REG - Capital Drilling Ltd - Half-year Results <Origin Href="QuoteRef">CAPD.L</Origin> - Part 4
17/08/2017 07:06
- Part 4: For the preceding part double click ID:nRSQ2455Oc
12. Commitments
The Group has the
following capital
commitments at 30 June
2017:
Committed capital 1,898,404 294,333
expenditure
The Group has outstanding
purchase orders amounting
to $6.5 million at 30
June 2017 (30 June 2016:
$4.0 million).
13. Contingencies
There has been no change
to our contingent
liabilities as disclosed
in the Annual Financial
Statements for the year
ended 31 December 2016.
14. Events post the reporting
date
Amendments and changes to
the Tanzania Mining Act
of 2010:The Tanzanian
Parliament passed SPECIAL
BILL SUPPLEMENT No2, No3
& No4 on the 28 of June
2017. The legislative
changes were Gazetted on
the 7 of July 2017,
resulting in the changes
being effective from this
date. Although the new
legislation has
significant impact on
mineral right holders, it
does impact on Capital
Drilling as a service
provider to the mineral
right holders. Included
in the Legislative
changes are additional
legislation to the
current Mining Act of
2010, with specific
reference to the
additional PART VIII
(LOCAL CONTENT, CORPORATE
SOCIAL RESPONSIBILITY &
INTEGRITY PLEDGE). Clause
102 of the additional
Part legislate Provision
of goods & services by
Tanzania entrepreneurs.
Mineral right holders
shall give preference to
goods or services
produced or available in
Tanzania. Where goods or
services are not
available in Tanzania a
Joint Venture shall be
established with 25%
shareholding from a local
Tanzania company. Clause
102(9) defines a local
Tanzania company as a
company incorporated
under the Tanzanian
Companies Act, with 100%
shareholding by Tanzanian
citizens, or a company in
a joint venture
partnership with
Tanzanian citizens with
shareholding of not less
than 51%. Capital
Drilling is currently
engaged with advisors in
Tanzania to determine the
practical application of
this clause.
CAPITAL DRILLING LIMITED
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the six months ended 30 June 2017
14. Events post the reporting date
(Continue)
Interim dividend declared:The directors
proposed that an interim dividend of
0.5 cent per share be paid to
shareholders on 6 October 2017. This
dividend has not been included as a
liability in these condensed
consolidated interim financial
statements. The proposed dividend is
payable to all shareholders on the
Register of Members on 8 September
2017. The total estimated interim
dividend to be paid is $0.7 million
(2016: $2 million). The payment of this
dividend will have no tax consequences
for the Group.
15. Going concern
The Group has set specific objectives
and also has policies and processes in
place to manage its capital and its
financial, credit risk and liquidity
risks.
The Group has borrowings and debt
facilities which, together with its
clients' receipts, fund its day to day
working capital requirements. Volatile
economic conditions may create
uncertainty particularly over (a) the
level of demand for the Group's
services; (b) exchange rate
fluctuations against the US Dollar and
thus the consequence for the cost of
the Group's direct costs; and (c) the
availability of bank financing in the
foreseeable future.
The Group's forecasts and projections,
taking into account potential changes
in its performance, show that the Group
should be able to operate within the
level of its capital structure. The
Group continuously discusses its future
borrowing and / or refinancing needs
with its bankers and no matters have
been drawn to its attention to suggest
that these needs may not be met on
acceptable terms.
The directors confirm that the Group
has adequate resources to continue in
operational existence for the
foreseeable future. The Group continues
to adopt the going concern basis of
accounting in preparing the interim
financial statements.
16. Financial instruments
Financial instruments that are measured
in the consolidated statement of
financial position or disclosed at fair
value require disclosure of fair value
measurements by level based on the
following fair value measurement
hierarchy:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
The Group's available-for-sale
financial assets, with a fair value of
$1.9 million (31 December 2016: $0.9
million) are listed equity securities
in the mining industry that measured at
fair value at the end of each reporting
period. The available-for-sale
investments are designated as level 1
in the fair value hierarchy. Their fair
value is determined using quote bid
prices in an active market. The Group's
held-for-trading financial assets, with
a fair value of $0.3 million (31
December 2016: $0.4 million) are
options and warrants to acquire shares
in listed equity securities that are
not traded in an active market. The
held-for-trading financials assets are
designated as level 3 in the fair value
hierarchy. Their fair value is
determined using a binomial tree model
valuation technique based on observable
market data that includes the value of
the underlying security, the exercise
price, volatility and risk free rate of
return. The fair values of financial
instruments that are not traded in an
active market are determined using
standard valuation techniques. These
valuation techniques maximise the use
of observable market data where
available and rely as little as
possible on Group specific estimates.
