REG - IG Seismic Services - FY2015 Financial Report <Origin Href="QuoteRef">IGSSq.L</Origin> - Part 3
28/04/2016 15:30
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challenge the Group's interpretation of the
legislation applied and its position as related to the accuracy of tax
calculation and payment, an appropriate provision is formed in the
consolidated financial statements.
5. Significant accounting judgments, estimates and assumptions
(continued)
Litigations
The Group's management exercises considerable judgment in measuring and
recognizing provisions and the exposure to contingent liabilities related to
pending litigations or other outstanding claims subject to negotiated
settlement, mediation, arbitration or government regulation, as well as other
contingent liabilities.
Judgment is necessary in assessing the likelihood that a pending claim will
succeed, or a liability will arise, and quantifying the possible range of the
final settlement. Because of the inherent uncertainties in this evaluation
process, actual losses may be different from the originally estimated
provision. These estimates are subject to change as new information becomes
available, primarily with the support of internal specialists, if available,
or with the support of outside consultants, such as actuaries or legal
counsel. Revisions to the estimates may significantly affect future operating
results.
6. Acquisition of non-controlling interest
In 2014, the Group acquired an additional 11.59% interest in the voting shares
of its major operating subsidiary PJSC Geotech Seismic Services, having
increased its ownership interest to 100.00%, and 1.53% in the share capital of
LLC Boguchanskaya Geophisicheskaya Expeditsiya, having increased its ownership
interest to 97.14%.
Cash consideration of 452,829 was paid to the non-controlling shareholders and
21,342 expenses were incurred in relation to this transaction. As of 31
December 2014 all obligations in relation to the acquisition of
non-controlling interest were settled in full.
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 474,171
Carrying value of the additional interests (1,055,708)
Difference recognized in retained earnings within Equity (581,537)
In 2015, the Group acquired an additional 2.87% in the share capital of LLC
Boguchanskaya Geophisicheskaya Expeditsiya for 5,603, having increased its
ownership interest to 100.00%, and approximately 1% of OJSC Orenburgskaya
Geophisicheskaya Expeditsiya for 646, having increased its ownership interest
to 73.65%. As of 31 December 2015 all obligations in relation to the
acquisition of this non-controlling interest were settled in full. Also during
2015 the Group paid advance for acquisition of non-controlling interest in the
amount of 224,470.
7. Acquisition of assets
In September 2014 the Group has completed acquisition of LLC Luidor, an entity
owning an exploration and production license for the Nitchemyu-Syninskiy
oilfield (Komi republic). The entity has been purchased for the purpose of
performing seismic services with an aim for consequent resale of the asset
with profit. Consideration comprised 495,000 and was settled in full amount by
December 2014 to the unrelated party.
7. Acquisition of assets (continued)
The acquisition was accounted for as assets acquisition which did not meet a
definition of a "business" acquisition under IFRS 3 Business Combinations.
The Group recognised the individual identifiable assets acquired and
liabilities assumed.
The cost of the group of assets was allocated to the individual identifiable
assets and liabilities on the basis of their relative fair values at the date
of purchase and comprised the following as of the date of acquisition:
Exploration and evaluation assets 216,624
Long-term loan issued 274,443
Other assets 14,075
Liabilities (9,530)
Fair value of the exploration and production license was determined by the
independent appraisal and accounted within exploration and evaluation assets
in accordance with IFRS 6. The loan issued to a third party, is denominated in
Russian Rubles, matures on 31 December 2016 and bears interest rate of 10%
p.a.
The difference between the consideration paid and the fair value of the
acquired assets and liabilities of 612 was charged to the profit and loss.
As of 31 December 2015 the Group considered that significant decline in the
world oil prices is an indicator of impairment of the exploration and
evaluation assets. Due to the existence of the impairment indicators, the
Group performed impairment test. Carrying amount of the assets was compared to
the recoverable amount which was identified using market approach: the Group
performed analysis of the deals with comparable assets that have taken place
during last four years and calculated average price per 1 ton of reserves.
Difference between the recoverable amount and the carrying amount of 41,584
was recognized within Impairment of Exploration and evaluation asset in the
Consolidated statement of profit and loss and other comprehensive income.
As of 31 December 2015 Exploration and evaluation assets amounted to 175,119.
8. Segment information
For management purposes, the Group 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 with 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. DPI
segment 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 non-core companies (subsidiaries) was
included into the Other block, that is not separate operating segment.
8. Segment information (continued)
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 in the Russian Federation and
Kazakhstan.
