REG - IG Seismic Services - 1H2014 Financial Report <Origin Href="QuoteRef">IGSSq.L</Origin> - Part 1

IG Seismic ServicesAnnouncement

29/10/2014 13:06

RNS Number : 1078S
IG Seismic Services PLC
19 September 2014
IG Seismic Services Plc
Interim condensed consolidated
financial statements
for the 6 month period ended 30 June 2014 (unaudited)
Contents
Report on review of interim condensed consolidated financial statements................................................... 1
Interim consolidated statement of financial position....................................................................................... 2
Interim consolidated statement of comprehensive income............................................................................ 3
Interim consolidated statement of cash flows................................................................................................. 4
Interim consolidated statement of changes in equity...................................................................................... 5
Notes to the interim condensed consolidated financial statements................................................................ 6
Report on review of interim condensed consolidated financial statements
To the shareholders of IG Seismic Services Plc
Introduction
We have reviewed the accompanying interim condensed consolidated financial statements of IGSeismic Services Plc and its subsidiaries (the "Group") as at 30 June 2014, comprising the interim consolidated statement of financial position as at 30 June 2014 and the related interim statements of comprehensive income, changes in equity and cash flows for the six-month period then ended and explanatory notes. Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting ("IAS 34") as issued by International Accounting Standards Board and adopted by the European Union. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review.
Scope of review
We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditorof the Entity", as issued by the International Accounting Standards Board and adopted by the European Union. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing, and consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34.
15 September 2014
IG Seismic Services Plc
Interim consolidated statement of financial position (unaudited)
(amounts in thousands of Russian Roubles)

Note
At 30 June
2014
(unaudited)
At 31 December
2013
(audited)
Assets



Non-current assets



Property, plant and equipment
5
14,216,975
15,212,832
Goodwill

3,760,082
3,760,082
Intangible assets other than goodwill

294,656
310,149
Investments in associates

974,230
1,009,989
Other non-current assets

36,550
47,844
Deferred tax assets

187,088
235,649
Total non-current assets

19,469,581
20,576,545
Current assets



Inventories

2,365,450
2,230,070
Accounts receivable and prepayments
6
7,094,086
7,564,265
Other financial assets
7
499,501
227,989
VAT receivable

198,626
691,727
Prepayments for income tax

104,132
99,394
Other current assets
8
105,003
26,158
Cash and cash equivalents
9
172,991
711,396
Total current assets

10,539,789
11,550,999
Total assets

30,009,370
32,127,544
Equity and liabilities



Equity



Share capital

6,513
6,513
Share premium

13,837,978
13,837,978
Reverse acquisition reserve

(5,805,259)
(5,805,259)
Other non-distributable reserves

2,233,488
2,233,488
Foreign currency translations reserve

(261,592)
270
Accumulated losses

(956,110)
(1,099,123)
Total shareholders' equity

9,055,018
9,173,867
Non-controlling interest

886,699
1,806,717
Total equity

9,941,717
10,980,584
Non-current liabilities



Loans and borrowings
10
7,496,535
10,330,310
Finance lease liabilities

-
1,935
Promissory notes payable
11
341,078
606,774
Deferred tax liabilities

1,500,080
1,482,208
Total non-current liabilities

9,337,693
12,421,227
Current liabilities



Loans and borrowings
10
3,661,576
2,077,111
Promissory notes payable
11
480,194
496,612
Accounts payable
11
4,454,818
4,642,671
Income tax payable

23,608
21,349
Other taxes payable
12
2,071,042
1,444,045
Provisions

34,960
39,891
Finance lease liabilities

3,762
4,054
Total current liabilities

10,729,960
8,725,733
Total liabilities

20,067,653
21,146,960
Total liabilities and equity

30,009,370
32,127,544
These interim condensed consolidated financial statements were approved and signed by the Director on 15 September 2014
Nikolay Levitskiy



Director



IG Seismic Services Plc
Interim consolidated statement of comprehensiveincome (unaudited)
(amounts in thousands of Russian Roubles)


For six months ended

Note
30 June 2014
(unaudited)
30 June2013
(unaudited)




Revenue
14
10,398,232
10,716,216
Cost of sales
15
(8,404,831)
(8,468,745)
Gross profit

1,993,401
2,247,471




General and administrative expenses
16
(1,226,495)
(1,052,287)
Other operating income

69,315
75,891
Other operating expense
17
(285,374)
(255,295)
Operating profit

550,847
1,015,780




Finance income

43,646
48,470
Finance expense

(803,225)
(787,208)
Net foreign exchange loss
18
(10,512)
(188,154)
Share of (loss)/profit of an associate

(35,759)
123,899
(Loss)/profit before tax

(255,003)
212,787




Current income tax expense

(5,463)
(19,712)
Deferred income tax expense

(74,359)
(113,858)
(Loss)/profit for the period

(334,825)
79,217




Other comprehensive expense to be reclassified to profit/loss in subsequent periods



Translation difference

(276,256)
(2,918)
Total comprehensive (expense)/income

(611,081)
76,299
(Loss)/profit for the period attributable to:



Shareholders of IG Seismic Services plc

(294,000)
94,134
Non-controlling interest

(40,825)
(14,917)




Total comprehensive (expense)/income attributable to:



Shareholders of IG Seismic Services plc

(555,862)
91,391
Non-controlling interest

(55,219)
(15,092)




(Loss)/earning per share:



Basic earning for the period attributable to shareholders of IGSeismic Services plc
19
-14.11 .
4.52 .
IG Seismic Services Plc
Interim consolidated statement of cash flows (unaudited)
(amounts in thousands of Russian Roubles)


For six months ended

Note
30 June 2014
(unaudited)
30 June 2013
(unaudited)
Cash flows from operating activities



(Loss)/profit before tax

(255,003)
212,787
Adjustments for:



