TIDMADES
RNS Number : 8853T
ADES International Holding PLC
30 March 2021
For the purpose of the Transparency Directive the Home Member
state of the issuer is the United Kingdom.
ADES International Holding PLC results for the year ended 31
December 2020
(London & Dubai, 30 March 2021) ADES International Holding
PLC ("ADES" or "the Group") , a leading oil & gas drilling and
production services provider in the Middle East and North Africa
(MENA), announces its full-year audited results for the year ended
31 December 2020 .
Summary of Financials
(US$ '000) 2020 2019 % change
----------------------------------- --------- --------- ---------
Revenue 452,109 477,758 -5.4%
----------------------------------- --------- --------- ---------
Adjusted EBITDA(1) 185,137 190,591 -2.9%
----------------------------------- --------- --------- ---------
Adjusted EBITDA Margin 40.9% 39.9% -1.1 pts
----------------------------------- --------- --------- ---------
Normalised EBITDA(2) 193,645 199,078 -2.7%
----------------------------------- --------- --------- ---------
Normalised EBITDA Margin 42.8% 41.7% 1.1 pts
----------------------------------- --------- --------- ---------
Net Profit 22,022 31,534 -30.2%
----------------------------------- --------- --------- ---------
Net Profit Margin 4.9% 6.6% -1.7 pts
----------------------------------- --------- --------- ---------
Normalised Net Profit(3) 40,038 72,714 -44.9%
----------------------------------- --------- --------- ---------
Normalised Net Profit Margin 8.9% 15.2% -6.3 pts
----------------------------------- --------- --------- ---------
Weighted Average No. of Shares 42,274 43,778
----------------------------------- --------- --------- ---------
Reported Earnings per Share (US$) 0.5 0.7 -28%
----------------------------------- --------- --------- ---------
Net Debt 651,672 606,188
----------------------------------- --------- --------- ---------
Key 2020 Financial & Operational Highlights
-- Revenue of US$ 452.1 million in 2020 compared to US$ 477.8
million in 2019, down 5% year-on-year and showcasing ADES'
resilience in the face of unprecedented challenges throughout
2020.
-- Adjusted EBITDA(1) decreased by 3% to US$ 185.1 million in
2020 from US$ 190.6 million last year, with an associated margin of
40.9% for the year compared to 39.9% in 2019.
-- Normalised EBITDA(2) , which accounts for non-recurring
charges related to COVID-19 and the Group's integration programme,
was US$ 193.6 million, down 3% versus last year. The normalised
EBITDA margin expanded to 42.8% in 2020 from 41.7% in the prior
year.
-- Backlog at year-end 2020 of US$ 929.1 million, compared to
US$ 1.3 billion as at 31 December 2019. ADES' backlog weighted
average tenor of circa 4 years matches its debt re-payment
profile.
-- Net profit of US$ 22.0 million in 2020 compared to US$ 31.5 million in 2019.
-- Normalised net profit(3) was US$ 40.0 million in 2020
compared to US$ 72.7 million in 2019, reflecting lower revenue;
higher depreciation expense resulting from the Group's increased
asset base; and higher impairment of accounts receivables and
non-current assets.
-- Operating cashflow was US$ 181 million in 2020, up from US$
178 million in 2019. The Group's free cash flow to firm FCFF
(pre-debt service) stood at an inflow of US$ 48 million compared to
an outflow of US$ 84 million last year. The significant improvement
results from a lower CAPEX and acquisition spend and the
improvement of ADES' working capital dynamics during the year.
-- Cash on hand of c. US$ 62.5 million and available undrawn
banking facilities of approximately US$ 92 million as at 31
December 2020, providing strong liquidity and headroom for the
business. Net Debt stood at US$ 651.7 million as at 31 December
2020, largely unchanged from the net debt as at 30 September 2020
and in line with management's latest guidance from December 2020
.
-- Net debt to EBITDA, one of ADES' primary bank covenants,
stood at 3.4x in 2020 , well below ADES' current covenant level of
4.25x.
-- B+ credit rating reaffirmed by S&P and Fitch Ratings during 2020.
-- Utilisation rates declined to 89% in 2020 from 97% in 2019
where a slight year-on-year improvement recorded in the first
quarter of the year was offset by lower utilisation rates as the
year progressed. Lower utilisation rates are mainly attributable to
the temporary suspensions of operations for a select number of
onshore rigs which took place earlier in the year in KSA and
Algeria. However, a number of these rigs have resumed operation,
including one onshore rig in Algeria at the end of 4Q 2020 and two
onshore rigs in KSA in early 2021.
-- Contract renewals and extensions for US$ 140 million in KSA ,
including a five-year contract renewal for ADMARINE 262, a one-year
extension for ADMARINE 261, and two consecutive contract extensions
for ADES 40, the first one for an additional six months followed by
another three-month extension.
-- The Group secured a new two-year early production facility
contract in Egypt, highlighting the Group's agility in providing
innovative solutions to its clients in the current challenging
market conditions.
-- ADES launched a second share repurchase programme in June
2020, and purchased 2.2 million treasury shares worth approximately
US$ 21.5 million as of 31 December 2020.
-- ADES achieved approximately 11.5 million-man hours in 2020
with a Recordable Injury Frequency Rate ("RIFR") of 0.31(4) , below
the IADC worldwide standard rate of 0.41.
-- Throughout 2020, ADES demonstrated impressive resilience in
the face of the COVID-19 pandemic and market volatility caused by
the fluctuating oil prices. This was a direct result of the Group's
prompt and effective response to the outbreak of COVID-19 , as well
as the solid foundations built by ADES over the years through a
carefully executed expansion and business development strategy.
(1) Adjusted EBITDA is calculated as operating profit for the
year before depreciation and amortisation, employee benefit
provision, other provisions, impairment of assets and assets under
construction and provision for impairment of trade receivables and
contract assets.
(2) Normalised EBITDA is calculated as adjusted EBITDA excluding
non-recurring charges related to a) non-recurring staff cost
related to crew overstay due to COVID-19; and b) non-recurring
integration program costs .
(3) Normalised Net Profit is calculated as net profit before
non-controlling interest after excluding non-recurring charges
from: a) non-recurring staff cost related to crew overstay due to
COVID 19; b) non-recurring integration program costs; c) one off
finance charges related to loan fees and written off prepaid
transaction costs; d) accounting adjustments related to IFRS 3
(Business Combinations) and a one-off bargain purchase gain; e)
non-cash, equity-settled share-based payment compensation from the
parent company; f) non-cash fair-value adjustments under financial
instruments; and g) non-recurring transactions.
(4) Per 200,000 working hours
Current Trading and Outlook
-- Heading into 2021, ADES is positioned to drive long-term
sustainable growth across its operations particularly as the global
economy recovers with rising vaccination rates and supported by the
strength of its business model, the resilience of the markets it
operates in, and the relative stability of oil prices which have
remained above the US$ 60/bbl mark in recent months.
-- While the direct impact of the COVID-19 pandemic on ADES'
operations has thus far been relatively limited, ADES' Crisis
Management Board (CMB) continues to closely monitor the evolving
situation. The robust health and safety protocols and business
continuity plans which were put in place at the very start of the
crisis, have been further enhanced to reflect the experience
accumulated in the last twelve months, and they continue to be
adhered to across all the Group's operations. These protocols have
proven successful in allowing the Group's operations to continue
without notable interruptions across all four of its countries of
operation.
-- Despite the difficult operating environment, ADES pressed on
with its Integration Project in 2020, and benefits are already
being realised. As at year-end 2020, EBITDA margins for the
majority of newly acquired rigs have risen from their levels at
time of acquisition and are now in line with the Group's average.
This partially supported a modest improvement in adjusted and
normalised margins for the year, with the majority of the cost
saving initiatives taking effect towards the end of 4Q 2020. The
full extent of cost savings is expected to be more evident on a
full-year basis in 2021.
-- On 8 March 2020, ADES announced an offer from Innovative
Energy Holding for the entire issued ordinary share capital of ADES
International at a price per share of US$ 12.50 payable in cash.
The Offer Price to be paid by Innovative Energy represents a
premium of approximately 40% to the Closing Price of US$ 8.95 per
ADES Share on 5 March 2021. The Offer Price values the existing
issued share capital (excluding Treasury Shares) of ADES
International at approximately US$516 million. Innovative Energy is
a newly established company that will be jointly owned by the
Public Investment Fund of Saudi Arabia, Zamil Investments, and ADES
Investments Holding with the latter to hold a majority
ownership.
Commenting on the results, Dr. Mohamed Farouk, Chief Executive
Officer of ADES International said:
"I am pleased to report that ADES closed 2020 having
successfully weathered the storm and demonstrating resilience
across all our operations during a year filled with unprecedented
challenges. This is a direct result of our efforts over the past
few years to build a sustainable, diversified and growth-oriented
business fully capable of adapting to short-term challenges while
continuing to drive long-term value creation for all stakeholders.
Our results for 2020 also reflect the success of our COVID-19
response strategy which allowed us to continue operating throughout
the crisis without compromising the wellbeing of our people and
communities.
Overall, we emerged from 2020 with our top-line largely intact,
our EBITDA margin slightly improved due to our successful cost
efficiencies and integration efforts, and we maintained a strong
financial position with an optimised capital structure. More
importantly, we proved ourselves a reliable partner for our clients
and continued to deliver our high quality and flexible service
offering during the most testing times.
We enter 2021 cautiously optimistic about the Group's prospects
for the upcoming year. While the health and economic challenges
posed by COVID-19 are not over yet, we are witnessing early-stage
signs of a recovery supported by the ramp up of the global
vaccination campaign and a general ability of countries around to
world to adapt to the new business environment brought about by the
pandemic. Moreover, oil prices have been steadily recovering and in
recent months have stabilised above the US$ 60/bbl mark. This
further reinforces our confidence that ADES is positioned for
recovery from the lows experienced during the third and fourth
quarters of the year. Our focus for the coming year remains on
actively growing our backlog by pursuing contract renewals and
tendering activity while driving further efficiency enhancements
through a continued focus on operational efficiency, synergy
extraction and digitalisation."
Enquiries
The Group's Results Presentation is available at
investors.adihgroup.com . For further information or enquiries,
please contact:
ADES International Holding
Hussein Badawy
Investor Relations Officer
ir@adesgroup.com
+2 (02) 3852 5354
About ADES International Holding (ADES)
ADES International Holding extends oil and gas drilling and
production services through its subsidiaries and is a leading
service provider in the Middle East and North Africa, offering
onshore and offshore contract drilling as well as workover and
production services. Its c.3,500 employees serve clients including
major national oil companies ("NOCs") such as Saudi Aramco and
Kuwait Oil Company as well as joint ventures of NOCs with global
majors including BP and Eni. While maintaining a superior health,
safety and environmental record, the Group currently has a fleet of
thirty-six onshore drilling rigs, thirteen jack-up offshore
drilling rigs, a jack-up barge, and a mobile offshore production
unit ("MOPU"), which includes a floating storage and offloading
unit. For more information, visit investors.adihgroup.com .
Shareholder Information
LSE: ADES INT.HDG
Bloomberg: ADES:LN
Listed: May 2017
Shares Outstanding: 43.8 million (including treasury stock)
Forward-Looking Statements
This communication contains certain forward-looking statements.
A forward-looking statement is any statement that does not relate
to historical facts and events, and can be identified by the use of
such words and phrases as "according to estimates", "aims",
"anticipates", "assumes", "believes", "could", "estimates",
"expects", "forecasts", "intends", "is of the opinion", "may",
"plans", "potential", "predicts", "projects", "should", "to the
knowledge of", "will", "would" or, in each case their negatives or
other similar expressions, which are intended to identify a
statement as forward-looking. This applies, in particular, to
statements containing information on future financial results,
plans, or expectations regarding business and management, future
growth or profitability and general economic and regulatory
conditions and other matters affecting the Group.
Forward-looking statements reflect the current views of the
Group's management ("Management") on future events, which are based
on the assumptions of the Management and involve known and unknown
risks, uncertainties and other factors that may cause the Group's
actual results, performance or achievements to be materially
different from any future results, performance or achievements
expressed or implied by these forward-looking statements. The
occurrence or non-occurrence of an assumption could cause the
Group's actual financial condition and results of operations to
differ materially from, or fail to meet expectations expressed or
implied by, such forward-looking statements.
The Group's business is subject to a number of risks and
uncertainties that could also cause a forward-looking statement,
estimate or prediction to differ materially from those expressed or
implied by the forward-looking statements contained in this
prospectus. The information, opinions and forward-looking
statements contained in this communication speak only as at its
date and are subject to change without notice. The Group does not
undertake any obligation to review, update, confirm or to release
publicly any revisions to any forward-looking statements to reflect
events that occur or circumstances that arise in relation to the
content of this communication.
Chief Executive Officer's Report
2020 was a year full of operational challenges which impacted
businesses all over the world, with the oil & gas industry
particularly affected by the economic uncertainty created by the
COVID-19 pandemic. As such, the year provided an incredibly tough
stress test for businesses in the industry, and I am proud to
report that ADES has successfully weathered the storm. Adding to
our pride is the fact that the resilience demonstrated across all
our operations over the course of 2020 comes as a direct result of
our efforts to build a sustainable, diversified and growth-oriented
business fully capable of adapting to short-term challenges while
continuing to drive long-term value creation for all stakeholders.
Our ability to overcome the transitory challenges posed by COVID-19
was also due to the effectiveness of our immediate response to the
pandemic's outbreak which saw us roll out extensive health and
safety and business continuity protocols aimed at protecting our
people and communities while safeguarding our operations.
As a business which has made health and safety the backbone of
its operation, ADES' number one focus at the start of the pandemic
was protecting our employees, partners and the communities where we
operate. Key efforts included the establishment of a Crisis
Management Board (CMB) to manage and oversee all efforts related to
COVID-19, extending crew shifts from 14 to 28 days to minimize
travel, maintaining supplies and material inventory to cover three
months of operations, and systematically monitor triggers, assess
risk and refine response actions to reflect the evolving
on-the-ground situation. I am proud to report that our holistic
response to COVID-19 proved incredibly effective, enabling us to
continue operating throughout the entire crisis without
compromising the wellbeing of our people and communities.
Resilient by Design
ADES' low-cost, cycle-proof business model is predicated on a
series of strategic pillars which provide solid foundations to
stand on when business conditions are tough, and a platform to
drive long term sustainable growth. These pillars include a
diversified asset base and geographic footprint; a lean cost
structure centred on extracting synergies and maximum value from
all our assets; high-quality client relationships, robust contracts
and predictable cash flows underpinned by a strong and diversified
backlog; prudent financial policies and conservative capital
structure, providing us with ample liquidity, headroom and
financial flexibility; and most importantly, robust HSE policies
with an exemplary safety track record. Combined with a dedicated
and experienced management team, and the resilience of the MENA oil
& gas industry, these pillars have provided and will continue
to provide the engine to drive long term sustainable growth
irrespective of the prevailing market conditions.
ADES closed the year reporting revenue of US$ 452.1 million,
down 5% from last year and demonstrating our ability to protect our
top line from the unprecedented challenges. Lower revenue for the
year came as a result of a decline in utilisation rates to 89% for
2020 from 97% in 2019, following temporary suspensions for a select
number of onshore rigs in KSA and Algeria. However, I am pleased to
note that three of the rigs have already resumed operations between
late 2020 and early 2021. Overall, we continued to maintain a
diversified revenue split between KSA (54% of revenue), Kuwait (24%
of revenue), and Egypt (19% of revenue) - all witnessing rising
contribution to the top line for the year. Meanwhile, our cost
optimisation and reduction efforts allowed us to offset the impacts
posed by the pandemic and the current market dynamics to drive
modest improvements in our normalised margin for the year. The
slight margin enhancements were also further supported by our cost
saving initiatives in light of the wider integration programme on
which we continued to make good progress despite the year's
obstacles. On the integration front, I am delighted to report that
the majority of our newer assets are now delivering EBITDA margins
in line with our more established rigs. While our efforts have
already started to deliver the desired results, we expect to
capture the full extent of the cost savings in 2021.
In parallel, we successfully leveraged our long-lasting
relationship with our client base and our ability to adapt our
service offering to best match their business needs, to renew and
extend multiple existing contracts while securing a new agreement
for a new, innovative service in Egypt. In January we first secured
a five-year contract renewal for ADMARINE 262 in KSA, and soon
followed it with a one-year contract extension for ADMARINE 261
also located in the Kingdom. Later in the year, we signed two
consecutive contract extensions for ADES 40, the first one for an
additional six months followed by another three-month
extension.
I am also particularly pleased with ADES' ability to secure new
two-year early production facility contract in Egypt in November
2020. Under the agreement, ADES will establish an early production
deck floor and top side facilities in addition to a jack-up barge
charter, leveraging on the Group's existing assets. The new
contract highlights our agility in providing innovative solutions
to our clients in the current challenging market conditions, by
facilitating early production in a shorter timeframe than it would
be possible with a fully-fledged production facility. Our ability
to offer sustainable growth avenues to our clients even during a
low oil price environment further strengthens our position as a
market leader in Egypt and coupled with the extensions and renewals
in KSA, offers greater backlog visibility heading into the new
year. Finally, ADES' ability to maintain a credit rating of B+ from
S&P and Fitch earlier during the year is testament to the
underlying solidity of our business and the Group's strong market
position.
Across our asset base, we remained committed to complying with
the highest occupational HSE standards. We ended 2020 recording a
Recordable Injury Frequency Rate ("RIFR") of 0.31, below the 2020
worldwide standard rate of 0.41 by the International Association of
Drilling Contractors ("IADC") and further improving on our rate of
0.41 in 2019. This represents a notable accomplishment in light of
the considerable health and safety challenges posed by the COVID-19
pandemic, and is proof positive that our efforts to transmit our
culture of safety and adopt HSE policies across our newer assets is
paying off. In 2021, we look forward to continuing working closely
with our leading ESG consultant to review and further develop the
Group's safety procedures as our operations and footprint
grows.
Outlook
We enter 2021 cautiously optimistic about the Group's prospects
for the upcoming year. While the health and economic challenges
posed by COVID-19 are not over yet, we are witnessing early-stage
signs of a recovery supported by the ramp up of the global
vaccination campaign and a general ability of countries around to
world to adapt to the new business environment brought about by the
pandemic. Moreover, oil prices have been steadily recovering and in
recent months have stabilised above the US$ 60/bbl mark. This
further reinforces our confidence that ADES is positioned for
recovery from the lows experienced during the third and fourth
quarters of the year
In 2021, we are looking to further build up our backlog through
contract renewals and tendering activity. I am confident that ADES'
track record of exceptional service delivery combined with the
general normalisation of business activity across the region, will
see us successfully renew and extend contracts expiring in 2021. We
are also eager to leverage our existing asset base to capture new
growth opportunities that might arise on the back of recovering oil
prices. Additionally, we are actively assessing new services to
complement our current offering and capitalise on the growth
opportunities offered by subsegments of the drilling industry
currently underpenetrated in the MENA region. As always, we will
work to further enhance efficiency and drive improvements in
profitability through a continued focus on operational efficiency,
synergy extraction and digitalisation.
I wish to thank our staff and management team whose dedication
and hard work allowed us to deliver yet another successful year
despite the unprecedented challenges. My appreciation also goes out
to our Board members whose guidance proved invaluable in helping us
navigate the uncertain times following the outbreak of COVID-19. We
look forward to continue delivering a strong and sustainable
performance as we embark on this new and exciting chapter of ADES'
growth story.
Dr. Mohamed Farouk
Chief Executive Officer
Operational & Financial Review
Revenue
Revenue decreased by 5% year-on-year in 2020 displaying ADES'
resilience in the face of unprecedented market and operational
difficulties. The decline is largely attributable to lower
utilisation rates for the year, which declined to 89% in 2020 from
97% in the prior year.
During 2020, ADES continued renewing and extending existing
contracts, while securing new awards thanks to its ability to adapt
its service offering to best match the needs of its clients during
difficult times. In January, ADES successfully secured a contract
renewal and a contract extension for two rigs in KSA. ADMARINE 262
saw its contract renewed for an additional five years at a higher
daily rate, while for ADMARINE 261 the contract was extended for an
additional year at the same daily rate. Additionally, the Group
also secured two consecutive contract extensions for ADES 40 in
KSA. The first extension was for an additional six months, with a
second three-month extension secured later in the year. In
November, the Group secured a new two-year early production
facility contract in Egypt. Under the agreement, ADES will
establish an early production deck floor and top side facilities in
addition to a jack-up barge charter, leveraging on the Group's
existing assets. The new contract highlights the Group's agility in
providing innovative solutions to its clients in the current
challenging market conditions, by facilitating early production in
a shorter timeframe than it would be possible with a fully-fledged
production facility. Finally, in early 2021, ADES secured a new
contract for Admarine V in the Gulf of Suez. The contract, secured
with a top-tier client, covers a firm six-month period with the
option to extend for an additional six months.
