,900,000
Share premium 21 158,224,346 -
Merger reserve 1&22 (6,520,807) (6,520,807)
Legal reserve 22 6,400,000 4,481,408
Retained earnings 117,703,129 75,047,782
------------ ------------
Total equity 318,009,698 104,908,383
------------ ------------
Liabilities
Non-current liabilities
Interest-bearing loans and
borrowings 19 155,155,414 189,929,837
Provisions 20 620,083 101,368
------------ ------------
Total non-current liabilities 155,775,497 190,031,205
------------ ------------
Current liabilities
Trade and other payables 18 52,664,243 51,055,925
Interest-bearing loans and
borrowings 19 57,333,621 45,804,082
Provisions 20 1,836,000 2,933,915
Due to related parties 25 2,267,344 4,081,532
------------ ------------
Total current liabilities 114,101,208 103,875,454
------------ ------------
Total liabilities 269,876,705 293,906,659
------------ ------------
Total equity and liabilities 587,886,403 398,815,042
============ ============
The accompanying notes 1 to 29 form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
Share
Share Share application Merger Legal Retained
USD capital premium money reserve reserve earnings Total
---------------- ----------- ------------ ------------- ------------- ---------- ------------- -------------
As at 1 January
2016 - - - 32,000,000 2,999,264 48,617,203 83,616,467
Profit for the
year - - - - - 38,012,723 38,012,723
Other
comprehensive
income
for the year - - - - - - -
----------- ------------ ------------- ------------- ---------- ------------- -------------
Total
comprehensive
income
for the year - - - - - 38,012,723 38,012,723
Transfer to
legal reserve
by Subsidiary
(Note 22) - - - - 1,482,144 (1,482,144) -
Consideration
to
shareholders
on
reorganisation
of the
group - - - (38,520,807) - - (38,520,807)
Dividends by
Subsidiary
(Note 24) - - - - - (10,100,000) (10,100,000)
Share
application
money - - 30,900,000 - - - 30,900,000
Share capital
issued 1,000,000 - - - - - 1,000,000
----------- ------------ ------------- ------------- ---------- ------------- -------------
As at 31
December 2016 1,000,000 - 30,900,000 (6,520,807) 4,481,408 75,047,782 104,908,383
=========== ============ ============= ============= ========== ============= =============
Balance at 1
January 2017 1,000,000 - 30,900,000 (6,520,807) 4,481,408 75,047,782 104,908,383
Profit for the
year - - - - - 44,573,939 44,573,939
Other
comprehensive
income
for the year - - - - - - -
----------- ------------ ------------- ------------- ---------- ------------- -------------
Total
comprehensive
income
for the year - - - - - 44,573,939 44,573,939
Transfer to
legal reserve
by Subsidiary
(Note 22) - - - - 1,918,592 (1,918,592) -
Share
application
money
(Note 21) 30,900,000 - (30,900,000) - - - -
Share capital
issued (Note
21) 10,303,030 - - - - - 10,303,030
Share premium
(Note 21) - 158,224,346 - - - - 158,224,346
----------- ------------ ------------- ------------- ---------- ------------- -------------
As at 31
December 2017 42,203,030 158,224,346 - (6,520,807) 6,400,000 117,703,129 318,009,698
=========== ============ ============= ============= ========== ============= =============
The accompanying notes 1 to 29 form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2017
USD Notes 2017 2016
----------------------------------- ------ ------------- --------------
OPERATING ACTIVITIES
Profit for the year before
income tax 43,406,020 41,296,996
Adjustments for:
Depreciation of property
and equipment 16 20,618,505 18,450,476
Amortisation of intangible
assets 17 45,202 9,110
Provision for impairment
of trade receivables 14 579,115 2,362,197
Impairment of property
and equipment 16 - 765,291
Provisions 20 898,464 2,128,372
Interest on bank credit
facilities and loans 8 16,550,209 9,428,294
Loss on disposal of property
and equipment - 7,537
Finance income (7,015,552) -
Other income (2,461,500) -
------------- --------------
Cash from operations before
working capital changes 72,620,463 74,448,273
Inventories (680,906) (1,389,006)
Accounts receivable (15,777,305) (36,309,980)
Due from related parties (28,499) (78,254)
Prepayments and other receivables (6,620,912) (17,215,150)
Trade and other payables 3,346,719 23,451,590
Due to related parties (1,814,188) (6,612,990)
------------- --------------
Cash flows from operations 51,045,372 36,294,483
Income tax paid 10 (570,482) (427,210)
Provisions paid 20 (1,477,664) (606,730)
------------- --------------
Net cash flows from operating
activities 48,997,226 35,260,543
------------- --------------
INVESTING ACTIVITIES
Purchase of intangible assets 17 (21,579) -
Proceeds from disposal of
property and equipment - 17,455
Purchase of property and
equipment 16 (52,951,929) (134,169,024)
Interest received 12 7,015,552 -
------------- --------------
Net cash flows used in investing
activities (45,957,956) (134,151,569)
------------- --------------
FINANCING ACTIVITIES
Proceeds from interest-bearing
loans and borrowings 19 36,581,041 120,899,330
Repayment of interest-bearing
loans and borrowings 19 (59,825,925) (21,373,845)
Proceeds from increase in
share capital share application
money 21 10,303,030 31,900,000
Proceeds from share premium 21 158,224,346
Cash to shareholders on
reorganisation of the
Group, net of obligation
assumed 1 - (29,710,961)
Dividends paid - (13,552,699)
Interest paid 8 (16,550,209) (9,428,294)
------------- --------------
Net cash flows from financing
activities 128,732,283 78,733,531
------------- --------------
Net increase/ (decrease)
in cash and cash equivalents 131,771,553 (20,157,495)
Cash and cash equivalents
at the beginning of the
year 12 5,192,864 25,350,359
------------- --------------
CASH AND CASH EQUIVALENTS
AT THE OF THE YEAR 12 136,964,417 5,192,864
============= ==============
The accompanying notes 1 to 29 form an integral part of these consolidated financial statements.
1 BACKGROUND
ADES International Holding Ltd (the "Company") was incorporated and registered in the Dubai International Financial Centre (DIFC) on 22 May 2016 with registered number 2175 under the Companies Law - DIFC Law No. 2 of 2009 (and any regulations thereunder) as a private company limited by shares. The Company's registered office is at level 5, Index tower, Dubai International Financial Centre, PO Box 507118, Dubai, United Arab Emirates. The principal business activity of the Company is to act as a holding company and managing office. The Company and its subsidiary (see below) constitute the Group (the "Group"). The Company is owned by ADES Investments Holding Ltd., a company incorporated on 22 May 2016 under the Companies Law, DIFC Law no. 2 of 2009.
The Company owns Advanced Energy System (ADES) (S.A.E.) (the "Subsidiary") that was established as an Egyptian joint stock company in Egypt and whose shares are not publicly traded.
The Group is a leading oil and gas drilling and production services provider in the Middle East and Africa. The Group services primarily include offshore and onshore contract drilling and production services. The Group currently operates in Egypt, Algeria and the Kingdom of Saudi Arabia. The Group's offshore services include drilling and workover services and Mobile Offshore Production Unit (MOPU) production services, as well as accommodation, catering and other barge-based support services. The Group's onshore services primarily encompass drilling and work over services. The Group also provides projects services (outsourcing various operating projects for clients, such as maintenance and repair services).
In 2016, pursuant to a reorganisation plan (the "Reorganisation") the ultimate shareholders of the Subsidiary:
(i) established the Company as a new holding company with share capital of USD 1,000,000 and made an additional capital contribution of USD 30,900,000 for additional shares that were allotted on 23 March 2017. No such reorganisations took place in 2017.
