Celebrating 40 Years of the Reign of His Majesty Sultan Qaboos bin Said
Aligned with the best in Oil & Gas: Safe; Efficient; Green; Local Renaissance Services – Omani multinational, Oil & Gas service provider
*
Marine
*
Engineering
*
Contract Services
One of the best ways we can get the most from the energy we have is to focus it. That is why our businesses are aligned with the very best in the oil & gas industry, to provide the best performance possible for our customers and drive our growth ambitions. Our Marine Support Vessel (OSV) fleet is crossing 100 vessels this year. Our Engineering businesses are delivering larger and more complex projects than ever before. Our Contract Services life-support infrastructure facilities and services are expanding in local and overseas markets. Driving efficiency, continuous HSE improvement, commitment to the employment of local workforces and the development of our assets are some of the responsibilities we take on as a leading service provider to the energy industry.
4
ANNUAL REPORT
2009
Contents BOARD OF DIRECTORS
6-7
FINANCIAL HIGHLIGHTS
8-9
2009 HIGHLIGHTS
10-11
CHAIRMAN’S REPORT
12-19
CEO’S REPORT
20-41
AUDITORS’ REPORT ON CORPORATE GOVERNANCE REPORT ON CORPORATE GOVERNANCE
42 43-48
AUDITORS’ REPORT ON FINANCIAL STATEMENTS
49
FINANCIAL STATEMENTS
50-97
MANAGEMENT TEAM
98-99
Renaissance Services SAOG P.O. Box 1676, P.C. 114, Muttrah, Sultanate of Oman. Tel:+968 24796636 Fax: +968 24796639 www.renaissance-oman.com
& ITS SUBSIDIARY COMPANIES
5
Board of Directors
Colin Rutherford Director
Rishi Ajit Khimji Director
Sunder George Director
Samir J. Fancy Chairman
HH Sayyid Tarik bin Shabib bin Taimur Director
Yashwant C. Desai Director
Ali bin Hassan Sulaiman Director
Financial Highlights 643.1
800.0 700.0 600.0
140.0
608.5
105.4
120.0
84.9
97.2
74.1
86.5
100.0
517.4
500.0
80.0
400.0
194.0 160.4 173.2
300.0
158.8
71.6 58.0
60.0
45.0
40.0
141.4 111.9
200.0
68.0
20.0
2009
2008
2007
Revenue
Gross Profit
.0 US$ Million
US$ Million
100.0
Earnings Before Tax, Interest, Depreciation & Amortisation
2007
Profit from Operations
2009
2008
Profit Before Tax
Profit After Tax (Before Minority)
Summary Financial Information 2007
2008
2009
2007
Rial Million
ANNUAL REPORT
2009
2009
US$ Million
199.2
234.3
247.6
Revenue
517.4
608.5
643.1
54.4
66.7
74.7
Gross Profit
141.4
173.2
194.0
27.6
37.4
40.6
Profit From Operations
71.6
97.2
105.4
43.1
61.1
61.8
Earnings Before Tax, Interest, Depreciation and Amortisation
111.9
158.8
160.4
22.3
33.3
32.7
Profit Before Tax
58.0
86.5
84.9
17.3
26.2
28.5
Profit After Tax (Before Minority)
45.0
68.0
74.1
148.6
223.5
282.7
Net Fixed Assets
386.0
580.4
734.4
109.4
138.7
168.4
Total Equity
284.1
360.2
437.4
98.0
150.3
188.6
Term Loans
254.7
390.3
489.8
0.071
0.103
0.094
Basic Earnings Per Share (Rial)
0.184
0.267
0.244
0.025
0.025
0.012
Dividend Per Share (Rial)
0.065
0.065
0.031
Note:1. Basic earnings per share have been adjusted for changes made in share capital in subsequent years. 2. All figures converted @ 1US$ = 0.385 Rial
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2008
2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20
1.66
1.68
21.12
25% 1.52
18.57
1.14 17.24
20%
1.10
10.08
12.44
15%
0.90
10.94
10% 5%
2009
2008
Ratio
2007
Ratio
2007
2009
2008
Gearing
Total Liabilities/Net Worth
Return on Capital Employed (%)
Return on Average Equity (%)
SigniďŹ cant Ratios 2007
2008
2009
Current Ratio
1.10
1.09
1.20
Gearing
0.90
1.10
1.14
Total Liabilities/Net Worth
1.52
1.68
1.66
Interest Cover
5.10
4.30
5.17
Return On Capital Employed (%)
10.94
12.44
10.08
Return On Average Equity (%)
17.24
21.12
18.57
& ITS SUBSIDIARY COMPANIES
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Jan - March
11 Jan
Renaissance’s marine subsidiary secures US$ 42m contract with TOTAL E&P, Qatar Topaz subsidiary DMS signs with TOTAL E&P for two vessels to support the drilling programmes of TOTAL offs offshore Qatar.
07 Feb
Renaissance’s engineering subsidiary delivers the 17.2 metre crew boat ‘DNV Express 18’
15 Feb
Renaissance announces record preliminary results Unaudited reports for the year ending 2008 are disclosed to the Central Market Authority of Rial 234 million, US$ 0.6b in revenue.
03 Mar Renaissance subsidiary NTI announces BizPro Awards 2009 15 Mar Renaissance subsidiary deploys second Miclyn Express crew boat 24 Mar Renaissance Contract Services 20-year Service Awards TISCO rewarded its longest serving employees for 20 years of dedicated service and contribution to a growth that began with 80 employees and reaches 5,264 persons presently. 29 Mar Renaissance’s Topaz raises US$ 23 million for vessel finance Topaz Energy and Marine successfully raises US$ 23m to finance the acquisition of the US$ 38m ‘Caspian Server’ Platform Supply Vessel. The loan is financed by DVB Bank of Germany.
April - June
30 Mar Renaissance hosts Annual General Meeting of Shareholders 06 Apr
Renaissance subsidiary completes US$ 17 million LNG Module Topaz Engineering completes construction of an LNG Loading module in a US$ 17m contract. Over 500,000 man-hours are completed with no LTI.
12 Apr
Renaissance Services appoints Investec Trust to administer SMIP Renaissance appoints an independent trust to administer its ongoing company Senior Management Incentive Plan.
10 May Renaissance is named an Oman Sail sponsor of the Renaissance racing catamaran 12 May Renaissance Services reports strong growth in unaudited Q1 results Renaissance reports Q1 investments of more than Rial 28m (US$ 73m) in the building programmes for its OSV fleet and in the construction of PAC’s. 14 May Renaissance’s subsidiary CEO of Topaz wins Maritime Personality of the Year award 18 May Financial Times names Renaissance Services “an oil field services provider shielded from the downturn” 25 May Renaissance backs Early Intervention teacher training programme in its second year CSR commitment 28 May Renaissance subsidiaries TISCO and NTI awarded by the Ministry of Manpower among best companies for Omanisation
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ANNUAL REPORT
2009
30 May Renaissance retains 6th position in Oman’s Top 20 largest corporations in Oman Economic Review Top 20 list 31 May Renaissance subsidiary wins US$ 100m contract from Agip KCO Topaz’s BUE Kazakhstan secures a US$ 100m, 10-year contract with Agip KCO to custom-
Jul - Sept
build, own and operate six specialised barges in the Kashagan oil field. 03 Jun
Renaissance’s engineering subsidiary achieves milestone in project for Vopak Horizon
08 Jun
Renaissance’s engineering subsidiary delivers 30 metre crew boat
10 Jun
Renaissance’s COO of Topaz Marine is appointed Chairman for IMCA’s regional branch
14 Jun
Renaissance’s Contract Services Group wins US$ 12m contract in Angola
28 Jul
Renaissance Services sponsors graduating nurses from the Sultan Qaboos University on work placement internships
02 Aug Renaissance subsidiary signs US$ 18.8m long-term facility with Noor Islamic Bank, Bank of Baroda and Bank of India 10 Aug Renaissance Services announces H1 results; reports further growth Year-on-year profit from operations increases by 10.1% to Rial 17.4m, US$ 45.2m. 01 Sep Renaissance’s engineering subsidiary awarded EPC Construction Contract by Port of Fujairah Topaz Engineering wins million-dollar contract to construct topside facilities for the port’s Oil Terminal 2 on a lump-sum turnkey, EPC basis. 06 Sep Renaissance PAC Nimr achieves safety milestone: 9 years LTI free
Oct - Dec
15 Sep Renaissance Services becomes first lead partner in Tahaddi-Outward Bound Oman 13 Oct
Renaissance subsidiary Topaz takes double honors at regional Seatrade Awards
25 Oct
Renaissance’s marine subsidiary wins strategic Turkmenistan contract BUE Turkmenistan, a group company of Topaz Energy and Marine, wins a spot contract valued at Rial 5.4m, US$ 14m, operating seven marine vessels in the Carigali field, offshore Turkmenistan.
29 Oct
Renaissance subsidiary makes contribution to Road Safety
16 Nov Renaissance Services announces Q3 results with positive growth in revenue and operating profit 18 Nov Renaissance signs term loan facilities of Rial 9m, US$ 23.5m, with Bank Sohar and BankMuscat 16 Dec Renaissance’s engineering subsidiary awarded nine-month EPC contract by Fujairah Refinery Company 21 Dec Renaissance subsidiary Topaz secures long-term US$ 42m financing from Standard Chartered Bank, Dubai 27 Dec Renaissance subsidiary signs MOA for US$ 29.5m vessel sale
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Chairman’s Report
The Renaissance business model is straightforward and founded upon taking a long-term perspective in a vital competitive global services industry.
On behalf of the Board of Directors, it gives me great pleasure to present to you the audited accounts for Renaissance Services SAOG for the twelve-month period ending 31 December 2009. In 2009, the strength, stability and resilience of the Renaissance business model have been proven in the ďŹ re of the worst global ďŹ nancial and economic crisis in living memory. We achieved record results for the ninth consecutive
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ANNUAL REPORT
2009
year, delivering Rial 247 million (US$ 643 million) revenue and Rial 28.5 million (US$ 74 million) net profit. Renaissance has not been built to alter its course in any given boom or bust economic cycle. It has been built for long-term sustainable growth year-on-year. An economic downturn may temper the scale of results in any given year, just as an upturn may enhance results; but neither cycle can negatively influence the underlying strength and sustainability of our growth path. 2009 performance has proved this point once and for all. In a year where many businesses have down-sized or corrected
course to counter the effects of recession, Renaissance has, of course, applied prudent management of cash-flow and counter-party risk; but at the same time, we have continued our programme of disciplined investment in the business to deliver long-term stability and sustainable growth. We have built a platform of assets that continues to assure outstanding shareholder value.
A business model for all seasons The Renaissance business model is straightforward and founded upon taking a long-term perspective in a vital competitive global services industry: We are focused primarily on providing safe, quality services to the oil & gas industry. These services are focused primarily on the most stable development and operational phases of the oil & gas industry cycle. The safety, quality and standards of the oil & gas sector make our services relevant and flexible for application in other sectors including government, commerce, industry and defence. Our core businesses in Marine, Engineering and Contract Services are all responsibly independent enterprises holding market-leading positions in their chosen markets; yet are effectively interdependent in their primary oil & gas sector focus. The diversity of these businesses provides complementary immunity from the full impact of boom and bust cycles in their respective industries. We operate in geographies and markets that harbour more than 50% of the world’s known oil & gas reserves, where the future for both hydrocarbon and alternative energy resources is long-term. We have a careful balance between long-term stable contracts with secure returns and more volatile shortterm higher-return contracts. We have a careful balance between high-risk high-reward markets and lower-risk morecompetitive markets. We have a careful balance between long-term stable asset-based businesses and pure services businesses that generate significant cash flows to fuel and accelerate the investment in long-term value assets. In this recession, this business model was tested in fire and was not found wanting. This may be seen in the 2009 financial performance:
Another record financial performance 2009
2008
Rial Million US$ Million Rial Million US$ Million
Revenue
247.6
643.1
EBITDA
61.8
160.4
61.1*
158.8*
Operating Profit
40.6
105.4
37.4
97.2
Net Profit
28.5
74.1
26.2*
68.0*
234.3
608.5
*The 2008 Net Profit of Rial 26.2 million includes a net capital gain of Rial 4.8 million (US$ 12.5 million) arising from the divestment of the Group’s technology businesses in the first quarter of 2008 (Ex capital gain Rial 21.4 million). 2008 EBITDA of Rial 61.1 million also includes Rial 6 million capital gain from the divestment (Ex capital gain Rial 55.1 million).
& ITS SUBSIDIARY COMPANIES
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The company sees scale of potential for further disciplined investments of Rial 522 million (US$ 1.36 billion) over the next three years.