Revenue by Country
(US$ '000) 2020 2019 % change
------------- -------- -------- ---------
KSA 245,103 243,902 0.5%
------------- -------- -------- ---------
Kuwait 109,386 106,316 2.9%
------------- -------- -------- ---------
Egypt 84,431 87,125 -3.1%
------------- -------- -------- ---------
Algeria 13,189 40,415 -67.4%
------------- -------- -------- ---------
Total 452,109 477,758 -5.4%
------------- -------- -------- ---------
Revenue Contribution by Country
2020 2019 % change
--------------------------------- ----- ----- ---------
KSA 54% 51% 3 pts
--------------------------------- ----- ----- ---------
Kuwait 24% 22% 2 pts
--------------------------------- ----- ----- ---------
Egypt 19% 18% -1 pts
--------------------------------- ----- ----- ---------
Algeria 3% 9% -6 pts
--------------------------------- ----- ----- ---------
Backlog by Country
2020 2019 % change
-------------------- ----- ----- ---------
KSA 54% 45% 10 pts
-------------------- ----- ----- ---------
Kuwait 38% 43% -5 pts
-------------------- ----- ----- ---------
Egypt 7% 9% -2 pts
-------------------- ----- ----- ---------
Algeria 1% 3% -2 pts
-------------------- ----- ----- ---------
In KSA, the Group recorded revenue of US$ 245.1 million, in line
with last year's US$ 243.9 million. ADES' ability to protect its
top-line despite the fluctuations in oil prices and the ongoing
COVID-19 crisis, was in part due to the longer-term planning
horizons and lower susceptibility to short term oil price
fluctuations of ADES' main partner in KSA, Saudi Aramco.
Specifically, ADES' KSA revenue was supported by a successful ramp
up of operations for ADES 13 and ADES 14, and better offshore
utilisation rates in 2020 versus 2019. During the previous period,
three rigs had undergone upgrade projects for a total of 150 days
versus being almost fully operational in 2020. This helped offset
the lower onshore utilisation rates resulting from the temporary
suspension of operations for a select number of onshore rigs
towards the end of 1H 2020. It is important to note that two of the
rigs have commenced operations again at the start of 2021. Saudi
Arabia's contribution to revenue reached 54% in 2020, up three
percentage points from last year.
In Kuwait, revenue expanded 3% year-on-year to US$ 109.4
million. Growth in Kuwait is largely attributable to demobilization
revenue collected following the contract expiry of four rigs in the
first part of 2020. As such, the country's contribution to revenue
increased from 22% in 2019 to 24% in 2020.
Revenue generated in Egypt stood at US$ 84.4 million in 2020,
down 3% year-on-year from US$ 87.1 million in 2019, as utilisation
rates in the country were impacted by oil price volatility and
generally adverse market conditions. The country's contribution to
total revenue stood at 19% in 2020, largely in line with 2019.
Finally, in Algeria revenue of US$ 13.2 million in 2020 was down
67% year-on-year as challenging market dynamics and some temporary
suspensions of operations in the second half of the year weighed
significantly on operations and utilisation levels in the country.
However, one suspended rig has already recommenced operations
toward the end of 4Q 2020. In light of the small share of revenue
made up by the Group's Algerian operations, the impact on ADES'
total was minor. Algeria's contribution to revenue stood at 3% in
2020 versus 9% in 2019.
Assets by Country & Type as at 31 December 2020
Onshore Rig Offshore Rig Jack-up Barge MOPU
-------------- ------------ ------------- -------------- ----------------------------
KSA 15 6 - -
-------------- ------------ ------------- -------------- ----------------------------
Kuwait 12 - - -
-------------- ------------ ------------- -------------- ----------------------------
Egypt 1 7 1 1
-------------- ------------ ------------- -------------- ----------------------------
Algeria 8 - - -
-------------- ------------ ------------- -------------- ----------------------------
Other - - - -
-------------- ------------ ------------- -------------- ----------------------------
Total Assets 36 13 1 1
-------------- ------------ ------------- -------------- ----------------------------
Revenue by Segment
(US$ '000) 2020 2019 % change
------------------------------ -------- -------- ---------
Onshore Drilling & Workover 212,776 252,493 -15.7%
------------------------------ -------- -------- ---------
Offshore Drilling & Workover 177,430 170,257 4.2%
------------------------------ -------- -------- ---------
MOPU 25,920 25,830 0.3%
------------------------------ -------- -------- ---------
Jack Up Barge & Projects 12,844 8,415 52.6%
------------------------------ -------- -------- ---------
Other 23,138 20,762 11.4%
------------------------------ -------- -------- ---------
Total 452,109 477,758 -5.4%
------------------------------ -------- -------- ---------
Onshore Drilling & Workover (47% of revenue in 2020)
ADES' onshore fleet has been significantly expanded in recent
years with the acquisition of 31 onshore rigs during 2018 and 2019.
The Group's current fleet includes 36 rigs located in KSA, Kuwait,
Egypt, and Algeria. Revenue generated by ADES' Onshore Drilling
& Workover operations declined by 16% year-on-year to US$ 212.8
million in 2020. The decline is largely attributable to temporary
suspension of operations for a select number of the Group's onshore
rigs in Algeria and KSA. As previously mentioned, one suspended rig
in Algeria has recommenced operations in 4Q 2020, while two rigs in
KSA resumed operations in early 2021. The segment's contribution to
revenue declined to 47% in 2020 compared to 53% in 2019.
Offshore Drilling & Workover (39% of revenue in 2020)
The Group offers offshore drilling and workover services with a
focus on shallow/ultra-shallow water and non-harsh environments.
ADES' offshore fleet encompasses 13 jack-up rigs, of which seven
are located in Egypt and six in KSA.
Offshore Drilling & Workover revenue grew 4% year-on-year to
US$ 177.4 million in 2020, up from US$ 170.3 million last year.
Revenue growth was driven by a marginal improvement in offshore
utilisation rates in KSA, with three rigs having undergone upgrade
works for an aggregate total of 150 days during 2019 compared to
operating at near-full capacity in 2020. The segment's contribution
to revenue increased three percentage points to 39% in 2020.
MOPU & Jack Up Barge (9% of revenue in 2020)
ADES' MOPU services were first introduced in February 2016 with
Admarine I, a converted and modified jack-up rig equipped with
production and process facilities and a Floating Storage and
Offloading (FSO) unit. Admarine I, located in Egypt, is currently
under contract with Petrozenima to process, store and offload crude
oil.
MOPU services generated revenue of US$ 25.9 million in 2020, in
line with 2019.
The Group's jack-up barge and projects generated US$ 12.8
million in revenue compared to US$ 8.4 million in 2019. The
increase reflects the contribution from the first phase of the new
early production facility contract signed in Egypt during 2H
2020.
Other (5% of revenue in 2020)
Other revenue mainly includes catering revenue, mobilization
revenue, the rental of essential operating equipment that the
client has not supplied, and site preparation revenue. Other
revenue increased by 11% year-on-year to US$ 23.1 million from US$
20.8 million in 2019. The increase is largely attributable to
demobilization revenue realised following the expiry of four
contracts in Kuwait earlier in the year.
Operating Profit
Operating profit declined 16% year-on-year to US$ 104 million
from the US$ 124 million last year. The operating profit margin
also declined three percentage points to 23% for the year from 26%
in 2019. The decline reflects lower revenue; higher depreciation
expense on the back of the Group's increased asset base; and
impairment of accounts receivables and non-current assets.
Normalised EBITDA
Normalised EBITDA, which excludes non-recurring staff costs
related to crew overstays due to COVID-19 (US$ 5.3 million) and
non-recurring integration programme costs (US$ 3.3 million),
declined by 2.7% year-on-year to US$ 193.6 million in 2020, with an
associated margin of 42.8% versus 41.7% in 2019. The higher margin
for the year reflects the success of the Group's cost control
efforts which helped to partially mitigate the lower revenue, as
well as the ongoing successful integration of ADES' acquired
rigs.
Net Finance Charges
Reported finance charges stood at US$ 65.2 million in 2020, down
26% year-on-year from the US$ 88.7 million in 2019. The decline
reflects mainly the one-offs in 2019 related to the successful
issuance of the Group's five-year bond, loan fees and written-off
prepaid transaction costs.
Normalised net finance charges, which exclude one-off costs
increased by 6.7% year-on-year to US$ 65.2 million in 2020 versus
US$ 61.1 million in 2019. Higher finance charges reflect higher
gross borrowings as facilities were secured to provide an optimal
capital structure with the required financial flexibility and
liquidity. The Group recognised finance income of US$ 0.8 million
in 2020 compared to US$ 0.5 million in 2019.
Statutory and Normalised Net Profit
ADES reported a net profit of US$ 22.0 million in 2020, down 30%
compared to the US$ 31.5 million in 2019. It is worth noting that
both the current and comparable periods' figures include
non-recurring charges as follows:
-- non-recurring integration program costs totalling US$ 3.3 in
2020 and US$ 8.5 million in 2019;
-- one-off charges related crew overstays due to COVID-19 of US$ 5.2 million in 2020;
-- non-recuring consultancy and advisory fees of US$ 4.5 million in 2020;
-- one off finance charges related to loan fees and written off
prepaid transaction costs amounting to US$ 27.6 million in
2019;
-- accounting adjustments stemming from IFRS 3 (Business
Combinations) and a bargain purchase gain of US$ 11.9 million in
2019;
-- non-recurring transaction costs of US$ 6.4 million in 2019;
-- non-cash, equity-settled share-based payment compensation
from the Parent Company of US$ 3.8 million in 2020 and US$ 11.3
million in 2019;
-- non-cash fair-value adjustment loss under financial
instruments of US$ 1.2 million in 2020 and a gain of US$ 0.8
million in 2019.
Normalised net profit, which excludes all non-recurring charges
from 2020 and 2019 as outlined above, of US$ 40.0 million in 2020
compared to US$ 72.7 million for 2019. The decline during the year
reflects lower revenue; higher depreciation expense which increased
to US$ 62.8 million in 2020 versus US$ 51.0 million in 2019,
reflecting the growth in the Group asset base; an impairment charge
in Egypt related to trade receivables and non-current assets
totalling US$ 7.7 million in 2020 compared to a reversal of US$ 2.8
million in 2019. This is in addition to the previously mentioned
increase in finance charges of US$ 4.1 million.
Balance Sheet
Assets
Total assets stood at US$ 1.38 billion as of 31 December 2020
down from US$ 1.43 billion in the prior year. Net fixed assets were
US$ 1.012 billion at the close of the year compared to US$ 987
million as of 31 December 2019, driven mainly by normal
refurbishment and maintenance spend during the period .
Net accounts receivable stood at US$ 127.3 million as of 31
December 2020, down from US$ 130.7 million in 2019 reflecting the
improved working capital dynamics, specifically in KSA.
Cash and cash equivalents were US$ 62.5 million as of 31
December 2020 compared to US$ 119.6 million at year-end 2019.
Liabilities
ADES' total liabilities as at 31 December 2020 were US$ 929.9
million compared to US$ 978.8 million at the prior year end. The
Group's total interest-bearing loans and borrowings were US$ 714.2
million as at 31 December 2020, down from US$ 747million as at 30
June 2020 and US$ 725.8 million at the end of 2019.
Net debt stood at US$ 651.7 million as of 31 December 2020,
largely unchanged from the net debt as at 30 September 2020, as
reported, but higher than the US$ 606.2 million as of 31 December
2019. The higher net debt reflects investment in the Group's
operating asset base.
Cash Flow
Cash Flow by Activity
(US$ '000) 2020 2019 % change
--------------------------------------------- ----------- ---------- ---------
Net Cash Flow from Operating Activities 165,452 171,971 -4%
--------------------------------------------- ----------- ---------- ---------
Net Cash Flow Used in Investing Activities ( 116,739) (256,228) -54%
--------------------------------------------- ----------- ---------- ---------
Net Cash Flow Used for Financing Activities (105,825) 72,983 n/a
--------------------------------------------- ----------- ---------- ---------
Cash Flow from Operating Activities
Cash flow from operating activities declined 4% year-on-year to
US$ 165.5 million in 2020 reflecting the increase in taxes paid and
higher employee end-of-service payments, which increased from US$
6.5 million in 2019 to US$15.6 million in 2020.
Net Cash Flow Used in Investing Activities
Net cash flow used in investing activities declined 54%
year-on-year to US$ 116.7 million in 2020 compared to the US$ 256.2
million last year. Capital expenditure in 2020 included unpaid
project payments for four rigs in Kuwait that started in 2019, ADES
13 and 14 in KSA, as well as regular maintenance activity on the
existing asset base.
Net Cash Flow from Financing Activities
Net cash outflow from financing activities stood at US$ 105.8
million in 2020 compared to an inflow of US$ 72.9 million last
year. The change reflects repayments of US$ 85.3 million related to
the Group's medium-term loans and other revolving / working capital
facilities; US$ 58.3 million in interest payments; and US$ 21.5
million for the purchase of treasury stock. Meanwhile the Group
drew down on the remainder of its Alinma facility totalling US$ 64
million during 2Q 2020.
Principal Risks and Uncertainties
As in any company, ADES is exposed to risks and uncertainties
that may adversely affect its performance. The Board and senior
management agree that the principal risks and uncertainties facing
the Group include political and economic situation in Egypt,
Algeria, Kuwait and KSA and the rest of the Middle East and North
Africa region, foreign currency supply and associated risks,
changes in regulation and regulatory actions, environmental and
occupational hazards, failure to maintain the Group's high quality
standards and accreditations, failure to retain or renew contracts
with clients, failure to recruit and retain skilled personnel and
senior management, pricing pressures and decreased business
activity in the oil and gas industry, among others.
Additionally, the spread of the global COVID-19 pandemic has led
to wide economic disruptions, while global developments in oil
supply has caused further uncertainty in commodity markets. The
Group is also exposed to specific risks posed by the COVID-19
pandemic, including, but not limited to, risk of infection among
its employees, operational disruption in the case of infection on
the Group's rigs, supply-chain related risks and the ability to
acquire necessary materials and failure to mobilise crew due to
travel restrictions and lockdowns.
Going Concern
The Directors are satisfied that the Group has sufficient
resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of this report.
Accordingly, the Directors continue to adopt the going concern
basis in preparing the condensed financial statements. The Group's
Financial Statements for the year ended 31 December 2020 are
available on the Group's website at investors.adihgroup.com
Statement of Directors' Responsibilities
Each of the Directors confirms that, to the best of their
knowledge:
-- The preliminary financial information, which has been
prepared in accordance with International Financial Reporting
Standards (" IFRS "), give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group;
and
-- The preliminary announcement includes a fair summary of the
development and performance of the business and the position of the
Group.
After making enquiries, the Directors considered it appropriate
to adopt the going concern basis in preparing the consolidated
financial statements.
A list of current directors of the Company is maintained on the
Group's website at investors.adihgroup.com .
On behalf of the Board
Dr. Mohamed Farouk
Chief Executive Officer
Terms and Definitions
Adjusted EBITDA - Operating profit for the year before
depreciation and amortisation, employee benefit provision, other
provisions, impairment of assets and assets under construction and
provision for impairment of trade receivables and contract
assets.
Normalised EBITDA - Adjusted EBITDA excluding non-recurring
charges related to a) non-recurring staff cost related to crew
overstay due to COVID-19; and b) non-recurring integration program
costs.
Normalised Net profit - Net profit before non-controlling
interest after excluding non-recurring charges from: a)
non-recurring staff cost related to crew overstay due to COVID 19;
b) non-recurring integration program costs; c) one off finance
charges related to loan fees and written off prepaid transaction
costs; d) accounting adjustments related to IFRS 3 (Business
Combinations) and a one-off bargain purchase gain; e) non-cash,
equity-settled share-based payment compensation from the parent
company; f) non-cash fair-value adjustments under financial
instruments; and g) non-recurring transactions.
FCFF - Free Cash Flow to Firm calculated as cash flow from
operations (after working capital changes) less taxes paid, less
CAPEX.
Backlog - means the total amount payable to the Group during the
remaining term of an existing contract plus any optional client
extension provided for in such contract, assuming the contracted
rig will operate (and thus receive an operating day rate) for all
calendar days both in the remaining term and in the optional
extension period.
GCC - Gulf Cooperation Council.
MENA - The Middle East and North Africa.
MOPU - Mobile Operating Production Unit.
Recordable Injury Frequency Rate (RIFR) - The number of
fatalities, lost time injuries, cases or substitute work and other
injuries requiring medical treatment by a medical professional per
200,000 working hours.
KSA -The Kingdom of Saudi Arabia.
Utilisation Rate - refers to our measure of the extent to which
our assets under contract and available in the operational area are
generating revenue under client contracts. We calculate our
utilisation rate for each rig by dividing Utilisation Days by
Potential Utilisation days under a contract. Utilisation rates are
principally dependent on our ability to maintain the relevant
equipment in working order and our ability to obtain replacement
and other spare parts. Because our measure of utilisation does not
include rigs that are stacked or being refurbished or mobilised,
our reported utilisation rate does not reflect the overall
utilisation of our fleet, only of our operational, contracted
rigs.
Gross Debt - Total interest-bearing loans and borrowings.
Net Debt - Total gross debt minus cash and cash equivalents.