(ii) transferred their shareholdings in Advanced Energy System (ADES) (S.A.E.) to the Company for a total consideration of USD 38,520,807 comprising of cash of USD 29,710,961 and the assumption of shareholder obligation of USD 8,809,846.
2 SIGNIFICANT ACCOUNTING POLICIES 2.1 BASIS OF PREPARATION
The Consolidated financial statements have been prepared under the historical cost basis.
These financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and applicable requirements of United Arab Emirates laws and in compliance with the applicable provisions of the Companies Law pursuant to DIFC Law No. 2 of 2009.
These consolidated financial statements have been prepared on the historical cost basis. The consolidated financial statements are presented in United States Dollars ("USD"), which is Company's functional and presentation currency.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiary as at 31 December 2017. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
a) Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
b) Exposure, or rights, to variable returns from its involvement with the investee, and c) The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
a) The contractual arrangement with the other vote holders of the investee b) Rights arising from other contractual arrangements c) The Group's voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the consolidated financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Subsidiaries are fully consolidated from the date of acquisition or incorporation, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The Consolidated financial statements of the subsidiaries are prepared for the same reporting period as the Group, using consistent accounting policies.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:
- Derecognises the assets (including goodwill) and liabilities of the subsidiary - Derecognises the carrying amount of any non-controlling interests - Derecognises the cumulative translation differences recorded in equity - Recognises the fair value of the consideration received - Recognises the fair value of any investment retained - Recognises any surplus or deficit in profit or loss
- Reclassifies the parent's share of components previously recognised in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities
Business combination
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owner of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets. Acquisition related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gain or losses arising from such re-measurement are recognised in profit or loss. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 in profit or loss.
Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of profit or loss.
Associates and joint ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint controls are similar to those necessary to determine control over subsidiaries.
2.2 CHANGES IN THE ACCOUNTING POLICIES AND DISCLOSURES (a) New and amended standards and interpretations
The Group applied for the first time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2017. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
The nature and the effect of these changes are disclosed below. Although these new standards and amendments applied for the first time in 2017, they did not have a material impact on the consolidated financial statements of the Group. The nature and the impact of each new standard or amendment is described below:
Amendments to IAS 7 Statement of Cash Flows: Disclosure Initiative
The amendments require entities to provide disclosure of changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). The Group has provided the information for both the current and the comparative period in the consolidated statement of cash flows.
Amendments to IAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses
The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of deductible temporary difference related to unrealized losses. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.
Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact. The application has no effect on the Group's consolidated financial position and performance as the Group has no deductible temporary differences or assets that are in the scope of the amendments.
Annual Improvements Cycle - 2014-2016
Amendments to IFRS 12 Disclosure of Interests in Other Entities: Clarification of the scope of disclosure requirements in IFRS 12
The amendments clarify that the disclosure requirements in IFRS 12, other than those in paragraphs B10-B16, apply to an entity's interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale. These amendments did not affect the Group's consolidated financial statements as it does not have interest in entities that is classified as held for sale other than already disclosed in the consolidated financial statements.
(b) Standards, amendments and interpretations in issue but not effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's consolidated financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective. The Group is currently assessing the impact of these new standards on the consolidated financial statements.
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration
The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration. Entities may apply the amendments on a fully retrospective basis. Alternatively, an entity may apply the Interpretation prospectively to all assets, expenses and income in its scope that are initially recognised on or after:
(i) The beginning of the reporting period in which the entity first applies the interpretation
Or
(ii) The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the interpretation. The Interpretation is effective for annual periods beginning on or after 1 January 2018. Early application of interpretation is permitted and must be disclosed. However, since the Group's current practice is in line with the Interpretation, the Group does not expect any effect on its consolidated financial statements.
IFRIC Interpretation 23 Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:
-- Whether an entity considers uncertain tax treatments separately
-- The assumptions an entity makes about the examination of tax treatments by taxation authorities
-- How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
-- How an entity considers changes in facts and circumstances
An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Group will apply interpretation from its effective date. Since the Group operates in a complex multinational tax environment, applying the Interpretation may affect its consolidated financial statements and the required disclosures. In addition, the Group may need to establish processes and procedures to obtain information that is necessary to apply the Interpretation on a timely basis.
IFRS 2 Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2
The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The Group is in the process of carrying out detailed impact analysis for IFRS 9.
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors' interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Group is in the process of carrying out detailed impact analysis for IFRS 15.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees - leases of 'low-value' assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
Lessor accounting under IFRS 16 is substantially unchanged from today's accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types of leases: operating and finance leases. IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard's transition provisions permit certain reliefs.
The Group is in the process of carrying out detailed impact analysis for IFRS 16.
Current versus non-current classification
The Group presents assets and liabilities in the consolidated statement of financial position based on current/non-current classification. An asset is current when it is:
-- Expected to be realised or intended to be sold or consumed in the normal operating cycle; -- Held primarily for the purpose of trading;
Expected to be realised within twelve months after the reporting period;
Or
-- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
-- It is expected to be settled in the normal operating cycle; -- It is held primarily for the purpose of trading; -- It is due to be settled within twelve months after the reporting period;
Or
-- There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
The Group classifies all other liabilities as non-current.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements since it is the primary obligor in all the revenue arrangements, has pricing latitude, and is also exposed to credit risk.
The following specific recognition criteria must also be met before revenue is recognised:
Rendering of services
Revenue arising from service contracts is recognised, net of discount, in accordance with the terms of the contracts when the services are performed.
Dividends
Revenue is recognised when the Group's right to receive the payment is established, which is generally when shareholders approve the dividend.
Interest income
Interest income is recognised as the interest accrues using the effective interest rate method, under which the rate used exactly discounts, estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value.
For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above.
Income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. The Group is not subject to income tax in accordance with the Egyptian tax law (Egypt) and DIFC law (UAE). The Subsidiary's Branches are subject to income tax in accordance to Kingdom of Saudi Arabia Law and Algeria Law.
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary differences, except:
-- When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
-- In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:
-- When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
-- In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Foreign currencies
The Company and its Subsidiary functional currency is USD. Transactions in foreign currencies are initially recorded at the date the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss. Non- monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
Inventories
Inventories are initially measured at cost and subsequently at lower of cost using weighted average method or net realisable value.
Property and equipment
Assets under construction, property and equipment are stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the cost of replacing parts of the property and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the profit or loss as incurred.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:
Years
Rigs 27
Mobile Offshore Production Unit (MOPU) 5
Furniture and fixtures 10
Drilling pipes 5
Tools 10
Computers and equipment 5
Motor vehicles 5
Leasehold improvements 5
Rigs include overhaul, environment and safety costs that are capitalised and depreciated over 5 years. No depreciation is charged on assets under construction. The useful lives and depreciation method are reviewed annually to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from these assets. Any change in estimated useful life is applied prospectively effective from the beginning of year. Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately is capitalised and the carrying amount of the component that is replaced is written off. Other subsequent expenditure is capitalised only when it increases future economic benefits of the related item of property and equipment. All other expenditure is recognised in the consolidated statement of profit or loss as the expense is incurred.
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of property and equipment may not be recoverable.
Whenever the carrying amount of property and equipment exceeds their recoverable amount, an impairment loss is recognised in the consolidated statement of profit or loss. The recoverable amount is the higher of fair value less costs to sell of property and equipment and the value in use. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. While value in use is the present value of estimated future cash flows expected to arise from the continuing use of property and equipment and from its disposal at the end of its useful life.
Reversal of impairment losses recognised in the prior years are recorded when there is an indication that the impairment losses recognised for the property and equipment no longer exist or have reduced.