The following table's present revenue and profit information regarding the
Group's operating segments for years ended 31 December 2015 and 2014,
respectively. Intersegment revenues and intersegment costs are presented for
reference only and are not taken into account in calculating gross profit.
For the year ended 31 December 2015 Seismicsegment DPIsegment Others Corporateblock Adjustments and eliminations Totalsegments
Revenue - external 18,369,854 423,387 9,711 1,990 - 18,804,942
Revenue to other segments 40,396 129,262 15,528 403,118 (588,304) -
Cost of sales (15,375,582) (559,862) (33,134) (1,528) - (15,970,106)
Intersegment expenses (538,183) (49,319) (802) - 588,304 -
Gross profit/(loss) 2,994,272 (136,475) (23,423) 462 - 2,834,836
General and administrative expenses (1,339,500) (154,799) (16,144) (356,515) - (1,866,958)
Other operating income 151,246 12,441 7,590 3,455 - 174,732
Other operating expense (1,279,130) 912 (25,017) (17,430) - (1,320,665)
Operating profit/(loss) 526,888 (277,921) (56,994) (370,028) - (178,055)
For the year ended 31 December 2014 Seismicsegment DPIsegment Others Corporateblock Adjustments and eliminations Totalsegments
Revenue - external 19,231,379 347,452 7,468 2,948 - 19,589,247
Revenue to other segments 111,142 167,559 24,592 647,813 (951,106) -
Cost of sales (15,239,011) (479,967) (48,949) (1,637) - (15,769,564)
Intersegment expenses (813,283) (124,033) (68) (13,722) 951,106 -
Gross profit/(loss) 3,992,368 (132,515) (41,481) 1,311 - 3,819,683
General and administrative expenses (1,281,760) (174,851) (33,128) (619,100) - (2,108,839)
Other operating income 117,079 452 21,104 3,133 - 141,768
Other operating expense (760,511) (7,868) (14,455) (4,565) - (787,399)
Operating profit/(loss) 2,067,176 (314,782) (67,960) (619,221) - 1,065,213
8. Segment information (continued)
Calculation of the adjusted EBIT and adjusted EBITDA from operating
profit/(loss):
For the year ended 31 December 2015 Seismicsegment DPIsegment Others Corporateblock Adjustments and eliminations Totalsegments
Profit/(loss) from operating activities 526,888 (277,921) (56,994) (370,028) - (178,055)
Restructuring and redundancy costs 454,061 6,864 45,957 39,140 - 546,022
Losses from cancellation of contracts 289,956 - - - - 289,956
Prior year taxes and related provisions 242,070 - - - - 242,070
Distribution of Corporate overheads (339,826) (7,832) - 347,658 - -
Adjusted EBIT 1,173,149 (278,889) (11,037) 16,770 - 899,993
Depreciation of property, plant and equipment 2,670,516 73,728 1,438 4,679 - 2,750,361
Amortization of intangible assets 18,333 88,657 6 4,178 - 111,174
Loss/(gain) on disposal of non-current assets 266,995 (12,106) 8 (86) - 254,811
Adjusted EBITDA 4,128,993 (128,610) (9,585) 25,541 - 4,016,339
For the year ended 31 December 2014 Seismicsegment DPIsegment Others Corporateblock Adjustments and eliminations Totalsegments
Profit/(loss) from operating activities 2,067,176 (314,782) (67,960) (619,221) - 1,065,213
Restructuring and redundancy costs 262,314 - 22,424 62,451 - 347,189
Prior year taxes and related provisions 232,264 - - - - 232,264
Distribution of Corporate overheads (535,734) (9,679) - 545,413 - -
Adjusted EBIT 2,026,020 (324,461) (45,536) (11,357) - 1,644,666
Depreciation of property, plant and equipment 2,406,586 68,545 20,340 6,400 - 2,501,871
Amortization of intangible assets 18,945 46,560 10 4,836 - 70,351
Loss/(gain) on disposal of non-current assets 224,089 2,251 6,188 (418) - 232,110
Adjusted EBITDA 4,675,640 (207,105) (18,998) (539) - 4,448,998
Restructuring and redundancy costs incurred during 2015 primarily relate to
the reduction of staff and disposal of certain equipment, warehouses and bases
in connection with the optimization of the Company's corporate structure and
business units management structure and certain restructuring of several
operating subsidiaries.
Losses from cancellation of contracts primarily relate to seismic project in
India which was ceased upon an initiative of customer due to dramatic decline
of oil prices and inability to proceed further with financing of the seismic
works contracted.