In comparison with the same period last year, revenue has increased by more than Rial 13 million (US$ 34.5 million); profit from operations has increased by 8.4%; EBITDA without capital gain has increased by 12.2%; and net profit without capital gain has increased by 33.2%. The operating margins have improved from 15.9% in the previous period to 16.4% in the current period. The company’s aged assets are replaced as a matter of ongoing operational routine, and this programme has also contributed to the current year’s improved performance. Against Rial 843 thousand (US$ 2.19 million) in 2008, the current year results include net income of Rial 5.97 million (US$ 15.5 million) from the disposal of aged operating assets, primarily vessels. The current year results also include absorption of the early year losses and development costs of approximately Rial 4.9 million (US$ 12.7 million) related to our nascent boat-building business, which is now fully operational and entering 2010 with a healthy order book position.
Embedded value in a strong balance sheet In 2009, the company invested a total of Rial 86.2 million (US$ 224 million) in new assets. In the Marine business, the balance of acquisition of new vessels and disposal of old tonnage increased the net size of the Offshore Support Vessel (OSV) Fleet from 97 to 103 vessels, and reduced the age profile of the fleet to 7 years, down from 10 years in the preceding year. In the Engineering business new investment included the opening of the Al Hayl Engineering yard in Fujairah. In Contract Services, construction has continued on two new Permanent Accommodation for Contractors (PAC) facilities for Oman’s oilfields, which are due to open in early 2010. The company now has over US$ 1 billion of
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ANNUAL REPORT
2009
assets on the balance sheet (Rial 447.9 million; US$ 1.16 billion). The modernity of the new investments and the value gains from the disposal of aging assets, demonstrate real embedded value. The strong balance sheet also carries Rial 30.7 million (US$ 79.8 million) in cash. The company stands on a solid platform of stability with the assets, the businesses and the potential to deliver sustained and enduring economic growth.
returning Rial 3.4 million (US$ 8.84 million) to shareholders, up from Rial 2.5 million (US$ 6.5 million) last year. We are not recommending stock dividend this year, in comparison to 15% last year, as we feel the existing capital base is at an optimal level to generate higher cash dividends going forward. The capital base of the Group may be expanded when raising new Tier I capital to support the investment programme of the Group.
Continued investment for growth
Streamlined organization structure
The company sees scale of potential for further disciplined investments of Rial 522 million (US$ 1.36 billion) over the next three years; although precise capital expenditure will be determined on the merit of each opportunity as it materialises. The current programme, on this scale, can be managed with a mix of existing cash-flows and required borrowings, meeting all financial commitments and covenants with financial institutions and maintaining prudent ratios on the balance sheet. However, we shall need to raise additional Tier I or Tier II capital to support any major acquisitions or advancement of our planned investment to accelerate our ambitious global growth agenda. In this regard, work is already underway with international industry advisors and financial institutions to consider the best possible options and solutions available to us. The interest of global finance and investment institutions bears testament to the faith placed in our progress and our plans.
One of the major achievements of 2009 is the completion of the organisation restructure and re-branding of the Marine & Engineering Group subsidiary, Topaz into Topaz Marine and Topaz Engineering. The new structure is focused on superior customer service, greater operational efficiency and growth. Our commitment to deploying the best team in the field has seen a number of promotions and reassignments of the outstanding leaders in all three core businesses, as well as the attraction of excellent new leaders to match the expansion in size and geographical spread of the group. We have also commissioned an independent study of Executive Remuneration by the Hay Group to ensure we have the optimum remuneration structure to attract, maintain and foster the best management team possible and encourage its development. We want Renaissance to have competitive
Dividend – 12 % Cash dividend Our dividend policy is based on the proposition that cash is returned in the form of higher dividend payouts when there are no credible value-creating opportunities to invest in the business. Our ongoing growth plans require reinvestment of profits in the business to create substantial higher value for our shareholders. Even with our extensive investment plan, I am pleased to advise that the Board is recommending a cash dividend of 12% in comparison to 10% cash dividend last year. The higher cash dividend means that we are
fixed remuneration packages that benchmark well with the industry, and flexible variable reward schemes that are amongst the best-in-market to world-class standard. These rewards include deferred share ownership to encourage retention and commitment to long-term shareholder value. Today, Renaissance has the scale and scalability to be a multi-billion dollar enterprise; and each of the three core businesses of Marine, Engineering and Contract Services has the competence and potential to multiply in size exponentially in their own right. While Renaissance continues to build scale, the company benefits from the diversity of its three principal businesses within a single primary oil & gas focus. Following
& ITS SUBSIDIARY COMPANIES
15
In terms of reliance on major clients or suppliers the Group’s operations are spread across a broad range of blue chip clients and geographies. However there is specific client reliance in some individual markets: The Azerbaijan OSV business is 95% reliant on BP contracts, which is the nature of that single-producer market. In Kazakhstan, 66% of business is with Agip KCO and 22% with Saipem. In Turkmenistan, 100% is with MMHE. The Engineering business is spread widely between a full range of clients, with no major reliance on a single client. For Contract Services, 75% of its Norway business is with Maersk and in Iraq > 90% is with KBR. In Oman, 26% of business is with PDO and its contractors and some 24% with government-related contracts. These highreliance ratios in specific markets are directly linked to the oil & gas domination of those clients in those particular markets and in all cases our competitive position is strong.
Government matters the restructure, we have three clearly defined enterprises in Marine, Engineering and Contract Services that continue to thrive together as a complementary collective; but where each is prepared and independently structured to stand alone, if and when, at an optimum time and opportunity, it is in the best interest of Renaissance shareholders that they should do so.
As an international enterprise Renaissance’s businesses are affected by decisions of governments and major international institutions in the markets where we serve. In Turkmenistan, the decision to allow foreign flag vessels to operate for a transition period before converting to national flag vessels has
Strengthening competitive position Every day, people throughout Renaissance are focused on delivering safe, efficient services that strive to exceed customer expectations profitably. This approach to delivering operational excellence combined with prudent best practice finance and business controls, and a disciplined approach to marketing, competitive tendering and investment decisions, combine to strengthen the competitive position of all the businesses year-on-year. 2009 is no exception. Each of the businesses has market-leading positions in established markets and growing marketshare > 10% in new markets. In markets where the company is well established, the Marine business dominates in Azerbaijan with > 90% of the marketshare and in Kazakhstan with > 55%, and has already built a share of > 10% in the significant Qatar market, entered last year. The Marine business made a strategic breakthrough into Turkmenistan in 2009 and already has a > 20% market share. The Engineering business has a significant presence in UAE, with a dominant position in Fujairah in particular, but it measures marketshare by its entire opportunity catchment area of the Gulf and Caspian regions where it has an estimated single-digit % share with excellent headroom for growth. The Contract Services business has a dominant 65% market share in its home market of Oman and a leading 45% market share in the smaller offshore services market in Norway.
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ANNUAL REPORT
2009
Every day, people throughout Renaissance are focused on delivering safe, efficient services that strive to exceed customer expectations profitably.
enabled our entry to that market. In Abu Dhabi, government plans to dredge the Mussafah channel to 9 metres and create a new deep draught access channel will significantly enhance the competitive potential and capability of the Engineering business waterfront fabrication yards at Adyard and Liwa. In Iraq, the government award of concession areas to international oil & gas producers opens up new competitive opportunities, particularly for the Engineering and Contract Services businesses. In our home market of Oman the government has introduced a new Tax Law, which clarifies that Oman is adopting the
Chairman’s Report
principle of global taxation effective 1 January 2010. This means that the company is now taxed at 12% on all foreign earnings and dividends. Renaissance is affected as an Omani enterprise that is structured to accrue and consolidate the benefits of all its international endeavours into the parent listed company on the Muscat Securities Market, for the benefit of all its shareholders. Renaissance generates > 80% of its business activity from operations abroad, but at almost 20% of our revenue today, our home market of Oman remains a vital and growing part of our opportunity platform. Renaissance is a willing taxpayer. As a successful Omani enterprise we are pleased to pay our meaningful contribution to the public exchequer to sustain public expenditure that meets the needs of the country and spurs growth. There are many other positive measures within the new law that are beneficial for the Oman economy: The reduction of taxes for foreign branches; the uniform tax rates for all categories of taxpayers; tax credits to avoid double taxation; and beneficial measures to control anti-avoidance. The new Tax Law has brought clarity. There have been varied interpretations of tax on overseas income in the past, when the law was less clear. We shall therefore pursue confirmation that income and dividends generated abroad prior to 1 January 2010 will not be subject to tax, now that the date of implementation is clear in the new law. We shall also be working closely with the authorities to ensure the legal structure of Renaissance’s businesses abroad are all eligible for tax credits to avoid double taxation in markets where corporate tax is > 12%. We shall be requesting uncomplicated recognition of the line of ownership in the best interests of Omani competitiveness abroad.
Corporate Social Responsibility Renaissance believes in reward and through its endeavours seeks to improve the economic well-being and quality of life of all its stakeholders: employees and their families; customers; shareholders; suppliers and contractors; and the communities in which the company serves. The Renaissance Corporate Social Responsibility (CSR) programme seeks to help people in physical or economic difficulty to fulfill their potential. It seeks to help local communities become economically viable and self-sufficient. It seeks to promote local employment and showcase local talent in the arts or sport. We also seek to minimise the environmental impact of our business activity and a range of new initiatives has been taken to promote the Group’s ‘Green Agenda’. This outlook gives Renaissance people a clear sense of purpose in running a successful business. At the corporate level the company has invested 1% of 2008 earnings in CSR programmes with a total investment of > Rial 260 thousand (US$ 676 thousand) in a range of & ITS SUBSIDIARY COMPANIES
17
Kazakhstan with 2 to be deployed in 2010 and 3 in 2011; and 1 AHTS and 1 ERRV (Emergency response vessel) for new 10-year contracts for BP in Azerbaijan. Along with the 2 Contract Services PAC projects completing construction, 10 of these new vessels shall have a positive economic impact on our growth in 2010. While there is growing evidence of the world pulling out of recession, we choose to be cautious and enter 2010 with the same tightness of discipline in managing our cashflows and our third-party risk. There is often a time-lag of effect from over-capacity in various business sectors and initiatives to support, amongst others, the Association of Early Intervention for Children with Special Needs, the Oman Sail project, Outward Bound / Tahaddi, British Scholarships for Oman, and an internship abroad programme for graduating nurses from Sultan Qaboos University Hospital. We have also made an array of donations to various charities in our home markets and contributions to humanitarian disaster relief abroad. At a time of global recession it is as important as ever that we continue with similar initiatives in 2010 and we shall be seeking shareholder approval to assign 1% of 2009 earnings for CSR expenditure in 2010.
Looking to the future In my report to you last year we faced the toughest global recession in modern times and I promised you that we would not waste this crisis. The 2009 performance demonstrates that, operationally, we managed the enormous immediate challenges of the crisis in a manner that we could still deliver growth, while the world economy contracted. The continued support of financial institutions to participate in our 2009 investment programme, in spite of the most severe credit crunch, reflects the spirit of true partnership that we share with our bankers in Oman, UAE and abroad. It is also testament to the prudence and integrity of our financial management and controls; the security and bankability of our contracts; and the confidence in our disciplined approach to investment. In 2009, while many corporations down-sized our human resources grew from > 10,000 to > 11,000 people – at the same time generating more income per capita in each of the businesses. The organisation restructure is built for the permanent future, not for the temporary recession. Our constant endeavour to consider and research merger and acquisition opportunities has been as active as ever, although no specific transaction has met our criteria for active interest, the process alone is a constant investment in experience and knowledge for our team. In our current investment programme we have 13 vessels under construction in shipyards around the world: 6 vessels for the MENA region, including 4 AHTS (Anchor handling tug) vessels for the Saudi market; 5 barges for Agip KCO in
18
ANNUAL REPORT
2009
higher unemployment, particularly in the major developed economies. In this regard we continue to benefit from the diversity of our business portfolio. In 2009, our Engineering business was impacted negatively, but growth in the Marine and Contract Services businesses sustained us. In 2010, Engineering is coming back strongly, but we do anticipate continued and increasing pressure on utilisation and margins in the spot market of the Marine business in the MENA market for at least the first half of the year. The difference, looking at 2010, from when we looked ahead to 2009, is that the scale of confidence is greater. Last year, we felt we could still deliver growth in spite of the recession and we did. This year, we are poised to deliver growth over the year in spite of some continuing impacts of the recession to which we remain ever-vigilant and alert. For the longer term, it is clear that we have a business that is succeeding and growing in spite of adversity in the economic environment. It is equally clear that this business has competence, stability and momentum. Because of this, Renaissance stands on the threshold of enormous potential on an even greater scale than all that has been achieved to date. We pride ourselves that Renaissance has been a pioneer of many firsts in our market. We do not seek to be innovative and different simply for the sake of it – indeed our disciplined approach to investment and financial control is as conservative as could be. But I can assure you, we shall be seeking out the best possible way to capture this potential for the enduring benefit of all our stakeholders.
Chairman’s Report
A word of thanks I would like to place on record my thanks to all our stakeholders: To our customers for their patronage, support and belief in our services; to my fellow Board Members for their wisdom, direction and governance; to our bankers, legal advisors, auditors and other professional advisors for their partnership and belief in our journey; to our contractors and suppliers for their service and efficiency in aligning with our business ethos; to the communities in which we serve for their positive participation in our programmes and their welcome of us as their neighbours; and to all our shareholders for their continued belief and support. I am sure all of our stakeholders will join me in thanking our people for their outstanding performance in delivering the 2009 results and building our platform for further success ahead.
