REG - IG Seismic Services - 1H2014 Financial Report <Origin Href="QuoteRef">IGSSq.L</Origin> - Part 2
29/10/2014 13:06
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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 As at 31 December2013
30 June2014
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 As at 31 December2013
30 June2014
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 Effectiveinterest rate As at As at 31 December2013
30 June2014
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 As at 31 December2013
30 June2014
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 As at 31 December2013
30 June2014
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:
Interestrate As at As at 31 December2013
30 June2014
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 UniQ equipment 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 six month period ended 30 June 2013).
12. Other taxes payable
Other taxes and charges payable comprised the following:
As at As at 31 December2013
30 June2014
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 six month 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 As at
30 June 2014 30 June 2013
Accumulated costs under contracts in progress from inception at the reporting 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 30 June 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 per share 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 30 June 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 31 December 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 USD-denominated financial assets and liabilities:
(in thousands of US dollars)
As at As at 31 December2013
30 June2014
Accounts receivable - 1,300
Promissory notes (20,126) (23,542)
Accounts payable (7,526) (28,417)
The Group has the following EUR-denominated financial assets and liabilities:
(in thousands of EUR)
As at As at 31 December2013
30 June2014
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 30 June 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 Effect on income/(loss)before tax
RUR to USDexchange rate, %
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 Effect on income/(loss)before tax
RUR to EURexchange rate, %
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 As at 31 December2013
30 June2014
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. The future 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. The fact 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. As of 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. The Group 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. The carrying value of the property, plant and equipment
pledged at the reporting date amounts to 838,281 (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 31 December 2013
2014
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 30
June 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 EUR 11.5 million (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
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