ADES International Holding PLC
and its Subsidiaries
CONSOLIDATED FINANCIAL STATEMENTS
31 December 2020
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2020
USD Notes 2020 2019
------------------------------------------- ------ -------------- --------------
Revenue from contract with customers 6 452,108,570 477,757,547
Cost of revenue 7 (282,344,173) (285,728,112)
-------------- --------------
GROSS PROFIT 169,764,397 192,029,435
General and administrative expenses 8 (47,395,777) (52,463,669)
End of service employment benefits 22 (5,348,358) (4,899,967)
Provision for impairment of non-current
assets 16 (5,100,062) -
(Provision) / release for impairment of
trade receivables 14 (2,558,649) 2,776,252
Provision for impairment of inventory 13 (686,478) (253,329)
Share-based payments expense 24 (3,845,870) (11,341,219)
Other provisions 22 (410,669) (1,443,181)
-------------- --------------
OPERATING PROFIT 104,418,534 124,404,322
Finance costs 9 (65,218,703) (88,702,079)
Finance income 12 801,944 512,013
Bargain purchase gain 5 - 11,877,674
Provision for impairment of investment 11 (535,000) -
Business acquisition transaction costs - (6,432,718)
Other income - 1,786,501
Other taxes (512,159) (438,716)
Other expenses (6,808,333) (2,907,204)
Fair value (loss)/ gain on derivative
financial instrument held for trade 31 (1,178,052) 771,134
-------------- --------------
PROFIT FOR THE YEAR BEFORE INCOME TAX 30,968,231 40,870,927
Income tax expense 10 (8,946,717) (9,337,365)
-------------- --------------
PROFIT FOR THE YEAR 22,021,514 31,533,562
============== ==============
Attributable to:
Equity holders of the Parent 19,621,487 28,630,013
Non-controlling interests 2,400,027 2,903,549
-------------- --------------
22,021,514 31,533,562
============== ==============
Earnings per share - basic and diluted
attributable to
equity holders of the Parent
(USD per share) 26 0.46 0.65
OTHER COMPREHENSIVE INCOME
Other comprehensive income that may be reclassified to
profit or loss in subsequent periods (net
of any tax)
Net loss on cash flow hedge 25 (838,435) (6,147,575)
-------------- --------------
OTHER COMPREHENSIVE INCOME FOR THE YEAR,
NEXT OF TAX (838,435) (6,147,575)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR,
NET OF TAX 21,183,079 25,385,987
============== ==============
Attributable to:
Equity holders of the Parent 18,783,052 22,482,438
-------------- --------------
Non-controlling interests 2,400,027 2,903,549
-------------- --------------
21,183,079 25,385,987
============== ==============
The accompanying notes 1 to 33 form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 31 December 2020
USD Notes 2020 2019
------------------------------------------ ------ -------------- --------------
ASSETS
Non-current assets
Property and equipment 16 1,011,900,526 987,216,314
Right of use assets 17 19,558,620 23,422,290
Intangible assets 18 334,671 347,304
Investment in an associate and a joint
venture 11 3,159,392 4,140,576
Trade receivables 14 57,404,688 38,947,290
Other non-current assets 1,515,406 2,858,310
-------------- --------------
Total non-current assets 1,093,873,303 1,056,932,084
-------------- --------------
Current assets
Inventories 13 47,609,141 44,820,164
Trade receivables 14 69,903,029 91,780,792
Contract assets 14 32,992,130 41,541,310
Due from related parties 27 3,602,587 4,740,918
Prepayments and other receivables 15 73,415,085 72,150,555
Bank balances and cash 12 62,488,548 119,601,159
-------------- --------------
Total current assets 290,010,520 374,634,898
-------------- --------------
TOTAL ASSETS 1,383,883,823 1,431,566,982
============== ==============
EQUITY AND LIABILITIES
Equity
Share capital 23 43,793,882 43,793,882
Share premium 23 178,746,337 178,746,337
Merger reserve 25 -6,520,807 -6,520,807
Legal reserve 25 6,400,000 6,400,000
Share-based payments reserve 24 15,187,089 11,341,219
Treasury shares 23 -24,989,266 -3,501,200
Cash flow hedge reserve 25 -6,986,010 -6,147,575
Retained earnings 238,846,906 219,225,419
-------------- --------------
Equity attributable to equity holders of
the Parent 444,478,131 443,337,275
Non-controlling interests 9,419,257 9,387,205
-------------- --------------
Total equity 453,897,388 452,724,480
-------------- --------------
Liabilities
Non-current liabilities
Loans and borrowings 20 305,304,696 322,354,493
Bonds payable 21 315,479,756 313,158,968
Lease liabilities 17 13,960,306 13,316,152
Provisions 22 16,590,477 16,375,652
Derivative financial instrument 31 6,215,471 6,584,893
Deferred mobilisation revenue 17,411,177 11,751,262
Other non-current payables - 10,988,839
-------------- --------------
Total non-current liabilities 674,961,883 694,530,259
-------------- --------------
Current liabilities
Trade and other payables 19 163,164,786 196,329,456
Loans and borrowings 20 85,696,878 83,692,835
Provisions 22 588,059 1,100,000
Due to related parties 27 57,192 58,224
Derivative financial instrument 31 5,517,637 3,131,728
-------------- --------------
Total current liabilities 255,024,552 284,312,243
-------------- --------------
Total liabilities 929,986,435 978,842,502
-------------- --------------
TOTAL EQUITY AND LIABILITIES 1,383,883,823 1,431,566,982
============== ==============
The accompanying notes 1 to 33 form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OFCHANGES IN EQUITY
For the year ended 31 December 2020
Share
based Cash Non-
flow
Share Share Merger Legal payment hedge Treasury Retained controlling Total
USD capital premium reserve reserve reserve reserve shares earnings Total interests equity
--------------- ----------- ------------ ------------ ---------- ----------- ------------ ------------- ------------ ------------- ------------ -------------
Balance at 1
January
2020 43,793,882 178,746,337 (6,520,807) 6,400,000 11,341,219 (6,147,575) (3,501,200) 219,225,419 443,337,275 9,387,205 452,724,480
Dividends
(Note
32) - - - - - - - - - (2,367,975) (2,367,975)
Profit for the
year - - - - - - - 19,621,487 19,621,487 2,400,027 22,021,514
Other
comprehensive
income
for the year - - - - - (838,435) - - (838,435) - (838,435)
----------- ------------ ------------ ---------- ----------- ------------ ------------- ------------ ------------- ------------ -------------
Total
comprehensive
income
for the year - - - - - (838,435) - 19,621,487 18,783,052 2,400,027 21,183,079
Treasury
shares
(Note 23) - - - - - - (21,488,066) - (21,488,066) - (21,488,066)
Investment in - - - - - - - - - - -
a subsidiary
Share-based
payments
(Note 24) - - - - 3,845,870 - - - 3,845,870 - 3,845,870
----------- ------------ ------------ ---------- ----------- ------------ ------------- ------------ ------------- ------------ -------------
Balance at 31
December 2020 43,793,882 178,746,337 (6,520,807) 6,400,000 15,187,089 (6,986,010) (24,989,266) 238,846,906 444,478,131 9,419,257 453,897,388
=========== ============ ============ ========== =========== ============ ============= ============ ============= ============ =============
Balance at 1
January
2019 43,793,882 178,746,337 (6,520,807) 6,400,000 - - - 190,595,406 413,014,818 8,413,319 421,428,137
Dividends
(Note
32) - - - - - - - - - (1,934,284) (1,934,284)
Profit for the
year - - - - - - - 28,630,013 28,630,013 2,903,549 31,533,562
Other
comprehensive
income
for the year - - - - - (6,147,575) - - (6,147,575) - (6,147,575)
----------- ------------ ------------ ---------- ----------- ------------ ------------- ------------ ------------- ------------ ---------------
Total
comprehensive
income
for the year - - - - - (6,147,575) - 28,630,013 22,482,438 2,903,549 25,385,987
Treasury
shares
(Note 23) - - - - - - (3,501,200) - (3,501,200) - (3,501,200)
Investment in
a subsidiary - - - - - - - - - 4,621 4,621
Share-based
payments
(Note 24) - - - - 11,341,219 - - - 11,341,219 - 11,341,219
----------- ------------ ------------ ---------- ----------- ------------ ------------- ------------ ------------- ------------ ---------------
Balance at 31
December 2019 43,793,882 178,746,337 (6,520,807) 6,400,000 11,341,219 (6,147,575) (3,501,200) 219,225,419 443,337,275 9,387,205 452,724,480
=========== ============ ============ ========== =========== ============ ============= ============ ============= ============ ===============
The accompanying notes 1 to 33 form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2020
USD Notes 2020 2019
---------------------------------------------- ------ -------------- --------------
OPERATING ACTIVITIES
Profit for the year before income tax 30,968,231 40,870,927
Adjustments for:
Depreciation of property and equipment 16 57,577,667 45,555,024
Amortisation of intangible assets 18 141,582 121,861
Amortisation of right of use assets 17 5,048,698 5,348,361
Impairment of non-current assets 16 5,100,062 -
Loss on sale of asset 361,898 -
Provision / (release) for impairment
of trade receivables and
contract assets 14 2,558,649 (2,776,252)
Provision for impairment of inventory 13 686,478 253,329
Provision for impairment of investment 11 535,000 -
End of service employment benefits 22 5,348,358 4,899,967
Share-based payments expense 24 3,845,870 11,341,219
Other provisions 22 410,669 1,443,181
Interest on loans and borrowings 9 65,218,703 88,702,079
Finance income 12 (801,944) (512,013)
Other income - (527,344)
Bargain purchase gain 5 - (11,877,674)
Share of results of investment in a
joint venture and associate 11 446,184 (774,898)
Fair value loss on derivative financial
instrument 31 1,178,052 (771,134)
-------------- --------------
Cash from operations before working capital
changes 178,624,157 181,296,633
Inventories (4,241,600) (4,692,539)
Trade receivables (1,134,623) (33,371,207)
Contract assets 8,549,180 (5,171,661)
Due from related parties 1,138,331 (4,363,573)
Prepayments and other receivables 310,688 (24,493,097)
Trade and other payables (2,076,001) 69,304,116
Due to related parties (1,032) 2,118
-------------- --------------
Cash flows from operations 181,169,100 178,510,790
Income tax paid 10 (9,660,529) (2,837,570)
Provisions paid 22 (6,056,143) (3,701,740)
-------------- --------------
Net cash flows from operating activities 165,452,428 171,971,480
-------------- --------------
INVESTING ACTIVITIES
Purchase of intangible assets 18 (23,250) -
Purchase of property and equipment (117,629,564) (179,326,324)
Proceeds from sale of property and equipment 111,378 -
Acquisitions of subsidiaries and new
rigs - (76,237,278)
Interest received 12 801,944 512,013
Investment in joint venture - (1,181,295)
Proceeds from non-controlling interest
share of capital at establishment date - 4,621
-------------- --------------
Net cash flows used in investing activities (116,739,492) (256,228,263)
-------------- --------------
FINANCING ACTIVITIES
Proceeds from loans and borrowings 20 67,377,226 179,493,220
Repayment of loans and borrowings 20 (85,336,755) (351,018,420)
Proceeds from bond issuance - 325,000,000
Payments of loan/bonds transaction costs - (11,841,033)
Purchase of treasury shares 23 (21,488,066) (3,501,200)
Interest paid (58,329,222) (56,269,830)
Payment of lease liabilities 17 (5,680,755) (6,945,750)
Dividend payments 32 (2,367,975) (1,934,284)
-------------- --------------
Net cash flows (used in) from financing
activities (105,825,547) 72,982,703
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (57,112,611) (11,274,080)
Cash and cash equivalents at the beginning
of the year 12 119,601,159 130,875,239
-------------- --------------
CASH AND CASH EQUIVALENTS AT THE
OF THE YEAR 12 62,488,548 119,601,159
============== ==============
The accompanying notes 1 to 33 form an integral part of these
consolidated financial statements.
1 BACKGROUND
1.1 Corporate information
ADES International Holding PLC (the "Company" or the "Parent
Company") was incorporated and registered in the Dubai
International Financial Centre (DIFC) on 22 May 2016 with
registered number 2175 under the Companies Law - DIFC Law No. 2 of
2009 (and any regulations thereunder) as a private company limited
by shares. The Company's shares are listed on the Main Market of
the London Stock Exchange. The Company's name has changed from ADES
International Holding Ltd to ADES International Holding PLC during
2019. The Company's registered office is at level 5, Index tower,
Dubai International Financial Centre, PO Box 507118, Dubai, United
Arab Emirates. The principal business activity of the Company is to
act as a holding company and managing office. The Company and its
subsidiaries (see below) constitute the Group (the "Group"). The
Company is owned by ADES Investments Holding Ltd., a company
incorporated on 22 May 2016 under the Companies Law, DIFC Law no. 2
of 2009, which is the majority shareholder and ultimate controlling
party.
The consolidated financial statements were authorised for issue
on 28 March 2021 by the Board of Directors.
The Group is a leading oil and gas drilling and production
services provider in the Middle East and Africa. The Group services
primarily include offshore and onshore contract drilling and
production services. The Group currently operates in Egypt,
Algeria, Kuwait and the Kingdom of Saudi Arabia. The Group's
offshore services include drilling and workover services and Mobile
Offshore Production Unit (MOPU) production services, as well as
accommodation, catering and other barge-based support services. The
Group's onshore services primarily encompass drilling and work over
services. The Group also provides projects services (outsourcing
various operating projects for clients, such as maintenance and
repair services).
The consolidated financial statements of the Group include
activities of the following main subsidiaries:
Country % equity interest
of incorporation
---------------------------- ---------------------------------- ------------------- ---------------------------
Name Principal activities 2020 2019
---------------------------- ---------------------------------- ------------------- ------------------ -------
Advanced Energy Systems Oil and gas drilling and
(ADES) (S.A.E)* production services Egypt 100% 100%
ADES Saudi Limited Oil and gas drilling and KSA 100% N/A
Company* production services
Precision Drilling
Company** Holding company Cyprus 100% 100%
Kuwait Advanced Drilling
Services Leasing of rigs Cayman 100% 100%
Prime innovations for
Trade S.A.E Trading Egypt 100% 100%
ADES International
for Drilling Leasing of rigs Cayman 100% 100%
ADES-GESCO Training
Academy Training Egypt 70% 70%
Advanced Transport Leasing of transportation
Services equipment Cayman 100% 100%
Advanced Drilling Services Trading Cayman 100% 100%
ADES Holding for Drilling Investment in Oil & Gas Projects UAE 100% N/A
Services Ltd***
---------------------------- ---------------------------------- ------------------- ------------------ ---------
* Advanced Energy Systems (ADES) (S.A.E) has branches in
Algeria, UAE and Iraq. In 2020 ADES S.A.E converted its branch in
KSA to a limited liability company - ADES Saudi Limited
Company.
** Precision Drilling Company holds a 47.5% interest in United
Precision Drilling Company W.L.L, a Kuwait entity which handles the
operations of the rigs in Kuwait.
*** ADES Holding for Drilling Services Ltd has set up a branch
in Tunisia in 2020.
The Company holds investment in Egyptian Chinese Drilling
Company (ECDC) (joint venture) and ADVantage for Drilling Services
Company (associate) which are accounted for using the equity method
of accounting in these consolidated financial statements.
2 SIGNIFICANT ACCOUNTING POLICIES
2.1 BASIS OF PREPARATION
The consolidated financial statements have been prepared under
the historical cost basis, except for derivative financial
instrument carried at fair value which includes interest rate swap
contracts classified as held-for-trading and those designated as
hedging instrument. Historical cost is generally based on the fair
value of the consideration given in exchange for goods and
services.
The Group's financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB)
and applicable requirements of the Companies Law pursuant to DIFC
Law No. 5 of 2018.
The consolidated financial statements are presented in United
States Dollars ("USD"), which is the functional currency of the
Parent Company and the presentation currency for the Group.
Basis of consolidation
The Group's consolidated financial statements comprise the
financial statements of the Parent Company and its subsidiaries as
at 31 December 2020. Control is achieved when the Group is exposed,
or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its
power over the investee. Specifically, the Group controls an
investee if, and only if, the Group has:
(a) Power over the investee (i.e. existing rights that give it
the current ability to direct the relevant activities of the
investee)
(b) Exposure, or rights, to variable returns from its involvement with the investee, and
(c) The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting
rights results in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights of
an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee,
including:
(a) The contractual arrangement with the other vote holders of the investee
(b) Rights arising from other contractual arrangements
(c) The Group's voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
Profit or loss and each component of other comprehensive income
(OCI) are attributed to the equity holders of the Parent Company
and to the non-controlling interests, even if this results in the
non-controlling interests having a deficit balance. When necessary,
adjustments are made to the consolidated financial statements of a
member in the Group to bring its accounting policies in line with
the Group's accounting policies. All intra-group assets and
liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full on
consolidation. Subsidiaries are fully consolidated from the date of
acquisition or incorporation, being the date on which the Group
obtains control, and continue to be consolidated until the date
when such control ceases. The Consolidated financial statements of
the subsidiaries are prepared for the same reporting period as the
Group, using consistent accounting policies.
A change in the ownership interest of a subsidiary, without a
loss of control, is accounted for as an equity transaction. If the
Group loses control over a subsidiary, it:
- Derecognises the assets (including goodwill) and liabilities of the subsidiary
- Derecognises the carrying amount of any non-controlling interests
- Derecognises the cumulative translation differences recorded in equity
- Recognises the fair value of the consideration received
- Recognises the fair value of any investment retained
- Recognises any surplus or deficit in profit or loss
- Reclassifies the parent's share of components previously
recognised in OCI to profit or loss or retained earnings, as
appropriate, as would be required if the Group had directly
disposed of the related assets or liabilities
Business combinations and acquisition of non-controlling
interests
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, which is measured at acquisition
date fair value, and the amount of any non-controlling interests in
the acquiree. For each business combination, the Group elects
whether to measure the non-controlling interests in the acquiree at
fair value or at the proportionate share of the acquiree's
identifiable net assets. Acquisition-related costs are expensed as
incurred and included in the 'administrative expenses'
line-item.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date.
This includes the separation of embedded derivatives in host
contracts by the acquiree.
Contingent consideration, resulting from business combinations,
is measured at fair value at the acquisition date. Contingent
consideration classified as equity is not remeasured and its
subsequent settlement is accounted for within equity. Contingent
consideration classified as an asset or liability that is a
financial instrument and within the scope of IFRS 9 Financial
Instruments , is measured at fair value with the changes in fair
value recognised in profit or loss in accordance with IFRS 9. Other
contingent consideration that is not within the scope of IFRS 9 is
measured at fair value at each reporting date with changes in fair
value recognised in profit or loss.
Goodwill is initially measured at cost (being the excess of the
aggregate of the consideration transferred and the amount
recognised for non-controlling interests and any previous interest
held over the net identifiable assets acquired and liabilities
assumed). If the fair value of the net assets acquired is in excess
of the aggregate consideration transferred, the Group re-assesses
whether it has correctly identified all of the assets acquired and
all of the liabilities assumed and reviews the procedures used to
measure the amounts to be recognised at the acquisition date. If
the reassessment still results in an excess of the fair value of
net assets acquired over the aggregate consideration transferred,
then the gain is recognised in profit or loss as a 'bargain
purchase gain'.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group's cash-generating
units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree
are assigned to those units.
Where goodwill has been allocated to a cash-generating unit
(CGU) and part of the operation within that unit is disposed of,
the goodwill associated with the disposed operation is included in
the carrying amount of the operation when determining the gain or
loss on disposal. Goodwill disposed in these circumstances is
measured based on the relative values of the disposed operation and
the portion of the cash-generating unit retained.
A contingent liability recognised in a business combination is
initially measured at its fair value. Subsequently, it is measured
at the higher of the amount that would be recognised in accordance
with the requirements for provisions in IAS 37 Provisions,
Contingent Liabilities and Contingent Assets or the amount
initially recognised less (when appropriate) cumulative
amortisation recognised in accordance with the requirements for
revenue recognition.
Business combination involving entities under common control
Transactions involving entities under common control where the
transaction does not have any substance, the Group adopts the
pooling of interest method. Under the pooling of interest method,
the carrying value of assets and liabilities are used to account
for these transactions. No goodwill is recognised as a result of
the combination. The only goodwill recognised is any existing
goodwill relating to either of the combining entities. Any
difference between the consideration paid and the carrying value of
net assets acquired is reflected as "Reserve" within equity.
A number of factors are considered in evaluating whether the
transaction has substance, including the following:
-- the purpose of transaction;
-- the involvement of outside parties in the transaction, such
as non-controlling interests or other third parties;
-- whether or not the transactions are conducted at fair values;
-- the existing activities of the entities involved in the transaction; and
-- whether or not it is bringing entities together into a
"reporting entity" that did not exist before.
Periods prior to business combination involving entities under
common control are not restated.
Interest in joint ventures and associates
An associate is an entity over which the Group has significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee but is not
control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the
parties that have joint control of the arrangement have rights to
the net assets of the joint venture. Joint control is the
contractually agreed sharing of control of an arrangement, which
exists only when decisions about the relevant activities require
the unanimous consent of the parties sharing control.
The considerations made in determining joint control are similar
to those necessary to determine control over subsidiaries.
The Group's investments in the joint venture and associate are
both accounted for using the equity method. Under the equity
method, the investment is initially recognised at cost. The
carrying amount of the investment is adjusted to recognise changes
in the Group's share of net assets of the investee since the
acquisition date. Goodwill relating to the joint venture or
associate is included in the carrying amount of the investment and
is not tested for impairment separately.
The consolidated profit or loss reflects the Group's share of
the results of operations of the joint venture and associate. Any
change in the other comprehensive income (OCI) of those investees
is presented as part of the Group's OCI. In addition, when there
has been a change recognised directly in the equity of the joint
venture or associate, the Group recognises its share of any
changes, when applicable, directly in the statement of changes in
equity. Unrealised gains and losses resulting from transactions
between the Group and the joint venture or associate are eliminated
to the extent of the interest in the joint venture or associate
unrelated to the Group.
The aggregate of the Group's share of profit or loss of a joint
venture and associate is included in profit or loss on the face of
the consolidated statement of comprehensive income outside
operating profit and represents profit or loss after tax and
non-controlling interests in the subsidiaries of the joint venture
or associate.
The financial statements of the joint venture and associate are
prepared for the same reporting period as the Group. When
necessary, adjustments are made to bring their accounting policies
in line with those of the Group.
After application of the equity method, the Group determines
whether it is necessary to recognise an impairment loss on its
investment in joint venture or associate. At each reporting date,
the Group determines whether there is objective evidence that the
investment in the joint venture or associate is impaired. If there
is such evidence, the Group calculates the amount of impairment as
the difference between the recoverable amount of the joint venture
or associate and its carrying value, and then recognises the loss
as 'Share of profit of an associate and a joint venture' in the
consolidated statement of profit or loss.
Upon loss of joint control over a joint venture or significant
influence over an associate, the Group measures and recognises any
retained investment at its fair value. Any difference between the
carrying amount of the joint venture or associate upon loss of
joint control or significant influence, and the fair value of the
retained investment and proceeds from disposal is recognised in
profit or loss.
2.2 CHANGES IN THE ACCOUNTING POLICIES AND DISCLOSURES
(a) New and amended standards and interpretations became effective during the year
- The Group applied for the first-time certain standards and
amendments, which are effective for annual periods beginning on or
after 1 January 2020. The Group has not early adopted any other
standard, interpretation or amendment that has been issued but is
not yet effective.
The application of these new standards, interpretation and
amendment did not have a material impact on the annual consolidated
financial statements of the Group. These new standards,
interpretations and amendments are listed below:
-- Amendments to IFRS 3: Definition of a Business
-- Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate
Benchmark Reform
-- Amendments to IAS 1 and IAS 8 Definition of Material
-- Conceptual Framework for Financial Reporting
-- Amendments to IFRS 16 Covid-19 Related Rent Concession
b) Standards, amendments and interpretations in issue but not effective
The relevant standards, interpretations and amendments that are
issued, but not yet effective, up to the date of issuance of the
Group's financial statements are disclosed below. The management
intends to adopt these standards, if applicable, when they become
effective.
Effective for
annual periods
beginning
Standards, interpretation and amendments on or after
Insurance Contracts - IFRS 17 1 January 2023
Amendments to IFRS 3 Business Combinations 1 January 2022
Amendments to IAS 1 - Classification of Liabilities
as Current or Non-current 1 January 2023
Amendments to IAS 16 Property, Plant and Equipment 1 January 2022
Amendments to IAS 37 - Costs of Fulfilling a Contract 1 January 2022
Annual improvements to IFRS 1, IFRS 9 and IAS 41 1 January 2022
Management anticipates that the adoption of standards issued but
not yet effective will have no material impact on the consolidated
financial statements of the Group.
2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Current versus non-current classification
The Group presents assets and liabilities in the consolidated
statement of financial position based on current/non-current
classification. An asset is current when it is:
-- Expected to be realised or intended to be sold or consumed in the normal operating cycle;
-- Held primarily for the purpose of trading;
-- Expected to be realised within twelve months after the reporting period; or
-- Cash or cash equivalent unless restricted from being
exchanged or used to settle a liability for at least twelve months
after the reporting period.
All other assets are classified as non-current.
A liability is current when:
-- It is expected to be settled in the normal operating cycle;
-- It is held primarily for the purpose of trading;
-- It is due to be settled within twelve months after the reporting period;
Or
-- There is no unconditional right to defer the settlement of
the liability for at least twelve months after the reporting
period.
The Group classifies all other liabilities as non-current.
Revenue recognition
The Group recognises revenue from contracts with customers based
on a five-step model as set out in IFRS 15.
Step 1. Identify contract(s) with a customer: A contract is
defined as an agreement between two or more parties that creates
enforceable rights and obligations and sets out the criteria for
every contract that must be met.
Step 2. Identify performance obligations in the contract: A
performance obligation is a promise in a contract with a customer
to transfer a good or service to the customer.
Step 3 Determine the transaction price: The transaction price is
the amount of consideration to which the Group expects to be
entitled in exchange for transferring promised goods or services to
a customer, excluding amounts collected on behalf of third
parties.
Step 4. Allocate the transaction price to the performance
obligations in the contract: For a contract that has more than one
performance obligation, the Group allocates the transaction price
to each performance obligation in an amount that depicts the amount
of consideration to which the Group expects to be entitled in
exchange for satisfying each performance obligation.
Step 5. Recognise revenue when (or as) the Group satisfies a
performance obligation.
The Group satisfies a performance obligation and recognises
revenue over time, if one of the following criteria is met:
a) The Group's performance does not create an asset with an
alternate use to the Group and the Group has as an enforceable
right to payment for performance completed to date.
b) The Group's performance creates or enhances an asset that the
customer controls as the asset is created or enhanced.
c) The customer simultaneously receives and consumes the
benefits provided by the Group's performance as the Group
performs.