8. Segment information (continued)
In the 2014 the Group has decided to liquidate three small non-core
subsidiaries to eliminate unfeasible maintenance costs. Two subsidiaries
Seysmos and Khantymansiyskgeofizika service are incorporated in Russian
Federation and one, Ishimgeofizika, is domiciled in Kazakhstan. The
liquidation was finalized by the end of 2015. Loss before tax incurred by
these subsidiaries is included within Restructuring and redundancy costs of
other subsidiaries for the year ended 31 December 2015.
In 2015 the Group has initiated the process of cancelling the listing and
trading of Global Depositary Receipts with further listing on stock exchange
in Russia. Certain legal and consulting services incurred in this respect were
included within Restructuring and redundancy costs of Corporate block above.
During the years ended 31 December 2015 and 2014, the Group earned its
external revenue by its geographical areas as follows:
2015 2014
Russia 17,406,495 18,411,893
Kazakhstan 1,398,447 1,177,354
Total external revenue 18,804,942 19,589,247
As of 31 December 2015 and 31 December 2014, the Group had its goodwill and
intangible assets, property, plant and equipment and investments in associates
by their geographical areas as follows:
31 December
2015 2014
Russia 15,183,156 18,646,043
Kazakhstan 827,099 1,092,091
Total goodwill and intangible assets, property, plant and equipment and investments in associates 16,010,255 19,738,134
In 2015, the Group earned transaction revenues from operations each exceeding
10 percent of the Group's consolidated revenues with three major customers in
the amounts of 2,852,689, 2,482,106 and 2,385,258, reported within revenues
from field seismic operations (2014: three customers in the amounts of
3,213,713, 3,110,614 and 2,067,331).
9. Goodwill
For impairment testing purposes, goodwill acquired as a result of the business
combination was attributable to one separate cash-generating unit - Seismic
works.
As at 31 December 2015 and 2014, the carrying amount of goodwill was
3,760,082.
Recoverable amount of the cash generating unit (CGU) has been determined by
calculating value-in-use using cash-flow projections up to 2021 and terminal
value of working capital and non-current assets as of the projection period
end. A pre-tax discount rate of 22% (2014: 18.9%) derived from the weighted
average cost of capital has been applied to the projected cash-flows. These
calculations are based on 6-year projections as this period enables to
harmonize cash flows for each of year of the projected period and all the
assumptions in relation to production volumes and pricing growth rates are
determined by reference to management's past experience and industry
forecasts. The cash flow forecasts beyond the six-year period were
extrapolated using perpetuity formula and 5.0% terminal growth rate (2014:
0.0%).
9. Goodwill (continued)
The long-term increase in the weighted average cost of capital above 23% or
decrease of terminal growth below 3% may have a significant effect on the
discounted cash flows and may lead to the goodwill impairment.
In calculating the value-in-use of the assets, the following assumptions have
been regarded as most significant: marginal income, discount rates and the
growth rate used to extrapolate cash flows beyond the planned period.
Inherent risks in the oil service industry are directly related to economic
conditions in the oil sector shaped by global oil prices. The key factors of
risk include slumping oil prices, which cause oil companies to sharply cut
their exploration costs and minor investors to quit the industry.
In addition, these trends are exacerbated by deteriorating customer solvency
leading to growth in receivables and a slower turnover or shortage of working
capital and ultimately triggering growth in payables.
As at 31 December 2015, the Group determined that the recoverable amount of
seismic CGU exceeds the carrying amount of the unit and, therefore, no
impairment on this unit was recognized.
With regard to the assessment of value in use cash-generating units,
management believes that no reasonably possible change in any of the above key
assumptions would cause the carrying value of the unit to materially exceed
its recoverable amount.
10. Material partly-owned subsidiaries
Financial information of subsidiaries that have material non-controlling
interests is provided below:
Proportion of equity interest held by non-controlling interests:
Name Country of incorporation and operation 2015 2014
OJSC Yeniseigeofizika Russian Federation 52.77% 52.77%
OJSC Naryan-Marseismorazvedka Russian Federation 13.82% 13.82%
Accumulated balances of material
non-controlling interest
OJSC Yeniseigeofizika 220,695 239,467
OJSC Naryan-Marseismorazvedka 168,708 176,624
Loss allocated to material non-controlling interest
OJSC Yeniseigeofizika (18,772) (70,334)
OJSC Naryan-Marseismorazvedka (7,916) 46,662
10. Material partly-owned subsidiaries (continued)
The summarised financial information of these subsidiaries is provided below.
This information is based on amounts before inter-company eliminations.