Renaissance stands on the threshold of enormous potential on an even greater scale than all that has been achieved to date.
In this year, two of our business leaders were recognized for major achievements of their own. Our Group CEO, Stephen Thomas, received an OBE (Officer of the Most Excellent Order of the British Empire) in Her Majesty The Queen’s New Year’s UK Honours List for services to the community and business. The CEO of Topaz Energy and Marine, Fazel Fazelbhoy, was voted the region’s Maritime Personality of the Year. These recognitions serve as a source of great inspiration and pride for one and all at Renaissance. This year we shall celebrate the 40th anniversary of the accession of His Majesty Sultan Qaboos bin Said. His wise leadership has brought stability, progress, prosperity and opportunity to our home market of Oman. Under his leadership, the outstanding achievements of Oman as a modern progressive economy founded on a rich heritage and culture, have provided the platform for a company like Renaissance to form, grow and prosper as a world-class internationallycompetitive enterprise. Thanks to the achievements to date, there is enormous opportunity ahead for Oman. There is enormous opportunity ahead for Renaissance.
Samir J. Fancy Chairman
19
Chief Executive’s Report
Renaissance Services SAOG (Renaissance) is an Omani multinational company listed on the Muscat Securities Market (MSM) in the Sultanate of Oman. The company’s primary focus is on providing safe, efficient and quality services to the oil & gas industry. Renaissance owns and operates a combined Offshore Support Vessel (OSV) fleet of 100+ vessels; has engineering business in oil & gas fabrication, ship building and ship repair; and is a leading turnkey contract services provider of facilities management, facilities establishment, contract catering, operations and maintenance services. The company also owns other smaller businesses in education and training, and media communications. Renaissance currently employs over 11,000 people operating in over 16 countries.
20
ANNUAL REPORT
2009
It is a great privilege for me to provide the management analysis and discussion of the progress of Renaissance in 2009. The company delivered a resilient performance in stringent economic times. This provides the stability needed to continue the calm and resolute implementation of a longterm growth agenda while dealing effectively with short-term challenges.
Safety performance Safety performance is the primary measure of the efficiency, effectiveness and quality of our work. How we care for the safety and well-being of our people, and all those affected by our work is the ultimate measure of our business ethics.
Health, Safety and Environment (HSE) Policy Renaissance companies shall: • Not cause harm to people • Protect the health and safety of employees, contractors, suppliers, customers and all those affected by our work • Protect the environment, minimize wastage and pollution, and continuously improve the efficient use of energy and resources • Provide a safe and healthy workplace for employees In order to achieve this, Renaissance companies shall: • Comply fully with the laws of host countries • Comply fully with the HSE regulations, standards and procedures of clients and customers • Where appropriate, apply more stringent standards and procedures than those laid down by law or contractual obligations Renaissance companies shall pursue this Policy through: • Visible leadership and commitment • Clear policy and objectives; effective organisation and responsibilities; sufficient manpower and resources with effective competence assurance; robust risk assessment and hazards and effects management; careful planning; best practice standards, procedures and document control; diligent implementation, monitoring, audit and management review • Honest reporting of accidents and robust investigation, review and learning for prevention • Training, motivation and communication • Commitment, involvement and contribution of all employees In doing so, Renaissance companies shall be guided by the principles that: • HSE forms an integral part of the company’s values and is as important as other prime business objectives • All accidents, injuries and incidents are unacceptable and can be prevented • HSE is a line management responsibility • Every individual is responsible for his or her own health and safety and for the health and safety of colleagues and all others affected by his or her work • Work shall not be started unless essential safety measures are in place. Every individual is empowered to stop work if essential safety measures are not in place • Competent supervision is the key to improve and maintain safety performance and achieve Goal Zero: No harm to people or the environment Stephen R. Thomas CEO & ITS SUBSIDIARY COMPANIES
21
2008 2009 Change Total Manhours 36,905,857 40,081,537 +3,175,680 worked Number of 1 0 +1 Fatalities Number of Lost Time Incidents 13 25 -12 (LTI) Lost Time Incident 0.349 0.68 -0.331 Frequency (LTIF) Road Traffic 21 28 -7 Accidents (RTA) Total Kilometers 14,181,383 14,572,605 +391,222 Driven
The 2009 safety performance has been achieved against an increase in the volume of activity and the scale of exposure to risk across the Group. No accident is acceptable, but we are encouraged by the reduction in LTIs and the 48% reduction in LTIF. We commend our management and employees who have worked hard to achieve this more positive trend. However, these improvements are marred by a fatality and in accepting my ultimate responsibility for the safety of our people I wish to honour the memory of our fallen colleague in this report. Luis Camacho Almirez was a 41-year old mechanic working for the Marine Repair division of Topaz Engineering on a contract assignment in the Bahamas. Luis died on 2 June 2009 from the impact of a blow to the back of his head from a broken stay bolt, which sheared off while using a high pressure hydraulic power pack and jack. Luis was wearing the mandatory PPE of Hard Hat, Safety Shoes and Safety Glasses but this was insufficient to save him from the lapse in risk assessment of the task and the equipment. Luis is sadly missed by his family, friends and work colleagues. The best tribute we can pay to Luis and his bereaved family is to learn from this incident to prevent the same or similar accident occurring again. The most serious injury incident this year was in fact not recordable as an LTI as it occurred off duty away from the workplace. Percy Kumar is a 53-year old Stores Clerk working for Renaissance Contract Services Group in Iraq. On 31 December 2009, Percy received shrapnel to the head, face and back from a mortar attack on one of the company’s camp facilities in Baghdad. Percy spent considerable time in ICU and is slowly being restored to health. This incident reminds us that, beyond the hazards of our workplaces, the company also operates in dangerous environments. This was the closest the company has come to a fatality in Iraq and reminds us to continuously improve the safety and security of the workplace and living space of employees wherever they may be. We wish Percy a continued recovery to good health.
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ANNUAL REPORT
2009
Financial performance These tragic setbacks should not blind us to the many milestones, awards, highlights and successes that have underwritten the overall progress in safety performance. Topaz Marine Azerbaijan and Topaz Marine MENA both achieved LTI-free years – both truly outstanding performances. There are also less high-profile but equally important achievements: For example the Contract Services Group has supervised and mentored a Local Community waste management sub-contractor in its Oman oilfield from a company with no HSE management system at all three years ago, to achieve a full year without LTI in 2009. There are also memorable individual and team achievements to celebrate: For example, the master, officers and crew of IBSV Tulpar received commendations from Agip KCO in Kazakhstan for rescuing a man from the Caspian Sea when a helicopter rescue had been thwarted. These achievements show us what can be done and inspire us to strive for similar outcomes across all our operations. They confirm our absolute belief that Goal Zero is possible: No harm to people or the environment.
Rial Millions
Revenue Net Profit Total equity
2005 106.4 13.9 82.2
2006 142.9 14.3 91.8
2007 199.2 17.3 109.4
2008 234.3 26.2 138.7
2009 247.6 28.5 168.4
Rial Millions 350 300 250 200 150 100 50 0
2005
2006
2007
2008
2009
Revenue Rial Millions 35
Safety Milestones Some of the safety milestones and awards achieved during 2009:
Marine Group • Topaz Marine MENA wins the Lloyd’s List Middle East & Subcontinent 2009 Awards for ‘Safety at Sea’ and the Seatrade Middle East and Indian Subcontinent Awards 2009 ‘Workboat’ award • Topaz Marine Kazakhstan, 2 Million and 3 Million manhours LTI free for Agip KCO • Topaz Marine Azerbaijan, 2.2 Million man-hours LTI free for BP • Topaz Marine MENA, 1.5 Million man-hours LTI free
30 25 20 15 10 5 0
2005
2006
2007
2008
2009
Net Profit Rial Millions 200 175
Engineering Group • Gold Winner of EHS Dubai award in Ports and Maritime category • Topaz Fabrication & Construction, 5 Million man-hours LTI free for SBM
150 125 100 75 50 25
Contract Services Group • Integrated Services PDO South – 1 year LTI Free for PDO • RS PAC Fahud - 2 years LTI Free • RS PAC Nimr - 9 years LTI Free • RS PAC Qarn Alam - 1 years LTI Free • 2.5 Million man-hours LTI free on construction of RS PAC Marmul B • 2 Million man-hours LTI free on construction of RS PAC Bahja
0
2005
2006
2007
2008
2009
Total Equity
The 2009 financial performance has been achieved against a background of a global credit and financial crisis, unprecedented in the lifetime of our business. Against this background the growth in revenue and profit display a genuine resilience in the company’s business model based on long-standing service relationships aligned with blue-chip
& ITS SUBSIDIARY COMPANIES
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The Marine business now represents nearly 39% of the Group’s revenue, with Engineering approximately one third and Contract Services approximately one quarter. All three businesses shall continue to grow significantly but by the nature of the sector and our planned investment programme, the Marine business will continue to increase its dominant presence on the balance sheet. The 2009 profit % is somewhat skewed: While the Marine business usually makes some gain on disposal of old assets in its OSV fleet renewal programme, this year the gain was Rial 5.2 million (US$ 13.5 million) up from Rial 834 thousand (US$ 2.2 million) in the previous year. At the same time Engineering revenue and profit was down on the prior year during the recession, while also absorbing one-off losses of Rial 4.9 million (US$ 12.7 million) in the development phase of the Boat Building business. A more balanced contribution of profit may be expected under more normal circumstances.
customers with a solid mix of long and short-term contracts. That is not to say that these record revenue and profit figures have not been affected by the recession. The Engineering business has seen a downturn and even the Marine and Contract Services businesses that delivered improved results would do even better in different global economic circumstances. Nevertheless, operating margins have grown from 15.9% to 16.4%. Growth in EBITDA to Rial 62 million (US$ 160 million) is positive, considering 2008 EBITDA included Rial 6 million (US$ 15.6 million) capital gain from the divestment of the Group’s non-core Technology business. Gearing ratio has been maintained at 1.14, well within banking covenants and consistent with industry standards for a high-investment growth phase. The company’s equity and reserves have risen to Rial 168 million (US$ 437 million), showing a solid capital structure in place to sustain long-term value. ROE, net of capital gain, continues to rise, reaching 18.6% in 2009. Through a disciplined investment programme, net fixed assets on the balance sheet have reached Rial 283 million (US$ 735 million).
2009 Revenue
Segment Revenue and Operating Profit %
39%
Marine
31%
Engineering
26%
CSG
2%
MCG
2%
ETG
Profit from Operations 69.4% 9.5%
Marine
Optimal mix of capital intensive and pure services based business
Engineering
20.0%
CSG
1.0%
MCG
0.1%
ETG
Dividend track record
Cash dividend Stock dividend Total dividend
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ANNUAL REPORT
2009
% 25 62.5 87.5
2005 Rial’000 5,068 7,415 12,483
% 15 10 25
2006 Rial’000 3,041 2,027 5,068
% 15 10 25
2007 Rial’000 3,344 2,229 5,573
% 10 15 25
2008 Rial’000 2,453 3,679 6,132
% 12 12
2009 Rial’000 3,385 3,385
Our dividend policy remains unchanged based on the proposition that cash is returned to shareholders in the form of higher dividend payouts when there are no credible valuecreating opportunities to invest in the business. Even in the midst of a significant investment programme that is securing sustainable growth for the company we are still able to deliver an increased cash dividend of 12% to our shareholders whilst retaining the bulk of cash for new investment. There is no stock dividend this year as the capital base only needs to increase now in the event of an injection of any new capital, required for the investment programme. This allows a base for increased cash dividend going forward.
Business segment performance All businesses have been affected adversely by the recession, however, in spite of this, the Marine and Contract Services groups have delivered growth of revenue and profit. The Engineering business has been most adversely affected but is recovering strongly in 2010. Similarly, in the smaller noncore enterprises, the Media business has delivered growth in a tough year, while the Training business has seen a downturn. Managing the effects of recession has included a greater focus on counter-party risk and stricter management of receivables and cash-flows. However, there has also been considerable investment of time and energy in sustaining the company’s long-term strategy for sustainable growth. This has included a major organisation restructure and re-branding in Topaz Energy & Marine to create Topaz Marine and Topaz Engineering. This streamlined structure is customer-centric, more efficient and built for growth. The Topaz CEO and management team deserve great credit for conceiving and implementing these changes in such challenging times.
Delivering outstanding performance requires exceptional people.