An item of property and equipment is derecognised upon disposal or when no further economic benefits are expected from its use or disposal. Any gain or loss arising on de recognition is included in the consolidated statement of profit or loss.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. After initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets are not capitalised and expenditure is reflected in the consolidated profit and loss in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year end. Intangible assets are amortised using the straight-line method over their estimated useful lives (5 years).
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets are initially measured at fair value, plus transaction costs. All recognised financial assets are subsequently measured at amortised cost except for available for sale financials assets which are measured at fair value:
Financial assets
Financial assets are initially measured at fair value, plus transaction costs. All recognised financial assets are subsequently measured at amortised cost except for available for sale financials assets which are measured at fair value:
(i) Bank balances and cash
Bank balances and cash in the consolidated statement of financial position comprise cash in hand and at banks.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method, less impairment. Interest income is recognised by applying the EIR, except for short-term receivables when the recognition of interest would be immaterial. The EIR amortisation is included in finance income in the consolidated statement of profit or loss. The losses arising from impairment are recognised in the consolidated statement of profit or loss when there is objective evidence that an asset is impaired. This category generally applies to trade and other receivables. For more information on receivables, refer to Note 14.
De-recognition of financial assets
A financial asset (or, when applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:
-- The rights to receive cash flows from the asset have expired, or
-- The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flow in full without material delay to a third party under a 'pass-through' arrangement, and either:
- The Group has transferred substantially all the risks and rewards of the asset, or
- The Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its right to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of the Group's continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
Impairment of financial assets
The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred 'loss event') and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the financial assets carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate.
For financial assets carried at amortised cost, the carrying amount is reduced through the use of an allowance account and the amount of the loss is recognised in the consolidated statement of profit or loss.
Financial asset together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or decreased by adjusting the allowance account. If a future write-off is later recovered, the recovery is recognised in the consolidated statement of profit or loss.
Financial liabilities and equity instruments issued by the Group
Debt and equity instruments are classified as either financial liabilities or as equity instruments in accordance with the substance of the contractual agreements.
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivative instrument as appropriate. The Group determines the classification of its financial liabilities at the initial recognition.
(i) Trade and other payables
Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.
(ii) Loans and borrowings
All loans and borrowings are initially recognised at the fair value less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated statement of profit or loss when the liabilities are derecognised as well as through the amortisation process.
(iii) Other financial liabilities
Other financial liabilities are initially measured at fair value, net of transaction costs and are subsequently measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, then the difference in the respective carrying amounts is recognised in the consolidated statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
Impairment of non-financial assets
The Group assesses at each reporting date whether there is an indication that a non-financial asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating units (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. Impairment losses of continuing operations are recognised in the consolidated statement of profit or loss in those expense categories consistent with the function of the impaired asset.
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset's or cash-generating unit's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated statement of profit or loss.
Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date and whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.
Group as a lessee
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor, are classified as operating leases. Payments including prepayments, made under operating leases (net of any incentives received from the lessor) are recognised as expenses in the consolidated statement of profit or loss in accordance with the terms of the lease contracts over the lease term based on a straight line basis.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and the amount can be reliably estimated. When the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statement of profit or loss net of any reimbursement. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation at the end of the reporting period, using a rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Provisions are reviewed at each statement of financial position date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
Contingencies
Contingent liabilities are not recognised in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.
Legal reserve
According to the Subsidiary's articles of association, 5% of the net profit for the prior year of the Subsidiary is transferred to a legal reserve until this reserve reaches 20% of the issued capital. The reserve is used upon a decision from the general assembly meeting based on the proposal of the Board of Directors of the Subsidiary.
Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or the most advantageous market for the asset or liability. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. For assets traded in an active market, fair value is determined by reference to quoted market bid prices. The fair value of interest-bearing items is estimated based on discounted cash flows using interest rates for items with similar terms and risk characteristics. For unquoted assets, fair value is determined by reference to the market value of a similar asset or is based on the expected discounted cash flows. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the Consolidated financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
-- Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
-- Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
-- Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
Cash dividend and non-cash distribution to equity holders of the parent
The Group recognises a liability to make cash or non-cash distributions to equity holders of the parent when the distribution is authorised and the distribution is no longer at the discretion of the Group. A distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in equity. Non-cash distributions are measured at the fair value of the assets to be distributed with fair value remeasurement recognised directly in equity. Upon distribution of non-cash assets, any difference between the carrying amount of the liability and the carrying amount of the assets distributed is recognised in the consolidated statement of profit or loss.
Judgments
The preparation of the Group's consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.
In the process of applying the Group's accounting policies, management has made certain judgments, estimates and assumptions in relation to the accounts receivable, customer credit periods and doubtful debts provisions, creditors' payment period, useful lives and impairment of property and equipment, income taxes and various other policy matters. These judgments have the most significant effects on the amounts recognised in the consolidated financial statements.
Finance lease commitments - Group as lessee
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the consolidated income statement on a straight line basis over the period of the lease. Lease incentives, typically rent free period, is recognised in the same manner as operating lease rentals.
Available for sale financial asset
The Group holds an investment in Egyptian Drilling Chinese Company (refer to Note 11). The Group has treated this investment as an available for sale financial asset as the legal formalities for change in the articles of association is not complete and accordingly, ADES have no representation or ability to enforce representation on the Board of Directors. The completion of these formalities will result in the accounting of this investment from available for sale financial asset to an associate/ joint arrangement.
Estimates and assumptions
Impairment of trade receivables
An estimate of the collectible amount of trade receivables is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates. At the consolidated statement of financial position date, gross trade receivables were USD 69,681,069 (2016: USD 53,903,764) and the provision for impairment in trade receivables was USD 3,693,766 (2016: USD 3,114,651) Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the consolidated statement of profit or loss.
Taxes
The Group is exposed to income taxes in certain jurisdictions. Significant judgement is required to determine the total provision for taxes. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective counties in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences in interpretation may arise for a wide variety of issues depending on the conditions prevailing in the respective domicile of the Group companies. At the consolidated statement of financial position date, income tax payable was USD 1,118,662 (2016: USD 2,857,063).
Impairment of non-financial assets
The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. The non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When value in use calculations are undertaken, management estimates the expected future cash flows from the asset or cash-generating unit and chooses a suitable discount rate in order to calculate the present value of those cash flows.
Useful lives of property, plant and equipment
The Group's management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset or physical wear and tear. Management reviews the residual value and useful lives annually and future depreciation charge would be adjusted where the management believes the useful lives differ from previous estimates. During the year the management revised estimated useful life of rigs from 15 years to 27 years based on the technical assessment effective from 1 January 2017, which resulted in a decrease of depreciation charge by the amount of USD 8,605,090.
Impairment of inventories
Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their net realisable value. At the consolidated statement of financial position date, gross inventories were USD 20,919,477 (2016: USD 17,777,071) with no provisions for slow moving items. Any difference between the amounts actually realised in future periods and the amounts expected will be recognised in the consolidated statement of profit or loss.
Impairment of dividends receivable
The Group has dividends receivable from Egyptian Drilling Chinese Company (refer to note 15) which is classified as available for sale financial asset. Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the consolidated statement of profit or loss.
4 SEGMENT INFORMATION
Management has determined the operating segments based on the reports reviewed by the Chief Executive Officer (CEO) that are used to make strategic decisions. The CEO considers the business from a geographic perspective and has identified four geographical segments. Management monitors the operating results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on profit or loss before intersegment charges.