Summarised statement of profit or loss for 2015 OJSCYeniseigeofizika OJSC Naryan-Marseismoraz-vedka
Revenue 10,821 1,469,048
Cost of sales (33,867) (1,610,248)
Administrative expenses (14,207) (194,365)
Other operating income/(expense), net 1,326 313,237
Finance income/(expense), net (2,071) (20,558)
Net foreign exchange gain/(loss) - (1,385)
Loss before tax (37,998) (44,271)
Income tax 2,424 (13,006)
Loss for the year (35,574) (57,277)
Total comprehensive expense (35,574) (57,277)
Attributable to non-controlling interests (18,772) (7,916)
Summarised statement of profit or loss for 2014 OJSC Yeniseigeofizika OJSC Naryan-Marseismoraz-vedka
Revenue 207,853 1,930,443
Cost of sales (323,630) (1,238,835)
Administrative expenses (31,771) (221,763)
Other operating income/(expense), net (3,783) 18,627
Finance income/(expense), net (6,738) (63,378)
Net foreign exchange loss (1) (95)
(Loss)/profit before tax (158,070) 424,999
Income tax 24,786 (87,361)
(Loss)/profit for the year (133,284) 337,638
Total comprehensive (expense)/income (133,284) 337,638
Attributable to non-controlling interests (70,334) 46,662
10. Material party-owned subsidiaries (continued)
Summarised statement of financial position as at 31 December 2015 OJSC Yeniseigeofizika OJSC Naryan-Marseismoraz-vedka
Property, plant and equipment, intangible assets and other non-current assets 341,837 2,410,707
Inventories, receivables, cash and cash equivalents and other current assets 206,503 1,585,889
Loans and borrowings, promissory notes and finance lease liabilities (198) (857,536)
Deferred tax liabilities, net (10,033) (259,557)
Accounts payable and other current liabilities (119,889) (1,658,752)
Total equity 418,220 1,220,751
Attributable to shareholders of the IG Seismic Services plc 197,525 1,052,043
Non-controlling interest 220,695 168,708
Summarised statement of financial position as at 31 December 2014 OJSC Yeniseigeofizika OJSC Naryan-Marseismoraz-vedka
Property, plant and equipment, intangible assets and other non-current assets 447,963 1,616,245
Inventories, receivables, cash and cash equivalents and other current assets 263,659 2,175,188
Loans and borrowings, promissory notes and finance lease liabilities (87,285) (1,061,534)
Deferred tax liabilities, net (12,457) (256,836)
Accounts payable and other current liabilities (158,086) (1,195,034)
Total equity 453,794 1,278,029
Attributable to shareholders of the IG Seismic Services plc 214,327 1,101,405
Non-controlling interest 239,467 176,624
Summarised cash flow information for year ending 31 December 2015 OJSC Yeniseigeofizika OJSC Naryan-Marseismoraz-vedka
Operating 12,109 823,145
Investing 823 (616,332)
Financing (13,759) (214,052)
Net decrease in cash and cash equivalents (827) (7,239)
Summarised cash flow information for year ending 31 December 2014 OJSC Yeniseigeofizika OJSC Naryan-Marseismoraz-vedka
Operating (60,985) 302,409
Investing 96,303 (588,412)
Financing (108,580) 286,753
Net increase/(decrease) in cash and cash equivalents (73,262) 750
11. Intangible assets other than goodwill
As of 31 December
2015 2014
Software 407,521 558,039
Development costs 90,276 90,276
Patents and licenses 27,732 27,732
Other 12,299 7,703
Total cost 537,828 683,750
Less: accumulated amortization (192,570) (253,967)
Total net book value 345,258 429,783
12. Property, plant and equipment
Property, plant and equipment as at 31 December 2015 comprised the following:
Buildings and structures Machinery and equipment Vehicles Other Construction in progress Total
Gross book value
Balance as at 31 December 2014 4,327,441 15,035,278 3,795,392 347,500 1,811 23,507,422
Additions 75,829 720,453 60,799 8,240 1,508 866,829
Transfers 1,522 - - - (1,522) -
Disposals (221,000) (1,013,985) (248,376) (24,768) - (1,508,129)
Reclassified to assets held for sale (1,041,915) - - (1,023) - (1,042,938)
Translation difference (120,905) (356,998) (99,148) (12,253) - (589,304)