& ITS SUBSIDIARY COMPANIES
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Business Segments Offshore Support Vessel Fleet
Subsidiary company and divisions:
Marine Group Marine Group Revenue Operating profit People (nos)
Rial Million 2009 2008 95.5 75.2 31.6 24.2
US$ Million 2009 2008 248.1 195.3 82.1 62.9
2009 1,040
Topaz Energy & Marine Ltd., Dubai • Topaz Marine MENA
2008 1,045
• Topaz Marine Kazakhstan • Topaz Marine Azerbaijan
Activities
The nature of the long-term contracts for the fleet deployed in the Caspian Sea has proved to be a key factor in the stability of the business in 2009. The additional strategic breakthrough into Turkmenistan with a 7 vessel contract has been an important highlight in the year. The fact that the fleet operates primarily in the offshore oilfields of the Arabian Gulf and the Caspian Sea has also been crucial, as these oilfields have remained fully operational. In the MENA region, the fleet has seen some pressure on utilisation and rates, with approximately 6 to 7 vessels adversely affected at any given time; and we expect this pressure to continue for at least the first half of 2010. Even with this continued pressure, the underlying growth trajectory will continue with the positive progress and deployment of investments already made. During the year, the company was awarded a long-term US$ 100 million contract for an additional 5 ice class barges for Agip KCO in Kazakhstan.
Offshore Support Vessel Fleet primarily servicing offshore oil & gas installations. With 100+ vessels and a low average age that competes with the world’s top five offshore service providers, the Marine operations have had the fastest growing success. The business units are segmented geographically and support major offshore projects in their respective regions, which account for over 50% of the world’s proven offshore reserves. The vast majority of the division’s revenue is from secure, medium to long-term contracts with major oil heavyweights. 3% of the fleet is deployed in support of hydrocarbon exploration, 77% in support of field development and 20% in support of oil & gas production. The fleet includes anchorhandling vessels, platform supply vessels, survey vessels, specialised barges and ice-breakers among others.
OSV continues to offer growth opportunities Balance of short and long-term contracts; operations primarily focused on the development and production phases of the oil & gas extraction cycle.
OSV fleet summary Type
Azerbaijan
Kazakhstan
MENA Turkmenistan
AHTS
4
3
18
3
28
Barge
-
23
-
2
25
PSV
6
-
8
-
14
ERRV
3
10
-
-
13
Others**
-
5
3
-
8
Crew Boat
-
5
1
1
7
Tugs
-
3
-
1
4
MSV
-
-
2
-
2
Ice-breaker Total
-
2
-
-
2
13
51
32
7
103
*Includes owned and managed vessels and vessels under construction. **Others include Cable Lay, Flotels and Survey Vessels.
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ANNUAL REPORT
2009
Total
Chief Executive’s Report
& ITS SUBSIDIARY COMPANIES
27
Engineering Group Engineering Group Revenue Operating profit People (nos)
Rial Million 2009 2008 77.6 88.0 4.3 8.0 2009 4,211
US$ Million 2009 2008 201.6 228.6 11.2 20.8 2008 4,892
Activities Providing engineering solutions in fabrication & construction, marine repair, maintenance and ship building. The Engineering businesses have established capabilities and excellent results for onshore and offshore fabrication to a diverse portfolio of clients primarily in the oil & gas, marine and defence industries. The company has invested in new facilities which have enabled the division to focus on more specialised fabrication work. Its newest division in ship building is teamed with some of the world’s foremost designers and has made a name for itself regionally for quality and innovation.
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ANNUAL REPORT
2009
Business Segments Fabrication & Construction Ship Building Marine Repair Maintenance
Subsidiary company and divisions: Topaz Energy & Marine Ltd., Dubai • Topaz Fabrication & Construction • Topaz Ship Building • Topaz Marine Repair • Topaz Maintenance
Chief Executive’s Report
The company delivered a resilient performance in stringent economic times.
The downturn in revenue in the Engineering businesses arises from capital expenditure deferment in the oil & gas sector at a time of oil & gas price volatility. With the oil price more stable the prognosis for 2010 already looks very good. In addition the nascent Boat Building business incurred net losses of Rial 4.9 million (US$ 12.7 million) in 2009 that shall not recur in 2010. The business is now well set with full facilities and streamlined processes and a positive order book. The certiďŹ cation of a new 600 Ton travel-lift has also increased capacity potential for the business. During the year a new 200,000 sqm engineering facility was opened at Al Hayl in Fujairah. Even while volumes were lower the business still delivered major project successes, including delivery of a second LNG Loading Module by Adyard in Abu Dhabi to a blue-chip customer at Ras Laffen. The Engineering business is well placed for superior performance in 2010 with clear evidence of increased E&P spend by oil & gas producers at the start of the year.
& ITS SUBSIDIARY COMPANIES
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Contract Services Group Contract Services Group Revenue Operating profit People (nos)
Rial Million 2009 2008 64.9 61.9 9.1 8.8
US$ Million 2009 2008 168.6 160.8 23.6 22.9
2009 5,701
2008 5,323
Activities
Renaissance is committed to being a good corporate citizen.
The Contract Services Group has served the company’s home market of Oman for over 20 years, and has now successfully exported the Renaissance standard for excellence abroad, winning major international contracts in competition with world-class global competitors. Providing turnkey solutions for Catering, Cleaning, Laundry, Accommodation, Operations & Maintenance (O&M), Leisure, Property, Estate Services, Facilities Management and Facilities Establishment (Build, Own, Operate); including rapid deployment capabilities in emergencies for harsh, remote or beleaguered environments. Serving Oil & Gas, Energy Services, Healthcare, Education, Military, Commerce & Industry, Ports & Marine sectors.
Service segments • Catering – Oil & Gas sector, Universities, Schools, Hospitals, Military, Commerce & Industry • Facilities Management & Facilities Establishment – Build, Own, Operate: Camps, Dining Facilities (DAFCs) and Life Support Accommodation (LSA), Permanent Accommodation for Contractors (PACs) • Cleaning, Laundry, Accommodation Services • Operations & Maintenance (O&M) • Leisure Services • Property & Estate Services
Subsidiary company and divisions: • Tawoos Industrial Services LLC (TISCO) • Rusail Catering & Cleaning Services LLC • Renaissance Services PAC Division • Renaissance Services Overseas Division • Renaissance Contract Services AS (RS-NOC) - Norway • Renaissance Contratos e Servicios Angola LDA • Renaissance Contracts Services Qatar WLL
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ANNUAL REPORT
2009
The Contract Services business has had an excellent year in spite of the recession through a combination of contract retentions, rate revisions and new contract gains in the company’s major home market of Oman, as well as in Angola, Iraq and Norway. At the same time efficiencies have been achieved with new procurement systems and assets. Contract Services has transformed itself as a business over the years from an erstwhile catering and support services contractor to a turnkey facilities management enterprise with a combination of long-term and short-term contracts. The long-term contracts include 3 Permanent Accommodation for Contractors (PAC) facilities in Oman’s oilfields. One of the highlights of 2009 has been the progress of construction of 2 new PAC facilities for on-time, in-cost delivery in early 2010 to guarantee new growth for the year.
Chief Executive’s Report
& ITS SUBSIDIARY COMPANIES
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Other Businesses
Education & Training
Activities
Media Communication
Activities Consulting for marketing communications support including advertising, digital and web media, events, public relations, direct contact and brand activation. Publishing business and general interest magazines and country books in English and Arabic. Representing international print titles for advertising and publication sales. Media Communication People (nos)
2009 168
Subsidiary company and divisions: • United Media Services LLC • United Press and Publishing LLC
2008 162
Providing people solutions in HSE, Technical, Hospitality, Retail, IT and Administration training, with expertise in developing indigenous workforces in developing countries. Providing services to Oil & Gas, Energy Services, Construction, Hospitality, Tourism and Retail sectors. Education & Training People (nos)
2009 193
2008 138
Subsidiary company and divisions: • National Training Institute LLC • National Hospitality Institute SAOG • Nakshatra Hospitality India • New Horizons Computer Learning Centres
• Oryx Advertising Co. WLL (Qatar)
While the company’s non-core smaller businesses in Media and Training do not have a material impact on the company’s financial performance each makes a very valid contribution to internal services within the group, whilst being market leaders and successful enterprises in their respective fields. Both businesses are debt-free with good balance sheets and each could be divested at an optimum time. In 2009 Training has experienced a recession-led downturn, and while recession has seriously affected media spends the Media business has delivered a remarkable improved result for the year. The Training business continues to support many of the group’s training needs, while in the Media business, Renaissance benefits from the creativity and professionalism of our branding and imaging, our media campaigns, and our transparent public reporting.
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ANNUAL REPORT
2009
Quality processes and systems All our businesses remain committed to best practice systems and processes and throughout the group we have benefitted from independent accreditation of how we go about our business. The coverage and protection of the ISO loop has been an important factor in our resilience to economic downturn.
Accreditations held within the group Topaz Marine MENA
ISO 9001 : 2008
Topaz Marine Kazakhstan
ISO 9001 : 2000
Topaz Marine Azerbaijan
ISO 9001 : 2000
Topaz Fabrication & Construction
ISO 9001 : 2008 ISO 14001 - Ongoing ISO 18001 - Ongoing
Topaz Marine Repair
ISO 9001: 2008 ISO 14001: 2004 OHSAS 18001: 2007 RMRS Liferaft servicing)
CSG
ISO 9001 : 2008 Hazard Analysis Critical Control Point (HACCP) Centre Charter Certificate – Chartered Institute of Environmental Health London UK ISO 9002 ISO 9001 : 2000
Other businesses
ISO 9000 : 2008 ROSPA Membership International Consortium for Certified Knowledge Experts (ICCKE) Pearson VUE – Only center for GMAT exams in Oman HR Compliance Verification Certificate (OPAL) IOSH NEBOSH National Safety Council, USA Microsoft Gold Certified Partner for Learning Solutions Oracle Approved Education Center (OAEC) ACCA – Gold Certified Tuition Provider ISO 9000 : 2001 IiP – Investor in People ITEC City & Guilds CIEH
& ITS SUBSIDIARY COMPANIES
33
Geographic spread Another key element in the company’s resilience in a global recession is not just the diversity of our services but also the range of the geographic spread and market share of our operations.
2009 Revenue generated in…
Geographies and Market Share
80%
20%
Marine Azerbaijan – 80% Kazakhstan – 40% Turkmenistan – 20% Qatar – 10% Saudi Arabia Abu Dhabi
Engineering Abu Dhabi Caspian MENA
CSG Oman – 65% Norway – 28% Angola – 18% Middle East
Other Oman Qatar India
Oman Worldwide
Our International Offices • Angola
• Azerbaijan
• Cyprus
• India
• Iraq
• Jordan
• Kazakhstan
• Kuwait
• Norway
• United Kingdom
• Qatar
• Saudi Arabia
• Singapore
• Sultanate of Oman
• Turkmenistan
• United Arab Emirates
Investing for growth We continue to expend resources on a considerable amount of merger and acquisition (M&A) activity each year. This year’s activity may or may not bear immediate fruit, but even in the case of unconcluded M&A initiatives, the investment in understanding opportunities for expansion and the lessons of due diligence are invaluable to our growth-oriented outlook going forward. While there is no immediate acquisition target in view, there are possibilities of both vessels and businesses under consideration as possible targets for acquisition in 2010.
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ANNUAL REPORT
2009
Our existing investment programmes ensure growth for 2010. In 2009, the net size of the OSV fleet increased by 7 vessels and these shall now have a full operating year. A further 9 vessels are under construction for delivery in mid to late 2010. Two new PAC facilities are nearing completion for the Contract Services Group. The Engineering business now has the boat building division in competitive shape and the new Al Hayl engineering facility in place for a full operational year. While the company has invested in new facilities and infrastructure for Engineering and Contract Services the principal focus for investment has been the strategy to increase the size and reduce the age profile of the OSV fleet. This strategy has paid off during the recession with oil & gas producers and operators favouring modern high specification tonnage to meet the high standards the industry demands. These are the vessels that have stayed on the water during the recession.
OSV Fleet analysis
Younger fleet with expanded capabilities Offshore Support Vessel Fleet crosses 100 mark in 2009 Investing to reduce the age profile and increase the size of the OSV fleet 103 140
96
120 100
62 60
80
57
60 40
19
18
15
20 0
11
2004
2005
2006
14
2007
Number of Vessels
7.6
11
2008
2009
Average Age
When Renaissance acquired Topaz in 2004 the business owned 11 vessels with an average age of 19 years. Today the fleet is over 100 vessels with an average age of 7.6 years. In the last 3 years alone Renaissance has invested US$ 700 million in expansion and new assets. Over the next 3 years we envisage an investment programme that is double that size amounting to US$ 1.4 billion. If the investment is gradual we are able to sustain the programme from internal cashflows and headroom for borrowing in the balance sheet, while maintaining covenants and gearing ratios. However, if acquisition of assets or enterprises accelerates the investment programme, then we shall need to raise new capital to achieve our ambitions. Work is already underway to consider all options for raising capital. Targets for acquisition shall need to meet our key criteria in terms of younger age-profile of vessels that can be deployed in offshore oilfields with long-term growth potential. Our investment strategy has sustained our growth record even through global economic crisis and it now provides us with a platform to create further exponential economic growth for our enterprise as we seek to use our scale and scalability to deploy our competences, knowledge and experience on an even bigger stage.