Depreciation and amortization
15, 16
1,359,927
1,102,814
Bad debt, provisions and inventory allowance

39,346
81,928
Loss on disposal of property, plant and equipment and other assets
17
99,179
100,878
Net interest expense

759,579
738,738
Net foreign exchange loss
18
10,512
188,154
Share in loss/(profit) of an associate

35,759
(123,899)
Cash flows from operating activities before changes in working capital

2,049,299
2,301,400
Working capital adjustments net of acquisitions



Change in accounts receivable

203,341
342,263
Change in inventories

(175,252)
80,418
Change in prepayments and other current assets

366,283
138,195
Change in accounts payable

497,895
1,127,118
Change in taxes payable other than income tax

591,629
791,895
Change in provisions

(4,931)
(33,091)
Cash flows before income tax

3,528,264
4,748,198
Income tax paid

(15,753)
(13,801)
Net cash from operating activities

3,512,511
4,734,397
Investing activities



Purchase of property, plant and equipment

(1,226,867)
(1,390,045)
Proceeds from sale of property, plant and equipment

2,017
2,729
Short-term loans issued

(22,304)
(2,946)
Purchase of bank promissory notes 
7
(239,926)
-
Interest received

-
93
Net cash used in investing activities

(1,487,080)
(1,390,169)
Financing activities



Proceeds from loans and borrowings

19,121,327
4,920,794
Repayment of loans and borrowings

(20,422,851)
(7,569,861)
Repayment of finance lease obligations

(2,227)
(157,951)
Interest paid

(733,303)
(764,880)
Payment to acquire non-controlling interest
3
(283,242)
-
Redemption of promissory notes

(238,279)
(80,517)
Net cash used in financing activities

(2,558,575)
(3,652,415)
Net decrease in cash and cash equivalents

(533,144)
(308,187)
Cash and cash equivalents at the beginning of the reporting period
9
711,396
565,407
Effect of exchange differences on cash and cash equivalents

(5,261)
(4,873)
Cash and cash equivalents at the end of the reporting period
9
172,991
252,347



IG Seismic Services Plc
Interim consolidated statement of changes in equity (unaudited)
(amounts in thousands of Russian Roubles)

Attributable to shareholders of IG Seismic Services plc



Share
capital
Share
premium
Reverse
acquisition
reserve
Other non-distributable reserves
Foreign
currency
translation
reserve
Accumulated
(losses) / 
retained
earnings
Total
Non-controlling
interests
Total
equity
Balance as at 1 January 2013
6,513
13,837,978
(5,805,259)
2,233,488
412,451
(568,950)
10,116,221
1,207,011
11,323,232
Profit/(loss) for the period
-
-
-
-
-
94,134
94,134
(14,917)
79,217
Other comprehensive expense
-
-
-
-
(2,743)
-
(2,743)
(175)
(2,918)
Total comprehensive (expense)/income
-
-
-
-
(2,743)
94,134
91,391
(15,092)
76,299
Balance as at 30 June 2013
6,513
13,837,978
(5,805,259)
2,233,488
409,708
(474,816)
10,207,612
1,191,919
11,399,531










Balance as at 1 January 2014
6,513
13,837,978
(5,805,259)
2,233,488
270
(1,099,123)
9,173,867
1,806,717
10,980,584
Loss for the period
-
-
-
-
-
(294,000)
(294,000)
(40,825)
(334,825)
Other comprehensive expense
-
-
-
-
(261,862)
-
(261,862)
(14,394)
(276,256)
Total comprehensive expense
-
-
-
-
(261,862)
(294,000)
(555,862)
(55,219)
(611,081)
Acquisition of non-controlling interest (Note 3)
-
-
-
-
-
437,013
437,013
(864,799)
(427,786)
Balance as at 30 June 2014 (unaudited)
6,513
13,837,978
(5,805,259)
2,233,488
(261,592)
(956,110)
9,055,018
886,699
9,941,717



IG Seismic Services Plc
Notes to the interim condensed consolidated financial statements (unaudited)
for 6 months ended 30 June 2014
1. Corporate information
Organizational structure and operations
These are the interim condensed consolidated financial statements of IG Seismic ServicesPLC (the "Company" or "IGSS") and its subsidiaries (together referred to as the "Group") which is engaged in provision of land and transition zone seismic data acquisition and data processing and interpretation to the petroleum industry in the Russian Federation, the Commonwealth of Independent States ("CIS") and other countries outside of the CIS. 
The Company was incorporated in Cyprus as a private limited liability company in accordance with the provisions of the Companies Law, Cap. 113. Its registered office is located at 2-4 Arch. Makariou III Avenue, Capital Center, 9th floor, P.C. 1065, Nicosia, Cyprus. On 10 October 2012 the Company changed its legal form from private limited company into public limited company.
On 11 December 2012 the Company's GDRs were admitted to the Official List maintained by theUK Listing Authority and started trading on the London Stock Exchange's main market on 12December 2012. Global Depositary Receipts (GDRs) of the Companyrepresenting two ordinary shares each are listed and traded on the Main Market of the London Stock Exchange under the ticker IGSS (Bloomberg: IGSS LI, Reuters: IGSSq.L). As of 30 June 2014, the free float of the Company amounted to approximately 24.4%of the issued share capital. The JPMorgan Chase Bank is the depositary bank for the GDR programme of the Company. In April2014 Mr.Nikolay Levitskiy became the ultimate controlling shareholder of the Group.
Shareholder structure as of 30 June 2014:
Mr. Nikolay Levitskiy 55.82%
Schlumberger12.00%
Industrial Investors Group 7.78%
Other institutional and private shareholders24.40%
The Group did not pursue any business acquisitions throughout the first six months 2014 and to the date of the issuance of these interim condensed consolidated financial statements, except for the acquisition of certain non-controlling interest (Note 3).
2. Basis of preparation
Statement of compliance
The interim condensed consolidated financial statements for the six months ended 30 June 2014 have been prepared in compliance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board and adopted by the European Union.
The Group entities registered in the territory of the Russian Federation ("RF") maintain accounting records and prepare financial reports in accordance with Federal Law No.402-FZ Concerning Accounting, the Statute Concerning Accounting and Reporting in the RF and Accounting Statementsas approved by relevant orders of the RF Ministry of Finance. The Group entities registered in the territory of the Kazakhstan ("KZ") maintain accounting records and prepare financial reports in accordance with Law of the Republic of Kazakhstan No. 234-III Concerning Accounting.