Balance as at 31 December 2015 3,020,972 14,384,748 3,508,667 317,696 1,797 21,233,880
Accumulated depreciation
and impairment
Balance as at 31 December 2014 (1,243,620) (5,740,795) (1,710,464) (165,346) - (8,860,225)
Depreciation charge (250,951) (2,053,147) (444,124) (49,545) - (2,797,767)
Disposals 71,289 627,470 187,181 15,510 - 901,450
Reclassified to assets held for sale 280,480 - - 334 - 280,814
Translation difference 44,816 219,938 53,036 3,798 - 321,588
Balance as at 31 December 2015 (1,097,986) (6,946,534) (1,914,371) (195,249) - (10,154,140)
Net book value
Balance as at 31 December 2014 3,083,821 9,294,483 2,084,928 182,154 1,811 14,647,197
Balance as at 31 December 2015 1,922,986 7,438,214 1,594,296 122,447 1,797 11,079,740
12. Property, plant and equipment (continued)
Property, plant and equipment as at 31 December 2014 comprised the following:
Buildings and structures Machinery and equipment Vehicles Other Construction in progress Total
Gross book value
Balance as at 31 December 2013 4,076,382 13,901,371 3,509,750 269,992 7,162 21,764,657
Additions 177,928 1,647,241 412,167 88,750 4,597 2,330,683
Transfers 3,210 6,632 − − (9,842) −
Disposals (53,783) (878,045) (228,432) (25,117) (106) (1,185,483)
Translation difference 123,704 358,079 101,907 13,875 − 597,565
Balance as at 31 December 2014 4,327,441 15,035,278 3,795,392 347,500 1,811 23,507,422
Accumulated depreciation
and impairment
Balance as at 31 December 2013 (920,846) (4,097,018) (1,399,114) (134,847) − (6,551,825)
Depreciation charge (299,163) (1,807,453) (378,803) (42,516) − (2,527,935)
Disposals 14,797 354,017 109,835 16,415 − 495,064
Translation difference (38,408) (190,341) (42,382) (4,398) − (275,529)
Balance as at 31 December 2014 (1,243,620) (5,740,795) (1,710,464) (165,346) − (8,860,225)
Net book value
Balance as at 31 December 2013 3,155,536 9,804,353 2,110,636 135,145 7,162 15,212,832
Balance as at 31 December 2014 3,083,821 9,294,483 2,084,928 182,154 1,811 14,647,197
The above amounts include several vehicles under finance lease agreements. Net
book value of these vehicles comprised 7,475 as of 31 December 2015 (31
December 2014: 13,913).
Assets held for sale
The Group has initiated restructuring program in connection with the
optimization of the Group's corporate structure and business units management
structure for several operating subsidiaries.
Certain property, plant and equipment, primarily buildings which are not
engaged in the operating process are intended to be sold to generate
additional cash inflow, eliminate and cut down maintenance costs. These
property, plant and equipment are presented separately as Assets held for sale
in the amount of 762,124 including gross book value and accumulated
depreciation in the amount of 1,042,939 and 280,815, respectively.
All abovementioned property, plant and equipment is attributable to seismic
segment of the Group but do not have any specialized seismic features and are
intended to be sold in the foreseeable future primarily through transactions
with local businesses and entrepreneurs.
The Group expects that the net book value of these assets and the underlying
costs to sell will be recovered through the sale of these assets and,
therefore, no impairment loss or any write-down of these assets has been
recognised.
Collateral
Properties with a carrying amount of 3,578,544 are subject to a registered
debenture to secure bank loans (31 December 2014: 1,865,065) (Note 33).
13. Investments in associates
The Group's equity associates were as follows:
As at 31 December
2015 2014
PJSC Sibneftegeofizika 46.4% 39.5%
JSC Stavropolneftegeofizika 25.4% 25.4%
The principal activity of the associates is seismic data acquisition to the
petroleum industry in the Russian Federation. Details on transactions and
balances with associates which related parties to the Group are disclosed in
Note 34.