& ITS SUBSIDIARY COMPANIES
35
Renaissance people
Some of our Customers
Delivering outstanding performance requires exceptional people. Renaissance is thriving on the skill, hard work, ingenuity and enterprise of talented people from around the world who are the heart and soul of all our businesses. During 2009, excellent new leadership talent has joined our teams in the new Marine and Engineering organisations. Existing leaders in the corporate offices of both Renaissance and Topaz and in the Contract Services business have been promoted or reassigned in structures built for delivering outstanding customer service, efficiency of operations and accelerated growth.
IN ALPHABETICAL ORDER
Eni
KCO
MB Petroleum Services LLC
MINISTRY OF HEALTH
At the outset of the global economic crisis the company had taken the precaution to impose a pay-freeze for 2008/2009. However, in order to attract and retain the best team in the field for each of our businesses, we have commissioned an independent study of executive remuneration in the Topaz businesses by the Hay Group. From its findings we have recalibrated executive remuneration from the end of the year, so that from 2010 fixed remuneration will now be at or above the market and industry median, while variable rewards for performance are amongst the best in the region. Variable rewards are paid in a mix of cash and shares, with payments deferred over 3 years. At the unskilled and semi-skilled workforce level, the Contract Services Group has recalibrated remuneration policy to provide increased reward and recognition for long service. Renaissance people continue to demonstrate leadership at every level of the business and continue to deliver and enhance the aspirations of the company.
Renaissance Customers At Renaissance we strive to exceed customer expectations safely, efficiently and profitably. 2009 has been a challenging year for every organisation. We have a blue-chip customer base in every market that we serve and our portfolio includes many of the world’s leading producers, operators and service contractors of the oil & gas industry, as well as governments and leading institutions. In these difficult times we have made every effort to find efficient solutions for our customers, maintaining the standards they demand and require, but containing their costs. We want to thank our customers for standing by us too, during this period. We value the trust they have placed in us and we remain as committed as ever to aligning with them to provide solutions that help our customers achieve their objectives.
36
ANNUAL REPORT
2009
Chief Executive’s Report
A company of leaders with unwavering commitment to integrity, operational excellence and community development.
Renaissance modus operandi How does Renaissance go about its business? Renaissance is committed to provide safe, reliable, affordable services in a responsible manner that enables economic progress and improves the economic well-being and quality of life of all stakeholders: This is the operating agenda that drives Renaissance businesses: • Operational Excellence: Safely and reliably providing quality services. • Driving Growth: Anticipating, understanding and satisfying customer needs profitably. • Best Practice Systems And Processes: Maximising resources and asset value; deploying state-of-the-art technology; prudent control; quality systems. • Empowering People: Giving people the freedom and resources to succeed in flat, efficient organisation structures; developing the next generation of leaders for our business. • Good Governance: Integrity, transparency, responsibility and accountability to protect the interests of all stakeholders • Corporate Social Responsibility: Improving energy efficiency and minimising environmental impacts; providing meaningful employment to indigenous workforces; developing and assisting people and communities where we operate. What does it take to drive this operating agenda forward each year? • It requires an understanding of the long-term nature of our businesses. • It requires a consistent, systematic business model with the flexibility to adapt to changing business conditions. • It requires a commitment to invest in and develop people, innovative technology, and projects that grow shareholder value.
37
• It requires a company of leaders with unwavering commitment to integrity, operational excellence and community development. • It requires belief. Belief in our people and all our stakeholders; belief in our businesses and the integrity of our assets. How does Renaissance align itself with the best in the oil & gas industry? • Renaissance: Safe, Efficient, Green, Local • Continuous improvement of HSE • Continuous upgrading and renewal of assets and infrastructure • Serious commitment to local content in every host nation • Training and development of local workforce • Using local services and goods that meet quality criteria • Aligning with good local partners • Ensuring local community benefit and social responsibility initiatives • Drive efficiency and lower cost base • Sharing our clients’ own concern to drive down the unit cost of production • Programmes to measure and reduce our own energy usage • Conservation initiatives • Efficiency or cost reduction programmes for clients
Our Values At Renaissance we value: • People • Health, Safety & Environment (HSE) • Integrity • Reward • Efficiency & Productivity • Customers • Growth • Merit • Social Responsibility • Transparency • Quality • Profit As a direct consequence of our values-driven management credo, Renaissance will continue to deliver good performance to our shareholders even in this challenging economic environment. This means we can look forward to 2010 with confidence, but the ongoing uncertain and unpredictable nature of the global economic climate also requires that we look forward to 2010 with caution.
38
ANNUAL REPORT
2009
Chief Executive’s Report
Mitigating risks The principal perceived risks for Renaissance at this time are: • Sensitivity to low oil price Re-negotiation of contracts Cancellation of future projects • Raising finance Availability of financing Higher cost of financing • Receivables Late payments Default • Capacity utilisation in the Engineering businesses • Pressure on utilisation and rates in the spot market of the MENA based fleet • Inflation There is also a detailed statement on risk contained in Note 27 of the external auditor’s report. That disclosure gives a detailed specific account of credit risk, liquidity risk and market risk. • The Renaissance business model is resilient to oil price fluctuation Renaissance has predominantly long-term contracts with blue-chip clients in stable markets Renaissance is well positioned in the Middle East and Caspian markets, sitting on > 50% of the world’s hydrocarbon reserves Renaissance provides services to the development and production phases of the oil capex cycle, which is least susceptible to downturns in oil price • Financing for major current growth requirements are in place Renaissance is able to demonstrate a capital structure appropriate for current conditions Financing arrangements secured since the credit crunch have been agreed at affordable rates over the long-term Renaissance has a wide-range of diversified funding sources over the long-term, comprising a mix of solid
local and international banks Renaissance has strong and dependable cash flows • The businesses are focused on Receivables Management and counter-party risk Major clients are blue-chip oil & gas producers and stable governments • Renaissance businesses continue to operate at high capacity Since the crisis no long-term contract rates have been revised downwards The company has not been affected by any project cancellations There has been reduced visibility in the order book for the Engineering businesses during 2009, but we see an increase in E&P spending in 2010 We expect continued pressure on utuilisation and rates in the MENA market for at least the first half of 2010, with some 6/7 vessels under-utilised; but this is mitigated by the fleet on long-term contracts and utilisation of new assets that have joined the fleet in 2009 • Renaissance has inflation-linked clauses in many major contracts We do not under-estimate the scale and depth of the global economic crisis. However, we are alert to its risks and its opportunities; and we believe in the resilience of our business model.
Corporate (CSR)
Social
Responsibility
Renaissance is committed to being a good corporate citizen through protecting our employees and all those affected by our work, supporting local communities, and safeguarding the environment in which we operate. Part of this is our commitment to National Content that extends our CSR commitment to all the host nations where we operate. We strive to promote economic development by employing and training local workforces, using local suppliers of goods and services, and investing in CSR initiatives to support local development and good causes. & ITS SUBSIDIARY COMPANIES
39
Corporate Social Responsibility Ethos Protecting our people and all those affected by our work Protecting the environment, minimising energy usage and mitigating environmental impact of our work Supporting local communities Employing and training local workforces Using local suppliers of goods and services CSR initiatives to support local development and good causes The social aspect of our CSR ethos is focused in these key areas: • Helping those less fortunate than ourselves to lead fulfilling lives • Providing opportunity to help people to improve themselves and make a valid contribution to society • Improving the economic well-being and quality of life in local communities where we operate • Supporting good causes in the community • Showcasing local talent and helping people fulfill their potential The Renaissance CSR programme must be genuine, not just generous. The CSR programme gives us purpose. We want to make a meaningful positive difference in people’s lives.
40
ANNUAL REPORT
2009
Chief Executive’s Report
Examples of CSR Initiatives in 2009 Green Sapphire Ball - Al Noor Association for the Blind – Rial 5,000 Bait Muzna Gallery - exhibition by Hassan Meer – Rial 1,000 Association of Early Intervention for Children with Special Needs – Rial 85,000 International Association of Handicapped Divers – Rial 1,500 British Scholarships for Oman – Rial 450
We look to the future with ever-growing confidence and ever-increasing ambition.
Oman Sail Academy Business Club – Rial 60,000 UNICEF – Rial 1,500 Sultan Qaboos University - College of Medicine & Health Sciences – Rial 65,000 Outward Bound Oman / Tahaddi – Rial 12,000 Women’s Guild in Oman - National Association for Cancer Awareness – Rial 2,000 Muscat Rugby Football Centre – Rial 2,500 Creative Learning Center – Rial 1,000 BizPro Young Achievers Award Winners – Rial 5,000 Nabil al Busaidy’s Antarctic Expedition – Rial 15,000 Renaissance group companies are also engaged in large-scale CSR programmes that help to realize a better standard of living for the communities they serve. This year, Topaz Energy and Marine absorbed a full year’s operation cost for the Mission to Seafarers’ Flying Angel project which allows mariners at sea some much needed communication and recreation facilities aboard its vessel. The Contract Services Group developed a series of Life Saving signs of international highway quality to reinforce Road Safety at the five PACs which it owns and operates for PDO in Oman’s oilfields.
for raising capital to fuel the growth plan. Renaissance is on an inexorable growth path – the question is now a matter of timing and degree. What is clear is that Renaissance has the stability, the competence, the governance, the prudence, the customer relationships and the confidence to maximize the opportunities that lie ahead. Above all, Renaissance has the people. The leadership skills of people in every business, in every market, at every level of what we do, allow us to look to the future with ever-growing confidence and ever-increasing ambition. In the immediate years ahead, we are confident Renaissance will see another transformational paradigm shift in scale and performance.
Stephen R. Thomas OBE
Looking ahead
Chief Executive Officer
Solid growth performance in the toughest of economic circumstances has proved the resilience of the Renaissance business model. The streamlining of the organization into three prime businesses – Marine, Engineering, Contract Services – with a primary oil & gas focus, has brought clarity of direction and purpose. The scale and scalability of these three businesses, either individually or collectively, offers significant immediate potential. The success of the disciplined approach to investment so far, and the planned investment programme of US$ 1.4 billion over the next 3 years demonstrate calm and prudent confidence in the business and show the scale of ambition. Work is already underway to consider all options for accelerating the growth plan, and to consider all options
& ITS SUBSIDIARY COMPANIES
41
43 to 48
42
ANNUAL REPORT
2009
Report on Corporate Governance Corporate governance is an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity, accountability and integrity. Sound corporate governance is not only about structure and clarity in management and areas of responsibility, but it also relates to good transparency so that shareholders can understand and monitor the development of the Company. The Board and Management of Renaissance Services SAOG (“the Company”) are committed to adopt the best practices of corporate governance that promotes ethical standards and individual integrity. The Company will continue to focus on its resources, strengths and strategies for creation and safeguarding of shareholders’ value and at the same time protect the interests of its stakeholders.
The Board ensures ethical behaviour and compliance with all laws and regulations.
This report describes how the Principles of Corporate Governance and the provisions of the Code of Corporate Governance, set out in the Capital Market Authority’s (CMA) Code of Corporate Governance for companies listed on the Muscat Securities Market (MSM), and the Provisions for Disclosure stipulated in the Executive Regulations of the Capital Market Law, are adhered to by the Company.
enhancing Shareholder value, selecting & evaluating the top management team, approving & overseeing the corporate strategy & Management’s business plan, and acting as a resource for Management in matters of planning and policy. The Board monitors corporate performance against the strategic and business plans, and evaluates on a regular basis whether those plans pay off in terms of operating result.
The Company believes that the Code prescribes a minimum framework for governance of a business. The Company’s philosophy is to develop this minimum framework and institutionalise its principles as an ingredient of its corporate culture. This will lay the foundation for further development of a model of governance with superior governance practices, which are vital for growing a successful business. The Company recognises that transparency, disclosure, financial controls and accountability are the pillars of any good system of corporate governance.
In order that it can effectively discharge its governance responsibilities, the Board ensures that the majority of Board members are non-executive, at least one third of Directors are independent and that the majority of committees formed by the Board consist of independent Directors. Furthermore, the Board accesses independent legal and expert advice of professionals who also assist the Management. The Board also encourages active participation and decision-making on the part of shareholders in General Meeting proceedings.
In accordance with the provision for disclosure stipulated in the Executive Regulation of the Capital Market Law, KPMG has issued a separate Factual Findings Report on the Company’s Corporate Governance Report for the year ended 31 December 2009.
1. Company’s Philosophy The Company upholds a governance philosophy that aims at enhancing long-term shareholder value while at the same time adheres to the laws and observes the ethical standards of the business environment within which it operates. According to the Company’s governance paradigm, the management assumes accountability to the Board, and the Board assumes accountability to the Shareholders. The Board’s role is to be an active participant and decisionmaker in fostering the overall success of the Company by
The Board maintains a positive and ethical work environment that is conducive to attracting, retaining and motivating a diverse group of top quality employees at all levels. The Board through the Compensation Committee reviews and decides the parameters for assessment and compensation of key personnel. The Board ensures ethical behaviour and compliance with all laws and regulations. The Company’s Manuals of Procedures (internal regulations) cover a wide range of functions including but not limited to Corporate Information & Disclosure Policy, Rules for Related Party Transactions, Procurement Manual and Financial Authority Manual.