Segment
USD Egypt Algeria KSA UAE Total
---------------------------- ------------ ------------ ----------- ------------ ------------
For the year ended
31
December 2017
Revenue 82,298,101 21,553,917 53,738,013 - 157,590,031
------------ ------------ ----------- ------------ ------------
Gross profit 66,856,413 1,862,965 10,547,195 - 79,266,573
------------ ------------ ----------- ------------ ------------
Finance costs 16,550,209 - - - 16,550,209
Finance income - - - (7,015,552) (7,015,552)
Income tax (credit)
expense - (2,005,247) 837,328 - (1,167,919)
------------ ------------ ----------- ------------ ------------
Profit 39,507,786 1,498,558 2,339,436 1,228,159 44,573,939
============ ============ =========== ============ ============
Total assets as
at 31 December
2017 427,916,290 8,279,182 21,713,922 129,977,009 587,886,403
============ ============ =========== ============ ============
Total liabilities
as at 31 December
2017 255,812,927 4,447,760 9,391,481 224,537 269,876,705
============ ============ =========== ============ ============
COGS included bareboat charter agreements between Egypt
and both KSA and Algeria "Lease agreement"
For the year ended
31
December 2017
Other segment information:
Capital expenditure 52,925,672 519 25,738 - 52,951,929
Intangible assets
additions 21,579 - - - 21,579
------------ ------------ ----------- ------------ ------------
Total 52,947,251 519 25,738 - 52,973,508
============ ============ =========== ============
Depreciation and
amortisation 17,457,917 865,290 2,340,500 - 20,663,707
============ ============ =========== ============ ============
For the year ended
31 December 2016
Revenue 108,501,995 14,062,376 11,551,745 - 134,116,116
------------ ------------ ----------- ------------ ------------
Gross profit 59,740,283 5,454,019 5,648,418 - 70,842,720
------------ ------------ ----------- ------------ ------------
Finance costs 8,722,886 61,520 643,888 - 9,428,294
Income tax expense - 2,927,210 357,063 - 3,284,273
------------ ------------ ----------- ------------ ------------
Profit 31,164,856 2,892,499 4,076,059 (120,691) 38,012,723
============ ============ =========== ============ ============
Total assets as
at 31 December
2016 285,031,429 30,001,212 83,527,793 254,608 398,815,042
============ ============ =========== ============ ============
Total liabilities
as at 31 December
2016 282,332,927 5,994,104 5,553,301 26,327 293,906,659
============ ============ =========== ============ ============
Other segment information:
Capital expenditure 58,383,993 10,568,232 65,216,799 - 134,169,024
------------ ------------ ----------- ------------ ------------
Total 58,383,993 10,568,232 65,216,799 - 134,169,024
============ ============ =========== ============ ============
Depreciation and
amortisation 16,832,604 962,046 664,936 18,459,586
Impairment of property
and equipment 765,291 - - - 765,291
============ ============ =========== ============ ============
5 REVENUE
USD 2017 2016
------------------- ------------ ------------
Units operations 147,841,157 123,713,864
Catering services 2,450,360 2,537,195
Projects income* 6,752,850 7,295,711
Others 545,664 569,346
------------ ------------
157,590,031 134,116,116
============ ============
* Projects income represents services relating to outsourcing various operating projects for clients such as maintenance and repair services.
6 COST OF REVENUE
USD 2017 2016
------------------------ ----------- -----------
Project direct costs 5,681,202 6,615,569
Maintenance costs 7,307,833 6,079,605
Staff costs 25,677,414 15,666,367
Rental equipment 2,744,852 2,483,465
Insurance 3,637,194 2,958,675
Depreciation (Note 16) 20,426,233 18,296,945
Other costs 12,848,730 11,172,770
----------- -----------
78,323,458 63,273,396
=========== ===========
7 GENERAL AND ADMINISTRATIVE EXPENSE
USD 2017 2016
----------------------------------- ----------- ------------
Staff costs 10,137,211 10,046,238
Depreciation and amortisation
(Notes 16, 17) 237,474 162,641
Professional fees 2,117,751 1,988,492
Business travel expenses 1,250,543 255,517
Free zone expenses 1,606,634 1,405,381
Rental expenses 877,701 546,832
Other expenses 2,797,128 3,710,156
Net foreign exchange loss/ (gain) 8,533 (3,402,151)
----------- ------------
19,032,975 14,713,106
=========== ============
8 FINANCE COSTS
USD 2017 2016
------------------------------------ ----------- ----------
Interest on bank credit facilities
and loans 16,550,209 9,428,294
----------- ----------
16,550,209 9,428,294
=========== ==========
9 IPO EXPENSES
These expenses relates to the initial public offering made during the year. Out of the total amount of USD 6,535,593 incurred during the year, amount of USD 5,063,369 was recognised as expenses in the consolidated statement of comprehensive income for the year while an amount of USD 1,472,224 was debited to the consolidated statement of changes in equity.
10 INCOME TAX USD 2017 2016 Consolidated statement of profit or loss: Current income tax (credit)/ expense (1,167,919) 3,284,273 Consolidated statement of financial position: Current liabilities: Balance at 1 January 2,857,063 - Charge for the year 1,214,416 3,284,273 Release during the year (2,382,335) - Paid during the year (570,482) (427,210) Balance at 31 December (Note 18) 1,118,662 2,857,063 Profit before income tax 43,406,020 41,296,996 Tax calculated at domestic tax rates applicable to profits in the primary jurisdiction of 0% (2016: 0%) - - Effect of different tax rates in countries in which the Group operates 951,750 2,650,811 Non-deductible expenses 262,666 218,060 Prior year adjustments* (2,382,335) Other 415,402 Income tax expense recognised in the consolidated statement of profit or loss (1,167,919) 3,284,273
The effective tax rate, excluding the credit in respect of prior year adjustments, is 3% (2013: 8%).
The Group operates in jurisdictions which are subject to tax at higher rates than the statutory corporate tax rate of 0%, which is applicable to profits in Algeria and Kingdom of Saudi Arabia where applicable tax rate is 26% and 20% respectively. In addition to statutory corporate tax rate of 26%, the operations in Algeria are also subject to 15% Branch tax on accounting profit.
Egyptian corporations are normally subject to corporate income tax at a statutory rate of 22.5% however the Company has been registered in a Free Zone in Alexandria under the Investment Law No 8 of 1997 which allows exemption from corporate income tax.
* Prior year adjustments represent tax provision recorded in Algeria during 2016 which is released during 2017 based on the tax filings and tax assessment.
11 AVAILABLE FOR SALE FINANCIAL ASSET
Country
USD of Incorporation Ownership 2017 2016
------------------ ------------------- ---------- ---------- ----------
Egyptian Chinese
Drilling Company Egypt 48.75% 1,950,000 1,950,000
========== ==========
The Group acquired the investment on 30 March 2015 from AMAK Drilling and Petroleum Services Co. (a related party) at par value. Egyptian Chinese Drilling Company is a Joint Stock Company operating in storing and renting machinery and all needed equipment to the petroleum industry.
The Group recognised dividends of USD 1,225,000 from Egyptian Chinese Drilling Company during the year ended 31 December 2015 which is outstanding as at 31 December 2017 (note 15).
This investment is measured at cost less any impairment as its fair value cannot be reliably measured. The Group has treated this investment as available for sale as the legal formalities for change in the articles of association is not complete and accordingly, has no representation on the Board. The completion of these formalities will result in the accounting of this investment from available for sale financial asset to an associate/ joint arrangement.