Movements in the carrying value of the Group's investments in associate are
summarized in the table below:
2015 2014
Carrying amount at the beginning of the year 901,072 1,009,989
Acquisition during the year 53,158 -
Share in loss, net of income tax (129,055) (108,917)
Carrying amount at the end of the year 825,175 901,072
Summarised statement of financial position of PJSC Sibneftegeofizika:
As at 31 December
2015 2014
Non-current assets 1,453,480 1,607,137
Current assets 1,552,340 2,469,878
Total assets 3,005,820 4,077,015
Non-current liabilities (14,771) (716,198)
Current liabilities (2,190,920) (2,283,992)
Total liabilities (2,205,691) (3,000,190)
Summarised statement of comprehensive income of PJSC Sibneftegeofizika:
For the year ended 31 December
2015 2014
Revenues 2,210,677 2,437,617
Loss for the period (276,696) (264,981)
Summarised cash flow information of PJSC Sibneftegeofizika:
For the year ended 31 December
2015 2014
Operating 339,982 (979)
Investing (15,965) (184,436)
Financing (479,724) 325,338
Net (decrease)/increase in cash and cash equivalents (155,707) 139,923
13. Investments in associates (continued)
Summarised statement of financial position of JSC Stavropolneftegeofisika:
As at 31 December
2015 2014
Non-current assets 181,468 189,586
Current assets 278,710 324,874
Total assets 460,178 514,460
Non-current liabilities (69,752) (78,526)
Current liabilities (295,892) (336,851)
Total liabilities (365,644) (415,377)
Summarised statement of comprehensive income of JSC Stavropolneftegeofisika:
For the year ended 31 December
2015 2014
Revenues 447,722 455,292
Loss for the period (4,549) (16,733)
14. Income tax
Income tax expense for the years ended 31 December comprised the following:
2015 2014
Current income tax expense (5,102) (3,833)
Provisions in respect of current income tax for previous periods (9,822) (98,374)
Deferred income tax benefit 303,283 18,274
Total income tax expense 288,359 (83,933)
Reconciliation of effective tax rate is presented below:
2015 2014
Loss before tax (2,411,353) (2,326,039)
At the Company's statutory tax rate of 12.5% 301,419 290,755
Effect of higher tax rate in Russian Federation 180,852 174,453
Deferred tax assets on tax loss not recognized (158,681) (276,729)
Adjustments in respect to current income tax of previous years (9,822) (98,374)
Deferred tax effect on share of loss of an associate not recognized (Note 13) (25,811) (21,783)
Deferred tax effect on provision for taxes other than income tax not recognized (13,109) (31,490)
Recognised deferred tax asset on tax loss for the prior periods 2,241 16,296
Other non-deductible income and expenses 11,270 (137,061)
Income tax benefit/(expense) 288,359 (83,933)
In the context of the Group's current structure, tax losses and current tax
assets of the different subsidiaries may not be set off against current tax
liabilities and taxable profits of other subsidiaries and, accordingly, taxes
may accrue even where there is a net consolidated tax loss. Therefore,
deferred tax asset of one subsidiary of the Group is not offset against
deferred tax liability of another subsidiary.
14. Income tax (continued)
In Cyprus income tax is 12.5% and losses in respect of the years up to 2009,
which were not set off against profits up to the years 2014, may not be
carried forward to the year 2015 according to Cyprus tax legislation.
As far as the Russian subsidiaries are concerned, tax loss carry forwards
available for utilization expire in 2017-2025.
Certain deductible temporary differences, unused tax losses or credits for
which no deferred tax asset is recognised as of 31 December 2015 amounts to
2,131,450 and expires in 2023-2024 (31 December 2014: 1,519,445).
At 31 December 2015, there was no recognised deferred tax liability (2014:
Nil) for taxes that would be payable on the unremitted earnings of the Group's
subsidiaries. The Group has determined that undistributed profits of its
subsidiaries will not be distributed in the foreseeable future to the full
extent. As of 31 December 2015 temporary differences associated with
investments in associates, for which no deferred tax asset is recognised
amount to 291,261 (31 December 2014: 215,364).
Deferred tax relates to the following:
Consolidated statement of financial position
As at 31 December
2015 2014
Deferred tax assets and liabilities
Trade and other receivables 48,868 32,938
Inventories 22,433 31,887
Trade and other payables 15,759 77,096
Tax loss 1,786,942 1,322,135
Other items 8,518 1,962
Property, plant and equipment (886,080) (1,277,817)
Trade and other receivables (1,781,303) (1,399,789)
Other items (152,568) (33,745)
Net deferred tax liabilities (937,431) (1,245,333)
Reflected in the statement of financial position as follows
Deferred tax assets 343,640 309,511
Deferred tax liabilities (1,281,071) (1,554,844)
Consolidated income statement
2015 2014
Deferred tax assets
Trade and other receivables 15,930 (10,429)
Inventories (9,454) (1,728)
Trade and other payables (61,337) 6,509
Tax loss 451,418 240,549
Other items 6,556 (20,173)
Deferred tax liabilities
Property, plant and equipment 400,189 157,868
Trade and other receivables (381,514) (346,331)
Other items (118,505) (7,991)
Deferred income tax benefit 303,283 18,274
14. Income tax (continued)
The table below presents movement in the deferred tax positions:
2015 2014
Net deferred tax liability as at the beginning of the period (1,245,333) (1,246,559)
Deferred income tax benefit for the period 303,283 18,274
Translation difference (recognized in Other comprehensive income) 4,619 (17,048)
Net deferred tax liability as at end of the period (937,431) (1,245,333)
15. Other non-current assets
Other non-current assets as at 31 December comprised the following:
As at 31 December
2015 2014
Long-term borrowings issued (Note 7) - 274,443
Advances issued for CAPEX 117,077 47,106
Other 4,311 4,312
Total cost 121,388 325,861
The borrowing in the amount of 274,443 is denominated in Russian Rubles,
matures on 31 December 2016 and bear interest rate of 10% p.a. As of 31
December 2015 this borrowing was recorded within other current financial
assets.