2. Board of Directors During 2009 the Board consisted of 7 Directors. All the Directors are Non-Executive and Independent. Six Directors on the Board are Shareholder/ representative of Shareholder and only one Director is a Non-Shareholder Director. & ITS SUBSIDIARY COMPANIES
43
2.1/3 Sl. No
The Composition and Category of Directors, Attendance of Board Meetings Name of Director
Position
1
Samir J. Fancy
2
HH Sayyid Tarik bin Shabib bin Taimur
Director
3
Ali bin Hassan Sulaiman
4
Category
Chairman Independent Non-Executive Shareholder
4
3
Yes
Independent Non-Executive Shareholder
4
4
Yes
Director
Independent Non-Executive Shareholder
4
4
Yes
Sunder George
Director
Independent Non-Executive Non-Shareholder
4
3
Yes
5
Yeshwant C. Desai
Director
Independent Non-Executive Representative of Shareholder
4
4
Yes
6
Rishi Khimji
Director
Independent Non-Executive Representative of Shareholder
4
4
No
7
Colin Rutherford
Director
Independent Non-Executive Representative of Shareholder
4
4
No
2.2 Statement of the Names & Profiles of Directors and Top Management The Renaissance Board brings together core competencies of directors with vision, strategic insight, and industry knowledge, who provide direction to the Executive Management. Samir J. Fancy - Chairman Mr. Samir J. Fancy is the Chairman of the Board of Directors since 1996. He has held senior positions and undertook leading roles such as: • Founder and Vice Chairman of Tawoos Group since 1983, and Chairman of Tawoos Group since 2005. • Chairman of Topaz Energy & Marine SAOG since foundation and up to its acquisition by the Company in May 2005. • Chairman of Amani Financial Services SAOC since 1997. • Executive Chairman of Topaz Energy & Marine Ltd. • Director of National Hospitality Institute SAOG. • Director of Vision Insurance Co SAOC. HH Sayyid Tarik bin Shabib bin Taimur - Director HH Sayyid Tarik bin Shabib bin Taimur is a member of the Board of Directors of the Company since 1996. Other positions held by him include the following: • Founder and Director of Tawoos Group.
44
ANNUAL REPORT
No. of Board No. of Board Whether meetings held meetings attended during last year attended last AGM
2009
• Chairman of Marina Bander Al Rowdha SAOG for six years until its takeover by the Government of the Sultanate of Oman in April 2003. • Chairman of National Hospitality Institute SAOG since 1995. • Director of Topaz Energy & Marine Ltd. Ali bin Hassan Sulaiman - Director Mr. Ali bin Hassan Sulaiman is a member of the Board of Directors of the Company since 1996. He is a founder of Ali and Abdul Karim Group and a Director of the following companies: • Director of Topaz Energy & Marine SAOG for several years up to its acquisition by the Company in May 2005. • Director of Majan Glass Manufacturing Co SAOG. • Director of National Hospitality Institute SAOG. • Director of Topaz Energy & Marine Ltd. Sunder George - Director Mr. Sunder George is a member of the Board of Directors of the Company since 2001. He has extensive experience in Banking & Finance and has held senior executive positions in Oman & abroad, including the following: • Deputy Chief Executive of BankMuscat SAOG. • Director of Halcyon Capital SAOC. • Director of Topaz Energy & Marine Ltd.
Report on Corporate Governance
Yeshwant C. Desai - Director Mr. Yeshwant C. Desai is a member of the Board of Directors of the Company since 2001 and Chairman of the Audit Committee. He has had a successful career and extensive experience in Banking & Finance and held senior executive positions in Oman & abroad, which include: • Ex-CEO of BankMuscat SAOG. • Director of Topaz Energy & Marine SAOG for several years up to its acquisition by the Company in May 2005. • Director of Topaz Energy & Marine Ltd. Rishi Khimji - Director Mr. Rishi Khimji is a member of the Board of Directors of the Company since 2004. He is also a Director of the following companies: • • • •
Director of Ajit Khimji Group of Companies. Director of Mumtaz International Services LLC. Director of Asha Enterprises LLC. Director of Topaz Energy & Marine Ltd.
Colin Rutherford - Director Mr. Colin Rutherford has been a member of the Board of Directors since 2005 having formerly chaired BUE Marine Holdings prior to its acquisition by Renaissance Group. He has vast experience of public and private companies having served on many Boards around the world. He is a Chartered Accountant and former corporate financier and currently holds the following positions within his diverse portfolio: • Chairman of Midas Capital PLC. • Chairman of Brookgate Ltd. He holds further positions in global fund management, retail, specialist building products and technology. He is also a Director of Topaz Energy & Marine Ltd.
Mr. Stephen Thomas has been recently awarded an OBE (Officer of the Most Excellent Order of the British Empire) by Her Majesty Queen Elizabeth II for “services to business and services to the community in Oman over the last 22 years”.
2.4 Membership of Other Boards/ Board Committees (SAOG Companies in Oman Sr. No
Name of Director
Number of other Boards in which Director
Number of other Boards Committees in which Member
1
Samir J. Fancy
1
1
2
HH Sayyid Tarik bin Shabib bin Taimur
1
1
3
Ali bin Hassan Sulaiman
2
2
4
Sunder George
-
-
5
Yeshwant C. Desai
-
-
6
Rishi Khimji
-
-
7
Colin Rutherford
-
-
2.5 Number & Dates of Meetings of the Board of Directors The Board held four meetings during 2009 on the following dates: • January 13, 2009 • February 22, 2009 • June 10, 2009 • October 8, 2009
3. Audit Committee & Other Subcommittees
Stephen R. Thomas – Chief Executive Officer Mr. Stephen R. Thomas joined Tawoos Group as General Manager of Tawoos Industrial Service Co LLC in 1988. He took over as Chief Executive Officer of Renaissance Services SAOG in 1998. He has held senior positions in the Group including the following positions:
Audit Committee The Audit Committee is a sub-committee of the Board comprising of three Directors, majority of whom have to be independent directors.
• Director of Renaissance Hospitality Services SAOG since foundation and until its merger with Renaissance Services SAOG in April 2002. • Director of National Hospitality Institute SAOG. • Founder and former Chairman of Oman Society for Petroleum Services (OPAL). • Director of Topaz Energy & Marine Ltd.
The functions of the Audit Committee are as follows: • Recommend to the Board the Statutory Auditors in the context of their independence, fee and terms of engagement for approval by the Shareholders. • Review the audit plan and results of the audit and whether Statutory Auditors have full access to all relevant documents.
3.1 Brief Description & Terms of Reference
& ITS SUBSIDIARY COMPANIES
45
• Oversee the Internal Audit function in general and with particular reference to reviewing the scope of internal audit plan for the year, reports of internal auditors pertaining to critical areas, efficacy of internal auditing and whether the internal auditors have full access to relevant documents. • Oversee the adequacy of internal control systems and Internal Audit Reports. • Review any non-compliance with disclosure requirements prescribed by CMA. • Oversee the Company’s financial reporting process and the disclosure of its financial information to ensure the accuracy, sufficiency and credibility of the financial statements. • Ensure that proper system is in place for adoption of appropriate accounting polices and principles leading to fairness in financial statements.
During its meetings, the Audit Committee discussed and approved the annual internal audit plan. The Committee reviewed and recommended to the Board the audited and quarterly accounts and the related party transactions. The Committee had recommended the appointment of the Statutory Auditors for the year 2009. The Committee also looked at certain specific areas of the Company’s operations and reported on these to the Board.
3.3 The Compensation Committee The Compensation Committee was formed as a Board Committee to lay-down and update the parameters for assessment and compensation of key personnel, undertake their performance assessment and report to the Board on the compensation & personnel polices. The Committee, which consists of the following Directors held one meeting during 2009:
• Review annual and quarterly financial statements and recommend to the Board. • Serve as a channel of communication between Statutory & Internal Auditors and the Board.
Sl. No
Name
• Review risk management policies. • Review proposed specific related party transactions for making appropriate recommendations to the Board.
1
• Make recommendations to the Board for entering into small value transactions with related party without securing prior approval of Audit Committee & the Board.
2 Colin Rutherford Member
• Accord prior approval to the Statutory Auditors to provide non-audit services, in accordance with CMA Circular E/12/2009.
3.2 Composition of Audit Committee and Attendance of Meetings In 2009, the Audit Committee of the Company was comprised of the three non-executive independent Directors as members. The following table shows the composition of the Audit Committee and the attendance of its meetings.
Sl. No
46
ANNUAL REPORT
Yeshwant C. Desai
Meetings Meetings held attended Position during during the year the year
Name
Meetings Meetings held attended Position during during the year the year
1
Yeshwant C. Desai
Chairman
5
5
2
Ali bin Hassan Sulaiman
Member
5
5
3 Sunder George
Member
5
5
2009
Chairman
1
1
1
1
4. Process of Nomination of the Directors In nominating and screening candidates to fill a casual vacancy, the Board seeks candidates with the skills and capacity to provide strategic insight & direction, encourage innovation, conceptualise key trends and evaluate strategic decisions. The Board focuses on professionalism, integrity, accountability, performance standards, leadership skills, professional business judgment, financial literacy and industry knowledge as core competencies of the candidates. While nominating competent candidates, the Board ensures that the shareholders retain the power of electing any candidate, irrespective of his candidature being recommended by the Board or otherwise and that any shareholder has the full right of nominating himself.
5. Remuneration Matters As per the approval accorded by the AGM held on 29 March 2009, the Chairman is paid Rial 1,000/- for attending Board meetings and other directors are paid Rial 500/- as sitting fees per meeting. Sitting fees of Rial 750/- are paid to Committees Chairmen and sitting fees of Rial 650/- are paid to committees members. The remuneration, sitting fees and travelling expenses relating to attending of the meetings paid to the Chairman & Directors for 2009 are as follows:
Report on Corporate Governance
Sl. No. 1 2 3 4 5 6 7
Sitting Fees Paid for Board & Sub-committees’ Meetings for 2009 (Rial) Samir J. Fancy Chairman 3,000/HH Sayyid Tarik bin Shabib bin Taimur Director 2,000/Ali bin Hassan Sulaiman Director 5,250/Sunder George Director 4,750/Yeshwant C. Desai Director 6,500/Rishi Khimji Director 2,000/Colin Rutherford Director 2,650/TOTAL 26,150/Name of Director
Position
For the financial year 2009, it is proposed to pay a Directors’ remuneration of Rial 173,850/-, while the remuneration paid during 2009 for the financial year 2008 amounted to Rial 175,750/-. Total remuneration paid to the top five senior executives of the Company (including its subsidiaries) during the year was Rial 1,657,164/-. This includes salary and benefits paid in cash, monetary value of all benefits calculated as per Company rules and a variable amount based on performance as recommended by the Compensation Committee of the Board. Majority of the top 5 officers of the Company have been with the Company for a long time and the employment contracts are usually entered into for an initial period of 2 years which are automatically renewed unless terminated in accordance with the terms mentioned therein. The notice period for termination of employment contracts for all the key personnel is 2 months and the gratuity is computed and paid in accordance with the applicable Labour Laws. The Company has a Senior Management Incentive Plan (SMIP). Under the plan, the Company has created an overseas based trust structure under the name of Renaissance Services SMIP Limited, and uses trustees from an independent professional firm to oversee and administer the employees’ long-term benefit scheme independently from the Company. The scheme is a rolling programme that allows a part of the Company’s senior management bonus payments every year to be paid into the independent trust and the underlying structure. The proceeds are invested by the trustees in the shares of the Company through the MSM. The shares are directly released to the employees by the trustees proportionately over a period of 3 years. The structure and the operation mechanism ensure independency and transparency so that the employees are fully aware of the management and liquidity of their long-term employment benefits.
6. Details of non-Compliance by the Company There were no penalties or strictures imposed on the Company by MSM/CMA or any statutory authority for the last
Remuneration (Proposed for 2009) (Rial) 55,947/27,973/18,986/18,986/23,986/13,986/13,986/173,850 /-
Travelling Expenses (Rial) 610/2,864 /5,253 /8,727/-
three years. There are no areas in which the Company is still not compliant with the Code of Corporate Governance.
7. Means of Communication 7.1 The Company has been sending financial results and material information to MSM Website via the MSM Electronic Transmission System. The Company has also been publishing annual audited & quarterly un-audited financial results and material information in the English and Arabic newspapers. The annual audited accounts & Chairman’s Report are despatched to all shareholders by mail, as required by law. 7.2 The financial results and information on the Company are posted at: www.renaissance-oman.com 7.3 Meetings are held with analysts and members of the financial press in line with internal guidelines of disclosure. 7.4 The CEO’s Report, provided in the Annual Report, includes the Management Discussion & Analysis of the year’s performance.