The directors consider that the
carrying value amounts of financial
assets and financial liabilities
recorded at amortised cost in the
consolidated financial statements are
approximately equal to their fair
values. The fair values disclosed for
the financial assets and financial
liabilities are classified in level 3
of the fair value hierarchy have been
assessed to approximate their carrying
amounts based on a discounted cash flow
assessment.
CAPITAL DRILLING LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITY
For the six months ended 30 June 2017
We confirm that to the best of our knowledge:
a) the condensed set of consolidated interim financial statements, which has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Boards gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Group as required by DTR4.2.4R;
b) the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR4.2.8; and
c) there has been no significant individual related party transactions during the first six months of the financial year and nor have there been any significant changes in the Group's related party relationships from those reported in the Group's annual financial statement for the year ended 31 December 2016.
ON BEHALF OF THE DIRECTORS
Jamie Boyton
Chairman of the Board of Directors
Brian Rudd
Executive Director
CAPITAL DRILLING LIMITED
Principal Risks and Uncertainties
The Group operates in environments that pose various risks and uncertainties.
Aside from the generic risks that face all businesses, the Group's business,
financial condition or results of operations could be materially and adversely
affected by any of the risks described below.
These risks should not be regarded as a complete and comprehensive statement
of all potential risks and uncertainties nor are they listed in order of
magnitude or probability. Additional risks and uncertainties that are not
presently known to the Directors, or which they currently deem immaterial, may
also have an adverse effect on the Group's operating results, financial
condition and prospects.
The principal risks associated with the business are:
Fluctuation in levels of mining activity The Group is highly dependent on the levels of mineral exploration, development and production activity within the markets in which it operates. A reduction in exploration, development and production activities, or in the budgeted expenditure of mining and mineral exploration companies, will cause a decline in the demand for drilling rigs and drilling services. The Group is seeking to balance these risks by building a portfolio of long term drilling contracts, expanding into new geographic areas and implementing its Lean
Operating Model.
Reliance on key customers The Group's revenue is reliant on a small number of key customers. The loss of a key customer, or a significant reduction in the demand for drilling provided to a key customer will have a significant adverse effect on the Group's revenues. The Group has entered into long term production contracts with its key customers for periods between 2 to 5 years. Contract renewal negotiations are initiated well in
advance of expiry of contracts to ensure contract renewals are concluded without interruption to drilling services. The Group has and continues to monitor projects
closely and invest a significant amount of time into client relationship and service level monitoring at all levels of the business. A key part of this process is the
quarterly project steering committee meetings with key client stakeholders that provide a forum for monitoring and reporting on project performance and key performance
indicators ("KPI's"), contractual issues, pricing and renewal.
Key personnel and staff retention The Group's ability to implement a strategy of pursuing expansion opportunities is dependent on the efforts and abilities of its executive directors and senior managers. In addition, the Group's operations depend, in part, upon the continued services of certain key employees. If the Group loses the services of any of its existing key personnel without timely and suitable replacements, or is unable to attract and retain new personnel with suitable experience as it grows, the Group's business, financial condition, results of operations and prospects may be materially and adversely affected. In addition, business may be lost to competitors which members of senior management may join after leaving their positions with the Group. The Group has expanded capabilities in the areas of business development, supply chain, finance, training and health and safety and continues to do so through the
recruiting of senior managers in the various fields, implementing comprehensive training programmes and providing employees with international exposure in their fields.
The Group has implemented remuneration policies that seeks to recruit suitable talent and to remunerate talent at levels commensurate with market levels.
Operating risks Operations are subject to various risks associated with drilling including, in the case of employees, personal injury, malaria and loss of life and, in the Group's case, damage and destruction to property and equipment and interruption or suspension of drill site operations due to unsafe drilling operations. The occurrence of any of these events could adversely impact the Group's business, financial condition, results of operations and prospects, lead to legal proceedings and damage the Group's reputation. In particular, clients are placing an increasing focus on occupational health and safety, and deterioration in the Group's safety record may result in the loss of key clients. The Executive Leadership Team and managers provide leadership to projects on the management of these risks and actively engage with all levels of employees. The Group
have implemented and continue to monitor and update a range of health and safety policies and procedures, including equipment standards and standard work procedures.