For performance obligations where one of the above conditions
are not met, revenue is recognised at the point in time at which
the performance obligation is satisfied.
When the Group satisfies a performance obligation by delivering
the promised goods or services it creates a contract-based asset on
the amount of consideration earned by the performance. Where the
amount of consideration received from a customer exceeds the amount
of revenue recognised this gives rise to a contract liability.
Revenue is measured at the fair value of the consideration
received or receivable, taking into account contractually defined
terms of payment and excluding taxes and duty. The Group assesses
its revenue arrangements against specific criteria to determine if
it is acting as principal or agent.
Revenue is recognised to the extent it is probable that the
economic benefits will flow to the Group and the revenue and costs,
if applicable, can be measured reliably.
Based on the assessment of the customer contracts, the Group has
identified one performance obligation for each of its contracts and
therefore revenue is recognised over time. Some of the customer
contracts may include mobilization and demobilisation activities
for which revenue, along with the related cost are amortised over
the period of contract life from the date of the completion of
mobilization activities.
Dividends
Revenue is recognised when the Group's right to receive the
payment is established, which is generally when shareholders
approve the dividend.
Interest income
Interest income is recognised as the interest accrues using the
effective interest rate method, under which the rate used exactly
discounts, estimated future cash receipts through the expected life
of the financial asset to the net carrying amount of the financial
asset.
Contract balances
Contract assets
A contract asset is the right to consideration in exchange of
goods or services transferred to the customer. If the Group
performs by transferring goods or services to a customer before the
customer pays consideration or before payment is due, a contract
asset is recognised for earned consideration that is
conditional.
Trade receivables
A receivable represents the Group's right to an amount of
consideration that is unconditional (i.e., only the passage of time
is required before the payment of the consideration is due). Refer
to the accounting policies of financial assets in section financial
instruments - initial recognition and subsequent measurement.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use or
sale are capitalised as part of the cost of the asset. All other
borrowing costs are expensed in the period in which they incurred.
Borrowing costs consist of interest and other costs that an entity
incurs in connection with the borrowing of funds.
Cash and cash equivalents
Cash and cash equivalents in the statement of financial position
comprise cash at banks and on hand and short-term deposits with a
maturity of three months or less, which are subject to an
insignificant risk of changes in value. For the purpose of the
consolidated statement of cash flows, cash and cash equivalents
consist of cash and short-term deposits, as defined above.
Income tax
Current income tax assets and liabilities are measured at the
amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted, at the
reporting date in the countries where the Group operates and
generates taxable income. Management periodically evaluates
positions taken in the tax returns with respect to situations in
which applicable tax regulations are subject to interpretation and
establishes provisions where appropriate. The Group is not subject
to income tax in accordance with the Egyptian tax law (Egypt) and
DIFC law (UAE). The Group's branches and subsidiaries are subject
to income tax and withholding tax in accordance to Kingdom of Saudi
Arabia Law, Algeria Law, and Kuwait Law.
Deferred tax
Deferred tax is provided using the liability method on temporary
differences between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes at the
reporting date. Deferred tax liabilities are recognised for all
taxable temporary differences, except:
-- When the deferred tax liability arises from the initial
recognition of goodwill or an asset or liability in a transaction
that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable
profit or loss
-- In respect of taxable temporary differences associated with
investments in subsidiaries, associates and interests in joint
arrangements, when the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future
Deferred tax assets are recognised for all deductible temporary
differences, the carry forward of unused tax credits and any unused
tax losses. Deferred tax assets are recognised to the extent that
it is probable that taxable profit will be available against which
the deductible temporary differences, and the carry forward of
unused tax credits and unused tax losses can be utilised,
except:
-- When the deferred tax asset relating to the deductible
temporary difference arises from the initial recognition of an
asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss
-- In respect of deductible temporary differences associated
with investments in subsidiaries, associates and interests in joint
arrangements, deferred tax assets are recognised only to the extent
that it is probable that the temporary differences will reverse in
the foreseeable future and taxable profit will be available against
which the temporary differences can be utilized
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised. Unrecognised
deferred tax assets are re-assessed at each reporting date and are
recognised to the extent that it has become probable that future
taxable profits will allow the deferred tax asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
reporting date.
Foreign currencies
The Group's consolidated financial statements are presented in
USD, which is also the Company's functional currency. For each
entity, the Group determines the functional currency and items
included in the financial statements of each entity are measured
using that functional currency. The Group uses the direct method of
consolidation and on disposal of a foreign operation, the gain or
loss that is reclassified to profit or loss reflects the amount
that arises from using this method.
Transactions and balances
Transactions in foreign currencies are initially recorded by the
Group's entities at their respective functional currency spot rates
at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot rates of
exchange at the reporting date.
Differences arising on settlement or translation of monetary
items are recognised in profit or loss with the exception of
monetary items that are designated as part of the hedge of the
Group's net investment in a foreign operation. These are recognised
in OCI until the net investment is disposed of, at which time, the
cumulative amount is reclassified to profit or loss. Tax charges
and credits attributable to exchange differences on those monetary
items are also recorded in OCI.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates at
the dates of the initial transactions. Non-monetary items measured
at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value is determined. The
gain or loss arising on translation of non-monetary items measured
at fair value is treated in line with the recognition of the gain
or loss on the change in fair value of the item (i.e., translation
differences on items whose fair value gain or loss is recognised in
OCI or profit or loss are also recognised in OCI or profit or loss,
respectively).
In determining the spot exchange rate to use on initial
recognition of the related asset, expense or income (or part of it)
on the derecognition of a non-monetary asset or non-monetary
liability relating to advance consideration, the date of the
transaction is the date on which the Group initially recognises the
non-monetary asset or non-monetary liability arising from the
advance consideration. If there are multiple payments or receipts
in advance, the Group determines the transaction date for each
payment or receipt of advance consideration.
Inventories
Inventories are initially measured at cost and subsequently at
lower of cost using weighted average method or net realisable
value.
Property and equipment
Assets under construction, property and equipment are stated at
cost, net of accumulated depreciation and/or accumulated impairment
losses, if any. Such cost includes the cost of replacing parts of
the property and equipment and borrowing costs for long-term
construction projects if the recognition criteria are met. When
significant parts of property and equipment are required to be
replaced at intervals, the Group recognises such parts as
individual assets with specific useful lives and depreciates them
accordingly. Likewise, when a major inspection is performed, its
cost is recognised in the carrying amount of the plant and
equipment as a replacement if the recognition criteria are
satisfied. All other repair and maintenance costs are recognised in
the profit or loss as incurred.
Depreciation is calculated on a straight-line basis over the
estimated useful lives of the assets as follows:
Years
Rigs 27
Mobile Offshore Production Unit (MOPU) 5
Furniture and fixtures 10
Drilling pipes 5
Tools 10
Office premises 20
Computers and equipment 5
Motor vehicles 5
Leasehold improvements 5
Rigs include overhaul, environment and safety costs that are
capitalised and depreciated over 5 years. No depreciation is
charged on assets under construction. The useful lives and
depreciation method are reviewed annually to ensure that the method
and period of depreciation are consistent with the expected pattern
of economic benefits from these assets. Any change in estimated
useful life is applied prospectively effective from the beginning
of year. Expenditure incurred to replace a component of an item of
property and equipment that is accounted for separately is
capitalised and the carrying amount of the component that is
replaced is written off. Other subsequent expenditure is
capitalised only when it increases future economic benefits of the
related item of property and equipment. All other expenditure is
recognised in the consolidated statement of profit or loss as the
expense is incurred.
Property and equipment are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of property and equipment may not be recoverable.
Whenever the carrying amount of property and equipment exceeds
their recoverable amount, an impairment loss is recognised in the
consolidated statement of profit or loss. The recoverable amount is
the higher of fair value less costs to sell of property and
equipment and the value in use. The fair value is the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date. While value in use is the present value of
estimated future cash flows expected to arise from the continuing
use of property and equipment and from its disposal at the end of
its useful life.
Reversal of impairment losses recognised in the prior years are
recorded when there is an indication that the impairment losses
recognised for the property and equipment no longer exist or have
reduced.
An item of property and equipment is derecognised upon disposal
or when no further economic benefits are expected from its use or
disposal. Any gain or loss arising on de recognition is included in
the consolidated statement of profit or loss.
Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. After initial recognition, intangible assets
are carried at cost less any accumulated amortisation and any
accumulated impairment losses. Internally generated intangible
assets are not capitalised and expenditure is reflected in the
consolidated profit and loss in the year in which the expenditure
is incurred. The useful lives of intangible assets are assessed as
either finite or indefinite. Intangible assets with finite lives
are amortised over the useful economic life and assessed for
impairment whenever there is an indication that the intangible
asset may be impaired. The amortisation period and the amortisation
method for an intangible asset with a finite useful life is
reviewed at least at each financial year end. Intangible assets are
amortised using the straight-line method over their estimated
useful lives (5 years).
Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as
subsequently measured at amortised cost, fair value through other
comprehensive income (OCI), and fair value through profit or
loss.
The classification of financial assets at initial recognition
depends on the financial asset's contractual cash flow
characteristics and the Group's business model for managing them.
With the exception of trade receivables and contract assets that do
not contain a significant financing component or for which the
Group has applied the practical expedient, the Group initially
measures a financial asset at its fair value plus, in the case of a
financial asset not at fair value through profit or loss,
transaction costs. Trade receivables and contract assets that do
not contain a significant financing component or for which the
Group has applied the practical expedient are measured at the
transaction price determined under IFRS 15.
In order for a financial asset to be classified and measured at
amortised cost or fair value through OCI, it needs to give rise to
cash flows that are 'solely payments of principal and interest
(SPPI) on the principal amount outstanding. This assessment is
referred to as the SPPI test and is performed at an instrument
level.
The Group's business model for managing financial assets refers
to how it manages its financial assets in order to generate cash
flows. The business model determines whether cash flows will result
from collecting contractual cash flows, selling the financial
assets, or both.
Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention
in the market place (regular way trades) are recognised on the
trade date, i.e., the date that the Group commits to purchase or
sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are
classified in four categories:
-- Financial assets at amortised cost (debt instruments)
-- Financial assets at fair value through OCI with recycling of
cumulative gains and losses (debt instruments)
-- Financial assets designated at fair value through OCI with no
recycling of cumulative gains and losses upon derecognition (equity
instruments)
-- Financial assets at fair value through profit or loss
The Group's financial assets at amortised cost include trade and
other receivables, due from related parties and cash and bank
balances. The Group does not have financial assets at fair value
through OCI or through profit or loss.
Financial assets at amortised cost (debt instruments)
This category is the most relevant to the Group. The Group
measures financial assets at amortised cost if both of the
following conditions are met:
-- The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows; and
-- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss when
the asset is derecognised, modified or impaired.
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group's consolidated statement
of financial position) when:
-- The rights to receive cash flows from the asset have expired; or
-- The Group has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a
'pass-through' arrangement and either (a) the Group has transferred
substantially all the risks and rewards of the asset, or
-- The Group has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control
of the asset.
When the Group has transferred its rights to receive cash flows
from an asset or has entered into a pass- through arrangement, it
evaluates if, and to what extent, it has retained the risks and
rewards of ownership. When it has neither transferred nor retained
substantially all of the risks and rewards of the asset, nor
transferred control of the asset, the Group continues to recognise
the transferred asset to the extent of its continuing involvement.
In that case, the Group also recognises an associated liability.
The transferred asset and the associated liability are measured on
a basis that reflects the rights and obligations that the Group has
retained.
Continuing involvement that takes the form of a guarantee over
the transferred asset is measured at the lower of the original
carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
Impairment of financial assets
The Group recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through
profit or loss. ECLs are based on the difference between the
contractual cash flows due in accordance with the contract and all
the cash flows that the Group expects to receive, discounted at an
approximation of the original effective interest rate. The expected
cash flows will include cash flows from the sale of collateral held
or other credit enhancements that are integral to the contractual
terms.
ECLs are recognised in two stages. For credit exposures for
which there has not been a significant increase in credit risk
since initial recognition, ECLs are provided for credit losses that
result from default events that are possible within the next
12-months (a 12-month ECL). For those credit exposures for which
there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective of
the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a
simplified approach in calculating ECLs. Therefore, the Group does
not track changes in credit risk, but instead recognises a loss
allowance based on lifetime ECLs at each reporting date. The Group
has established a provision matrix that is based on its historical
credit loss experience, adjusted for forward-looking factors
specific to the debtors and the economic environment.
The Group considers a financial asset in default when
contractual payments are 90 days past due. However, in certain
cases, the Group may also consider a financial asset to be in
default when internal or external information indicates that the
Group is unlikely to receive the outstanding contractual amounts in
full before taking into account any credit enhancements held by the
Group. A financial asset is written off when there is no reasonable
expectation of recovering the contractual cash flows.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The Group's financial liabilities include trade and other
payables, due to related party balances, loans and borrowings
including bank overdrafts and other financial liabilities.
Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
(i) Trade and other payables
Liabilities are recognised for amounts to be paid in the future
for goods or services received, whether billed by the supplier or
not.
(ii) Loans and borrowings
This is the category most relevant to the Group. After initial
recognition, loans and borrowings are subsequently measured at
amortised cost using the EIR method. Gains and losses are
recognised in profit or loss when the liabilities are derecognised
as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included as finance costs
in the consolidated statement of profit or loss. This category
generally applies to loans and borrowings.
(iii) Other financial liabilities at amortised cost
Other financial liabilities are initially measured at fair
value, net of transaction costs and are subsequently measured at
amortised cost using the effective interest method.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability, or, where
appropriate, a shorter period.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in
the respective carrying amounts is recognised in the consolidated
statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount is reported in the consolidated statement of financial
position if there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to settle on a net
basis, to realise the assets and settle the liabilities
simultaneously.
Derivative financial instrument
A derivative is a financial instrument or other contract with
all three of the following characteristics:
-- Its value changes in response to the change in a specified
interest rate, financial instrument price, commodity price, foreign
exchange rate, index of prices or rates, credit rating or credit
index, or other variable, provided that, in the case of a
non-financial variable, it is not specific to a party to the
contract (i.e., the 'underlying').
-- It requires no initial net investment or an initial net
investment that is smaller than would be required for other types
of contracts expected to have a similar response to changes in
market factors.
-- It is settled at a future date.
The Group uses derivative financial instruments, such as
interest rate swap, to hedge its interest rate risks. These
interest rate swaps are initially recognised at fair value on the
date on which a derivative contract is entered into and are
subsequently remeasured at fair value. Derivatives are carried as
financial assets when the fair value is positive and as financial
liabilities when the fair value is negative.
Hedge accounting
For the purpose of hedge accounting, the Group has designated
one of its two derivative financial instruments (interest rate
swaps) as a cash flow hedge. At the inception of a hedge
relationship, the Group formally designates and documents the hedge
relationship to which it wishes to apply hedge accounting and the
risk management objective and strategy for undertaking the
hedge.
The documentation includes identification of the hedging
instrument, the hedged item, the nature of the risk being hedged
and how the Group will assess whether the hedging relationship
meets the hedge effectiveness requirements (including the analysis
of sources of hedge ineffectiveness and how the hedge ratio is
determined). A hedging relationship qualifies for hedge accounting
if it meets all of the following effectiveness requirements:
-- There is 'an economic relationship' between the hedged item and the hedging instrument.
-- The effect of credit risk does not 'dominate the value
changes' that result from that economic relationship.
-- The hedge ratio of the hedging relationship is the same as
that resulting from the quantity of the hedged item that the Group
actually hedges and the quantity of the hedging instrument that the
Group actually uses to hedge that quantity of hedged item.
Cash flow hedges
The effective portion of the gain or loss on the hedging
instrument is recognised in OCI in the cash flow hedge reserve,
while any ineffective portion is recognised immediately in the
statement of comprehensive income. The cash flow hedge reserve is
adjusted to the lower of the cumulative gain or loss on the hedging
instrument and the cumulative change in fair value of the hedged
item.
The amounts accumulated in OCI are accounted for, depending on
the nature of the underlying hedged transaction. If the hedged
transaction subsequently results in the recognition of a
non-financial item, the amount accumulated in equity is removed
from the separate component of equity and included in the initial
cost or other carrying amount of the hedged asset or liability.
This is not a reclassification adjustment and will not be
recognised in OCI for the period. This also applies where the
hedged forecast transaction of a non-financial asset or
non-financial liability subsequently becomes a firm commitment for
which fair value hedge accounting is applied.
For any other cash flow hedges, the amount accumulated in OCI is
reclassified to profit or loss as a reclassification adjustment in
the same period or periods during which the hedged cash flows
affect profit or loss.
If cash flow hedge accounting is discontinued, the amount that
has been accumulated in OCI must remain in accumulated OCI if the
hedged future cash flows are still expected to occur. Otherwise,
the amount will be immediately reclassified to profit or loss as a
reclassification adjustment. After discontinuation, once the hedged
cash flow occurs, any amount remaining in accumulated OCI must be
accounted for depending on the nature of the underlying transaction
as described above.
Derivative instrument held for trading
The Group classifies one of its two interest rate swaps as
derivative held for trading and did not apply hedge accounting,
which is fair valued at initial recognition and subsequently. Any
change in fair value is recorded in the statement of comprehensive
income as fair value gain (loss) on derivative financial
instrument.
Impairment of non-financial assets
Further disclosures relating to impairment of non-financial
assets are also provided in note 3 (significant accounting
estimates, judgements and assumptions) and note 16 (property and
equipment).
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 Group assesses at contract inception whether a contract is,
or contains, a lease. That is, if the contract conveys the right to
control the use of an identified asset for a period of time in
exchange for consideration.
Group as a lessee
The Group applies a single recognition and measurement approach
for all leases, except for short-term leases and leases of
low-value assets. The Group recognises lease liabilities to make
lease payments and right-of-use assets representing the right to
use the underlying assets.
Right-of-use assets
The Group recognises right-of-use assets at the commencement
date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Right-of-use
assets are depreciated on a straight-line basis over the shorter of
the lease term and the estimated useful lives of the assets, as
follows:
Years
Yards and warehouse 4
Office premises 5
Motor vehicles 3
Other equipment 5
Furniture and fixture 10
Building 20
If ownership of the leased asset transfers to the Group at the
end of the lease term or the cost reflects the exercise of a
purchase option, depreciation is calculated using the estimated
useful life of the asset. The right-of-use assets are also subject
to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating a lease, if the
lease term reflects the Group exercising the option to terminate.
The variable lease payments that do not depend on an index or a
rate are recognised as expense in the period on which the event or
condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the
in-substance fixed lease payments or a change in the assessment to
purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to
its short-term leases of machinery and equipment (i.e., those
leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to
leases of office equipment that are considered of low value (i.e.,
below USD 5,000). Lease payments on short-term leases and leases of
low-value assets are recognised as expense on a straight-line basis
over the lease term.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, and the amount
can be reliably estimated. When the Group expects some or all of a
provision to be reimbursed, the reimbursement is recognised as a
separate asset but only when the reimbursement is virtually
certain. The expense relating to any provision is presented in the
consolidated statement of profit or loss net of any reimbursement.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation at the end of the
reporting period, using a rate that reflects current market
assessments of the time value of money and the risks specific to
the obligation. Provisions are reviewed at each statement of
financial position date and adjusted to reflect the current best
estimate. If it is no longer probable that an outflow of resources
embodying economic benefits will be required to settle the
obligation, the provision is reversed.
Contingencies
Contingent liabilities are not recognised in the consolidated
financial statements. They are disclosed unless the possibility of
an outflow of resources embodying economic benefits is remote. A
contingent asset is not recognised in the consolidated financial
statements but disclosed when an inflow of economic benefits is
probable.
Legal reserve
According to one of the subsidiaries' articles of association,
5% of the net profit for the prior year of the Subsidiary is
transferred to a legal reserve until this reserve reaches 20% of
the issued capital. The reserve is used upon a decision from the
general assembly meeting based on the proposal of the Board of
Directors of the Subsidiary.
Treasury shares
Own equity instruments that are reacquired (treasury shares) are
recognised at cost and deducted from equity. No gain or loss is
recognised in profit or loss on the purchase, sale, issue or
cancellation of the Group's own equity instruments. Any difference
between the carrying amount and the consideration, if reissued, is
recognised in the share premium.
Fair value measurement
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either in the
principal market for the asset or liability or the most
advantageous market for the asset or liability. The principal or
the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest. A fair value measurement of a non-financial
asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or
by selling it to another market participant that would use the
asset in its highest and best use. For assets traded in an active
market, fair value is determined by reference to quoted market bid
prices. The fair value of items is estimated based on discounted
cash flows using interest rates for items with similar terms and
risk characteristics. For unquoted assets, fair value is determined
by reference to the market value of a similar asset or is based on
the expected discounted cash flows. The Group uses valuation
techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximising the
use of relevant observable inputs and minimising the use of
unobservable inputs.
All assets and liabilities for which fair value is measured or
disclosed in the Consolidated financial statements are categorised
within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value
measurement as a whole:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable
Cash dividend and non-cash distribution to equity holders of the
Parent
The Group recognises a liability to make cash or non-cash
distributions to equity holders of the Parent when the distribution
is authorised and the distribution is no longer at the discretion
of the Group. A distribution is authorised when it is approved by
the shareholders. A corresponding amount is recognised directly in
equity. Non-cash distributions are measured at the fair value of
the assets to be distributed with fair value remeasurement
recognised directly in equity. Upon distribution of non-cash
assets, any difference between the carrying amount of the liability
and the carrying amount of the assets distributed is recognised in
the consolidated statement of profit or loss.