16. Inventories
Inventories as at 31 December comprised the following:
2015 2014
Raw materials, fuel and spare parts (net of provision for obsolete and slow-moving items) 1,665,466 2,209,506
Work-in-progress 968,314 241,108
Finished goods and goods for resale 93,267 99,847
Total 2,727,047 2,550,461
The amount of inventories recognized in cost of sales in 2015 and 2014 was
2,900,992 and 3,190,589 respectively. The amount of provision for inventory
obsolescence was 42,029 as at 31 December 2015 (31 December 2014: 35,982).
17. Accounts receivable and prepayments
Trade and other receivables as at 31 December comprised the following:
2015 2014
Financial receivables
Trade receivables (net of bad debt provision) 2,502,788 2,599,043
Other receivables 359,026 358,509
Non-financial receivables
Amounts due from customers for construction works 8,200,509 6,726,845
Advances issued 410,326 516,852
Total 11,472,649 10,201,249
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 150,355 and 140,101 as at 31
December 2015 and 31 December 2014, respectively.
See below the movements in the provision for impairment of receivables:
At 31 December 2013 248,783
Charge for the period 60,955
Written off for the period (169,034)
Translation difference (603)
At 31 December 2014 140,101
Charge for the period 67,118
Written off for the period (56,488)
Translation difference (376)
At 31 December 2015 150,355
18. Other financial assets
Other financial assets comprised the following:
2015 2014
Loans issued 753,839 239,848
Promissory notes received 111,976 -
Interest receivable on loans issued 74,956 81,325
Total 940,771 321,173
Loans issued as of 31 December 2015 includes loan issued to related party in
the amount of 460,830 discussed further in Note 34.
19. Cash and cash equivalents
Cash and cash equivalents as at 31 December comprised the following:
2015 2014
Cash in hand 606 1,934
Cash denominated in RUR 290,901 420,418
Cash denominated in USD 1,376 199
Cash denominated in EUR 114 1,798
Cash denominated in other currencies 24,410 11,494
Short-term deposits in RUR 294 770,848
Total 317,701 1,206,691
Cash is represented by current bank accounts that carry no interest and demand
deposits maturing in less than 3 months.
20. Share capital
The following table summarises details on share capital for the years ended 31
December 2015 and 2014:
Numberof shares Share Share
capital premium
Balance at 31 December 2014 20,833,400 6,513 13,837,978
Balance at 31 December 2015 20,833,400 6,513 13,837,978
GDRs
On 11 December 2012 the Company's GDRs were admitted to the Official List
maintained by the UK Listing Authority and started trading on the London Stock
Exchange's main market at 8.00 a.m. London Time on 12 December 2012.
The authorised share capital of the Company consists of 20,833,400 shares with
a nominal value of US$0.01 per share. All authorised shares are issued and
fully paid.
Global Depositary Receipts (GDRs) of the Company representing 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).
There were no changes in share capital through the year ended 31 December
2015. Share premium reserve is not available for distribution by way of
dividends.
Reverse acquisition reserve
As of 31 December 2015 and 2014 reverse acquisition reserve in the amount of
5,805,259 comprises the difference between the issued share capital of IGSS
and issued share capital of GEOTECH Holding JSC. As of 31 December 2011
reverse acquisition reserve represents the aggregate of fair value of
consideration transferred in a business combination and issued share capital
of GEOTECH Holding JSC immediately before the business combination less issued
share capital of IGSS as of 31 December 2011.
20. Share capital (continued)
Other non-distributable reserves
In March 2008 the former parent Company of GEOTECH Holding JSC, Geotech Oil
Services Holding contributed cash to its wholly owned subsidiary in the amount
of 2,233,488 (USD 95 million) which was recorded in Equity as other
non-distributable reserves as of 1 January 2009.