Fair value hierarchy
31 December
2017 And Level Level Level
USD 2016 1 2 3
----- ------------ ------ ------ ----------
1,950,000 - - 1,950,000
------------ ------ ------ ----------
12 CASH AND CASH EQUIVELANTS
USD 2017 2016
------------------------------------------- ------------ ----------
Cash on hand 8,931 23,656
Bank balances 9,942,280 5,169,208
Treasury bills 127,013,206 -
------------ ----------
136,964,417 5,192,864
============ ==========
Bank balances and cash comprise
of balances in the following currencies:
United States Dollar (USD) 9,469,067 1,813,324
Saudi Riyal (SAR) 178,817 1,686,404
Egyptian Pound (EGP) 121,869 1,338,380
United Arab Emirates Dirham (AED) 1,012 8,492
Great British Pound (GBP) 54 23,285
Euro (EUR) 64 (51)
Algerian Dinar (DZD) 180,335 323,027
Kuwaiti Dinar (KWD) (7) 3
T-bill's (EGP)* 127,013,206 -
------------ ----------
136,964,417 5,192,864
============ ==========
* Treasury bills represent short-term investment made by the Group with original maturity less than 90 days. The Group had invested in July 2017 for an amount of USD 119,797,343 with a maturity period ranging from 78 to 85 days. This investment matured in October 2017 and was re-invested with an amount of USD 124,889,042 which accrued interest receivable of USD 2,124,164 as of 31 December 2017.
The finance income reported in the consolidated statement of comprehensive income for the year amounting to USD 7,015,552 pertains to total interest received from the investment in treasury bills.
13 INVENTORIES
USD 2017 2016
------------------------------ ----------- -----------
Spare parts for
Jack Up Rig Admarine (I) 149,814 132,408
Drilling Barge Admarine (II) 306,372 252,953
Jack Up Rig Admarine (III) 1,928,526 1,859,621
Jack Up Rig Admarine (IV) 1,953,838 2,094,650
Jack Up Rig Admarine (V) 1,735,892 1,628,081
Jack Up Rig Admarine (VI) 982,287 1,308,961
Jack Up Rig Admarine (VIII) 1,734,004 1,931,522
Jack Up Rig Admarine (88) 2,249,594 2,321,311
Onshore Rig ADES 2 373,293 366,715
Onshore Rig ADES 3 164,709 161,397
Jack Up Rig Admarine 261 2,640,679 1,941,572
Jack Up Rig Admarine 262 3,245,151 1,746,536
Jack Up Rig Admarine 266 2,234,649 1,684,284
Spare parts in warehouse
Inventory 1,220,669 347,060
----------- -----------
20,919,477 17,777,071
=========== ===========
Inventories mainly represent spare parts.
14 ACCOUNTS RECEIVABLE
USD 2017 2016
----------------------------------- ------------ ------------
Trade receivables 69,681,069 53,903,764
Provision for impairment in trade
receivables (3,693,766) (3,114,651)
------------ ------------
65,987,303 50,789,113
============ ============
Trade receivables are non-interest bearing and are generally on 30 to 90 days terms after which trade receivables are considered to be past due. Unimpaired trade receivables are expected to be fully recoverable on the past experience. It is not the practice of the Group to obtain collateral over receivables and the vast majority are, therefore, unsecured.
The movement in the provision for impairment of trade receivables is as follows:
USD 2017 2016
--------------------- ---------- ----------
As at 1 January 3,114,651 752,454
Charge for the year 579,115 2,362,197
---------- ----------
As at 31 December 3,693,766 3,114,651
========== ==========
As at 31 December, the aging analysis of un-impaired trade receivables is as follows:
Past due but not impaired
-------------------------------------------------------------
Neither
past due 30 - 61 -
USD nor impaired <30 days 60 days 90 days >90 days Total
2017 25,138,781 5,889,514 4,474,001 8,539,624 21,945,383 65,987,303
============== =========== ========== ========== =========== ===========
2016 9,749,411 11,792,203 4,858,481 3,967,213 20,421,805 50,789,113
============== =========== ========== ========== =========== ===========
15 PREPAYMENTS AND OTHER RECEIVABLES
USD 2017 2016
--------------------------------------- ----------- -----------
Advances to contractors and suppliers 6,027,286 3,225,691
Advances to employees 6,378 13,626
Accrued revenue* 12,975,535 17,587,148
Margin LG (Note 28) 3,602,290 3,511,930
Insurance with customers 3,911,475 3,945,436
Aramco Invoice Retention 6,525,863 -
Other receivables and deposits 4,744,248 2,643,332
Dividends receivable 1,225,000 1,225,000
Provision for impairment in dividends
receivables (245,000) -
----------- -----------
38,773,075 32,152,163
=========== ===========
* Accrued revenue represents services rendered but not yet billed at the reporting date.
The movement in the provision for impairment of dividends receivable is as follows:
USD 2017 2016
-------------------- -------- -----
Charge for the year 245,000 -
-------- -----
As at 31 December 245,000 -
======== =====
16 PROPERTY AND EQUIPMENT
Furniture Assets Computer
Rigs and Drilling under and Motor Leasehold
USD * fixtures pipes Tools construction equipment vehicles improvements Total
--------------- ------------- ---------- ------------ ------------ ------------- ---------- ---------- ------------- -------------
31 December
2017
Cost:
As at 1
January
2017 268,524,908 957,088 4,007,526 12,425,178 50,893,103 473,311 249,765 70,039 337,600,918
Additions 41,453 97,175 - 799,461 51,820,656 193,184 - - 52,951,929
Transfers 47,963,113 100,145 4,067,500 8,752,548 (61,045,720) - - 162,414 -
Transfer to
intangible
Assets - - - - (552,898) - - - (552,898)
------------- ---------- ------------ ------------ ------------- ---------- ---------- ------------- -------------
As at 31
December
2017 316,529,474 1,154,408 8,075,026 21,977,187 41,115,141 666,495 249,765 232,453 389,999,949
------------- ---------- ------------ ------------ ------------- ---------- ---------- ------------- -------------
Accumulated
depreciation
and
impairment:
As at 1
January
2017 (39,436,649) (271,041) (852,125) (5,184,627) (765,291) (253,165) (106,533) (70,038) (46,939,469)
Depreciation
charge for
the
year (18,702,802) (96,288) (801,505) (887,069) - (80,216) (38,987) (11,638) (20,618,505)
------------- ---------- ------------ ------------ ------------- ---------- ---------- ------------- -------------
As of 31
December
2017 (58,139,451) (367,329) (1,653,630) (6,071,696) (765,291) (333,381) (145,520) (81,676) (67,557,974)
------------- ---------- ------------ ------------ ------------- ---------- ---------- ------------- -------------
Net book
value:
As of 31
December
2017 258,390,023 787,079 6,421,396 15,905,491 40,349,850 333,114 104,245 150,777 322,441,975
============= ========== ============ ============ ============= ========== ========== ============= =============
Capitalised borrowing costs
The amount of borrowing costs capitalised during the year ended 31 December 2017 was USD 2,608,790 (2016: USD 1,408,530).