Employees are provided with training regarding risks associated with their employment, policies and standard work procedures. All serious near misses or incidents are
reported and fully investigated and mitigating actions implemented. Health and Safety statistics and incident reports are monitored throughout our projects and the
various management structures of the Group, including the HSSE committee. Where necessary policies and procedures are updated to reflect developments and improvement
needs. The Group maintains adequate insurance policies to provide insurance cover against operating risks.
Currency fluctuations The Group receives the majority of its revenues in US dollars. However, some of the Group's costs are in other currencies in the jurisdictions in which it operates. Foreign currency fluctuations and exchange rate risks between the value of the US dollar and the value of other currencies may increase the cost of the Group's operations and could adversely affect the financial results. As a result, the Group is exposed to currency fluctuations and exchange rate risks. To minimise the Group's risk, the Group tries to match the currency of operating costs with the currency of revenue. Funds are pooled centrally in the head office bank
accounts to the maximum extent possible. The group have implemented procedures to allow for the repatriation of funds to the Group's Head Office bank accounts from
jurisdictions where exchange control regulations are in effect.
Political, economic and legislative risk The Group operates in a number of jurisdictions where the political, economic and legal systems are less predictable than in countries with more developed industrial structures. Significant changes in the political, economic or legal landscape in such countries may have a material effect on the Group's operations in those countries. Potential impacts include restrictions on the export of currency, expropriation of assets, imposition of royalties or other taxes targeted at mining companies, and requirements for local ownership. Political instability can also result in civil unrest, industrial action and nullification of existing agreements, mining permits or leases. Any of these may adversely affect the Group's operations or results of those operations. The Group has invested in a number of countries thereby diversifying exposure to any single jurisdiction. The Group monitors political and regulatory developments in the
jurisdictions it operates in through a number of service providers and advisors. Senior management regularly reports to the Board on any political or regulatory changes
in the jurisdictions we operate in. Where significant events occur, we work closely with our clients, advisors and other stakeholders to address these events.
Political, economic and legislative risk
The Group operates in a number of jurisdictions where the political, economic
and legal systems are less predictable than in countries with more developed
industrial structures. Significant changes in the political, economic or
legal landscape in such countries may have a material effect on the Group's
operations in those countries. Potential impacts include restrictions on the
export of currency, expropriation of assets, imposition of royalties or other
taxes targeted at mining companies, and requirements for local ownership.
Political instability can also result in civil unrest, industrial action and
nullification of existing agreements, mining permits or leases. Any of these
may adversely affect the Group's operations or results of those operations.
The Group has invested in a number of countries thereby diversifying exposure
to any single jurisdiction. The Group monitors political and regulatory
developments in the jurisdictions it operates in through a number of service
providers and advisors. Senior management regularly reports to the Board on
any political or regulatory changes in the jurisdictions we operate in. Where
significant events occur, we work closely with our clients, advisors and other
stakeholders to address these events.
CAPITAL DRILLING LIMITED
APPENDIX: GLOSSARY AND ALTERNATIVE PERFORMANCE MEASURES
The following terms and alternative performance measures are used in the half year results release for the six months ended 30 June 2017.