IG Seismic Services Plc
Notes to the interim condensed consolidated financial statements (unaudited) (continued)
2. Basis of preparation (continued)
Statement of compliance (continued)
These consolidated financial statements have been prepared based on the Russian and Kazakh statutory accounting data adjusted for the purposes of presentation in accordance with IFRS.
The Group has elected to present statement of comprehensive income, statement of financial position, statement of changes in equity and statement of cash flows in the same format as the annual financial statements.
The interim condensed consolidated financial statements do not include all the information and disclosures required to be included in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at and for the year ended 31December 2013.
Basis of measurement
These interim condensed consolidated financial statements have been prepared on a historical cost basis, except for certain items that have been measured at fair value as disclosed in the accounting policies. The interim condensed consolidated financial statements are presented in Russian Roubles ("RUR") and all values are rounded to the nearest thousand except when otherwise indicated.
Functional and presentation currency
The Group's revenues, profits and cash flows are primarily generated in Russian Roubles, and are expected to remain principally denominated in Russian Roubles in the future. During the first half of 2014, the Group changed the currency in which it presentsits consolidated financial statements from US dollars to Russian Roubles, in order to better reflect the underlying performance of the Group.
A change in presentation currency is a change in accounting policy which is accounted for retrospectively. Interim condensed consolidated financial statements including comparative amounts as of 31 December 2013 and for the period ended 30 June 2013 previouslyreported in US dollars have been restated into Russian Roubles using the procedures outlined below:
assets and liabilities denominated in non-Russian Roubles currencies were translated into Russian Roubles at the closing rates of exchange on the relevant statement of financial position date;
non-Russian Roubles income and expenditure were translated at the average rates of exchange prevailing for the relevant period;
the cumulative translation reserves except for subsidiaries registered in the territory of the Kazakhstan were set to nil at 1 January 2013, the earliest statement of financial position date which will be presented in the annual consolidated financial statements due to the abovementioned change in accounting policy,and these reserves have been restated on the basis that the Group had reported in Russian Roubles as if this had always been the Group's presentation currency. Share capital, share premium and the other reserves were translated at the historic rates and subsequent rates prevailing on the date of each transaction;


all exchange rates were extracted from the Group's underlying financial records.
2. Basis of preparation (continued)
Going concern
These interim condensed consolidated financial statements have been prepared on the going concern basis which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. These accompanying financial statements do not include any adjustments that may be necessary if the Group is unable to continue as a going concern. The Group's interim results and financial position are affected by seasonal factors and are not necessarily indicative of the results that may be expected for the year ending 31December 2014. Management expects that the Group will be in compliance with its financial obligations and has adequate resources to continue in operational existence in the foreseeable future.
Seasonality
There is a limited season for providing seismic services in certain Siberian regions of the Russian Federation which remain in flood-like, or swampy conditions, in warm weather. Such conditions generally restrict the provision of seismic services in Siberia to a period from December to April.
New standards, interpretations and amendments adopted by the Group
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2013 except for the adoption of new standards and interpretations effective 1 January 2014. The nature and the impact of each new standard or amendment is described below:
Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32
These amendments clarify the meaning of "currently has a legally enforceable right to set-off". The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlementmechanisms that are not simultaneous. These amendments have no impact on the Group.
Novation of Derivatives and Continuation of Hedge Accounting - Amendments to IAS 39
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments have no impact on the Group.
IFRIC 21 Levies
IFRIC 21 is effective for annual periods beginning on or after 1 January 2014 and is applied retrospectively. It is applicable to all levies imposed by governments under legislation, other than outflows that are within the scope of other standards (e.g., IAS 12 Income Taxes)and fines or other penalties for breaches of legislation. These interpretation has no impact on the Group.
The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective..


3. Acquisition of non-controlling interest
In June 2014, the Group acquired an additional 10.43% interest in the voting shares of its major operating subsidiary OJSC Geotech Seismic Services, having increased its ownership interest to98.84%, and 1.53% in the share capital of LLC Boguchanskaya Geophisicheskaya Expeditsiya, having increased its ownership interest to 97.14%.Cash consideration of 406,595 was paid to the non-controlling shareholders and expenses in the amount of 21,191 were incurred in relation to these transactions.
Following is a schedule of additional interests acquired by the Group in its operational subsidiaries:
Cash consideration paid to non-controlling shareholders and related expenses
427,786
Carrying value of the additional interests
(864,799)
Difference recognized in retained earnings within Equity
(437,013)
4. Segment information 
For management purposes, the Company is organized into business units based on their products and services, and has two reportable operating segments which are Seismic segment and Data processing and interpretation (DPI) segment. Seismic segment includes conducting seismic works for the purpose of search and exploration of oil and gas fields, comprising oilfield seismic works in two or three dimensions, field seismic works in a land-sea transit zone. DPIsegment includes processing of seismic and geophysical data, structural interpretation of results of processing, dynamic processing and interpretation of results of processing.
Information on transactions of the holding and managerial companies which conduct managerial services and financial and investment activities was included into the Corporate block, that is not separate operating segment. Information on transactions of the small non-core companies (subsidiaries) was included into the Other block, that is not separate operating segment.
Transfer prices between Seismic segment, DPI segment and Corporate block are on an arm's length basis in a manner similar to transactions with third parties. Internal revenues and expenses primarily pertain to management services rendered by Corporate block to Seismic segment and DPI segment. In the periods presented below, the Group operated primarily in theRussian Federation and Kazakhstan.
The following table's present revenue and profit information regarding the Group's segments for the six months ended 30 June 2014 and 2013, respectively. Intersegment revenues and intersegment costs are presented for reference only and are not taken into account in calculating gross profit.