8. Stock Market Data 8.1 High/ Low share prices during each month of 2009: (Source of statistics: MSM)
Month January 2009 February 2009 March 2009 April 2009 May 2009 June 2009 July 2009 August 2009 September 2009 October 2009 November 2009 December 2009
High/Low share price movement High (Rial) Low (Rial) 0.686 0.360 0.463 0.380 0.482 0.372 0.611 0.424 0.664 0.570 0.684 0.625 0.719 0.570 0.708 0.635 0.680 0.650 0.758 0.670 0.718 0.660 0.770 0.650 & ITS SUBSIDIARY COMPANIES
47
8.2 Renaissance Share Price movement in comparison to the MSM Index and MSM Services Index MSM Index
RS Closing Price
6350
5350 4850
0.500
4350
0.400
Share Price in Rial
0.600
3185 2935
0.700
5850 MSM Index
Share Price in Rial
0.700
MSM Services & Insurance Index
0.800
6850
2685 0.600
2435
0.500
2185 1935
0.400
1685
3850 0.300 Jan
0.300 Jan
3350 Feb
Mar
Apr
May
June
Jul
Aug
Sep
Oct
Nov
Dec
MSM Services Index
RS Closing price 0.800
1435 Feb
Mar
Apr
May
June
Jul
Aug
Sep
Oct
Nov
Dec
8.3 Distribution of Shareholding as on 31 December 2009 (Source of Statistics: Muscat Depository & Securities Registration Co SAOC)
Sl. No. 1 2 3 4 5 6 7
Category Less than 100,000 shares 100,000 – 200,000 shares 200,001 – 500,000 shares 500,001 – 2,700,000 shares 1 % - 1.99% of share capital 2 % - 6% of share capital 10% of share capital & above Total
Number of Shareholders 5024 58 59 42 10 10 1 5204
8.4 The Company does not have any outstanding GDRs/ ADRs/ Warrants or any convertible instruments.
9. Professional Profile of the Statutory Auditors The shareholders of the Company have appointed KPMG as the auditors for the year 2009. KPMG is one of the leading accounting firms in Oman. The Oman practice of KPMG, which forms parts of KPMG Lower Gulf, was established in 1974 and currently has a compliment of professional staff in excess of 130, including 3 partners, 4 directors and 21 managers. KPMG Lower Gulf (UAE and Oman), is a member of the KPMG network of independent firms affiliated with KPMG International Co-operative. The KPMG network operates in 144 countries and employs 137,000 people worldwide, KPMG in Oman is accredited by the Capital Market Authority (CMA) to audit joint stock companies (SAOG’s). As per Article 9 (para b) of the Code of Corporate Governance pertaining to the rotation of external auditors, KPMG have completed two years as Statutory Auditors of the Company by the end of 2009, and therefore, are eligible for reappointment as Statutory Auditors of the Company.
10 Audit Fees paid to the Auditors During the year 2009, Rial 311,364 was charged by external auditors against the services rendered by them to the
48
ANNUAL REPORT
2009
No of shares 18,112,218 7,871,858 17,682,124 48,949,925 40,036,032 106,904,270 42,538,025 282,094,452
% Shareholding 6.42% 2.79% 6.27% 17.35% 14.19% 37.90% 15.08% 100%
organisation (Rial 199,690/- for audit and Rial 111,675/- for other services, mainly tax services).
11. Confirmation by the Board of Directors The Board of Directors confirms its accountability for the preparation of the financial statements in accordance with the applicable standards and rules. The Board of Directors confirms that it has reviewed the efficiency and adequacy of the Internal Control Systems of the Company. The Board is pleased to inform the shareholders that adequate and efficient internal controls are in place and that they are in full compliance with the Internal Rules & Regulations. The Board of Directors also confirms that there are no material things that affect the continuation of the Company and its ability to continue its operations during the next financial year.
––––––––––––––––
––––––––––––––––
Chairman
Director
Consolidated Statement of Comprehensive Income for the year ended 31 December 2009 2009 Rial’000
2008 Rial’000
247,590 (172,907)
234,260 (167,567)
74,683 (34,106)
66,693 (29,276)
19 19 6 4
40,577 (7,845) (7) (34)
37,417 (10,103) 6,290 (202) (83)
18
32,691 (4,181)
33,319 (7,122)
19
28,510
26,197
Notes Revenue Operating expenses Gross profit Administrative expenses Profit from operations Net finance costs Net (loss) / gain on sale of investments Share of loss from associate companies Amortisation of intangible assets Profit before income tax Income tax expenses Profit for the year Other comprehensive income Foreign currency translation differences Effective portion of changes in fair value of cash-flow hedges Other comprehensive (loss) / income for the year
31 (88) (57)
Total comprehensive income for the year Profit attributable to: Shareholders of the Parent Company Non-controlling interest
247 247
28,453
26,444
25,085 3,425
23,894 2,303
Profit for the year Total comprehensive income attributable to: Shareholders of the Parent Company Non-controlling interest
28,510
26,197
25,028 3,425
24,141 2,303
Total comprehensive income for the year
28,453
26,444
0.094
0.089
0.012 -
0.010 0.015
0.012
0.025
Basic and diluted earnings per share (Rial) Dividend per share: Cash dividend (Rial) Stock dividend (Rial)
20
21
The attached notes 1 to 30 form an integral part of these financial statements. The Parent Company statement of comprehensive income is presented as a separate schedule attached to the financial statements. The report of the Auditors is set forth on page 49.
50
ANNUAL REPORT
2009
Consolidated Statement of Financial Position as at 31 December 2009 2009 Rial’000
2008 Rial’000
282,749 34,023 1,366 1,229 319,367
223,457 34,057 2,424 1,239 261,177
12 11,042 86,826 30,692 128,572
12 9,915 86,047 15,011 110,985
11 12 13
64,760 3,520 38,494 106,774 21,798
68,002 2,803 31,336 102,141 8,844
13 14 15
150,090 17,835 4,823 172,748 168,417
118,945 8,231 4,151 131,327 138,694
16 16 16 16 21
28,209 19,496 (1,704) 10,440 3,385 88,176 (88) 102 148,016 20,401 168,417 0.553
24,530 20,723 (1,704) 9,087 6,132 66,474 71 125,313 13,381 138,694 0.539
Notes Non-current assets Property, plant and equipment Intangible assets Investments Deferred tax asset Total non-current assets Current assets Trading investments Inventories and work-in-progress Trade and other receivables Cash and bank balances Total current assets Current liabilities Trade and other payables Bank borrowings Term loans and leases Total current liabilities Net current assets Non-current liabilities Term loans and leases Non-current payables and advances Staff terminal benefits Total non-current liabilities Net assets Equity Share capital Share premium Treasury shares Legal reserve Proposed distribution Retained earnings Hedging reserve Exchange reserves Non controlling interest Total equity Net assets per share (Rial)
3 4 6 18
8 9 10
16
17
The financial statements were authorised for issue in accordance with a resolution of the Directors on 28 February 2010.
Chairman Director The attached notes 1 to 30 form an integral part of these financial statements. The Parent Company statement of financial position is presented as a separate schedule attached to the financial statements. The report of the Auditors is set forth on page 49. & ITS SUBSIDIARY COMPANIES
51
Consolidated Statement of Cash Flows for the year ended 31 December 2009 2009 Rial’000
2008 Rial’000
242,833 (186,567)
212,960 (170,002)
Cash generated from operations Net finance costs Income tax paid
56,266 (7,613) (2,663)
42,958 (7,390) (5,302)
Cash flows from operating activities
45,990
30,266
INVESTING ACTIVITIES Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Investment in jointly controlled entity Proceeds from sale of investments Acquisition of subsidiary (net of cash acquired) Dividend received
(71,797) 1,051 136
(60,742) 1,176 (847) 15,911 (44,289) 176
Cash used in investing activities
(70,610)
(88,615)
FINANCING ACTIVITIES Net receipt of term loans Net movement in related party balances Cash dividends paid Funds introduced by minority interests
38,301 141 (2,453) 3,595
53,184 (748) (3,345) 6,271
Cash flows from financing activities
39,584
55,362
Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year
14,964 12,208
(2,987) 15,195
27,172
12,208
Notes OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees
Cash and cash equivalents at the end of the year
10
The attached notes 1 to 30 form an integral part of these financial statements. The Parent Company statement of cash flows is presented as a separate schedule attached to the financial statements. The report of the Auditors is set forth on page 49.
52
ANNUAL REPORT
2009
& ITS SUBSIDIARY COMPANIES
53
(744) -
-
Income from treasury shares
Transfers to legal reserve
Movement related to investment in Subsidiaries (4,423) 20,723
2,230 24,530
Transactions with owners, directly recorded in equity
Balance at 31 December 2008
-
-
-
Proposed dividend
(3,679)
-
-
-
-
-
Proposed bonus shares
Dividend paid and bonus shares issued
2,230
-
Total comprehensive income for the year
Transactions with owners, directly recorded in equity:
-
-
25,146
Rial’000
Rial’000
22,300
Share premium
Share capital
Foreign currency translation differences
Other comprehensive income:
Net profit for the year
Total comprehensive income for the year :
1 January 2008
for the year ended 31 December 2009
(1,704)
-
-
-
-
-
-
-
-
-
-
(1,704)
Rial’000
Treasury shares
9,087
1,063
(50)
1,113
-
-
-
-
-
-
-
8,024
Rial’000
6,132
557
-
-
-
2,453
3,679
(5,575)
-
-
-
5,575
Rial’000
Legal Proposed reserve distribution
66,474
(2,404)
247
(369)
171
(2,453)
-
-
23,894
-
23,894
44,984
Rial’000
Retained earnings
-
-
-
-
-
-
-
-
-
-
-
-
Rial’000
71
-
-
-
-
-
-
-
(247)
(247)
-
318
Rial’000
Hedging Exchange reserves reserves
Attributable to shareholders’ of the Parent Company
Consolidated Statement of Changes in Equity
125,313
(2,977)
197
-
171
-
-
(3,345)
23,647
(247)
23,894
104,643
Rial’000
Total
13,381
6,324
6,324
-
-
-
-
2,303
-
2,303
4,754
Rial’000
Noncontrolling interest
138,694
3,347
6,521
-
171
-
-
(3,345)
25,950
(247)
26,197
109,397
Rial’000
Total
54
ANNUAL REPORT
2009 Rial’000 20,723 -
(1,227) (1,227) 19,496
Rial’000 24,530 -
3,679 3,679 28,209
Changes in fair value of cash flow Hedge
Foreign currency translation differences Total comprehensive income for the year Transactions with owners, directly recorded in equity: Dividend paid and bonus shares issued Proposed dividend Income from treasury shares Transfers to legal reserve Movement related to investments in subsidiaries Transactions with owners, directly recorded in equity Balance at 31 December 2009 (1,704)
-
-
-
-
-
-
Rial’000 (1,704)
Treasury shares
10,440
1,353
-
1,353
-
-
-
Rial’000 9,087
3,385
(2,747)
-
(6,132) 3,385 -
-
-
-
Rial’000 6,132
Legal Proposed reserve distribution
88,176
(3,383)
-
(3,385) 128 (126)
25,085
-
25,085
Rial’000 66,474
Retained earnings
(88)
-
-
-
(88)
(88)
-
Rial ‘000 -
102
-
-
-
31 31
-
-
Rial’000 71
Hedging Exchange reserves reserves
Attributable to shareholders’ of the Parent Company
The attached notes 1 to 30 form an integral part of these financial statements. The Parent Company statement of changes in equity is presented as a separate schedule attached to the financial statements. The report of the Auditors is set forth on page 49.
1 January 2009 Total comprehensive income for the year : Net profit for the year Other comprehensive income:
Share premium
Share capital
for the year ended 31 December 2009
(continued)
148,016
(2,325)
-
(2,453) 128 -
31 25,028
(88)
25,085
Rial’000 125,313
Total
20,401
3,595
3,595
-
3,425
3,425
Noncontrolling interest Rial’000 13,381
168,417
1,270
3,595
(2,453) 128 -
31 28,453
(88)
28,510
Rial’000 138,694
Total
Notes to the Consolidated Financial Statements for the year ended 31 December 2009
1
LEGAL STATUS AND PRINCIPAL ACTIVITIES Renaissance Services SAOG (the “Parent Company”) is incorporated in the Sultanate of Oman as a public joint stock company. The business activities of Renaissance Services SAOG and its subsidiary companies (together referred to as the “Group”) include investments in companies and properties, providing solutions in offshore support vessel fleet, ship building, purchase and sales of vessels, a float ship repair, fabrication and maintenance for the oil & gas and energy services sectors, a leading turnkey contract services provider providing facilities management, facilities establishment, contract catering, operations and maintenance services, provision of training services, media publishing, advertising and distribution, manufacturing, general trading and related activities.
2
SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and applicable requirements of the Commercial Companies Law of 1974 and the minimum disclosure requirements of the Capital Market Authority (CMA). These financial statements have been prepared in Rial Omani (“RO”) rounded to the nearest thousand. The consolidated financial statements are prepared under the historical cost convention modified to include the measurement at fair value of the following assets: -
Held for trading investments; Available for sale investments; and Derivative financial instruments.