3 SIGNIFICANT ACCOUNTING ESTIMATES, JUDGEMENTS AND ASSUMPTIONS
Judgements
The preparation of the Group's consolidated financial statements
requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenues, expenses, assets,
liabilities, and the accompanying disclosures, and the disclosure
of contingent liabilities. Uncertainty about these assumptions and
estimates could result in outcomes that require a material
adjustment to the carrying amount of the asset or liability
affected in future periods.
In the process of applying the Group's accounting policies,
management has made certain judgements, estimates and assumptions
in relation to the accounting for the business acquired, accounts
receivable, customer credit periods and doubtful debts provisions,
creditors' payment period, useful lives and impairment of property
and equipment, income taxes and various other policy matters. These
Judgements have the most significant effects on the amounts
recognised in the consolidated financial statements.
Consolidation of an entity in which the Group holds less than a
majority of voting right
The Group considers that it controls United Precision Drilling
Company W.L.L ("UPDC") even though it owns less than 50% of the
voting rights. This is mainly because (a) the Group has a
substantive right to direct conclusion of revenue contracts,
capital expenditures and operational management; (b) the Group has
a significantly higher exposure to variability of returns than its
voting rights; (c) the Group is the owner of all drilling rigs and
equipment and charters the drilling rigs to UPDC on exclusive
basis. Management also considered that non-controlling interest in
UPDC is not material as compared to the consolidated financial
position.
The lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Group has the option, under some of its leases to lease the
assets for additional terms of three to five years. The Group
applies judgement in evaluating whether it is reasonably certain to
exercise the option to renew. That is, it considers all relevant
factors that create an economic incentive for it to exercise the
renewal. After the commencement date, the Group reassesses the
lease term if there is a significant event or change in
circumstances that is within its control and affects its ability to
exercise (or not to exercise) the option to renew (e.g., a change
in business strategy).
The Group included the renewal period as part of the lease term
for leases of property and equipment due to the significance of
these assets to its operations. These leases have a short
non-cancellable period (i.e., three to five years) and there will
be a significant negative effect on operation if a replacement is
not readily available.
Judgement in determining whether assets acquired, and
liabilities assumed qualify as a business combination
During 2019 and 2018, the Group acquired 31 rigs and other
assets from Weatherford Drilling International ("the Seller" or
"WDI"). The acquisition of the rigs and other assets from WDI is a
global deal covering 3 jurisdictions. The rigs are located in
various countries as follows: 11 rigs in KSA, 12 rigs in Kuwait, 2
rigs in Iraq and 6 rigs in Algeria.
The closing of the KSA and Kuwait Assets transactions took place
on 30 November 2018 and 31 October 2018, respectively, whereas
closure of the Alegria and Iraq Assets transactions took place in
2019:
Algeria Assets: 6 rigs and related equipment, drilling contracts
and other contracts, vendor contracts, all other equipment and
inventories (including work in progress) related to rigs to the
extent used or intended to be used in the drilling business,
business intellectual property and records related to the drilling
business in Algeria, and certain employees. The closing of the
Algeria Assets transaction took place on 28 February 2019 (4 rigs)
and 18 March 2019 (2 rigs).
Iraq Assets: 2 rigs with related equipment and inventories
(purchase of Iraq rigs was explicitly excluded from the scope of
Kuwait assets upon the closing of Kuwait transaction through a
separate side agreement dated 31 October 2018) and transfer of the
Iraq rigs was made through separate transfer agreements. The
closing of the Iraq Assets took place on 11 February 2019 (1 rig)
and 25 March 2019 (1 rig).
During the year ended 31 December 2019, we performed an
extensive analysis of the terms of the agreements entered into to
give effect to the above transactions and applied the 'inputs,
processes and outputs' approach required by IFRS 3 on each
individual transaction. We also consulted our legal advisor about
the enforceability of the rights and obligations under each of
these agreements. Our evaluation resulted in the Algeria and Iraq
transactions each qualifying as a business combination.
Key sources of estimation uncertainty
Fair value measurements and valuation processes in relation to
the acquired assets and liabilities as part of business
combination
During the year ended 31 December 2019, the Group completed the
acquisition accounting for the new businesses acquired during 2019
and 2018 (refer to note 5). For the purposes of fair valuation of
the rigs and inventories acquired the Group engaged and independent
valuation specialists who utilised income approach (discounted cash
flow analysis), cost approach and market approach as per the
requirements of IFRS 13- Fair Value Measurement.
In accordance with IFRS 13 Fair Value Measurement, in some cases
a single valuation will be appropriate, while in other cases,
multiple valuation techniques will be appropriate. If multiple
valuation techniques are used to measure fair value, the results
(i.e. respective indications of fair value) are evaluated
considering the reasonableness of the range of values indicated by
those results. For example, the following valuation approaches have
been applied by management, as appropriate, to measure the
acquisition-date fair value of assets acquired by the Group in
business combinations:
Fair value measurements and valuation processes in relation to
the acquired assets and liabilities as part of business combination
(continued)
(1) Market approach-based on market transactions involving
identical or similar assets or liabilities, (2) Income
approach-based on future amounts of cash flows or income and
expenses that are discounted to a single present amount and (3)
Cost approach-based on the amount required to replace the service
capacity of an asset (usually referred to as current replacement
cost).
IFRS 13 does not prioritise the use of one valuation technique
over another or require the use of only one technique except in
situations where identical financial instruments exist that trade
in active markets in which case the entity's financial instruments
shall be measured at the market price of the identical instruments
multiplied by quantity (P x Q). In measuring the fair value of an
asset or liability, management use valuation techniques that are
appropriate in the circumstances and for which sufficient data is
available. Therefore, multiple valuation techniques were used, and
judgment is exercised by management in applying them.
The market approach uses prices and other relevant information
generated by market transactions involving identical or comparable
(i.e. similar) assets, liabilities or a group of assets and
liabilities, such as a business. Although the market approach is
described by IFRS 13 as a widely used valuation technique, its use
becomes less favorable and/or relevant in situations for which
observable inputs in active markets are limited, and where no exit
prices exist for those assets on a stand-alone basis because market
information indicates that they are being exchanged together with
other elements as part of an entire business. The Group is
acquiring a business and not an asset.
Accordingly, management believe that using multiple techniques
is more appropriate and should be considered when evaluating the
reasonable range of values to indicate the fair value of the assets
acquired rather than a single approach such as the market approach.
The Group does not rely solely on the market approach because of
the low volume and level of activity for exchanges in similar
rig-assets in the relevant markets and because this approach does
not reflect any revenue generated from these units and only
reflects price for identical or comparable (similar) assets. The
Market Approach depends mainly on Level 1 inputs which are
observable inputs and minimises the use of unobservable inputs.
Thus, the nature of the characteristics of the rigs being
measured and the limited observable market prices for similar
assets contributed to the suggested use of several valuation
techniques under the 3 above approaches. Since the Group is
acquiring businesses rather than stand-alone assets, it was
appropriate to estimate the fair value of each business by giving
consideration to multiple valuation approaches, such as income
approach that derives value from the present value of the expected
future cash flows specific to the business and a market approach
that derives value from the market data (such as EBITDA or revenue
multiples). IFRS 13 also permits the use of the cost approach,
where appropriate.
Application of the market, income and cost valuation techniques
each produced a range of possible values (e.g. lower-end and
higher-end values). In accordance with the requirements of IFRS 13,
management evaluated the reasonableness of the range in order to
select the point within the range that is most representative of
fair value. A professional expert had been assigned to review the
valuation and considered the merits of each valuation technique
applied, and the underlying assumptions embedded in each of the
techniques. IFRS 13 requires an entity, in case such approaches
produce results that are disparate, to perform further analysis.
Management, with assistance from the professional expert, sought to
understand why the resulting differences exist among the above
techniques and what assumptions might have contributed to the
variance. The objective was to find the point in the range that
most reflects an exit price.
From management's view, the market technique uses assumptions
that are somehow inconsistent with how market participants would
look at the transaction. Management believe that the acquired
rig-assets would provide maximum value to market participants
through its use in combination with its complementary assets,
contracts and associated liabilities that is, a whole business.
Management believe that the sellers' use of the rig-assets, prior
to the Group's acquisition, is the highest and best use in the
context of the drilling business.
Fair value measurements and valuation processes in relation to
the acquired assets and liabilities as part of business combination
(continued)
Thus, the income approach was applied using a present value
technique. The cash flows used in that technique reflect the income
stream expected to result from the contracted rig-assets over its
economic life. In other words, the income stream comprises the
contractual cash flows expected to result from the associated
backlogs for the remaining term of the associated drilling
contracts in addition to the residual/termination value reflecting
cash flows for the asset's remaining economic life. Also, the cost
approach was applied, on the relevant group of assets, by
estimating the amount that currently would be required to
substitute rig-assets with comparable utility with appropriate
adjustments for assets condition (used) and location (installed and
configured for use or stacked).
Based on the above, management concluded that the results of the
market approach could not be used in isolation as a representative
of fair value. Additionally, the used other two techniques (income
and cost) together with the market technique produced indications
of fair value that are disparate. Therefore, management considered
the possible range of fair value measures and what is most
representative of fair value taking into consideration that:
o The income valuation technique may be more representative of
fair value for contracted rig-asset than other techniques;
o Inputs used in the cost/or market valuation technique may be
more readily observable in the marketplace for standard and/or
uncontracted assets, stacked rigs or require fewer adjustments.
Impairment of trade receivables and contract assets
The Group recognises an allowance for expected credit losses
(ECLs). The Group applies a simplified approach in calculating ECLs
with respect to trade receivables and contract assets. Therefore,
the Group does not track changes in credit risk, but instead
recognises a loss allowance based on lifetime ECLs at each
reporting date. At the consolidated statement of financial position
date, gross trade receivables and contract assets were USD
165,026,617 (2019: USD 174,437,513) and the provision for
impairment in trade receivables and contract assets was USD
4,726,770 (2019: USD 2,168,121). Any difference between the amounts
actually collected in future periods and the amounts expected will
be recognised in the consolidated statement of comprehensive
income.
Taxes
The Group is exposed to income taxes in certain jurisdictions.
Significant judgement is required to determine the total tax
liability. Uncertainties exist with respect to the interpretation
of complex tax regulations, changes in tax laws, and the amount and
timing of future taxable income. Given the wide range of
international business relationships and the long-term nature and
complexity of existing contractual agreements, differences arising
between the actual results and the assumptions made, or future
changes to such assumptions, could necessitate future adjustments
to tax income and expense already recorded. The tax liability is
established, based on reasonable estimates, for possible
consequences of audits by the tax authorities of the respective
counties in which the Group-entities operate.
The amount of such liability is based on various factors, such
as experience of previous tax audits and differing interpretations
of tax regulations by the taxable entity and the responsible tax
authority. Such differences in interpretation may arise for a wide
variety of issues depending on the conditions prevailing in the
respective domicile of the Group companies. At the reporting date,
the current income tax payable was USD 9,494,440 (2019: USD
9,975,938).
Identification of Cash generating units and impairment of
non-financial assets
The Group assesses whether there are any indicators of
impairment for all non-financial assets for each CGU at each
reporting date. The non-financial assets are tested for impairment
when there are indicators that the carrying amounts may not be
recoverable.
Management identified four CGUs namely Egypt, Algeria, Kingdom
of Saudi Arabia and Kuwait based on the following:
-- All the rigs and related assets are contracted to a single
customer in Kingdom of Saudi Arabia and Kuwait
-- All the rigs and related assets are contracted to the
customers that are regulated by one single party in Egypt and
Algeria that approve all the contracts and regulates the market and
relationship between the Group and customers
-- Cash inflows are not largely independent within each country
-- Management monitors and makes decisions about its assets and
operations at the country level
Identification of Cash generating units and impairment of
non-financial assets (continued)
Management uses the value in use calculation for impairment
testing at each CGU level which is based on a discounted cash flow
(DCF) model. The cash flows are derived from the budget for the
next five years and do not include restructuring activities. The
recoverable amount is sensitive to the discount rate used for the
DCF, the expected future cash-inflows, estimated remaining useful
life and discount rates. The key assumptions used to determine the
recoverable amount for the different CGUs, including a sensitivity
analysis, are disclosed and further explained in note 16.
Useful lives of property, plant and equipment
The Group's management determines the estimated useful lives of
its property, plant and equipment for calculating depreciation.
This estimate is determined after considering the expected usage of
the asset or physical wear and tear. Management reviews the
residual value and useful lives annually and future depreciation
charge would be adjusted where the management believes the useful
lives differ from previous estimates.
Write-down of inventories to net realisable value (NVR)
Inventories are carried at the lower of cost and net realisable
value. When inventories become old or obsolete, an estimate is made
of their net realisable value. At the reporting date, gross
inventories were USD 48,548,948 (2019: USD 45,073,493). At the
reporting date, the cumulative provision for slow moving items
stands at USD 939,807 (2019: USD 253,329). Any difference between
the amounts actually realised in future periods and the amounts
expected will be recognised in profit or loss in the consolidated
statement of comprehensive income.
Impairment of dividends receivable and investment in associates
and joint ventures
The Group has a dividend receivable from the Egyptian Chinese
Drilling Company (ECDC), an investment that is classified by the
Group as a joint venture. As at 31 December 2020, the outstanding
allowance for impairment in the amount of this dividend receivable
is USD 245,000 (2019: USD 245,000). As described in note 11, the
Group currently holds 48.75% equity interest in ECDC amounting to
USD 1,282,299 (2019: USD 2,207,916). On 5 July 2018, ECDC's
shareholders entered into a Shareholders Agreement whereby the
Group obtained a joint control over ECDC and, consequently, the
Group's interest in ECDC became an investment in joint venture
effectively from that date.
The Shareholders' Agreement dated 5 July 2018 sets out a joint
control framework between ADES and the other major shareholder who
holds 51.25%. This resulted in the change of status of this
investment from financial asset to investment in a joint venture
during 2018 with no purchase price consideration transferred by the
Group. In accordance with the IFRS guidance, the Group's investment
in ECDC is measured fair value at the date on which the change in
the status had occurred.
Based on a third-party valuation report and further analysis
performed by the management, management recorded USD 535,000 (2019:
Nil) and believes that the remaining carrying value of investment
and dividend receivable balances are recoverable. The recoverable
amount is sensitive to the expected future cash-inflows and the
growth rate used for projection of the future results of ECDC.
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. As operationally, the Group is only in
the oil and gas production and drilling services, the CEO considers
the business from a geographic perspective and has identified four
geographical segments (2019: four geographical segments****).
Management monitors the operating results of its segments
separately for the purpose of making decisions about resource
allocation and performance assessment.
United
Kingdom Arab
of Saudi Total Emirates Adjustments
&
Segment USD Egypt Algeria Arabia Kuwait Segment**** (Corporate) eliminations*** Total
------------------- ------------- ------------ -------------- ------------- -------------- ------------- ---------------- --------------
For the year ended
31 December
2020
Revenue
External customers 84,430,543 13,188,511 245,103,198 109,386,318 452,108,570 - - 452,108,570
Inter-segment 77,104,860 - - - 77,104,860 - (77,104,860) -
------------- ------------ -------------- ------------- -------------- ------------- ---------------- --------------
Total Revenue 161,535,403 13,188,511 245,103,198 109,386,318 529,213,430 - (77,104,860) 452,108,570
============= ============ ============== ============= ============== ============= ================ ==============
Income/(expenses)
Cost of revenue* (39,452,928) (8,175,236) (122,655,783) (50,770,571) (221,054,518) - - (221,054,518)
General and
administrative
expenses (6,858,510) (1,776,460) (23,119,636) (9,522,325) (41,276,931) (6,118,846) - (47,395,777)
Finance costs
(net) (9,197,479) (1,158,740) (30,023,665) (16,549,158) (56,929,042) (7,487,717) - (64,416,759)
Depreciation and
amortisation (22,305,544) (2,452,949) (23,678,677) (12,852,485) (61,289,655) - - (61,289,655)
Other expenses
(net) ** (5,309,771) (751,763) (10,066,566) (5,100,687) (21,228,787) (9,601,498) - (30,830,285)
Provision for
impairment
of non-current
assets (5,100,062) - - - (5,100,062) - - (5,100,062)
------------- ------------ -------------- ------------- -------------- ------------- ---------------- --------------
Profit / (Los)s-
excluding
inter-segment
revenue (3,793,751) (1,126,637) 35,558,871 14,591,092 45,229,575 (23,208,061) - 22,021,514
============= ============ ============== ============= ============== ============= ================ ==============
Total Assets as at
31 December 2020
(i) 839,404,655 86,437,686 99,778,593 340,691,574 1,366,312,508 17,571,315 - 1,383,883,823
============= ============ ============== ============= ============== ============= ================ ==============
Total Liabilities
as at
31 December 2020 379,841,776 7,897,195 58,162,910 67,035,038 512,936,919 417,049,516 - 929,986,435
============= ============ ============== ============= ============== ============= ================ ==============
Other Segment
information
Capital
expenditure (i) 32,001,640 515,291 24,762,700 30,661,285 87,940,916 - - 87,940,916
Intangible assets
expenditure 23,250 - - - 23,250 - - 23,250
------------- ------------ -------------- ------------- -------------- ------------- ---------------- --------------
Total 32,024,890 515,291 24,762,700 30,661,285 87,964,166 - - 87,964,166
============= ============ ============== ============= ============== ============= ================ ==============
4 SEGMENT INFORMATION (continued)
United
Kingdom Arab Adjustments
of Saudi Total Emirates &
Segment USD Egypt Algeria Arabia Kuwait Segment**** (Corporate) eliminations*** Total
------------------- ------------- ------------- -------------- ------------- -------------- ------------- ---------------- --------------
For the year ended
31 December
2019
Revenue
External customers 87,125,252 40,414,802 243,901,977 106,315,516 477,757,547 - - 477,757,547
Inter-segment 87,190,863 - - - 87,190,863 - (87,190,863) -
------------- ------------- -------------- ------------- -------------- ------------- ---------------- --------------
Total Revenue 174,316,115 40,414,802 243,901,977 106,315,516 564,948,410 - (87,190,863) 477,757,547
============= ============= ============== ============= ============== ============= ================ ==============
Income/(expenses)
Cost of revenue* (36,507,892) (23,579,787) (120,675,177) (55,504,546) (236,267,402) - - (236,267,402)
General and
administrative
expenses (11,782,712) (3,147,114) (22,129,888) (9,504,889) (46,564,603) (5,899,066) - (52,463,669)
Finance costs
(net) (11,055,159) (5,128,158) (30,948,262) (13,490,175) (60,621,754) (27,568,312) - (88,190,066)
Depreciation and
amortisation (23,529,605) (2,180,135) (14,356,287) (9,248,182) (49,314,209) (146,501) - (49,460,710)
Other expenses
(net)** (1,187,327) (507,019) (10,568,079) (4,449,325) (16,711,750) (3,130,388) - (19,842,138)
------------- ------------- -------------- ------------- -------------- ------------- ---------------- --------------
Profit / Loss-
excluding
inter-segment
revenue 3,062,557 5,872,589 45,224,284 14,118,399 68,277,829 (36,744,267) - 31,533,562
============= ============= ============== ============= ============== ============= ================ ==============
Total Assets as at
31 December 2019
(i) 863,562,100 98,630,862 108,650,199 346,575,615 1,417,418,776 14,148,206 - 1,431,566,982
============= ============= ============== ============= ============== ============= ================ ==============
Total Liabilities
as at
31 December 2019 374,171,422 16,943,110 58,622,288 94,608,532 544,345,352 434,497,150 - 978,842,502
============= ============= ============== ============= ============== ============= ================ ==============
Other Segment
information
Capital
expenditure (i) 45,215,366 57,085,518 104,558,940 105,207,372 312,067,196 - - 312,067,196
Intangible assets
expenditure 12,976 - - - 12,976 - - 12,976
------------- ------------- -------------- ------------- -------------- ------------- ---------------- --------------
Total 45,228,342 57,085,518 104,558,940 105,207,372 312,080,172 - - 312,080,172
============= ============= ============== ============= ============== ============= ================ ==============
* excluding depreciation and amortisation.
** Other expenses includes end of service employment benefits,
provision for impairment of inventory and non current assets,
provision for impairment of trade receivables, share-based payments
expense, business acquisition transaction costs, provision for
impairment of investment, other taxes, income tax expense and other
expenses which are stated net off any release of provision for
impairment of trade receivables, bargain purchase gain, fair value
gain/(loss) on derivative financial instrument and other
income.
*** Inter-segment revenues and other adjustments are eliminated
upon consolidation and reflected in the 'adjustments and
eliminations' column.
**** Comparative information has been restated to conform with
the current year presentation.
(i) Management presents the assets in the segment which holds
such assets, while the capital expenditure are presented in the
segment where such assets are utilised.
5 BUSINESS COMBINATIONS
As part of the Group's strategy to expand its fleet and
operations, the Group has acquired the assets and entities which
are accounted for as business combinations during 2019. There were
no such acquisition during the year ended 31 December 2020. These
business combinations resulted in bargain purchase transactions
because the fair value of assets acquired and liabilities assumed
exceeded the total fair value of the consideration paid and the
fair value of non- controlling interests.
Acquisitions of the rigs from Weatherford Drilling International
- recorded in 2019
On 27 February 2019 and 25 March 2019, the Group acquired
certain assets from Weatherford Drilling International in Algeria
and Iraq, respectively. The acquisitions have been accounted for
using the acquisition method.
The Group acquired 6 onshore rigs in Algeria and related
equipment, drilling contracts, other vendor contracts, certain
employees, spare parts to be used in the drilling business, the
business intellectual property and records related to the drilling
business. While in Iraq, the Group acquired 2 onshore rigs and
related equipment, certain employees, spare parts to be used in the
drilling business, the business intellectual property and records
related to the drilling business.