4. Segment information (continued)
For six months ended
30June 2014
Seismic
segment
DPI
segment
Others
Corporate
block
Adjustments and eliminations
Total
Revenue - external
10,295,926
96,168
3,530
2,608
-
10,398,232
Revenues from transactions with other operating segments of the Group
63,471
66,585
13,584
491,742
(635,382)
-
Cost of sales
(8,213,099)
(164,993)
(25,859)
(880)
-
(8,404,831)
Intersegment expenses
(545,695)
(76,538)
-
(13,149)
635,382
-
Gross profit/(loss)
2,082,827
(68,825)
(22,329)
1,728
-
1,993,401
General and administrative expenses
(660,011)
(97,042)
(13,808)
(455,634)
-
(1,226,495)
Other operating income
63,418
822
1,249
3,826
-
69,315
Other operating expense
(274,113)
(4,132)
(4,693)
(2,436)
-
(285,374)
Operating profit/(loss)
1,212,121
(169,177)
(39,581)
(452,516)
-
550,847
For six months ended
30June 2013
Seismic
segment
DPI
segment
Others
Corporate
block
Adjustments and eliminations
Total
Revenue - external
10,431,234
275,492
6,606
2,884
-
10,716,216
Revenues from transactions with other operating segments of the Group
23,416
247,331
37,526
502,354
(810,627)
-
Cost of sales
(8,190,400)
(234,492)
(43,853)
-
-
(8,468,745)
Intersegment expenses
(680,960)
(105,011)
(9,459)
(15,197)
810,627
-
Gross profit/(loss)
2,240,834
41,000
(37,247)
2,884
-
2,247,471
General and administrative expenses
(641,888)
(68,074)
(17,429)
(324,896)
-
(1,052,287)
Other operating income
59,733
1,365
14,173
620
-
75,891
Other operating expense
(214,233)
(25,803)
(11,630)
(3,629)
-
(255,295)
Operating profit/(loss)
1,444,446
(51,512)
(52,133)
(325,021)
-
1,015,780
Calculation of the adjusted EBIT and adjusted EBITDA from operating profit/(loss):
For six months ended
30June 2014
Seismic
segment
DPI
segment
Others
Corporate
block
Adjustments and eliminations
Total
Operating profit/(loss)
1,212,121
(169,177)
(39,581)
(452,516)
-
550,847
Restructuring and redundancy costs
96,797
-
-
47,748
-
144,545
Distribution of Corporate overheads
(397,637)
(3,714)
-
401,351
-
-
Adjusted EBIT
911,281
(172,891)
(39,581)
(3,417)
-
695,392
Depreciation of property, plant and equipment
1,281,345
30,040
12,829
4,105
-
1,328,319
Amortization of intangible assets
8,190
20,988
-
2,430
-
31,608
Loss/(gain) on disposals of property, plant and equipment and other assets
98,355
(1,852)
2,676
-
-
99,179
Adjusted EBITDA
2,299,171
(123,715)
(24,076)
3,118
-
2,154,498
4. Segment information (continued)
For six months ended
30June 2013
Seismic
segment
DPI
segment
Others
Corporate
block
Adjustments and eliminations
Total
Operating profit/(loss)
1,444,446
(51,512)
(52,133)
(325,021)
-
1,015,780
Restructuring and redundancy costs
109,136
14,793
4,094
-
-
128,023
Loss from the contract in Yemen
7,722
-
-
-
-
7,722
Distribution of Corporate overheads
(315,964)
(8,343)
-
324,307
-
-
Adjusted EBIT
1,245,340
(45,062)
(48,039)
(714)
-
1,151,525
Depreciation of property, plant and equipment
1,012,296
17,398
24,501
-
-
1,054,195
Amortization of intangible assets
14,691
33,339
-
589
-
48,619
Loss on disposals of property, plant and equipment and other assets
43,921
5,862
-
496
-
50,279
Adjusted EBITDA
2,316,248
11,537
(23,538)
371
-
2,304,618
Restructuring and redundancy costs incurred during six months 2014 primarily relates to the reduction of staff in Moscow office of GEOTECH Holding JSC in connection with the optimization of the Company's corporate structure and business units management structure.
During the 6 month period ended 30 June 2014 and 2013, the Group earned its external sale by its geographical areas as follows:

For six months ended

30 June 2014
30 June 2013
Russia
9,874,406
10,361,405
Kazakhstan and international projects
523,826
354,811
Total external sales
10,398,232
10,716,216
As of 30 June 2014 and 31 December 2013, the Group had its goodwill and intangible assets, property, plant and equipment and investments in associates by their geographical areas as follows:

As at
30 June
2014
As at 31December
2013
Russia
18,621,996
19,379,614
Kazakhstan and international projects
623,947
913,438
Total goodwill and intangible assets, property, plant and equipment and investments in associates
19,245,943
20,293,052


5. Property, plant and equipment
Property, plant and equipment as at 30 June 2014 comprised the following:

Buildings
and
structures
Machinery
and
equipment
Vehicles
Other
Construction in progress
Total
Gross book value






Balance as at
31December 2013
4,076,382
13,901,371
3,509,750
269,992
7,162
21,764,657
Additions
104,374
336,593
118,497
37,669
8,832
605,965
Transfers
747
-
-
-
(747)
-
Disposals
(16,210)
(216,789)
(77,778)
(10,501)
-
(321,278)
Translation difference
(38,923)
(108,461)
(27,485)
(2,141)
-
(177,010)
Balance as at 30June 2014
4,126,370
13,912,714
3,522,984
295,019
15,247
21,872,334