16 PROPERTY AND EQUIPMENT (cont'd)
Furniture Assets Computer
Rigs and Drilling under and Motor Leasehold
USD * fixtures pipes Tools construction equipment vehicles improvements Total
----------------- ------------- ---------- ---------- ------------ -------------- ---------- ---------- ------------- -------------
31 December 2016
Cost:
As at 1 January
2016 145,371,553 795,518 2,498,001 11,393,235 51,911,665 362,797 294,566 70,039 212,697,374
Additions 420,891 161,570 - 1,031,943 132,444,106 110,514 - - 134,169,024
Transfers 122,732,464 - 1,509,525 - (124,241,989) - - - -
Transfers from
assets under
construction
to inventory - - - - (9,220,679) - - - (9,220,679)
Disposals - - - - - - (44,801) - (44,801)
------------- ---------- ---------- ------------ -------------- ---------- ---------- ------------- -------------
As at 31
December
2016 268,524,908 957,088 4,007,526 12,425,178 50,893,103 473,311 249,765 70,039 337,600,918
------------- ---------- ---------- ------------ -------------- ---------- ---------- ------------- -------------
Accumulated
depreciation
and impairment:
As at 1 January
2016 (23,857,683) (192,112) (251,890) (3,097,887) - (198,448) (75,453) (70,038) (27,743,511)
Impairment of
project under
construction - - - - (765,291) - - - (765,291)
Depreciation
charge for the
year (15,578,966) (78,929) (600,235) (2,086,740) - (54,717) (50,889) - (18,450,476)
Disposals - - - - - - 19,809 - 19,809
------------- ---------- ---------- ------------ -------------- ---------- ---------- ------------- -------------
As of 31
December
2016 (39,436,649) (271,041) (852,125) (5,184,627) (765,291) (253,165) (106,533) (70,038) (46,939,469)
------------- ---------- ---------- ------------ -------------- ---------- ---------- ------------- -------------
Net book value:
As of 31
December
2016 229,088,259 686,047 3,155,401 7,240,551 50,127,812 220,146 143,232 1 290,661,449
============= ========== ========== ============ ============== ========== ========== ============= =============
16 PROPERTY AND EQUIPMENT (cont'd)
Depreciation charge is allocated as follows:
USD 2017 2016
Cost of revenue (Note 6) 20,426,233 18,296,945
General and administrative expenses
(Note 7) 192,272 153,531
----------- -----------
Total depreciation charge 20,618,505 18,450,476
=========== ===========
Assets under construction
Assets under construction represent the amounts that are incurred for the purpose of acquiring property and equipment until it is ready to be used in the operation. Included in property and equipment at 31 December 2017 was, an amount of USD 40,349,850 (2016: USD 50,127,812) mainly relating to expenditure for the assets under construction. Assets under construction will be transferred to 'Rigs' and 'Tools' of the property and equipment after completion.
* All rigs are pledged to the lenders (banks) against loans and borrowings (Note 19) except for ADES 1, ADES 2, ADES 3 and Admarine 88.
17 INTANGIBLE ASSETS
USD 2017 2016
---------------------------------- ---------- ----------
Cost:
As at 1 January 167,980 167,980
Additions 21,579 -
Transfers 552,898 -
---------- ----------
As at 31 December 742,457 167,980
---------- ----------
Accumulated amortisation:
As at 1 January (152,715) (143,605)
Amortisation charge for the year (45,202) (9,110)
---------- ----------
As at 31 December (197,917) (152,715)
---------- ----------
Net carrying amount
As at 31 December 544,540 15,265
========== ==========
Intangible assets represent computer software and the related licenses.
18 TRADE AND OTHER PAYABLES
USD 2017 2016
------------------------------ ----------- -----------
Local trade payables 26,945,291 27,766,226
Foreign trade payables 3,779,363 -
Notes payable 446,289 150,218
Accrued expenses 10,118,154 7,438,635
Accrued interest 1,751,724 1,616,446
Income tax payable (Note 10) 1,118,662 2,857,063
Other payables 1,355,726 4,078,303
Dividends payable (Note 24) 7,149,034 7,149,034
----------- -----------
52,664,243 51,055,925
=========== ===========
19 INTEREST-BEARING LOANS AND BORROWINGS
USD 2017 2016
----------------------------------- ------------- -------------
Balance as at 1 January 235,733,919 136,208,434
Borrowings drawn during the year 36,581,041 120,899,330
Borrowings repaid during the year (59,825,925) (21,373,845)
------------- -------------
Balance as at 31 December 212,489,035 235,733,919
============= =============
Maturing within 12 months 57,333,621 45,804,082
Maturing after 12 months 155,155,414 189,929,837
------------- -------------
Balance as at 31 December 212,489,035 235,733,919
============= =============
2017 2016
Type Interest rate % Latest maturity USD USD
---------------------------- ------------------------------ ---------------------- ------------- -------------
Current interest-bearing loans and borrowings
4.5% + 3 Month LIBOR 5 years
Loan 1 Syndication
Tranche A 16,000,000 16,000,000
Tranche C 5,000,000 5,000,000
Tranche D 3,800,000 3,800,000
Loan 2 Syndication
Tranche A 5.5% + 3 Month LIBOR 5 years 11,111,111 5,555,556
Credit facility 1 4.50% + 3 Month LIBOR 1 year / renewable 12,306,542 11,791,608
Credit facility 4 1.25% + Corridor Renewable (206) (223)
Credit facility 5 1.25% + Corridor Renewable 2,542,374 2,571,426
Credit facility 6 2.50% + Corridor Renewable 6,573,800 1,085,715
------------- -------------
Total current interest-bearing loans and borrowings 57,333,621 45,804,082
============= =============
Non-current interest-bearing loans and borrowings
5 years
Loan 1 Syndication
------------------------------ ----------------------
Tranche A 4.5% + 3 Month LIBOR 45,533,610 60,686,926
------------------------------------------------------
4.5% + 3 Month LIBOR
Tranche B 4.5% + 3 Month LIBOR 40,000,000 40,000,000
Tranche C 15,000,000 20,000,000
Tranche D 4.5% + 3 Month LIBOR 17,399,507 21,200,000
Loan 2 Syndication
Tranche A 5.5% + 3 Month LIBOR 5 years 33,333,827 43,042,911
Tranche B 5.5% + 3 Month LIBOR 5 years 3,888,470 5,000,000
------------- -------------
Total non-current interest-bearing loans and borrowings 155,155,414 189,929,837
Total interest-bearing loans and borrowings 212,489,035 235,733,919
============= =============
The Group has secured interest-bearing loans and borrowings as follows:
Bank credit facilities
1. Credit facility 1 is granted by the Arab International Bank (AIB) with an overdraft facility limit amounting to USD 10,000,000 which is automatically renewable and increased by USD 2,500,000 during the year 2016 to be USD 12,500,000 and is secured by the assignment of proceeds under the umbrella of Loan 1 syndication.
2. Credit facility 5 is granted by the Egyptian Gulf Bank (EGB) with an overdraft facility limit amounting to EGP 45,000,000 which is secured by promissory note.
3. Credit facility 6 is granted by the Arab International Bank (AIB) with an overdraft facility limit amounting to EGP 40,000,000 which is automatically renewable and increased by EGP 80,000,000 during the year 2017 to be EGP 120,000,000 and is secured by the assignment of proceeds under the umbrella of Loan 1 syndication.
Loan 1 - Syndication:
On 12 November 2015 the Group has signed a syndication loan agreement arranged by EBRD with total amount of USD 170 million divided over eight banks. The loan is divided into four tranches, the purpose and use of each facility is described as follows:
a) Tranche A
For refinancing certain existing financial indebtedness in full (including the payment of the fees, costs and expenses incurred under or in connection with the transaction documents) the remaining amount for general corporate purposes.
b) Tranche B
New working capital purposes and to refinance certain existing working capital facilities.
c) Tranche C
Capital expenditure for the acquisition of the new rigs and mobile offshore production units.
d) Tranche D "Murabaha Participant"
The Group shall apply the amount of all utilisations under the Murabaha Facility towards the capital expenditure for the acquisition of the new rigs and mobile offshore production units.
The Medium-term loan over 5 years includes a 15 months grace period and is paid quarterly in un-equal instalments starting from 23 February 2017 and the last instalment will be on 23 November 2020.
Loan 1 - Syndication is secured by the rigs Admarine I, Admarine II, Admarine III, Admarine IV, Admarine V, Admarine VI, and Admarine VIII and all related collection bank accounts and insurance proceeds collection bank accounts.
Loan 2 - Syndication:
On 25 October 2016 the Group has signed a syndication loan agreement arranged by EFG Hermes Advisory Inc. with total amount of USD 55 million divided over four banks. The loan is divided into two tranches, the purpose and use of each facility is described as follows:
a) Facility A
To partially finance the purchase price of the rigs.
b) Facility B
For the purpose of paying pre-operating expense including but not limited to insurance, office and yard expense. Agent and crew salaries and the payment of the fees, costs and expense incurred or may be incurred under or in connection with the financing.