Identifiable net assets acquired
The fair value of the identifiable assets and liabilities as at
the acquisition were:
Fair values Fair values
recognised recognised
on on
acquisition acquisition
(Algeria) (Iraq)
USD USD
Property, plant and equipment 55,983,324 17,200,000
Inventory 8,553,595 -
------------- -------------
Total identifiable net assets at fair value 64,536,919 17,200,000
Bargain purchase gain arising on acquisitions (6,677,674) (5,200,000)
------------- -------------
Purchase considerations 57,859,245 12,000,000
============= =============
Analysis of cash flow on acquisition (included
in cash flows
from investing activities)
Cash paid (60,000,000) (12,000,000)
Cash collected* 2,140,755 -
------------- -------------
Net cash out flows on acquisition (57,859,245) (12,000,000)
============= =============
*The Group claimed and collected USD 2,140,755 from the Seller
which represents a backlog deduction at the closing date for
Algeria as per the terms of the Sales and Purchase Agreement signed
between WDI and the Group.
From the date of acquisition to 31 December 2019, the acquired
assets and entities contributed USD 27,093,236 of revenue from
continuing operations of the Group. It is impracticable to disclose
the revenue and profit or loss of the rigs acquired for the year
ended 31 December 2019 as if the combination had taken place at the
beginning of the year, as the acquired assets and entities did not
represent a reporting entity and the historical information is not
available. The Group acquired the business comprised of the rigs
and the related items, rather than the entire entity from WDI. The
amount of profit contributed by these assets from the date of
acquisition is also not disclosed, as these rigs do not represent a
separate reporting entity and it impracticable to prepare the
profit and loss for the rigs.
6 REVENUE FROM CONTRACT WITH CUSTOMERS
USD 2020 2019
------------------- ------------ ------------
Units operations 426,126,534 456,563,354
Catering services 7,036,430 8,979,507
Projects income * 11,779,200 3,983,560
Others 7,166,406 8,231,126
------------ ------------
452,108,570 477,757,547
============ ============
- *Projects income represents services relating to outsourcing
various operating projects for clients such as manpower, early
production facilities, maintenance and repair services.
The disaggregation of revenue in accordance with IFRS 15 is in
line with the segments disclosed in Note 4 above as the management
monitors the revenue geographically and the primary operational
revenue stream is drilling services (units operations) and the
revenue is recognised over the time of service.
7 COST OF REVENUE
USD 2020 2019
------------------------ ------------ ------------
Project direct costs 8,706,421 2,158,618
Maintenance costs 34,878,392 45,020,299
Staff costs* 100,763,112 102,244,315
Rental equipment 7,841,317 8,201,081
Insurance 5,506,484 6,994,574
Depreciation (Note 16) 61,289,655 49,460,710
Catering costs 16,409,054 20,262,059
Move costs 13,745,536 18,738,061
Crew change costs 5,011,551 7,448,904
Other costs 28,192,651 25,199,491
------------ ------------
282,344,173 285,728,112
============ ============
* It includes staff cost of USD 5,238,200 in relation to the
overstay of the crew due to COVID 19 (31 Dec 2019: NIL).
8 GENERAL AND ADMINISTRATIVE EXPENSE
USD 2020 2019
----------------------------------------- ----------- -----------
Staff costs* 31,232,912 31,131,732
Depreciation and amortisation (Note 16) 1,478,292 1,563,856
Professional fees 3,143,867 4,095,097
Business travel expenses 2,491,611 3,385,222
Free zone expenses 2,003,769 3,897,863
Rental expenses 692,458 1,011,096
Other expenses 6,352,868 7,378,803
----------- -----------
47,395,777 52,463,669
=========== ===========
* It includes staff cost of USD 3,254,682 in relation to the
integration project (31 Dec 2019: 8,487,320) which isestimated
based on the number of hours spent on the project.
9 FINANCE COSTS
USD 2020 2019
-------------------------------------------------- ------------ ------------
Loan interest and profit expense 21,068,279 30,956,580
Loan fees and written off prepaid transaction
cost 4,850,918 27,568,312
Bond interest and bond fees amortisation 30,507,763 20,589,926
Guarantee related finance charges 3,350,341 3,146,155
Interest on lease liabilities 854,055 1,376,722
IRS related finance charges 4,379,858 1,062,725
Interest on overdraft facilities 1,098,176 1,094,760
Initial recognition (gain)/loss from discounting
of a long-term
trade receivable (796,306) 1,195,201
Other finance (income)/charges, net (94,381) 1,711,698
------------ ------------
65,218,703 88,702,079
============ ============
10 INCOME TAX
USD 2020 2019
--------------------------------------------------- ------------ -------------
Consolidated statement of profit or loss:
Current income tax expense* 9,179,031 9,772,755
Deferred tax credit (232,314) (435,390)
------------ -------------
Charge for the year ended 8,946,717 9,337,365
============ =============
Consolidated statement of financial position:
Current liabilities:
Balance at 1 January 9,975,938 3,040,753
Charge for the year 9,179,031 9,777,802
Release during the year - (5,047)
Paid during the year (9,660,529) (2,837,570)
------------ -------------
Balance at 31 December (note 19) 9,494,440 9,975,938
USD 2020 2019
--------------------------------------------------- ------------ -------------
Profit before income tax 30,968,231 40,870,927
Tax calculated at domestic tax rates applicable
to profits
profit in the primary jurisdiction of 0% - -
(2019:0%)
Effect of different tax rates in countries
in which the Group operates 9,496,204 15,142,720
Non-deductible expenses 2,060,760 1,611,116
Prior year adjustments 133,680 -
Non-taxable income (6,338,361) (13,853,048)
Withholding taxes 3,594,434 6,436,577
Other taxes - -
------------ -------------
Income tax expense recognised in the consolidated
statement of comprehensive income 8,946,717 9,337,365
============ =============
*Current income tax expense includes withholding taxes on
intercompany rentals in the Kingdom of Saudi Arabia amounting to
USD 1,341,899 (2019: USD 4,435,809).
The effective tax rate is 29 % (2019: 23%, excluding the credit
in respect of prior year adjustments).
The Group operates in jurisdictions which are subject to tax at
higher rates than the statutory corporate tax rate of 0%, which is
applicable to profits in Algeria, Kingdom of Saudi Arabia and
Kuwait where applicable tax rate is 26%, 20% and 15%
respectively.
Egyptian corporations are normally subject to corporate income
tax at a statutory rate of 22.5% however the Company has been
registered in a Free Zone in Alexandria under the Investment Law No
8 of 1997 which allows exemption from corporate income tax.
11 INVESTMENT IN A JOINT VENTURE AND AN ASSOCIATE
Investment in Egyptian Chinese Drilling Company:
The Group holds a 48.75% equity interest in Egyptian Chinese
Drilling Company (ECDC) amounting to USD 1,282,299 as at 31
December 2020 (2019: USD 2,207,916). During the year, the Group
recorded impairment charge of 535,000 (2019: Nil) based on the
third-party valuation report and further analysis performed by
management. The Group acquired the investment on 30 March 2015 from
AMAK Drilling and Petroleum Services Co. (a related party) at par
value. ECDC is a Joint Stock Company operating in storing and
renting machinery and all needed equipment to the petroleum
industry.
As at 31 December 2017, the Group has treated this investment as
available for sale since it has no representation on the Board. On
5 July 2018, the Shareholders entered into a Shareholders Agreement
whereby the Group obtained a joint control over ECDC. As per the
Shareholders Agreement the investment became an investment in a
joint venture effective 5 July 2018. The investment in joint
venture is accounted for using the equity method of accounting
effective from the date of change.
The Group recognised dividends of USD 1,225,000 from Egyptian
Chinese Drilling Company during the year ended 31 December 2015
which is outstanding as at 31 December 2020 and 2019. The Group has
recorded impairment provision of USD 245,000 as at 31 December 2020
(2019: USD 245,000) (Note 15).
Summarised financial information of the joint venture and
reconciliation with the carrying amount of the investment in the
consolidated financial statements are set out below:
Summarised statement of financial position as at 31
December:
USD 2020 2019
--------------------------------------------- ------------- -------------
Non-current assets 10,629,507 9,811,448
Current assets 11,847,030 12,955,545
Current liabilities (18,748,744) (18,237,935)
------------- -------------
Net assets 3,727,793 4,529,058
============= =============
The Group's share in net assets at adjusted
fair value equity - 48.75%* 1,817,299 2,207,916
Impairment of ECDC investment (535,000) -
------------- -------------
Net Assets 1,282,299 2,207,916
============= =============
Summarised statement of comprehensive income for the year ended
31 December:
USD 2020 2019
----------------------------------------------- ------------ -------------
Revenues 8,705,525 12,997,816
Cost of revenues (7,824,902) (10,547,288)
Other income 37,376 39,317
General and administrative expenses (1,674,443) (2,295,955)
Provision, net (91,186) 32,595
------------ -------------
Operating profit (847,630) 226,485
Finance costs (114,138) (178,211)
Other operating income 160,502 -
------------ -------------
(Loss) profit for the year (801,266) 48,274
------------ -------------
Group's share of (loss) / profit for the year
- 48.75% (390,617) 23,533
============ =============
The joint venture had no other contingent liabilities or
commitments as at 31 December 2020 (2019: USD nil). The joint
venture cannot distribute its profits without the consent from the
two venture partners.
Investment in ADVantage Drilling Services S.A.E:
The Group holds a 49% equity interest in ADVantage Drilling
Services S.A.E amounting to USD 1,877,093 as at 31 December 2020
(2019: USD 1,932,660). ADVantage Drilling Services S.A.E is a Joint
Stock Company operating drilling deep marine wells, oil-producing
wells or natural gas at depths exceeding 350 meters and exploration
activities, maintenance of petroleum and gas wells and all the
related services, owning, operation, management, renting and
leasing of onshore and offshore equipment.
ADVantage Drilling Services S.A.E has been established as a Free
Zone company in accordance with the provisions of the Investment
Law No. 72 of 2017 at 15 January 2019.
Summarised financial information of the joint venture and
reconciliation with the carrying amount of the investment in the
consolidated financial statements are set out below:
Summarised statement of financial position as at 31
December:
USD 2020 2019
--------------------------------------- ------------ -------------
Non-current assets 84,163 54,661
Current assets 6,871,903 18,145,907
Current liabilities (3,125,264) (14,256,364)
------------ -------------
Net assets 3,830,802 3,944,204
============ =============
The Group's share in net assets - 49% 1,877,093 1,932,660
Summarised statement of comprehensive income for the year ended
31 December:
USD 2020 2020
---------------------------------------------- ------------ -------------
Revenues 7,747,578 23,285,002
Cost of revenues (6,962,678) (19,563,731)
General and administrative expenses (829,101) (2,214,631)
------------ -------------
Operating profit (44,201) 1,506,640
Finance costs (35,411) (5,486)
Net foreign exchange gain 100,345 32,244
------------ -------------
Profit for the year 20,733 1,533,398
------------ -------------
Other adjustments to prior year results (134,135) -
============ =============
Profit for the period 31 December 2020 (113,402) 1,533,398
============ =============
Group's share of profit for the period - 49% (55,567) 751,365
============ =============
Adjust prior year
The associate had no other contingent liabilities or commitments
as at 31 December 2020 (2019: USD nil). The associate cannot
distribute its profits without the consent from the two venture
partners.
12 BANK BALANCES AND CASH
USD 2020 2019
---------------------------------------------- ----------- ------------
Cash on hand 20,054 21,245
Bank balances 39,079,608 56,373,290
Time deposits* 23,388,886 63,206,624
----------- ------------
Cash and cash equivalents for the purpose of
statement of cash flows 62,488,548 119,601,159
=========== ============
Bank balances and cash comprise of balances in the following
currencies:
USD 2020 2019
----------------------------------- ----------- ------------
United States Dollar (USD) 26,145,847 33,943,487
Saudi Riyal (SAR) 179,233 4,367,958
Egyptian Pound (EGP) 6,428,079 3,879,327
United Arab Emirates Dirham (AED) - 38
Great British Pound (GBP) 120 160
Euro (EUR) 756 883
Algerian Dinar (DZD) 256,607 1,377,837
Kuwaiti Dinar (KWD) 6,089,020 12,824,846
Time deposits (USD)* 17,015,400 63,206,623
Time deposits (EGP)* 6,373,486 -
----------- ------------
62,488,548 119,601,159
=========== ============
*Time deposits represent short-term investment with a local bank
in the United Arab Emirates and Egypt. Time deposits have original
maturities of less than 90 days and earns average interest of 2.6%
per annum (2019: 2.8%). The finance income reported in the
consolidated statement of comprehensive income for the year 2020
amounted to USD 801,944 (2019: USD 512,013).
13 INVENTORIES
USD 2020 2019
--------------------- ----------- -----------
Offshore rigs 20,611,679 19,818,133
Onshore rigs 10,411,524 8,295,669
Warehouse and yards 16,585,938 16,706,362
----------- -----------
47,609,141 44,820,164
=========== ===========
As at 31 December 2020, the inventories are stated net of
provision for impairment of inventory of USD 939,807 (2019: USD
253,329)
USD 2020 2019
--------------------- -------- --------
As at 1 January 253,329 -
Charge for the year 686,478 253,329
-------- --------
As at 31 December 939,807 253,329
======== ========
14 TRADE RECEIVABLES AND CONTRACT ASSETS
Trade receivables
USD 2020 2019
----------------------------------------------- ------------ ------------
Trade receivables 132,034,487 132,896,203
Provision for impairment in trade receivables (4,726,770) (2,168,121)
------------ ------------
127,307,717 130,728,082
============ ============
Maturing within 12 months 69,903,029 91,780,792
Maturing after 12 months 57,404,688 38,947,290
------------ ------------
Balance as at 31 December 127,307,717 130,728,082
============ ============
Trade receivables are non-interest bearing and are generally on
30 to 90 days terms, except for one customer which is recorded as
non-current, after which trade receivables are considered to be
past due. Unimpaired trade receivables are expected to be fully
recoverable on the past experience. It is not the practice of the
Group to obtain collateral over receivables and the vast majority
are, therefore, unsecured.
Contract assets
As at 31 December 2020, the Group has contract assets of USD
32,992,130 (2019: 41,541,310). As at 31 December 2020, there was no
impairment of contract assets and hence no ECL has been
recorded.
The movement in the provision for impairment of trade
receivables is as follows:
USD 2020 2019
---------------------- ---------- ------------
As at 1 January 2,168,121 4,944,373
Charge for the year 2,558,649 -
Release for the year - (2,776,252)
---------- ------------
As at 31 December 4,726,770 2,168,121
========== ============
As at 31 December, the aging analysis of un-impaired trade
receivables is as follows:
Neither Past due but not impaired
past due ----------------------------------------------------------------------------------------------------------
nor <30 30 - 60 61 - 90 >90
USD impaired days days days days Total
2020 107,010,194 4,400,782 1,497,498 2,070,777 12,328,466 127,307,717
============ ====================== ===================== ==================== ===================== =======================
2019 99,540,594 10,527,810 2,668,836 1,808,191 16,182,651 130,728,082
============ ====================== ===================== ==================== ===================== =======================
As at 31 December 2020, the largest portion of trade receivable
balance is from one customer of the Group, which is a partially
government owned entity. In 2020 the Group signed a revised
settlement agreement with the customer to settle all due balances
and the management believes that the customer will be able to
fulfil its obligations. The trade receivable balance from this
customer is classified between current and non-current as per the
terms of the settlement agreement. The non-current portion of trade
receivables is recorded at present value. The application of
forward looking information has no material impact on the ECL
provision.
15 PREPAYMENTS AND OTHER RECEIVABLES
USD 2020 2019
--------------------------------------------------- ----------- -----------
Invoice retention* 51,031,109 44,361,741
Margin LG 4,165,655 2,379,048
Advances to contractors and suppliers 4,619,217 12,018,430
Insurance with customers 5,833,657 3,979,741
Dividends receivable 1,225,000 1,225,000
Provision for impairment in dividends receivables (245,000) (245,000)
Other receivables 6,785,447 8,431,595
----------- -----------
73,415,085 72,150,555
=========== ===========
*This represents the amounts retained by the customers on the
sales invoices as per the terms of the customer contracts.
16 PROPERTY AND EQUIPMENT
Furniture
and Drilling Assets IT Motor Leasehold
under
Rigs fixtures pipes Tools construction - vehicles improvements Total
USD Equipment
------------------- -------------- ---------- ------------ ------------- ------------- ---------- ---------- ------------- --------------
31-Dec-20
Cost:
As at 1 January
2020 986,786,882 1,513,178 15,696,517 42,724,619 79,914,429 956,580 249,765 687,471 1,128,529,441
Additions 18,633,130 277,172 2,557,105 8,263,999 57,564,762 438,020 206,728 - 87,940,916
Retirement &
Disposal - (517,053) (154,530) - - - - (162,414) (833,997)
Reclassification (9,230,748) - - 9,230,748 - - - - -
Transfers 52,425,570 187,741 - 1,840,602 (54,604,447) 44,835 - - (105,699)
-------------- ---------- ------------ ------------- ------------- ---------- ---------- ------------- --------------
As at 31 December
2020 1,048,614,834 1,461,038 18,099,092 62,059,968 82,874,744 1,439,435 456,493 525,057 1,215,530,661
-------------- ---------- ------------ ------------- ------------- ---------- ---------- ------------- --------------
Accumulated
depreciation
and impairment:
As of 1 January
2020 (122,573,384) (595,198) (5,030,612) (11,358,115) (765,291) (573,029) (220,905) (196,593) (141,313,127)
Retirement &
Disposal - 252,423 15,453 - - - - 92,845 360,721
Impairment (5,100,062) - - - - - - - (5,100,062)
Depreciation for
the year (48,441,888) (138,643) (3,344,618) (5,320,119) - (178,378) (46,779) (107,242) (57,577,667)
-------------- ---------- ------------ ------------- ------------- ---------- ---------- ------------- --------------
As of 31 December
2020 (176,115,334) (481,418) (8,359,777) (16,678,234) (765,291) (751,407) (267,684) (210,990) (203,630,135)
-------------- ---------- ------------ ------------- ------------- ---------- ---------- ------------- --------------
Net book value:
At 31 December
2020 872,499,500 979,620 9,739,315 45,381,734 82,109,453 688,028 188,809 314,067 1,011,900,526
============== ========== ============ ============= ============= ========== ========== ============= ==============
Furniture
and Drilling Assets IT Motor Leasehold
under
Rigs fixtures pipes Tools construction - vehicles improvements Total
USD Equipment
----------------- -------------- ---------- ------------ ------------- -------------- ---------- ---------- ------------- --------------
31-Dec-19
Cost:
As at 1 January
2019 645,604,819 1,188,005 13,137,229 30,586,817 124,673,795 777,987 249,765 256,804 816,475,221
Additions 13,231,608 219,577 461,069 6,420,413 218,467,321 47,137 - 36,747 238,883,872
Acquisitions
through
business
combinations
(Note 5) 42,378,439 - - - 30,804,885 - - - 73,183,324
Transfers 285,572,016 105,596 2,098,219 5,717,389 (294,018,596) 131,456 - 393,920 -
Transfer to
intangible
assets - - - - (12,976) - - - (12,976)
-------------- ---------- ------------ ------------- -------------- ---------- ---------- ------------- --------------
As at 31
December
2019 986,786,882 1,513,178 15,696,517 42,724,619 79,914,429 956,580 249,765 687,471 1,128,529,441
-------------- ---------- ------------ ------------- -------------- ---------- ---------- ------------- --------------
Accumulated
depreciation
and impairment:
As of 1 January
2019 (82,370,839) (476,251) (3,268,635) (8,130,782) (765,291) (443,545) (184,137) (118,623) (95,758,103)
Depreciation
for
the year (40,202,545) (118,947) (1,761,977) (3,227,333) - (129,484) (36,768) (77,970) (45,555,024)
-------------- ---------- ------------ ------------- -------------- ---------- ---------- ------------- --------------
As of 31
December
2019 (122,573,384) (595,198) (5,030,612) (11,358,115) (765,291) (573,029) (220,905) (196,593) (141,313,127)
-------------- ---------- ------------ ------------- -------------- ---------- ---------- ------------- --------------
Net book value:
At 31 December
2019 864,213,498 917,980 10,665,905 31,366,504 79,149,138 383,551 28,860 490,878 987,216,314
============== ========== ============ ============= ============== ========== ========== ============= ==============
16 PROPERTY AND EQUIPMENT (continued)
Impairment assessment and key assumptions used in value in use
calculations and sensitivity to changes in assumptions
Refer to note 3 for the basis of identification of CGUs.
Considering the impact of COVID19 and the volatility of oil prices
during the year, management performed an impairment test for each
CGU using value in use calculations based on a DCF model and
recorded an impairment charge of USD 5,100,062 in relation to the
net carrying value of Egypt assets. Management concluded that
recoverable values are higher than the net carrying values of all
CGUs after considering the impairment charge recorded. The
calculation of value in use is most sensitive to the following
assumptions:
-- Day rates, EBITDA margins and utilisation days of rigs
-- Discount rates
-- Remaining useful lives of rigs and estimated future capital expenditures
Day rates, gross margins and utilisation days - Day rates, gross
margins and utilisation days of rigs are estimated based on
historical results. These are increased over the budget period due
to efficiency improvements.
A decrease in the day rates up to 5% would result in further
impairment charge of USD4.5 million for Egypt and USD5.7 million
for Algeria. A decrease in the EBITDA margin up to 3% would result
in further impairment charge of USD 9.5 million for Egypt. A
decrease in utilisation days of rigs to up 5% would result in
further impairment charge of USD3.8 million for Egypt and USD5.7
million for Algeria.