Accumulated depreciation and impairment

Balance as at
31December 2013
(920,846)
(4,097,018)
(1,399,114)
(134,847)
-
(6,551,825)
Depreciation
(157,043)
(949,648)
(200,568)
(20,252)
-
(1,327,511)
Disposals
4,719
96,394
38,259
7,183
-
146,555
Translation difference
10,382
51,720
14,537
783
-
77,422
Balance as at 30 June 2014
(1,062,788)
(4,898,552)
(1,546,886)
(147,133)
-
(7,655,359)







Net book value






Balance as at
31December 2013
3,155,536
9,804,353
2,110,636
135,145
7,162
15,212,832
Balance as at 30 June 2014
3,063,582
9,014,162
1,976,098
147,886
15,247
14,216,975
The above amounts include several vehicles under finance lease agreements. Net book value of these vehicles amounted to 11,089 as of 30 June 2014 (31 December 2013: 11,778).
Properties with a carrying amount of 838,281 are subject to a registered debenture to secure bank loans (31 December 2013: 556,986) (Note 21).
6. Accounts receivable and prepayments
Trade and other receivables comprised the following:

As at
30 June
2014
As at 31December
2013
Financial receivables


Trade receivables (net of bad debt provision) 
2,617,461
1,463,477
Other receivables
150,474
145,707
Non-financial receivables


Amounts due from customers for construction works
4,015,105
5,313,303
Advances issued
311,046
641,778
Total
7,094,086
7,564,265
Trade receivables are non-interest bearing and are normally settled within 12 months from the origination date.
Receivables and advances issued are presented net of provision for impairment of 273,592 and 248,783 as at 30 June 2014 and 31 December 2013, respectively.

7. Other financial assets
Other financial assets comprised the following:

As at
30 June
2014
As at 31December
2013
Loans issued
193,338
168,967
Interest receivable on loans issued
65,163
59,022
Bank promissory notes
241,000
-
Total
499,501
227,989
Loans issued to third parties are unsecured and mature within one year and bear interest rate between 12% and 14%.
Bank promissory notes include 9% interest bearing promissory notes from City Invest Bank in the amount of 150,000 maturing in September 2014, and discount promissory notes from Sberbank with effective interest rate of 5.5% in the amount of 91,000 maturing in December 2014.
8. Other current assets
Other current assets comprised the following:

As at
30 June
2014
As at 31December
2013
Prepayments for social taxes
92,578
15,508
Prepayments for other taxes and charges
9,176
5,318
Other current assets
3,249
5,332
Total
105,003
26,158
9. Cash and cash equivalents
Cash and cash equivalents comprised the following:

As at
30 June
2014
As at 31December
2013
Cash in hand
2,801
2,328
Cash denominated in RUR
153,207
423,164
Cash denominated in USD
6,473
11,590
Cash denominated in EUR
1,733
1,740
Cash denominated in other currencies
4,877
33,223
Short-term deposits in RUR
3,900
239,351
Total
172,991
711,396
Cash represents current bank accounts that carry no interest and demand deposits maturing in less than 3 months.

10. Loans and borrowings
Long-term and short-term borrowings comprised the following:

Security
Effective
interest rate
As at
30 June
2014
As at 31December
2013
Current liabilities




Short-term bank loans
secured
9.5%-11.4%
1,312,317
1,539,501
Current portion of long-term bank loans
secured
2.5%-11.4%
2,347,259
537,610
Short-term borrowings
not secured
12.0%
2,000
-
Total short-term loans and borrowings


3,661,576
2,077,111





Non-current liabilities




Long-term bank loans
secured
2.5%-11.4%
4,528,956
7,366,469
Bonds

10.5%
2,967,579
2,963,841
Total long-term loans and borrowing


7,496,535
10,330,310
Total loans and borrowings


11,158,111
12,407,421
At the beginning of 2013 the Group entered into non-revolving credit line agreement with Sberbank denominated in euro at interest rate calculated as EURIBOR plus 2.15%. The liability over this credit line in the amount of 341,121 and 136,559 is reported within Long-term bank loans and Current portion of long-term bank loans, respectively as of 30 June 2014.
All other loans and borrowings presented in the table above are at fixed rates and are denominated in Russian roubles.
Long-term loans and borrowings are payable in the following periods:

As at
30 June
2014
As at 31December
2013
1 to 2 years
2,097,981
2,576,737
3 to 5 years
5,398,554
7,753,573
Total
7,496,535
10,330,310
Pledge obligations and description of security are disclosed in Note 21.


11. Accounts payable and promissory notes payable
Accounts payable comprised the following:

As at
30 June
2014
As at 31December
2013
Trade payables
3,488,732
3,145,162
Payables to employees
680,506
843,843
Advances received
62,211
395,653
Interest payable
128,761
69,953
Amounts due to customers under construction contracts
11,121
114,161
Other payables
83,487
73,899
Total
4,454,818
4,642,671
Trade payables are non-interest bearing and are normally settled on 60-day terms. Other payables are non-interest bearing and have an average term of six months.
Short-term and long-term promissory notes issued comprised the following:

Interest
rate
As at
30 June
2014
As at 31December
2013
Long-term promissory notes payable


Notes issued to third parties for equipment (Sercel)
7%
84,111
163,665
Notes issued to third parties for equipment (UniQ)
4%
256,967
443,109
Short-term promissory notes payable


Notes issued to third parties for equipment (Sercel)
7%
172,518
169,080
Notes issued to third parties for equipment (UniQ)
4%
307,676
327,532
Total notes

821,272
1,103,386
Effective interest rate for promissory notes issued by the Group to finance the purchase of UniQequipment in 2013 was 7% while the contractual interest rate was 4%. At the initial recognition the effect of discounting of the underlying liability to fair value in the amount of 38,006 was recognised within finance income. Effective interest rate accrual in the amount of 12,404 was recognized within finance expense for the six month period ended 30 June 2014 (6,825 for the sixmonth period ended 30 June 2013).
12. Other taxes payable
Other taxes and charges payable comprised the following:

As at
30 June
2014
As at 31December
2013
Value-added tax payable
1,365,927
1,029,670
Social taxes payable
491,388
168,353
Personal income tax payable
165,671
187,659
Property tax payable
27,635
29,934
Other taxes and charges
20,421
28,429
Total
2,071,042
1,444,045
13. Construction type contracts
The Group sales include revenues from seismic contracts of 10,109,912 and 10,223,341 for the sixmonth period ended 30 June 2014 and 2013, respectively. The status of construction type contracts in progress as at 30 June 2014 and 2013 is presented below:

As at
30 June 2014
As at
30 June 2013
Accumulated costs under contracts in progress from inception at thereporting date
9,120,174
6,546,481
Accumulated recognized profits less recognized losses under contracts in progress from inception at the reporting date
2,729,971
1,506,567
Balance of advances received
37,532
178,133 
The recognition of the revenue from construction type contracts uncompleted as of 30June 2014 is primarily based on an assumption of profit margins expected to be earned from inception to completion of each contract. If such expected profit margin decreased by one percent, the revenue from such contracts would decrease by 120,110 (30 June 2013: 109,632).
14. Revenue
Revenue comprised the following:

For the six months ended

30 June 2014
30 June 2013
Field seismic operations
10,109,912
10,223,341
Processing and interpretation of geophysical information
145,768
284,740
Other revenue
142,552
208,135
Total
10,398,232
10,716,216
15. Cost of sales
Cost of sales comprised the following:

For the six months ended
30 June 2014
30 June 2013
Labour and wages, including mandatory social contribution
3,329,230
3,335,196
Materials and supplies
2,012,217
2,011,706
Depreciation of property, plant and equipment and amortization of intangible assets
1,314,146
1,071,122
Oilfield services
686,243
1,065,121
Transportation services
382,084
438,882
Other third parties services 
296,956
279,068
Operating lease
288,581
217,717
Loss from the contract in Yemen
-
7,722
Other
95,374
42,211
Total
8,404,831
8,468,745
16. General and administrative expenses
General and administrative expenses comprised the following:

For the six months ended
30 June 2014
30 June 2013
Labor and wages, including mandatory social contribution
773,328
616,970
Third party services
180,282
128,100
Taxes, other than income tax 
52,785
77,150
Operating lease
46,021
43,595
Depreciation of property, plant and equipment and amortization of intangible assets
45,781
31,692
Bank charges
32,440
17,738
Bad receivables write-offs and provisions
22,174
83,767
Other
73,684
53,275
Total
1,226,495
1,052,287
17. Other operating expenses
Other operating expenses comprised the following:

For the six months ended

30 June 2014
30 June 2013
Loss on disposals of property, plant and equipment and other assets
99,179
100,878
Penalties and fines paid
50,538
42,973
Net loss from service plants and facilities
17,255
14,897
VAT not recoverable
12,141
812
Welfare assistance
7,827
14,372
Provision for probable claims from tax authorities
7,049
-
Free-of-charge transfer of assets and charity
6,222
1,208
Administrative charges and state duties
3,452
20,282
Other expenses
81,711
59,873
Total
285,374
255,295
18. Foreign exchange
Transactions in foreign currencies are translated to the respective functional currency, which is Russian Roubles for the subsidiary companies located in the Russian Federation and Kazakh Tenge for subsidiary companies located in Kazakhstan at exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. 
Foreign currency differences arising in translation are recognized in the statement of comprehensive income. Net foreign exchange loss for the six month period ended 30 June 2014 recognized in profit or loss amounted to 10,512 (loss for the six month period ended 30 June 2013 amounted to 188,154).


19. Earnings per share
The information on the earnings and number of shares used for determining basic and diluted earnings per share is presented below:

For the six months ended

30 June 2014
30 June 2013
Net (loss)/profit from continuing operations attributable to shareholders of the IG Seismic Services plc
(294,000)
94,134
Effect of dilution
-
-

For the six months ended

30 June 2014
30 June 2013
Weighted average number of ordinary shares for basic earnings pershare 
20,833,400
20,833,400
Effect of dilution
-
-
20. Financial instruments
The Group's financial instruments comprise accounts receivable and payable, loans receivable, loans payable, and cash, which arise directly from its operations. During the reporting period, the Group did not undertake trading in financial instruments.
Credit risk
Financial assets, which potentially subject Group entities to credit risk, consist principally of trade receivables (Note 6).
The Group has policies in place to ensure that sales of services are made to customers with an appropriate credit history. The carrying amount of accounts receivable, net of provision for impairment of receivables, represents the maximum amount exposed to credit risk. The Group has no significant concentrations of credit risk. Although collection of receivables could be influenced by economic factors, management believes that there is no significant risk of loss to the Group beyond the allowance already recorded.
The aging of accounts receivable at the reporting date was:

30 June 2014
31 December 2013

Gross
Impairment
Gross
Impairment
Current
2,767,935
-
1,609,184
-
Past due and impaired
173,163
173,163
160,181
160,181


20. Financial instruments (continued)
Interest rate risk 
At the beginning of 2013 the Group entered into non-revolving credit line agreement with Sberbank denominated in euro at interest rate calculated as EURIBOR plus 2.15%. The following demonstrates the sensitivity of the Group's profit before tax to a reasonably possible change in EURIBOR rate, with all other variables held constant.