ARPOR (Average Revenue Per Operating Rig) Average revenue for the period / Monthly average active operating rig
EBITDA Earnings before interest, taxes, depreciation, amortisation and additional specific items
NET CASH (DEBT) Cash and cash equivalents less short term and long term debt
RETURN ON CAPITAL EMPLOYED (%) Profit from operations / (Average total assets - Average current liabilities)
RETURN ON TOTAL ASSETS (%) Profit from operations / Average total assets
OPERATING CASH FLOW MARGIN Cash from operations / Revenue
NET ASSET VALUE PER SHARE (CENTS) Total equity / Weighted average number of ordinary shares
AIFR All incident frequency rate
DES Drilling equipment standards
HSSE Health, Safety, Social and Environment
KPI Key Performance Indicator
LTI Lost Time Injury
Reconciliation of alternative performance measures to the financial statements:
Six months ended
30 June 2017 30 June 2016
$ $
ARPOR can be reconciled from the financial statements as per the below:
Revenue per financial statements ($) 62,332,410 41,714,801
Non-drilling revenue ($) (2,654,410) (2,123,175)
Revenue used in the calculation of ARPOR ($) 59,678,000 39,591,626
Average revenue for the period 9,946,333 6,598,604
Monthly Average active operating Rigs 52 38
Monthly Average operating Rigs 93 94
ARPOR (rounded to nearest $'000) 191,000 175,000
EBITDA can be reconciled from the condensed consolidated interim financial statements as per the below:
Profit (Loss) for the period 2,580,275 (840,057)
Depreciation 6,392,131 7,089,799
Taxation 1,945,364 1,588,416
Share of income from associate (5,213) (9,587)
Interest income (137,264) (6,763)
Finance charges 543,557 253,477
Fair value adjustment on financial assets through profit and loss - Share Options 123,989 (655,224)
Realised gain (loss) on available-for-sale shares 183,495 (90,202)
EBITDA 11,626,334 7,329,859
Six months ended
30 June 2017 30 June 2016
$ $
Net cash (debt) can be reconciled
from the condensed consolidated
interim financial statements as
per the below:
Cash and cash equivalents 18,422,658 12,728,555
Long-term liabilities - (10,000,000)
Current portion of long-term (15,124,480) (2,095,125)
liabilities
Net cash (debt) 3,298,178 633,430
Net Asset Value per share (cents)
can be calculated as per the
below:
Total Equity 67,963,344 73,420,361
Weighted average number of 135,076,227 134,753,539
ordinary shares used in the
calculation of basic earnings per
share
Net Asset Value per share (Cents) 50.31 54.48
EBITDA
EBITDA represents profit or loss
for the period before interest,
income taxes, depreciation and
amortisation adjusted for share of
income (loss) from associate,
interest income, finance charge,
fair value adjustment on financial
assets at fair value through
profit and loss and realised gain
(loss) on available-for-sale
shares.
EBITDA is non-IFRS financial
measure that is used as
supplemental financial measures by
management and external users of
financial statements, such as
investors, to assess our financial
and operating performance. These
non-IFRS financial measures will
assist our management and
investors by increasing the
comparability of our performance
from period to period.
We believe that including EBITDA
assists our management and
investors in:- (i) understanding
and analysing the results of our
operating and business
performance, and (ii) monitoring
our ongoing financial and
operational strength in assessing
whether to continue to hold our
shares. This is achieved by
excluding the potentially
disparate effects between periods
of depreciation and amortisation,
income (loss) from associate,
interest income, finance charge,
fair value adjustment on financial
assets at fair value through
profit and loss and realised gain
(loss) on available-for-sale
shares, which may significantly
affect comparability of results of
operations between periods. (iii)
EBITDA has limitations as
analytical tools and should not be
considered as alternatives to, or
as substitutes for, or superior
to, profit or loss for the period
or any other measure of financial
performance presented in
accordance with IFRS. Further
other companies in our industry
may calculate these measures
differently than we do, limiting
their usefulness as a comparative
measure.
Net cash (debt)
Net cash (debt) is a non-GAAP measure that is defined as
cash and cash equivalents less short term and long term
debt.
Management believe that net cash (debt) is a useful
indicator of the Group's indebtedness, financial
flexibility and capital structure because it indicates
the level of borrowings after taking account of cash and
cash equivalents within the Group's business that could
be utilised to pay down the outstanding borrowings.
Management believes that net debt can assist securities
analysts, investors and other parties to evaluate the
Group. Net cash (debt) and similar measures are used by
different companies for differing purposes and are often
calculated in ways that reflect the circumstances of
those companies. Accordingly, caution is required in
comparing net debt as reported by the Group to net cash
(debt) of other companies.
Net Asset Value per share (cents)
Net Asset Value per share (cents) is a non-financial
measure taking into consideration the total equity over
the weighted average number of shares used in the
calculation of basic earnings per share. Management
believes that the net asset value per share is a useful
indicator of the level of safety associated with each
individual share because it indicates the amount of
money that a shareholder would get if the Group were to
liquidate. Management believes that net asset value per
share can assist securities analysts, investors and
other parties to evaluate the Group. Net asset value per
share and similar measures are used by different
companies for differing purposes and are often
calculated in ways that reflect the circumstances of
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