The Medium-term loan over 5 years includes 9 month grace period and is paid quarterly in equal instalments except the last instalment starting from 25 July 2017 and the last instalment will be at 25 October 2021.
Loan 2 - Syndication is secured by the rigs Admarine 261, Admarine 262, and Admarine 266 and all related collection bank accounts and insurance proceeds collection bank accounts.
20 PROVISIONS
As at Accrued during*** Paid during As at**
USD 1 January the year the year 31 December
2017
Other tax
provisions
* 3,035,283 898,464 (1,477,664) 2,456,083
========== ================= =========== ============
2016
Other tax
provisions
* 1,513,641 2,128,372 (606,730) 3,035,283
========== ================= =========== ============
* Other tax provisions mainly represent provision made for employee's taxes and withholding taxes which are borne by the Group.
** As at 31 December 2017, other tax provisions include long term liability with respect to employees' end of service benefits for an amount of USD 620,083 (2016: USD 101,368).
*** The above amounts accrued during the year include amounts of USD 623,817 (2016: USD 101,368) with respect to employees' end of services cost for the year ended 31 December 2017, as disclosed in the consolidated statement of comprehensive income.
21 SHARE CAPITAL
Share capital of the Group comprise:
USD 2017 2016
------------------------------ ------------- -------------- -----------
Authorised shares* 1,500,000,000 10,000,000
Issued shares 42,203,030 1,000,000
Shares par value 1.00 1.00
-------------- -----------
Issued and paid up capital 42,203,030 1,000,000
============== ===========
Share application money
** - 30,900,000
============== ===========
Share premium*** 158,224,346 -
============== ===========
The Company was incorporated
and registered in DIFC on
22 May 2016.
The shareholding structure
as at 31 December 2017 is:
Shareholding
% No. of Value
Shareholders shares USD
------------------------------ ------------- -------------- -----------
ADES Investment Holding
Ltd 65 27,431,970 27,431,970
Individual shareholders 35 14,771,060 14,771,060
------------- -------------- -----------
100 42,203,030 42,203,030
============= ============== ===========
The shareholding structure as at 31 December 2016 was:
Shareholding No. of Value
Shareholder % shares USD
------------------------- ------------- ---------- ----------
ADES Investment Holding
Ltd 100 1,000,000 1,000,000
============= ========== ==========
* During the year, the authorised share capital of the Company was increased to USD 1,500,000,000 comprising of 1,500,000,000 shares.
** Share application money amounting to USD 30,900,000 representing funds received in advance has been transferred to share capital account upon issuance of the shares in 2017. Additionally, share capital amounting to USD 10,303,030 issued over and above the balance of share application money during 2017.
*** Share premium represents the excess of fair value received over the par value of shares issued as a result of IPO as mentioned in note 1.
22 RESERVES
Legal reserve
As required by Egyptian Companies' Law and the Subsidiary's Articles of Association, 5% of the net profit for the year is transferred to legal reserve. The Subsidiary may resolve to discontinue such annual transfers when the reserve totals 20% of the issued share capital of the Subsidiary. As of 31 December 2017, the balance of legal reserve amounted to USD 6,400,000 (2016: USD 4,481,408).
Merger reserve
As disclosed in Note 1, pursuant to a reorganisation plan, the shareholders reorganised the Group by establishing the Company as a new holding company. Merger reserve represents the difference between the consideration paid to the shareholders under the reorganisation plan and the nominal value of the Subsidiary shares. Prior to the reorganisation, the merger reserve comprise of the share capital and share application money of the Subsidiary.
23 EARNINGS PER SHARE
Basic earnings per share (EPS) amounts are calculated by dividing the profit for the year attributable to the ordinary equity holders by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding assuming conversion of all dilutive potential ordinary shares.
The information necessary to calculate basic and diluted earnings per share is as follows:
USD 2017 2016
------------------------------------- ----------- -----------
Profit attributable to the ordinary
equity holders for
basic and diluted EPS 44,573,939 38,012,723
----------- -----------
Weighted average number of ordinary
shares -
basic and diluted 38,553,620 31,900,000
----------- -----------
Earnings per share - basic and
diluted (USD per share) 1.16 1.19
=========== ===========
24 DIVIDS DECLARED AND PAID
USD 2017 2016
----------------------------------- ---------- -------------
Declared:
To shareholders (deducted from
retained earnings) - 10,100,000
To employees "Employee benefits"
(charged to
consolidated statement of profit
or loss) - 5,323,933
---------- -------------
Declaration for the year - 15,423,933
Unpaid dividends from prior years - 10,601,733
---------- -------------
- 26,025,666
Paid during the year - (18,876,632)
---------- -------------
Dividends payable (Note 18) 7,149,034 7,149,034
========== =============
The above dividends represent dividends of the Subsidiary which was declared and partially paid prior to the reorganisation.
25 RELATED PARTIES TRANSACTIONS AND BALANCES
Related party transactions
During the year, the following were the significant related party transactions recorded in the consolidated statement of comprehensive income or consolidated statement of financial position:
Assets purchased from related parties amounted to USD 5,000,000 (2016: USD 7,940,000) (Note 16).
Other major related party transactions are:
During the year, the Group had transferred funds to a related party, AMAK for Drilling & Petroleum Services Co. (other related party), amounting to USD 6,793,453 for settlement of fixed assets purchased during the years 2017 and 2016.
Related party balances
Significant related party balances included in the consolidated statement of financial position are as follows:
2017 2016
--------------------- ---------------------
USD Due from Due to Due From Due to
------------------------------ --------- ---------- --------- ----------
Shareholder
ADES Investment Holding
Ltd - 211,629 - 26,327
Ultimate Shareholder
Sky Investment Holding
ltd. 60,000 - 60,000 -
Into Investment Holding
ltd. 74,998 - 60,000 -
Other related parties
Misr El Mahrousa - - - 207,065
Advansys Project - - 9,499 -
Apetco Co. - - 1,115 -
Advansys Creative Solutions - - 26,212 -
AMAK for Drilling &
Petroleum Services Co. - 2,054,687 - 3,848,140
ADVANSYS FOR ENG.SERV. - 1,028 - -
& CONS
Advansys Telecom Co. - - - -
Intro for Trading & - - 29,291 -
Contracting Co.
ECDC - Free Zone 170,618 - -
Others - - 91,000 -
--------- ---------- --------- ----------
305,616 2,267,344 277,117 4,081,532
========= ========== ========= ==========
Compensation of key management personnel
The remuneration of key management personnel during the year was as follows:
USD 2017 2016
---------------------- ---------- --------
Short-term benefits 1,890,000 840,000
========== ========
Terms and conditions of transactions with related parties
Outstanding balances at the year-end are unsecured, interest free and settled in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 December 2017, the Group has not recorded any impairment of receivables relating to amounts owed by related parties (2016: USD Nil). This assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates.
26 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Overview
The Group's principal financial liabilities, comprise creditors, due to related parties, interest bearing loans and borrowings and other credit balances. The main purpose of these financial liabilities is to finance the Group's operations and to provide support to its operations. The Group's principal financial assets include cash in hand and at banks, including highly liquid investments with maturity less than 90 days, accounts receivable, due from related parties, available for sale financial assets and other receivables that arrive directly from its operations.
The Group is exposed to market risk, credit risk and liquidity risk. The Board of Directors of the Company oversees the management of these risks. The Board of Directors of the Company are supported by senior management that advises on financial risks and the appropriate financial risk governance framework for the Group. The Group's senior management provides assurance to the Board of Directors of the Group's financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with Group policies and Group risk appetite. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.