Effect on income/(loss) before tax
Changeof EURIBOR rate, %
for the six months ended
30 June 2014
30 June 2013
+0.1%
(304)
(186)
-0.1%
304
186
The interest rates on other long-term loans of the Group are fixed and therefore do not result in susceptibility of upward interest rate risk through market value fluctuations of interest-bearing loans payable. As at 30 June 2014 the Group did not hedge its interest rate risk.
Market risk
Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices. The Group manages market risk through periodic estimation of potential losses that could arise from adverse changes in market conditions.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with its financial liabilities. Liquidity requirements are monitored on a regular basis and management ensures that sufficient funds are available to meet any commitments as they arise.
The following table shows the undiscounted contractual maturities of liabilities as at 30June 2014:

0-6 months
7-12 months
2 to 5 years
Over 5 years
Total
Bank loans
758,979
2,900,596
4,528,956
-
8,188,531
Bonds
-
-
3,000,000
-
3,000,000
Interest payable
687,180
500,291
1,898,618
-
3,086,089
Notes payable
236,598
236,598
385,883
-
859,079
Lease liabilities
2,360
1,401
-
-
3,762
Trade accounts payable
3,488,732
-
-
-
3,488,732
Other payables
83,487
-
-
-
83,487
Total
5,257,336
3,638,886
9,813,457
-
18,709,680


20. Financial instruments (continued)
Liquidity risk (continued)
The following table shows the undiscounted contractual maturities of liabilities as at 31December 2013:

0-6months
7-12months
2 to 5 years
Over 5 years
Total
Bank loans
279,507
1,797,619
7,366,459
-
9,443,585
Bonds
-
-
3,000,000
-
3,000,000
Interest payable
637,270
466,227
1,479,065
-
2,582,562
Notes payable
230,250
230,250
605,785
-
1,066,285
Lease liabilities
2,029
2,029
1,931
-
5,989
Trade accounts payable
3,145,178
-
-
-
3,145,178
Other payables
73,903
-
-
-
73,903
Total
4,368,137
2,496,125
12,453,240
-
19,317,502
Foreign currency risk
The Group is not engaged in hedging activity to mitigate its foreign currency risk. The Group limits foreign currency risk by monitoring changes in exchange rates in the currencies in which its loans and borrowings are denominated.
The Group has the following USDdenominated financial assets and liabilities:

(in thousands of US dollars)

As at
30 June
2014
As at 31December
2013
Accounts receivable
-
1,300
Promissory notes
(20,126)
(23,542)
Accounts payable
(7,526)
(28,417)
The Group has the following EURdenominated financial assets and liabilities:

(in thousands of EUR)

As at
30 June
2014
As at 31December
2013
Loans and borrowings
(10,424)
(11,913)
Accounts payable
(25)
-
Sensitivity analysis
The following demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the Group's profit before tax (due to changes in the fair value of monetary assets and liabilities). 


20. Financial instruments (continued)
Sensitivity analysis (continued)
As at 30 June 2014, it is estimated that a 10.21% strengthening of RUR against USD, with all other variables held constant, would increase the Group's profit for the six month period ended 30June 2014 by 88,744 (30 June 2013: 11.04% increase by 137,156). This analysis has been determined assuming that the change in foreign exchange rates had occurred at the reporting date and had been applied to the foreign currency balances to which the Group has significant exposure as stated above, and that all other variables, in particular interest rates, remain constant.
Respective 20.00% and 11.04% weakening of the RUR against USD at 30 June 2014 and 2013 would have had the opposite effect on the amounts shown above in the amount of 173,838 and 137,156 respectively, on the basis that all other variables remain constant.

Change of
RUR to USD
exchange rate, %
Effect on income/(loss)
before tax
6 months 2014
+20.00%
(173,838)

-10.21%
88,744
6 months 2013
+11.04%
(137,156)

-11.04%
137,156
The following demonstrates the sensitivity to a reasonably possible change in the EUR exchange rate, with all other variables held constant, of the Group's profit before tax (due to changes in the fair value of monetary assets and liabilities).
As at 30 June 2014, it is estimated that a 8.63% strengthening of RUR against EUR, with all other variables held constant, would increase the Group's profit for the six month period ended 30 June 2014 by 41,315 (30 June 2013: 9.53% increase by 54,910). This analysis has been determined assuming that the change in foreign exchange rates had occurred at the reporting date and had been applied to the foreign currency balances to which the Group has significant exposure as stated above, and that all other variables, in particular interest rates, remain constant. 
Respective 20.00% and 9.53% weakening of the RUR against EUR at 30 June 2014 and 2013 would have had the opposite effect on the amounts shown above in the amount of 95,748 and 54,212 respectively, on the basis that all other variables remain constant.

Change of
RUR to EUR
exchange rate, %
Effect on income/(loss)
before tax
6 months 2014
+20.00%
(95,748)

-8.63%
41,315
6 months 2013
+9.53%
(54,212)

-9.53%
54,910


20. Financial instruments (continued)
Fair value of financial instruments
The management believes that the fair value of the Group's financial assets and liabilities approximates their carrying amounts.
Capital management
The primary objective of the Group's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to maintain an optimal capital structure to reduce cost of capital and to support its business and maximize shareholder value. For the purposes of the Group's capital management, capital includes issued capital, share premium and all other equity reserves attributable to the equity holders.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group's current policy is not to pay any dividends.
The Group monitors capital using a range of ratios, including gearing ratio, which is net debt divided by total equity plus net debt. Within net debt the Group includes loans payable, promissory notes and finance lease obligations, less cash and cash equivalents and other financial instruments easily convertible to cash.

As at
30 June
2014
As at 31December
2013
Loans and borrowings payable 
11,158,111
12,407,421
Notes issued
821,272
1,103,386
Finance lease obligations
3,762
5,989
Less: cash and cash equivalents
(172,991)
(711,396)
Less: bank promissory notes (Note 7)
(241,000)
-
Net debt
11,569,154
12,805,400
Equity
9,941,717
10,980,584
Capital and net debt
21,510,871
23,785,984
Gearing ratio
0.54
0.54
21. Risks, commitments and contingencies 
Operating environment of the Group
Whilst there have been improvements in the Russian economic situation, such as an increase in gross domestic product and a reduced rate of inflation, Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market economy. Thefuture stability of the Russian economy is largely dependent upon these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken by the government.