Discount rates - Discount rates represent the current market
assessment of the risks specific to each CGU, taking into
consideration the time value of money and individual risks of the
underlying assets that have not been incorporated in the cash flow
estimates. The discount rate calculation is based on the specific
circumstances of the Group and its operating segments and is
derived from its weighted average cost of capital (WACC). The WACC
takes into account both debt and equity. The cost of equity is
derived from the expected return on investment by the Group's
investors. The cost of debt is based on the interest-bearing
borrowings the Group is obliged to service. Segment-specific risk
is incorporated by applying individual beta factors. The beta
factors are evaluated annually based on publicly available market
data. Adjustments to the discount rate are made to factor in the
specific amount and timing of the future tax flows in order to
reflect a post-tax discount rate.
For Egypt assets, management applied discount factor of 13.5%.
An increase of discount rate to 15% would result in further
impairment charge of USD 8 million for Egypt assets. For Kuwait
assets, management applied discount factor of 9.5%. An increase of
discount rate to 12.5% would result in impairment charge of USD11.9
million for Kuwait assets.
Remaining useful lives of rigs -- and estimated future capital
expenditures - management estimated remaining useful life to be 15
years for the rigs and related assets for all CGUs for the purposes
of estimating cash flows and estimated the capital expenditures
which are required to maintain and operate the assets for the same
period.
A reduction in remaining useful life up to 10% would not result
in impairment charge.
Allocation of depreciation charge:
Depreciation charge is allocated as follows:
USD 2020 2019
---------------------------------------------- ----------- -----------
Cost of revenue (Note 7) 61,289,655 49,460,710
General and administrative expenses (Note 8) 1,478,292 1,563,856
----------- -----------
Total depreciation and amortization charge* 62,767,947 51,024,566
=========== ===========
*Total depreciation and amortisation charge for the year
includes depreciation of property and equipment of USD 57,577,667
(2019: 45,555,024 ), amortization of intangible assets and right of
use assets of USD 141,582 (2019: USD 121,861) and USD 5,048,698
(2019: USD 5,348,361), respectively.
Assets under construction and transfers:
Assets under construction represent the amounts that are
incurred for the purpose of upgrading and refurbishing property and
equipment until it is ready to be used in the operation. Assets
under construction will mainly be transferred to 'Rigs' or 'Tools'
of the property and equipment after completion. During the year
ended 31 December 2020, the Group completed the capital projects
for the amount of USD54.6 million (2019: USD 294 million) and
transferred to the relevant asset categories.
Reclassification:
During 2020, cost of tools amounting to USD 9,230,748 was
transferred from Rigs to Tools category. Related accumulated
depreciation balance and depreciation charges are presented under
Tools category for both year 2020 and 2019.
*Some of the rigs are pledged to the lenders (banks) against
loans and borrowings (Note 20).
17 LEASES
Set out below, are the carrying amounts of the Group's
right-of-use assets and lease liabilities and the movements during
the period:
Yards Office Motor Other Furniture
and
USD Warehouse Premises Vehicles Equipment and Fixture Building Total
------------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------
Cost:
As at 1 January
2020 4,829,127 1,105,574 1,915,524 12,332,234 1,357,312 7,230,880 28,770,651
Additions 58,497 152,203 2,096,784 763,812 1,179,707 320,649 4,571,652
Terminated contracts (1,156,831) - (1,415,148) (4,035,173) - - (6,607,152)
------------ ---------- ------------ ------------ ------------ ---------- ------------
As at 31 December
2020 3,730,793 1,257,777 2,597,160 9,060,873 2,537,019 7,551,529 26,735,151
------------ ---------- ------------ ------------ ------------ ---------- ------------
Accumulated
depreciation:
As at 1 January
2020 (1,224,674) (256,292) (678,173) (3,189,222) - - (5,348,361)
Depreciation (1,000,589) (270,460) (896,483) (2,597,033) (63,425) (220,708) (5,048,698)
Termination 460,029 - 906,890 1,993,360 - - 3,360,279
Other adjustments (120,162) (20,518) 929 - - - (139,751)
------------ ---------- ------------ ------------ ------------ ---------- ------------
As at 31 December
2020 (1,885,396) (547,270) (666,837) (3,792,895) (63,425) (220,708) (7,176,531)
------------ ---------- ------------ ------------ ------------ ---------- ------------
Net book value:
As at 31 December
2020 1,845,397 710,507 1,930,323 5,267,978 2,473,594 7,330,821 19,558,620
============ ========== ============ ============ ============ ========== ============
Yards Office Motor Other Furniture
and
USD Warehouse Premises Vehicles Equipment and Fixture Building Total
-------------------------- ------------ ---------- ---------- ------------ ------------ ---------- ------------
Cost:
As at 1 January
2019 3,251,013 1,105,574 1,915,524 12,332,234 - 6,622,148 25,226,493
Additions 1,578,114 - - - 1,357,312 608,732 3,544,158
------------ ---------- ---------- ------------ ------------ ---------- ------------
As at 31 December
2019 4,829,127 1,105,574 1,915,524 12,332,234 1,357,312 7,230,880 28,770,651
------------ ---------- ---------- ------------ ------------ ---------- ------------
Accumulated depreciation:
Depreciation
Exp. (1,224,677) (256,292) (678,170) (3,189,222) - - (5,348,361)
------------ ---------- ---------- ------------ ------------ ---------- ------------
As at 31 December
2019 (1,224,677) (256,292) (678,170) (3,189,222) - - (5,348,361)
------------ ---------- ---------- ------------ ------------ ---------- ------------
Net book value:
As at 31 December
2019 3,604,450 849,282 1,237,354 9,143,012 1,357,312 7,230,880 23,422,290
============ ========== ========== ============ ============ ========== ============
Set out below are the carrying amounts of lease liabilities and
the movements during the year:
USD 2020 2019
------------------------ ------------ ------------
As at 1 January 2020 22,110,062 24,769,237
Additions 5,302,527 2,909,853
Lease modification (4,380,856) -
Accretion of interest 854,055 1,376,722
Payments (5,680,755) (6,945,750)
------------ ------------
As at 31 December 2020 18,205,033 22,110,062
============ ============
Current 4,244,727 8,793,910
Non-Current 13,960,306 13,316,152
============ ============
The Group had total cash outflows for leases of USD 5,680,755 in
2020 (2019: USD 6,945,750). The Group also had non-cash additions
to right-of-use assets and lease liabilities of USD 4,571,652 in
2020 (2019: USD 3,544,158).
The following are the amounts recognised in the statement of
comprehensive income:
USD 2020 2019
------------------------------------------------- ----------- -----------
Depreciation expense of right-of-use assets 5,048,698 5,348,361
Interest expense on lease liabilities 854,055 1,376,722
Expense relating to short-term leases (included
in Cost of revenue) * 7,841,317 8,201,081
Expense relating to short-term lease (included
in General and
administrative expenses) 692,458 1,011,096
----------- -----------
Total amount recognised in the statement of
comprehensive income 14,436,528 15,937,260
=========== ===========
* Comparative information has been restated to conform with the
current year presentation.
18 INTANGIBLE ASSETS
USD 2020 2019
----------------------------------------------- -------- --------
Cost:
As at 1 January 789,629 776,653
Additions 23,250 -
Transfer from property & equipment (Note 16) 105,699 12,976
-------- --------
As at 31 December 918,578 789,629
-------- --------
Accumulated amortisation:
As at 1 January 442,325 320,464
Amortisation charge for the year 141,582 121,861
-------- --------
As at 31 December 583,907 442,325
-------- --------
Net carrying amount:
As at 31 December 334,671 347,304
======== ========
Intangible assets represent computer software and the related
licenses.
19 TRADE AND OTHER PAYABLES
USD 2020 2019
----------------------------------- ------------ ------------
Local trade payables 68,260,303 89,670,226
Foreign trade payables 16,706,153 24,930,548
Notes payable 4,741,730 2,371,597
Accrued expenses 40,125,825 41,035,747
Accrued interests 9,505,668 9,560,653
Income tax payable (Note 10) 9,494,440 9,975,938
Finance lease liability (Note 17) 4,244,727 8,793,910
Other payables 10,085,940 9,990,837
------------ ------------
163,164,786 196,329,456
============ ============
20 LOANS AND BORROWINGS
USD 2020 2019
----------------------------------- ------------- --------------
Balance as at 1 January 406,047,327 555,268,918
Borrowings drawn during the year 67,377,226 179,493,220
Borrowings repaid during the year (85,336,755) (351,018,420)
Amortised arrangement fees 2,913,776 22,303,610
------------- --------------
Balance as at 31 December 391,001,574 406,047,328
============= ==============
Maturing within 12 months 85,696,878 83,692,835
Maturing after 12 months 305,304,696 322,354,493
------------- --------------
Balance as at 31 December 391,001,574 406,047,328
============= ==============
Latest
USD maturity 2020 2019
------------------------------------ ----------- ----------- -----------
Type
Current loans and borrowings
Loan 1 Syndication
Tranche A 2023 13,357,778 15,050,000
Ijara Loan
Tranche A 2025 12,289,737 15,554,000
Tranche B 2025 12,289,738 15,554,000
Tranche C 2025 14,545,455 8,888,000
Tranch D 2025 12,800,000 -
NCB Loan
NCB Loan 2026 12,250,570 6,153,846
Credit facility 1 Renewable (150) (177)
Credit facility 2 Renewable 4,788,056 3,996,693
Credit facility 3 Renewable - 3,551,531
Credit facility 4 Renewable 102 111,609
Credit facility 5 Renewable 789,757 5,333,333
Credit facility 6 Renewable 2,519,418 -
Credit facility 7 Renewable 66,417 -
RCF 2022 - 9,500,000
----------- -----------
Total current loans and borrowings 85,696,878 83,692,835
=========== ===========
Latest
USD maturity 2020 2019
-------------------------------- ----------- ------------ ------------
Type
Non-current loans and borrowings
Loan 1 Syndication
Tranche A 2023 30,614,949 42,178,475
Tranche B 2023 30,000,000 30,000,000
NCB Loan
NCB Loan 2026 61,411,004 73,594,207
Ijara loan
Tranche A 2025 43,784,826 51,023,811
Tranche B 2025 43,784,826 54,446,000
Tranche C 2025 50,909,091 71,112,000
Tranche D 2025 44,800,000 -
------------ ------------
Total non-current loans and borrowings 305,304,696 322,354,493
------------ ------------
Total loans and borrowings 391,001,574 406,047,328
============ ============
The Group has secured loans and borrowings as follows:
Bank credit facilities
The group is granted by Egyptian Gulf Bank (EGB) with an
overdraft facility limit amounting to EGP 45 million (2019: EGP 45
million) which is secured by promissory note & is
renewable.
Credit facility 2 is granted by Industrial Development Bank of
Egypt (IDBE) with an overdraft facility limit amounting to USD 5
million (2019: USD 4 million).
Credit facility 3 is granted by Al Ahli Bank of Kuwait (ABK)
with an overdraft facility limit amounting to USD 7 million (2019:
USD 7 million).
Credit Facility 4 is granted by Export development Bank of Egypt
(EBE) with a non-secured facility limit amounting to USD 12 million
(2019: USD 12 million) available for overdraft &/or Letters of
Guarantees.
Credit Facility 5 is granted by National Commercial Bank in KSA
(NCB) with a total amount of SAR 30 million (2019: SAR 30 million)
granted as a part from the NCB loan agreement to cover working
capital requirements and for overdraft &/or Letters of
Guarantees.
Credit Facility 6 is granted by Emirates National Bank of Dubai
S.A.E with a total amount of USD 25 million (2019: Nil).
Credit Facility 7 is granted by Abu Dhabi Commercial Bank -
Egypt with a total amount of EGP 80 million (2019: Nil).
RCF is USD 50 million Revolving Credit Facility Agreement dated
April 2019 granted to ADES International Holding PLC by syndicate
of banks which include Goldman Sachs Bank USA, The Mauritius
Commercial Bank Ltd, AL AHLI BANK OF KUWAIT and BMCE BANK
INTERNATIONAL PLC. in the total principal amount of USD 50 million,
which includes extensions, renewals or increases.
Loan 1 - Syndication
In April 2019 , the Group has signed a syndication loan
agreement with total amount of USD 100 million divided over four
banks which include European Bank for Reconstruction and
Development , Arab Petroleum Investments Corporation (APICORP) ,
Mashreqbank PSC and The Mauritius Commercial Bank Ltd. The loan is
divided into two tranches, the purpose and the use of each facility
is described as follows
a) Tranche A
- For refinancing existing financial indebtedness in full
(excluding the payment of the fees, costs and expenses incurred
under or in connection with the transaction documents). Tranche A
was utilised during 2019 to partially settle existing loan at the
time of utilization.
b) Tranche B
- Tranche B was utilised during 2019 to partially settle
existing loans at the time of utilization.
-
Tranche A Facility is a medium-term loans over 3.5 years to be
paid semi-annually in un-equal instalments starting from September
2019 and the last instalment will be on 22 March 2023. Tranche B
will be settled with bullet repayment on 22 March 2023 .
Ijara Loan
On May 2018, the Group has signed "Musharakah" agreement and
"Ijara" agreement with Alinma Bank to finance the acquisition of
the new rigs and related capital expenditure with the amount of the
equivalent to USD $140 million in equivalent to SAR.
On April 2019 , the Group has signed "Musharakah" agreement and
"Ijara" agreement with Alinma Bank to increase the facility to the
equivalent to USD 284 million .
All loans are medium-term loans over 7 years which includes 2
year grace period and is paid semi-annually in equal instalments
starting from 10 June 2020 and the last instalment will be on 10
June 2025.
Ijara loan is secured by the rigs purchased from Nabors Drilling
International II Limited (Jackup rig Admarine 656, Jackup rig
Admarine 656 and Jackup rig Admarine 657) and rigs purchased from
Weatherford Drilling International (ADES 40, ADES 158, ADES 174,
ADES 799 and ADES 889, Rig 144, Rig 798, Rig 157, Rig 173).
NCB Loan
On May 2019, the group signed a Long Term Loan Facility
agreement with National Commercial Bank ("NCB") for a total limit
of SAR 300 million (USD 80 million). As of 31 December 2020, the
Group has fully utilized the facility.
On December 2019, the group has amended the facility with
National Commercial Bank ("NCB") to be Sharia compliant (Islamic
Facility) without any change in the original agreed terms.
21 BONDS PAYABLE
On 16 April 2019, the Group issued USD 325,000,000 senior
secured notes at 8.625% interest due on 24 April 2024. Interest is
payable semi-annually on 24 April and 24 October each year. The
Group paid gross USD 11,841,032 as transaction costs for the
issuance of the bonds. The Group recognised interest expense of USD
30,507,763 for the twelve months period ended 31 December 2020
(2019: USD 20,589,926). The bonds payable is recognised at
amortised cost using the effective interest method.
22 PROVISIONS
*Accrued
/ acquired
As at during Paid during As at
USD 1-Jan the year the year 31-Dec
----------------------------------------- ----------- ------------ ------------ -----------
2020
Provision for end of service employment
benefits 16,375,652 5,348,358 (5,133,533) 16,590,477
Other provisions * 1,100,000 410,669 (922,610) 588,059
----------- ------------ ------------ -----------
17,475,652 5,759,027 (6,056,143) 17,178,536
=========== ============ ============ ===========
2019
Provision for end of service employment
benefits 12,959,590 4,899,967 (1,483,905) 16,375,652
Other provisions * 1,874,654 1,443,181 (2,217,835) 1,100,000
----------- ------------ ------------ -----------
14,834,244 6,343,148 (3,701,740) 17,475,652
=========== ============ ============ ===========
* Other provisions mainly represent provision made for
employee's taxes and withholding taxes which are borne by the
Group. The total balance is presented as current in the statement
of financial position.
23 SHARE CAPITAL
Share capital of the Group comprise:
USD 2020 2019
---------------------------- -------------- --------------
Authorised shares* 1,500,000,000 1,500,000,000
Issued shares 43,793,882 43,793,882
Shares par value 1 1
-------------- --------------
Issued and paid up capital 43,793,882 43,793,882
============== ==============
Share premium** 178,746,337 178,746,337
============== ==============
*As at 31 December 2020 and 2019, the authorised share capital
of the Company was USD 1,500,000,000 comprising of 1,500,000,000
shares.
** Share premium represents the excess of fair value received
over the par value of shares issued.
Movement in treasury shares as at 31 December is as follows:
Shares Treasury Shares
issued shares* outstanding
------------------ ----------------------------- ----------- ---------- ------------
Balance at beginning of
1 January 2020 year 43,793,882 300,000 43,493,882
Purchase of treasury shares
for cash - 2,241,482 2,241,482
31 December 2020 Balance at year end 43,793,882 2,541,482 41,252,400
Shares Treasury Shares
issued shares* outstanding
------------------ ----------------------------- ----------- ---------- ------------
Balance at beginning of
1 January 2019 year 43,793,882 - 43,793,882
Purchase of treasury shares
for cash - 300,000 300,000
31 December 2019 Balance at year end 43,793,882 300,000 43,493,882
* On 29 November 2019 the Group announced that pursuant to
Shareholders' authority granted at the Company's EGM on 30 October
2019 and on 23 June 2020 the Group announced that pursuant to
Shareholders' authority granted at the Company's AGM on 22 June
2020, it intends to commence purchases of ordinary shares in the
capital of the Company. As at 31 December 2020 the total number of
purchased ordinary shares that held as treasury shares is 2,541,482
(2019: 300,000) amounted to USD 24,989,266 (2019: USD 3,501,200) at
the purchase price.
The shareholding structure as at 31 December 2020 is:
Shareholding No. of Value
Shareholders % shares USD
----------------------------- --------------- ----------- -----------
ADES Investment Holding Ltd 61 26,896,250 26,896,250
Individual shareholders 39 16,897,632 16,897,632
--------------- ----------- -----------
100 43,793,882 43,793,882
=============== =========== ===========
The shareholding structure as at 31 December 2019 was:
Shareholding No. of Value
Shareholders % shares USD
------------------------------ --------------- ----------- -----------
ADES Investment Holding Ltd 62 27,179,084 27,179,084
Individual shareholders 38 16,614,798 16,614,798
--------------- ----------- -----------
100 43,793,882 43,793,882
=============== =========== ===========
24 EQUITY SETTLED SHARE-BASED PAYMENTS
Pursuant to the rules of the Long Term Incentive Plan ("LTIP")
adopted by ADES Investments Holding Ltd., the awards over a total
number of 1,136,451 ordinary shares of US$1.00 each in the capital
of the Company have been granted to certain employees of the
Company by ADES Investments Holding Ltd (the majority shareholder).
The LTIP is equity settled and effective from 1 January 2019.
According to the LTIP rules, the shares will be vested over a
period of three years and not subject to performance conditions.
These shares are currently held by ADES Investments Holding Ltd and
the awards will not be satisfied by the new issue of any shares in
the Company. Awards will normally lapse and cease to vest on
termination of employment. During the year, total number of awards
has been adjusted to 1,130,578 ordinary shares due to resignation
of certain employees.
The fair value at grant date was determined based on the market
price of the shares of the Company at grant date which is USD 13.45
per share.
For the year ended 31 December 2020, the Group has recognised
USD 3,845,870 (2019: USD 11,341,219) of share-based payment
expense, which represent 285,938 shares (2019: 843,211 shares)
vested during the year, in the consolidated statement of profit or
loss with a corresponding increase in equity (share-based payment
reserve). As at 31 December 2020, the outstanding number of shares
are 1,429 (2019: 293,240 shares). There were no forfeited nor
expired shares during the year.
25 RESERVES
Legal reserve
As required by Egyptian Companies' Law and one of the
Subsidiary's Articles of Association, 5% of the net profit for the
year is transferred to legal reserve. Advanced Energy System (ADES)
(S.A.E.) has resolved to discontinue further transfers as the
reserve totals 20% of issued share capital. As of 31 December 2020,
the balance of legal reserve amounted to USD 6,400,000 (2019: USD
6,400,000).
Merger reserve
As disclosed in Note 1, pursuant to a reorganisation plan, the
shareholders reorganised the Group by establishing the Company as a
new holding company. Merger reserve represents the difference
between the consideration paid to the shareholders under the
reorganisation plan and the nominal value of the shares of Advanced
Energy System (ADES) (S.A.E.). Prior to the reorganisation, the
merger reserve comprise of the share capital and share application
money of Advanced Energy System (ADES) (S.A.E.).
Cash flow hedge reserve
Interest rate risk Total
---------------------------------------------- ----------------------------------------------
USD 2020 2019 2020 2019
-------------------- --------------------- -------------------------- --------------------- --------------------------
Balance at 1
January 6,147,575 - 6,147,575 -
Gain (losses)
arising
on changes in fair
value of hedging
instruments
during the period - -6,748,538 - -6,748,538
loss reclassified
to
profit or loss -
when hedged item
has
affected profit
or loss 838,435 600,963 838,435 600,963
--------------------- -------------------------- --------------------- --------------------------
Balance at 31
December 6,986,010 6,147,575 6,986,010 6,147,575
===================== ========================== ===================== ==========================
The cash flow hedge reserve represents the cumulative amount of
gains and losses on hedging instruments deemed effective in cash
flow hedge relationships. The cumulative deferred gain or loss on
the hedging instrument is recognised in profit or loss only when
the hedged transaction impacts the profit or loss, or is included
directly in the initial cost or other carrying amount of the hedged
non-financial items (as basis adjustment, where applicable).
26 EARNINGS PER SHARE
Basic earnings per share (EPS) amounts are calculated by
dividing the profit for the year attributable to the ordinary
equity holders of the Parent by the weighted average number of
ordinary shares outstanding during the year after adjusting the
number of ordinary shares by the treasury shares.