The Group has exposure to the following risks from its use of financial instruments:
a) Credit risk, b) Market risk: i. Interest rate risk ii. Foreign currency risk c) Liquidity risk.
This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital. The Group's current financial risk management framework is a combination of formally documented risk management policies in certain areas and informal risk management policies in other areas.
Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables and due from related parties) and from its financing activities, including letter of guarantees with banks, foreign exchange transactions and other financial instruments. As at 31 December 2017, the top three debtors of the Group represent 84% (2016: 66%).
Trade receivables
Customer credit risk is managed by the Group's established policy, procedures and controls relating to customer credit risk management. Credit quality of the customer is assessed based on a credit rating policy and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored.
The requirement for impairment is analysed at each reporting date on an individual basis for major clients. Additionally, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on actual incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Group does not hold collateral as security. The Group evaluates the concentration of risk with respect to trade receivables as low, as its wide number of customers operates in highly independent markets. In addition, instalment dues are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant.
Other financial assets and bank balances
Credit risk from balances with banks and financial institutions is managed by the Group's treasury department in accordance with the Group's policy. Counterparty credit limits are reviewed by the Group's Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Group's senior management. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty's failure to make payments. The Group's exposure to credit risk for the components of the consolidated statement of financial position is the carrying amounts of these assets. The Group limits its exposure to credit risk by only placing balances with international banks and reputable local banks. Management does not expect any counterparty in failing to meet its obligations.
Due from related parties
Due from related parties relates to transactions arising in the normal course of business with minimal credit risk, with a maximum exposure equal to the carrying amount of these balances.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, such as interest rate risk and currency risk. Financial instruments affected by market risk include: loans and borrowings. The Group neither designate hedge accounting or hold or issue derivative financial instruments.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's long-term debt obligations with floating interest rates.
Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on loans and borrowings. With all other variables held constant, the Group's profit is affected through the impact on floating rate borrowings, as follows:
Increase/decrease Effect on
in basis profit before
USD points income tax
------------- ------------------ ---------------
31 December
2017
USD +100 (985,126)
USD -100 985,126
31 December
2016
USD +100 (1,044,883)
USD -100 1,044,883
The Group has a short-term investment in treasury bills that is held in EGP and matured in USD. The exchange rate is secured from the Central Bank of Egypt at the breakeven level of the investment and it matured in January 2018.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group's exposure to the risk of changes in foreign exchange rates relates primarily to the Group's operating activities (when revenue or expense is denominated in a different currency from the Group's functional currency).
The following tables demonstrate the sensitivity to a reasonably possible change in USD exchange rates, with all other variables held constant. The impact on the Group's profit is due to changes in the value of monetary assets and liabilities. The Group's exposure to foreign currency changes for all other currencies is not material.
Effect on
profit before
Change in income tax
USD USD rate USD
------------- ---------- ---------------
31 December
2017
USD +10% 1,250,162
USD -10% (1,250,162)
31 December
2016
USD +10% 586,006
USD -10% (586,006)
Liquidity risk
The cash flows, funding requirements and liquidity of the Group are monitored by Group management. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of banks overdraft and bank loans. The Group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. Access to sources of funding is sufficiently available and debt maturing within 12 months can be rolled over with existing lenders.
The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments.
Financial liabilities
Less
than 3 to 1 to
3 12 5 Over
USD months months years 5 years Total
------------------------ ----------- ----------- ------------ -------- ------------
As at 31 December
2017
Interest-bearing
loans and borrowings 12,666,983 35,941,765 175,584,530 - 224,193,278
Trade and other
payables 44,802,928 7,861,315 - - 52,664,243
Due to related
parties 2,267,344 - - - 2,267,344
----------- ----------- ------------ -------- ------------
Total undiscounted
financial liabilities 59,737,255 43,803,080 175,584,530 - 279,124,865
=========== =========== ============ ======== ============
As at 31 December
2016
Interest-bearing
loans and borrowings 9,793,808 33,612,574 218,413,360 - 261,819,742
Trade and other
payables 43,805,477 7,250,448 - - 51,055,925
Due to related
parties 4,081,532 - - - 4,081,532
----------- ----------- ------------ -------- ------------
Total undiscounted
financial liabilities 57,680,817 40,863,022 218,413,360 - 316,957,199
=========== =========== ============ ======== ============
Capital management
Capital includes share capital, share application money and retained earnings.
The primary objective of the Group's capital management is to ensure that it will be able to continue as a going concern while maintaining a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group's strategy remains unchanged since inception. The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders or return capital to shareholders. The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The Group's policy is to keep the gearing ratio between 30% and 80%. However, the gearing ratio for the year is only 19% due to the funds raised from the IPO during the year in order to meet the Group's growth strategy. The Group includes within net debt, interest bearing loans and borrowings, less cash and cash equivalents, excluding discontinued operations.
USD 2017 2016
Interest - bearing loans and borrowings
(Note 19) 212,489,035 235,733,919
Cash and cash equivalents (Note
12) (136,964,417) (5,192,864)
-------------- ------------
Net debt 75,524,618 230,541,055
Total equity 318,009,698 104,908,383
-------------- ------------
Total capital 393,534,316 335,449,438
============== ============
Gearing ratio 19% 69%
27 FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments comprise financial assets and financial liabilities. Financial assets of the Group include bank balances and cash, accounts receivable, due from related parties, other receivables and available for sale financial asset. Financial liabilities of the Group include trade payables, due to related parties, loans and borrowings and other payables. The fair values of the financial assets and liabilities are not materially different from their carrying value unless stated otherwise.
28 CONTINGENT LIABILITIES AND COMMITMENTS
USD 2017 2016
-------------------------------- ----------- -----------
Contingent liabilities
Letter of guarantees (Note 15) 21,301,884 21,540,428
=========== ===========
Capital commitments
Capital commitments
Purchase agreement* 83,000,000 -
Purchase orders** 1,743,996 -
----------- -----------
Total capital commitments 84,743,996 -
=========== ===========
Contingent liabilities represents letters of guarantee issued in favour of General Authority for Investment, Petrobel Group, Egyptian General Petroleum Corporation, Petro Gulf of Suez, Suze Abu Zenima Petroleum Company (Petro Zenima) and Association Sonatrach - First Calgary Petroleum. The cover margin on such guarantees amounted to USD 3,602,290 (2016: USD 3,511,930) (Note 15).
* On 19th December 2017, the Group signed a purchase and sale agreement (PSA) with Nabors Drilling International II Limited to acquire three operating offshore jack-up rigs in the Arabian Gulf amounting to USD 83 million which is payable in a combination of cash and the Company's shares.
** Purchase orders which were submitted to the vendors but services not received as of 31 December 2017.
29 COMPARATIVE INFORMATION
USD Reported Reclassifications Reclassified
As previously balances
2016 2016
---------------------------- --------------- ------------------ -------------
General and administrative
expenses: 15,056,195 (343,089) 14,713,106
Other expenses 4,053,245 (343,089) 3,710,156
End of services cost - 101,368 101,368
Other taxes - 241,721 241,721
Current liabilities:
Trade and other payables 51,157,293 (101,368) 51,055,925
Non - current liabilities:
Provisions - 101,368 3,035,823
The reclassifications are made to improve the quality of the information presented.
The third year statement of financial position is not presented as these reclassifications have no material impact on the third year numbers.
Click on, or paste the following link into your web browser, to view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/0666I_-2018-3-18.pdf
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DMGMFMRVGRZZ
(END) Dow Jones Newswires
March 19, 2018 03:01 ET (07:01 GMT)
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