21. Risks, commitments and contingencies (continued)
Operating environment of the Group (continued)
In March-September 2014, the United States, European Union and other countries have introduced a series of unilateral restrictive political and economic actions against the Russian Federation and a number of Russian and Ukrainian individuals and organizations. These official actions, particularly in the case of a further escalation, may result in reduction of economic cooperation between business of before mentioned countries and Russian companies on the international capital markets, as well as other economic consequences. The impact of these events on the future results of operations and financial position of the Company at this time is difficult to determine.
Liquidity 
The Russian economy is vulnerable to market downturns and economic slowdowns elsewhere in the world. The global financial crisis has resulted in capital markets instability, significant deterioration of liquidity in the banking sector, and tighter credit conditions within Russia. While the Russian Government has introduced a range of stabilization measures aimed at providing liquidity and supporting debt refinancing for Russian banks and companies, there continues to be uncertainty regarding the access to capital and cost of capital for the Group and its counterparties, which could affect the Group's financial position, results of operations and business prospects.
While management believes it is taking appropriate measures to support the sustainability of the Group's business in the current circumstances, unexpected further deterioration in the areas described above could negatively affect the Group's results and financial position in a manner not currently determinable.
Taxation
Legislation and regulations regarding taxation in Russia continue to evolve. The various legislation and regulations are not always clearly written and their interpretation is subject to the opinions of the local, regional and national tax authorities. Instances of inconsistent opinions are not unusual. 
The current regime of penalties and interest related to reported and discovered violations of Russia's laws, decrees and related regulations is severe. Interest and penalties are levied when an understatement of a tax liability is discovered. As a result, the amounts of penalties and interest can be significant in relation to the amounts of unreported taxes.
In Russia tax returns remain open and subject to inspection for a period of up to three years. Thefact that a year has been reviewed does not close that year, or any tax return applicable to that year, from further review during the three-year period. 
Overall, management believes that the Group has paid or accrued all taxes that are applicable. For taxes where uncertainty exists, the Company has accrued tax liabilities based on management's best estimate of the probable outflow of resources embodying economic benefits, which will be required to settle these liabilities. Possible liabilities which were identified by management at the reporting date as those that can be subject to different interpretations of the tax laws and regulations and are not accrued in the consolidated financial statements as of the reporting date could be up to 1,619,739 (1,491,830 as of 31 December 2013).

21. Risks, commitments and contingencies (continued)
Compliance with covenants
The Group is obliged to comply with a number of restrictive financial and other covenants contained in its loan agreements. Such covenants include maintaining certain financial ratios. Asof 30 June 2014 and as of 31 December 2013, the Group was in compliance with all restrictive financial and other covenants contained in its loan agreements.
Insurance
The insurance industry in the Russian Federation is in a developing state and many forms of insurance protection common in other parts of the world are not yet generally available. TheGroup does not have full coverage for its plant facilities, business interruption, or third party liability in respect of property or environmental damage arising from accidents on Group property or relating to Group operations. Until the Group obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Group's operations and financial position. 
Litigation
Group companies remain as a defendant in legal actions filed through 2012-2014 against them by a number of third parties. 
Management believes that there are no current claims outstanding, which could have a material effect on the consolidated results of operations or consolidated financial position of the Group and which have not been accrued or disclosed in these consolidated financial statements.
Pledge obligations
Pledged property, plant and equipment
As at 30 June 2014, the Group entered into a number of loan agreements and revolving credit line agreements, which were secured by the Group's property, plant and equipment. Thecarrying value of the property, plant and equipment pledged at the reporting date amounts to838,281 (31 December 2013: 556,986).
Pledged rights to claim cash
As at 30 June 2013, the Group entered into a number of loan agreements and revolving credit line agreements, which were secured by the pledge of property rights representing rights to claim cash under the customer agreements for conducting seismic works. The pledged rights to claim cash at the reporting date amounted to 3,560,414 (31 December 2013: 5,617,214).


22. Related party transactions
The following table provides the total amount of transactions that have been entered into with related parties during the six month periods ended 30 June 2014 and 30 June 2013, as well as balances with related parties as of 30 June 2014 and 31 December 2013:
Revenue

Associated company

for the six months ended

30 June2014
30 June 2013
Field seismic operations
31,789
-
Operating lease services
135
-
Expenses

Associated company

for the six months ended

30 June2014
30 June 2013
Services received
-
3,704
Outstanding balances

Associated company

30 June
2014
31 December 2013
Accounts receivable
12,632
35,981
Advances issued
600
600
Accounts payable
(410)
(27,096)
Advances received
(1,611)
(1,611)
All outstanding balances with related parties are to be settled in cash or through services rendered in case of advances within six months after the reporting date. None of the balances is secured. 
Pricing policy
Related party transactions are based on market prices and are effected on an arm's length basis in a manner similar to transactions with third parties. 
Key management personnel
The Company enters into transactions with its directors and other key management personnel in the normal course of business. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, and include Chief Executive Officer, Executive Director, and members of the Board of Directors, Chief Financial Officer and Vice-Presidents of the Company. For the six month period ended 30 June 2014, the remuneration paid to key management personnel amounted to 52,596 (six month period ended 30June 2013: 55,508).


23. Events subsequent to the reporting date
In September 2014 the Group and Rosbank concluded a letter of credit agreement to finance the acquisition of new seismic equipment aimed to the provision of innovative, high-density seismic acquisition technology for the next seismic season. The letter of credit in the amount of EUR11.5million (556.4 million Russian roubles) is available for a period of 60-months at floating interest rate calculated as 6 months EURIBOR plus 1.3%.

This information is provided by RNS
The company news service from the London Stock Exchange
  END
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