21. Loans and borrowings
Long-term and short-term borrowings as at 31 December comprised the
following:
Security Effective, % 2015 2014
Current liabilities
Short-term bank loans Secured 14.0%-17.8% 6,227,594 4,386,155
Current portion of long-term bank loans Secured 15.0% 2,149,275 3,096,819
Total short-term loans and borrowings 8,376,869 7,482,974
Non-current liabilities
Long-term bank loans Secured 15.0% 6,175,362 4,958,489
Bonds 10.5% 2,978,916 2,971,379
Long-term borrowings - 9,775
Total long-term loans and borrowings 9,154,278 7,939,643
Total loans and borrowings 17,531,147 15,422,617
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%. Amount of raised financing amounted to 14,900,000 euro
(599,522) and matured in December 2017. The liability over this credit line
was repaid in full as of 31 December 2015.
In August 2015 Bank "Otkritie Financial Corporation" provided a new credit
line facility to the Group in the amount of 6.5 billion rubles maturing on
July 2022 at 15% p.a. Later in October and November additional credit line
facilities were provided in the amount of 1.2 billion rubles and 6.7 billion
rubles maturing on October 2016 and November 2020, respectively. Both credit
line facility bear interest rate of 15% per annum.
All loans and borrowings presented in the table above as of 31 December 2015
are at fixed rates and are denominated in Russian Rubles.
In October 2013, the Group placed issue of documentary interest-bearing
non-convertible bearer stock bonds (registration number 4-01-55378-E) with a
total nominal value of RUB 3 billion and the term of 5 years at Moscow
Exchange. Coupon payments are made on semi-annual basis of fixed rate of 10.5%
p.a. for the first six coupon periods. According to the Bank of Russia Board
of Directors Resolution as of 29 November 2013, bonds were included into the
Lombard List.
21. Loans and borrowings (continued)
Long-term loans and borrowings are payable in the following periods:
As at 31 December
2015 2014
1 to 2 years - 1,897,392
3 to 5 years 9,154,278 6,042,251
Total 9,154,278 7,939,643
Pledge obligations, description of security and and covenant complianceare
disclosed in Note 33.
22. Accounts payable and promissory notes payable
Trade and other payables as at 31 December comprised the following:
2015 2014
Trade payables 3,411,277 4,281,596
Payables to employees 876,629 991,684
Advances received 7,448 293,516
Interest payable 352,360 195,857
Amounts due to customers under construction contracts 2,137 151,768
Other payables 220,474 98,344
Total 4,870,325 6,012,765
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.
As of 31 December 2015 Interest payable includes interest payable to related
party in the amount of 287,638 (Note 34).
Notes issued comprised the following:
Interest rate As at 31 December
2015 2014
Short-term promissory notes payable
Notes issued to third parties for equipment (Sercel) 7% - 287,656
Notes issued to third parties for equipment (UniQ) 4% - 674,208
Total - 961,864
Effective interest rate for promissory notes issued by the Group in 2013 was
7% while contractual interest rate comprised 4%.
Effective interest rate accrual in the amount of 25,197 was recognized within
finance expense for the year ended 31 December 2015 (2014: 40,063).
In August 2014 the Group entered into supply agreement with Sercel for
acquisition of new seismic equipment in the amount of 11,465,720 euro. The
purchase was made on deferred payments terms through ten equal installments by
September 2019 at EURIBOR 6m + 2.8% p.a.
As of 31 December 2015 current portion of this liability in the amount of
182,757 is recorded within trade payables and amounts of 548,272 due beyond
2016 are presented within Other long-term liabilities (31 December 2014:
156,720 and 626,878, respectively).
23. Other taxes payable and provisions
As at 31 December other taxes and charges payable comprised the following:
2015 2014
Value-added tax payable 2,137,983 1,470,947
Social taxes payable 657,183 403,613
Personal income tax payable 392,335 135,231
Property tax payable 31,579 23,186
Other taxes and charges 33,365 38,462
Total 3,252,445 2,071,439
As of 31 December 2015 provisions amounted to 159,530 (31 December 2014:
157,448) and related to probable tax exposures in respect to value-added tax
payable which were revealed based on on-site tax audits for several previous
years.
24. Construction type contracts
The Group sales include revenues from seismic contracts of 18,107,562 and
18,987,943 for 2015 and 2014, respectively.
The status of construction type contracts in progress as at 31 December 2015
and 2014 is presented below:
As at 31 December
2015 2014
Accumulated costs under contracts in progress from inception 12,592,966 13,114,865
at the reporting date
Accumulated recognized profits less recognized loss under 2,976,870 4,382,804
contracts in progress from inception at the reporting date
Balance of advances
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