Diluted EPS is calculated by adjusting the weighted average
number of ordinary shares outstanding assuming conversion of all
dilutive potential ordinary shares. As at 31 December 2020, there
were no potential dilutive shares and hence the basic and diluted
EPS is same.
The information necessary to calculate basic and diluted
earnings per share is as follows:
USD 2020 2019
---------------------------------------------------- ----------- -----------
Profit attributable to the ordinary equity holders
of the Parent for
basic and diluted EPS 19,621,487 28,630,013
----------- -----------
Weighted average number of ordinary shares -
basic and diluted 42,274,169 43,778,181
----------- -----------
Earnings per share - basic and diluted (USD per
share) 0.46 0.65
=========== ===========
27 RELATED PARTIES TRANSACTIONS AND BALANCES
Related party transactions
During the year, the following were the significant related
party transactions recorded in the consolidated statement of
comprehensive income or consolidated statement of financial
position:
During the year, the Group received funds from related party,
AMAK for Drilling & Petroleum Services Co. (other related
party), amounting to USD 1,258,284 for settlement of due from
balance of 31 December 2019.
Related party balances
Significant related party balances included in the consolidated
statement of financial position are as follows:
2020 2019
-------------------------------------------- ----------------------------------------
USD Due from Due to Due from Due to
-------------------------- -------------------------- ------------------- ------------------------- ----------------
Ultimate Shareholders
Sky Investment Holding
Ltd. 60,000 - 60,000 -
Intro Investment Holding
Ltd. 90,503 - 90,503 -
Shareholder
ADES Investment Holding
Ltd 291,064 - 48,864 -
Joint venture
Egyptian Chinese
Drilling Co.
(S.A.E.) - 57,192 - 57,192
Other related parties
TBS Holding 18,836 - 35,387 -
Misr El-Mahrousa 12,716 - 14,624 -
Advantage Drilling
Services 16,933 - 425,271 -
Advansys Project - - 1,308 -
Advansys Holding 5,299 - 5,299 -
AMAK for Drilling &
Petroleum
Services Co. 2,761,640 - 4,019,924 -
ADVANSYS FOR ENG.SERV. &
CONS - - - 1,032
Intro for Trading &
Contracting
Co. 289,674 - 39,738 -
Dough and more Food 55,922 - - -
Industries
-------------------------- ------------------- ------------------------- ----------------
3,602,587 57,192 4,740,918 58,224
========================== =================== ========================= ================
Compensation of key management personnel
The remuneration of key management personnel during the year was
as follows:
USD 2020 2019
----------------- ---------- -----------
Total benefits* 4,765,140 12,475,433
========== ===========
* Total benefits include annual salary, other allowances and
share based payments vested during the year. Comparative
information has been restated to conform with the current year
presentation
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 2020, the Group has not recorded any
provision for expected credit losses relating to receivables and
amounts owed by related parties (2019: USD Nil). This assessment is
undertaken each financial year by examining the financial position
of the related party and the market in which the related party
operates.
28 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Overview
The Group's principal financial liabilities comprise trade and
other payables, due to related parties, loans and borrowings. The
main purpose of these financial liabilities is to finance the
Group's operations and to provide support to its operations. The
Group's principal financial assets include cash in hand and at
banks, including highly liquid investments with maturity less than
90 days, trade receivables and contract assets, due from related
parties and other receivables that arrive directly from its
operations.
The Group is exposed to market risk, credit risk and liquidity
risk. The Board of Directors of the Company oversees the management
of these risks. The Board of Directors of the Company are supported
by senior management that advises on financial risks and the
appropriate financial risk governance framework for the Group. The
Group's senior management provides assurance to the Board of
Directors of the Group's financial risk activities are governed by
appropriate policies and procedures and that financial risks are
identified, measured and managed in accordance with Group policies
and Group risk appetite. The Board of Directors reviews and agrees
policies for managing each of these risks, which are summarised
below .
The Group has exposure to the following risks from its use of
financial instruments:
a) Credit risk,
b) Market risk:
i. Interest rate risk
ii. Foreign currency risk
c) Liquidity risk.
This note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risk, and the Group's
management of capital. The Group's current financial risk
management framework is a combination of formally documented risk
management policies in certain areas and informal risk management
policies in other areas .
Credit risk
Credit risk is the risk that counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk
from its operating activities (primarily for trade receivables,
contract assets and due from related parties) and from its
financing activities, including letter of guarantees with banks
foreign exchange transactions and other financial instruments. As
at 31 December 2020, the top three debtors of the Group represent
82% (2019: 72%) of trade receivable.
Trade receivables and contract assets
Customer credit risk is managed by the Group's established
policy, procedures and controls relating to customer credit risk
management. Credit quality of the customer is assessed based on a
credit rating policy and individual credit limits are defined in
accordance with this assessment. Outstanding customer receivables
are regularly monitored.
The requirement for impairment is analysed at each reporting
date on an individual basis for major clients. Additionally, a
large number of minor receivables are grouped into homogenous
groups and assessed for impairment collectively. The maximum
exposure to credit risk at the reporting date is the carrying value
of each class of financial assets. The Group does not hold
collateral as security. The Group evaluates the concentration of
risk with respect to trade receivables and contract assets as low,
as its wide number of customers operates in highly independent
markets. In addition, instalment dues are monitored on an ongoing
basis.
Other financial assets and bank balances
Credit risk from balances with banks and financial institutions
is managed by the Group's treasury department in accordance with
the Group's policy. Counterparty credit limits are reviewed by the
Group's Board of Directors on an annual basis, and may be updated
throughout the year subject to approval of the Group's senior
management. The limits are set to minimise the concentration of
risks and therefore mitigate financial loss through potential
counterparty's failure to make payments. The Group's exposure to
credit risk for the components of the consolidated statement of
financial position is the carrying amounts of these assets. The
Group limits its exposure to credit risk by only placing balances
with international banks and reputable local banks. Management does
not expect any counterparty in failing to meet its obligations.
Due from related parties
Due from related parties relates to transactions arising in the
normal course of business with minimal credit risk, with a maximum
exposure equal to the carrying amount of these balances.
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in
market prices, such as interest rate risk and currency risk.
Financial instruments affected by market risk include: loans and
borrowings. The Group neither designate hedge accounting or issue
derivative financial instruments. Refer to note 31 for the interest
rate swap classified as a trading derivative.
Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The Group's exposure to the risk
of changes in market interest rates relates primarily to the
Group's long-term debt obligations with floating interest
rates.
Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonably
possible change in interest rates on loans and borrowings. With all
other variables held constant, the Group's profit is affected
through the impact on floating rate borrowings (net of impact of
time deposits), as follows:
Increase Effect on
/
decrease profit
before
in basis income tax
points
31-Dec-20
USD 100 (1,310,116)
USD (100) 1,310,116
31-Dec-19
USD 100 (1,369,287)
USD (100) 1,369,287
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 EGP currency is considered as significant currency risk
and foreign currency changes for all other currencies is not
material.
Effect on
profit before
Change in income tax
USD rate USD
31-Dec
2020
EGP +10% 587,692
EGP -10% (587,692)
31-Dec
2019
EGP +10% 678,829
EGP -10% (678,829)
Liquidity risk
The cash flows, funding requirements and liquidity of the Group
are monitored by Group management. The Group's objective is to
maintain a balance between continuity of funding and flexibility
through the use of banks overdraft and bank loans. The Group
assessed the concentration of risk with respect to refinancing its
debt and concluded it to be low. Access to sources of funding is
sufficiently available.
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments.
Financial liabilities
Less than
3 3 to 12 1 to 5 Over
USD months months years 5 years Total
------------------------------------ ----------- ------------ ------------ ----------- --------------
As at 31 December 2020
Loans and borrowings 30,408,812 101,515,349 712,635,032 12,425,000 856,984,193
Trade and other payables* 57,721,496 96,506,076 - - 154,227,572
Due to related parties - 57,192 - - 57,192
Lease liability 2,484,186 3,367,784 15,599,605 - 21,451,575
Derivative financial instruments** 2,872,040 2,645,597 6,215,471 - 11,733,108
----------- ------------ ------------ ----------- --------------
Total undiscounted financial
liabilities 93,486,534 204,091,998 734,450,108 12,425,000 1,044,453,640
=========== ============ ============ =========== ==============
Less than
3 3 to 12 1 to 5 Over
USD months months years 5 years Total
------------------------------------ ----------- ------------ ------------ ----------- --------------
As at 31 December 2019
Loans and borrowings 20,680,991 100,671,911 770,139,912 12,465,041 903,957,855
Trade and other payables
* 74,541,408 111,812,110 10,988,839 - 197,342,357
Due to related parties - 57,224 - - 57,224
Lease liability 1,350,159 4,050,478 20,805,070 - 26,205,707
Derivative financial instruments** 1,478,748 1,652,980 6,584,893 - 9,716,621
----------- ------------ ------------ ----------- --------------
Total undiscounted financial
liabilities 98,051,306 218,244,703 808,518,714 12,465,041 1,137,279,764
=========== ============ ============ =========== ==============
*excluding finance lease liability and deferred mobilization
revenue.
** comparative information has been restated to conform with the
current year presentation.
Capital management
Capital includes share capital, share premium, reserves,
treasury shares and retained earnings.
The primary objective of the Group's capital management is to
ensure that it will be able to continue as a going concern while
maintaining a strong credit rating and healthy capital ratios in
order to support its business and maximise shareholder value. The
Group's strategy remains unchanged since inception. The Group
manages its capital structure and makes adjustments to it in light
of changes in economic conditions and the requirements of the
financial covenants. To maintain or adjust the capital structure,
the Group may adjust the dividend payment to shareholders or return
capital to shareholders. The Group monitors capital using a gearing
ratio, which is net debt divided by total equity plus net debt. The
Group's policy is to keep the gearing ratio between 30% and
80%.
USD 2020 2019
---------------------------------- -------------- --------------
Loans and borrowings (Note 20) 391,001,574 406,047,328
Bonds payable (Note 21) 315,479,756 313,158,968
Bank balances and cash (Note 12) (62,488,548) (119,601,159)
-------------- --------------
Net debt 643,992,782 599,605,137
Total equity 453,897,389 452,724,480
-------------- --------------
Total capital 1,097,890,171 1,052,329,617
============== ==============
Gearing ratio 59% 57%
Excessive risk concentration
Concentrations arise when a number of counterparties are engaged
in similar business activities, or activities in the same
geographical region, or have economic features that would cause
their ability to meet contractual obligations to be similarly
affected by changes in economic, political or other conditions.
Concentrations indicate the relative sensitivity of the Group's
performance to developments affecting a industry.
The Group's 2 customers (2019: 2 customers) drive more than 10%
revenue from contract with customers and contribute to 78% (2019:
73%) revenue from contract with customer.
29 FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments comprise financial assets and financial
liabilities. Financial assets of the Group include bank balances
and cash, trade receivables and contract assets, due from related
parties and other receivables. Financial liabilities of the Group
include trade payables, due to related parties, loans and
borrowings, other payables and derivative financial instrument. The
fair values of the financial assets and liabilities are not
materially different from their carrying value unless stated
otherwise.
30 CONTINGENT LIABILITIES AND COMMITMENTS
Contingent liabilities
USD 2020 2019
----------------------- ------------ ------------
Letter of guarantees* 103,872,724 119,933,552
============ ============
* comparative information has been restated to conform with the
current year presentation
Contingent liabilities represent letters of guarantee issued in
favour of Saudi Customs, Egyptian General Petroleum Corporation,
Suze Abu Zenima Petroleum Company (Petro Zenima), Kuwait Oil
Company, The Gulf of Suez Petroleum Company and others. The cover
margin on such guarantees amounted to USD 5,681,061 (31 December
2019: USD 5,527,168).
Following are the facilities of the Group:
-- The Group signed a Syndicated Credit facility agreement
arranged by Mashreq Bank PSC Dubai on 6 May 2019 and its subsequent
amendments for the facility amounting to USD 90,000,000 for the
issuance of Letters of Credit and Letters of Guarantees. The
financial institutions participating in the facility are Mashreq
Bank PSC Dubai, The Mauritius Commercial Bank Ltd and Warba Bank
K.S.C.P. As of 31 December 2020, the Group utilized letter of
guarantees a total amount of USD 62,244,633 (2019: USD
78,269,350).
-- The Group entered into a bilateral Unfunded Trade Finance
Facility Agreement with Arab Petroleum Investments Corporation
(APICORP) in July 2019 for total facility amounting to USD
30,000,000 for the issuance of Letters of Credit and Letters of
Guarantees. As of 31 December 2020, the Group utilized letter of
guarantees for a total amount of USD 2,874,244 (2019: USD
2,872,836).
-- The Group entered into a bilateral agreement with Al Ahli
bank of Kuwait Egypt "ABK" dated on 29 May 2019 amounting to USD
3,000,000, by means of a Letter of Guarantee agreement. As of 31
December 2020, and 31 December 2019, the Group has not utilized any
amounts under the facility.
-
-- The Group entered into specific indemnities with Bank of
America on 10 June 2019 for an amount up to USD 4,000,000 for the
issuance of certain Letters of Guarantees for some of its
affiliates or subsidiaries. As of 31 December 2019, the Group has
settled used LG's in 2020 and didn't renew the facility (2019: USD
2,866,644).
-- The Group entered into a bilateral agreement with Suez Canal
Bank "SCB" dated on 21 October 2018 amounting to USD 12,000,000.00
available to cover working capital needs including issuance of
letters of guarantees. As of 31 December 2020, the Group utilized
letter of guarantees for a total amount of USD 11,176,749 (2019:
USD 9,314,139).
-- The Group entered into bilateral agreement with EG Bank "EGB"
bank dated February 2020 amounting to USD 11,427,500, for issuance
of letters of guarantees. As of 31 December 2020, the Group
utilized letter of guarantees for a total amount of USD 5,082,325
(2019: USD 5,160,825).
-- The Group entered into a bilateral agreement with Alinma Bank
dated April 2019 in SAR equivalent to USD 10,000,000 available to
cover working capital needs including issuance of letters of
guarantees. As of 31 December 2020, the Group utilized letter of
guarantees for a total amount of USD 9,945,695 (2019: USD
9,945,695).
-- The Group entered into a bilateral agreement with National
Commercial Bank in KSA (NCB) dated May 2019 in SAR equivalent to
USD 2,933,333 available to issuance of letters of guarantees. As of
31 December 2020, the Group utilized letter of guarantees for a
total amount of USD NIL (2019: USD 2,504,183).
-- The Group entered into bilateral agreement with Export
development bank of Egypt "EBE" bank dated 18 July 2018 amounting
to USD 12,000,000.00, available to cover working capital needs
including issuance of letters of guarantees As of 31 December 2020
the Group utilized letter of guarantees for a total amount of USD
11,994,880 (2019: USD 8,999,880).
-- The Group entered into a bilateral agreement with Emirates
National Bank of Dubai S.A.E dated July 2020 in USD 25,000,000
available to cover working capital needs including a limit of USD
5,000,000 issuance of letters of guarantees and letters of credits.
As of 31 December 2020, the Group utilized letter of credit for a
total amount of USD 554,198.
31 DERIVATIVE FINANCIAL INSTRUMENTS
USD 2020 2019
----------------------------- ---------- ----------
Derivative held for trading
Interest rate swap 4,747,098 3,569,046
---------- ----------
Balance as at 31 December 4,747,098 3,569,046
========== ==========
Total current 2,232,381 1,150,326
Total non-current 2,514,717 2,418,720
The change in fair value of derivative held for trading
amounting to USD 1,178,052 is recorded as expense in the
consolidated statement of comprehensive income (2019: gain of
USD771,134). The following table shows an analysis of financial
instruments recorded at fair value by level of the fair value
hierarchy:
USD Total Level 1 Level 2 Level 3
---------------------------------- ------------ -------- ------------ --------
31-Dec-20
Derivative financial instrument:
Interest rate swap (4,747,098) - (4,747,098) -
------------ -------- ------------ --------
USD Total Level 1 Level 2 Level 3
---------------------------------- ------------ -------- ------------ --------
31-Dec-19
Derivative financial instrument:
Interest rate swap (3,569,046) - (3,569,046) -
------------ -------- ------------ --------
During the year ended 31 December 2020, there were no transfers
between Level 1 and Level 2 fair value measurements, and no
transfers into and out of Level 3 at fair value measurements. (31
December 2019: USD nil).
Interest rate swap derivatives relate to contracts taken out by
the Group with other counterparties (mainly financial institutions)
in which the Group either receives or pays a floating rate of
interest, respectively, in return for paying or receiving a fixed
rate of interest. The payment flows are usually netted against each
other, with the difference being paid by one party to the
other.
Derivative financial instruments - classified as held for
trading financial liabilities - are carried in the consolidated
statement of financial position at fair value at the total of USD
4,747,098 as of 31 December 2020 (2019: USD 3,569,046). The
carrying amount of these derivatives represents the negative mark
to market value of the remaining USD 100,000,000 notional amount of
the swap contract that was originally entered into by the Group
with Goldman Sachs (GS) in 2018, novated in 2019 and is still
outstanding at 31 December 2020. The remaining tenor of the GS
interest rate swap contract extends from 21 November 2019 until it
terminates on 22 March 2023. The total notional amount of the GS
interest rate swap before novation was USD 241,500,000 which
represented at that time the loans withdrawn as Tranche A and B
Loan under Loan 3 Syndication (note 20).
USD 2020 2019
--------------------------------------- ---------- ----------
Derivative financial liabilities that
are designated
and effective as hedging instruments
Interest rate swap contracts 6,986,010 6,147,575
---------- ----------
Balance as at 31 December 6,986,010 6,147,575
========== ==========
Total current 3,285,256 1,981,402
Total non-current 3,700,754 4,166,173
The following table shows an analysis of financial instruments
recorded at fair value by level of the fair value hierarchy:
Derivative financial liabilities - that are designated and
effective as hedging instruments (in a cash flow hedge
relationship) - are carried in the consolidated statement of
financial position at fair value at the total of USD 6,986,010 as
of 31 December 2020 (31 December 2019: USD 6,147,575). This
carrying amount represents the negative mark to market value for
SAR 434,147,727 notional amount equivalent to USD 115,772,727 (31
December 2019: USD 141,500,000 at date of novation) of the new swap
contract that was entered into by the Group with National
Commercial Bank (NCB) in 2019 (part of which was novated from the
original swap contract with GS above). The tenor of the new NCB
interest rate swap contract extends from 1 August 2019 until it
terminates on 10 June 2025. The objective of the cash flow hedge is
to protect against cash outflows variability related to
floating-rate interest payments on the hedged portion of the Alinma
credit facility using the 6-month SAIBOR rate (as shown in the
following table). Such cash outflows variability results from
changes which may occur on the 6-month SAIBOR market rate (i.e. the
designated benchmark interest rate).
Borrowing (hedged Type Notional amount Hedged interest Effective Maturity
item) rate date date
Alinma Credit Facility Bank loan SAR 434,147,727 Floating 1 Aug 2019 10 Jun 2025
(6m-SAIBOR)
---------- ---------------- ---------------- ----------- ------------
The following table shows an analysis of financial instruments
recorded at fair value by level of the fair value hierarchy:
-
USD Total Level 1 Level 2 Level 3
---------------------------------- ------------ -------- ------------ --------
31-Dec-20
Derivative financial instrument:
Interest rate swap (6,986,010) - (6,986,010) -
------------ -------- ------------ --------
USD Total Level 1 Level 2 Level 3
---------------------------------- ------------ -------- ------------ --------
31-Dec-19
Derivative financial instrument:
Interest rate swap (6,147,575) - (6,147,575) -
------------ -------- ------------ --------
-
During the year ended 31 December 2020, there were no transfers
between Level 1 and Level 2 fair value measurements, and no
transfers into and out of Level 3 at fair value measurements. (31
December 2019: Nil).
32 DIVIDEND DISTRIBUTIONS
In the current period, dividends of USD 2,367,975 (2019: USD
1,934,284) have been paid by UPDC, one of the Group's subsidiaries,
to its non-controlling shareholders in respect of 2019 profits. The
Board of Directors of ADES International Holding Plc does not
propose a dividend to the shareholders at the Annual General
Meeting.
33 SUBSEQUENT EVENTS
Offer by Innovative Energy Holding
On 8 March 2021, the Independent Directors of the group ("ADES
International") and Innovative Energy Holding Limited (a newly
formed company to be jointly owned by ADES Investments Holding Ltd,
The Public Investment Fund of the Kingdom of Saudi Arabia and Zamil
Group Investment Co) announced that they had reached agreement on
the terms of a recommended cash offer to be made by Innovative
Energy for the entire issued and to be issued ordinary share
capital of ADES International not already owned or treated as owned
by Innovative Energy and its associates for the purposes of the
DIFC Companies Law (the "Offer").
The Independent Directors and Innovative Energy are announced
that the offer document, containing the full terms and conditions
of the Offer and the procedures for its acceptance subject to
certain restrictions relating to persons in Restricted
Jurisdictions, the Offer Document is available on ADES
International's website and the Closing Date of the Offer is 1.00
p.m. (London time) on 20 April 2021.
Shares buy back
On 27 January 2021, ADES International Holding PLC has purchased
2,900 from its own shares with an average price of USD 10.00 per
share, in accordance with the Shareholders' authority granted at
the Company's AGM on 22 June 2020 and as part of the buyback
program announced on November 29, 2019.
Click on, or paste the following link into your web browser, to
view the associated PDF.
http://www.rns-pdf.londonstockexchange.com/rns/8853T_1-2021-3-30.pdf
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END
FR FIFIIVRIIVIL
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