Changes in accounting policies Overview Effective 1 January 2009 the Group has changed its accounting policies in the following areas: • •
Determination and presentation of operating segments Presentation of financial statements
Determination and presentation of operating segments As of 1 January 2009 the Group determines and presents operating segments based on the information that internally is provided to the Group’s Chief Executive Officer (“CEO”), who is the Group’s chief operating decision maker. The change in accounting policy is due to the adoption of IFRS 8 Operating Segments. Previously operating segments were determined and presented in accordance with IAS 14 Segment Reporting. The new accounting policy in respect of operating segment disclosure is as follows: An operating segment is the component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenue and expenses that relate to transaction with any of the Group’s other components, whose operating results are reviewed regularly by the Group’s CEO to make decisions about resources allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the Group’s CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Comparative segment information has been represented in conformity with the transitional requirement. Since the change in accounting policy impacts presentation and disclosure aspects, there is no impact in earnings per share.
& ITS SUBSIDIARY COMPANIES
55
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 2
SIGNIFICANT ACCOUNTING POLICIES (continued) Presentation of financial statements The Group applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as of 1 January 2009. As a result, the Group presents in the statement of changes in equity all owner changes in equity, whereas all non-owner changes in the equity are presented in the statement of comprehensive income. Comparative information has been represented in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact in earnings per share.
Basis of consolidation Subsidiaries Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Special purpose entities (“SPEs”) are consolidated if, based on the evaluation of the substance of the relationship of the entity with the Group and the SPEs risks and rewards, the Group concludes that it controls the SPEs. The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Company, using consistent accounting policies. Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounting basis, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate. Investments in jointly controlled entities Investments in the jointly controlled entities are accounted for under the proportionate consolidation method whereby the Group accounts for its share of the assets and liabilities, income and expenses in the jointly controlled entity. Jointly controlled operations Where the Group participates in jointly controlled operations as defined in International Accounting Standard 31 the Group accounts only for its own share of assets and liabilities, income and expenditure. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the entity, against the investment in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
56
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 2
SIGNIFICANT ACCOUNTING POLICIES (continued) Non controlling interests Non-controlling interests represent the portion of profit or loss and net assets not held by the Group and are presented in the statement of comprehensive income and within equity in the consolidated statement of financial position, separately from parent shareholders’ equity. Acquisitions of minority interests are accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired is recognised as goodwill. Revenue recognition Marine charter Revenue comprises operating lease rent from charter of marine vessels, revenue from provision of on-board accommodation, catering services and sale of fuel and other consumables. Lease rent income is recognised on a straight line basis over the period of the lease. Revenue from provision of on-board accommodation and catering services is recognised over the period of hire of such accommodation while revenue from sale of fuel and other consumables is recognised when delivered. Ship building, ship repair, and oil and gas engineering services Revenue comprises amounts derived from ship repair, provision of mechanical, electrical and instrumentation services, fabrication and maintenance services, turbocharger services and marine boiler repairs. Revenue is recognised under the percentage of completion method and is stated net of discounts and allowances. Where the outcome of a contract can be assessed with reasonable certainty, a prudent estimate of attributable profit is recognised in the income statement. Full provision is immediately made for all known or expected losses on individual contracts, when such losses are foreseen. Goods sold and services rendered Revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer i.e. delivery of goods, acceptance by the customer, and the amount of revenue can be measured reliably. Revenue from services rendered is recognised in the income statement in proportion to the stage of completion of the transaction in the accounting period in which the services are rendered and the right to receive the consideration is established. No revenue is recognised if there are significant uncertainties regarding the recovery of the consideration due, associated costs or the possible return of goods. Long-term contracts As soon as the outcome of a long-term contract can be estimated reliably, contract revenue and expenses are recognised in the income statement in proportion to the stage of completion of the contract. An expected loss on a contract is recognised immediately in the income statement. No revenue is recognised if there are significant uncertainties regarding the recovery of the consideration due, associated costs or the possible return of goods. Maintenance contracts Income from maintenance contracts is recognised in the income statement on a straight line basis evenly over the term of the contract.
& ITS SUBSIDIARY COMPANIES
57
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 2
SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue recognition (continued) Commission income Commission income is recognised when the amount is notiďŹ ed to the Group entities by the principal. Investment income and gain or loss on disposals On disposal of an investment, the resultant gain or loss between the net disposal proceeds and the carrying amount is recognised in the income statement. Dividend income Dividend income is recognised in the income statement on the date that the dividend is declared. Sale of vessels Revenue from sale of vessels is recognised in the income statement when the signiďŹ cant risks and rewards of ownership have been transferred to the buyer. Interest Interest revenue is recognised as the interest accrues. Others Sale of operating assets and other miscellaneous income like insurance claims, provision write back and other income are shown as part of revenue and recognised when the right to receive is established. Property, plant and equipment Owned assets Items of property, plant and equipment are stated at cost or revalued amounts less accumulated depreciation and impairment losses, if any. Subsequent to initial recognition or certain assets are carried at revalued amount, being their fair value at the date of the revaluation less any subsequent accumulated depreciation. The revaluation of these assets is carried out at regular intervals on an open-market basis to ensure that the carrying amount does not differ materially from the fair value. Surplus arising on revaluation is recorded in other comprehensive income and presented in the revaluation reserve in equity. Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditure is capitalised. Other subsequent expenditure is capitalised only when it increases the future economic beneďŹ ts embodied in property, plant and equipment. All other expenditure is recognised in the income statement as an expense as incurred.
58
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 2
SIGNIFICANT ACCOUNTING POLICIES (continued) Property, plant and equipment (continued) Depreciation Depreciation is charged to the income statement on a straight line basis over the estimated useful lives of items of property, plant and equipment. The estimated useful lives are as follows: Years Buildings and improvements Furniture and fixtures Plant, machinery and office equipment Marine vessels revalued (from the date of latest revaluation) Marine vessels acquired Expenditure on marine vessel dry docking (included as a component of marine vessels) Jetty and land development Floating dock Motor vehicles
5 - 25 3-5 1 - 15 10 15 - 25 3 25 25 3
Freehold land is not depreciated. The cost of certain assets used on specific contracts is depreciated to estimated residual value over the period of the respective contract, including extensions if any. Vessels that are no longer being chartered and are held for sale are transferred to inventories at their carrying value. Capital work-in-progress Capital work-in-progress is stated at cost and comprises all costs directly attributable to bringing the assets under construction ready for their intended use. Capital work-in-progress is transferred to property, plant and equipment at cost on completion. Dry docking costs The expenditure incurred on vessel dry docking, a component of property, plant and equipment, is amortised over the period from the date of dry docking, to the date on which the management estimates that the next dry docking is due. Vessel refurbishment costs Leased assets Costs incurred in advance of charter to refurbish vessels under long-term charter agreements are capitalised within property, plant and equipment in line with the use of the refurbished vessel. Where there is an obligation to incur future restoration costs under charter agreements which would not meet the criteria for capitalisation within property, plant and equipment, the costs are accrued over the period to the next vessel re-fit to match the use of the vessel and the period over which the economic benefits of its use are realised. Owned assets Cost incurred to refurbish owned assets are capitalised within property, plant and equipment and then depreciated over the shorter of the estimated economic life of the related refurbishment or the remaining life of the vessel.
& ITS SUBSIDIARY COMPANIES
59
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 2
SIGNIFICANT ACCOUNTING POLICIES (continued) Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets and liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated: • •
represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and is not larger than a segment based on the Group’s operating segment format determined in accordance with IFRS 8 Operating Segments.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit (group of cashgenerating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset. Computer software costs represent expenditure incurred on implementing an ERP solution for the Group. Amortisation is charged on a straight line basis over a period of five years, from the date of completion. Investments Held for trading investments are stated at fair value, with any resultant gain or loss recognised in the income statement. Other investments held by the Group are classified as being available for sale and are stated at fair value. Unrealised gains and losses on remeasurement to fair value are reported in other comprehensive income and presented as fair value reserve in equity until the investment is derecognised or the investment is determined to be impaired. Upon impairment any loss, or upon derecognition any gain or loss, previously reported as “cumulative changes in fair value” within equity is included in the income statement for the period.
60
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 2
SIGNIFICANT ACCOUNTING POLICIES (continued) Inventories and work-in-progress Inventories are valued at the lower of cost and net realisable value. Cost is determined applying the first-in, first-out and the weighted average methods and includes all costs incurred in acquiring and bringing them to their present location and condition. Net realisable value signifies the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. Work-in-progress in the case of short-term contracts is stated at the invoice value of goods and services supplied less amounts received or receivable. In the case of long-term contracts, work-in-progress is stated at cost, which includes direct costs and all attributable overheads, plus profit recognised to date less a provision for foreseeable losses, uncertainty and progress billings. Cost includes all expenditure related to specific contracts and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity. Trade and other receivables Trade and other receivables are stated at cost less impairment losses, if any. Treasury shares Own equity instruments which are reacquired (treasury shares) are deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any gain or loss or income related to these shares are directly transferred to retained earnings and shown in the statement of changes in equity. Cash and cash equivalents Cash and cash equivalents comprise cash at hand, bank balances and short-term deposits with an original maturity of three months or less. Bank borrowings that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Trade and other payables Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. Interest bearing borrowings Interest bearing borrowings are recognised initially at the fair value of the consideration received less directly attributable transaction costs. Subsequent to initial recognition interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Provisions A provision is recognised in the statement of financial position when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefit will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liabilities. & ITS SUBSIDIARY COMPANIES
61
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 2
SIGNIFICANT ACCOUNTING POLICIES (continued) Dividends Dividends are recognised as a liability in the period in which they are declared. Leases Group as a lessee Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the income statement. Capitalised leased assets are depreciated over the estimated useful life of the asset or the lease term, whichever is less. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term. Group as a lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as lease rental income. Contingent rents are recognised as revenue in the period in which they are earned. Employee benefits Contributions to a defined contribution retirement plan for Omani employees, in accordance with the Oman Social Insurance Scheme, are recognised as an expense in the income statement as incurred. The Group provides end of service benefits to its expatriate employees. The entitlement to these benefits is based upon the employees’ salary and length of service, subject to completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment. For non-Omani companies the end of service benefits are provided as per the respective regulations in their country. Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to statemanaged retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme. Directors’ remuneration The Board of Directors’ remuneration of the Parent Company is accrued within the limits specified by the Capital Market Authority and the requirements of the Commercial Companies Law of the Sultanate of Oman.
62
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 2
SIGNIFICANT ACCOUNTING POLICIES (continued) Term loans Term loans are carried on the statement of financial position at the fair value of the consideration received less directly attributable transaction costs. Installments due within one year are shown as a current liability. Interest expense is accrued on a timeproportion basis with unpaid amounts included in accounts payable and accruals. Net finance costs Net finance costs comprise interest payable on borrowings calculated using the effective interest rate method and interest received on funds invested. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Financing costs are recognised as an expense in the income statement in the period in which they are incurred. Borrowing costs, net of interest income, which are directly attributable to the acquisition of items of property, plant and equipment are capitalised as the cost of property, plant and equipment. Borrowing costs incurred beyond the construction period are recognised in the income statement. Interest income is recognised in the income statement as it accrues, taking into account the effective yield on the asset. Segment reporting An operating segment is the component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenue and expenses that relate to transaction with any of the Group’s other components, whose operating results are reviewed regularly by the Group CEO (being the chief operating decision maker) to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available. Income tax Income tax is provided for in accordance with the fiscal regulations of the country in which the Group operates. Income tax on the profit or loss for the year comprises current and deferred taxation. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in the equity or other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the statement of financial position liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts use for taxation purposes. The amount of deferred tax provided is based on the expected manner of realistic settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the statement of financial position date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
& ITS SUBSIDIARY COMPANIES
63
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 2
SIGNIFICANT ACCOUNTING POLICIES (continued) Ijarah-fil-Thimma Ijara-fil-Thimma is an agreement whereby the Group as a lessee, leases the asset from banks and financial institutions for a specified rental over a specific period. The duration of the lease, as well as the basis for rental, are set and agreed in advance. The risks and benefits incidental to ownership of the leased item are transferred to the Group. The Group capitalises the leased item at the inception of the lease at the fair value of the leased property or, if lower, at the present value of minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease. Foreign currency transactions Transactions denominated in foreign currencies are translated to Rial Omani at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the statement of financial position date are retranslated to Rial Omani at foreign exchange rates prevailing on the statement of financial position date. Foreign exchange differences arising on conversion are recognised in the income statement. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into Rial Omani at the foreign exchange rates ruling at the dates the values were determined. Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to RO at exchange rates at the reporting date. The income and expenses of foreign operations are translated to RO at exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income and are reflected in the exchange reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the exchange reserve is transferred to income statement as part of the profit or loss on disposal. Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognised in other comprehensive income, and are presented within the equity in the translation reserve. Impairment Financial assets A financial asset is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy. The Group considers evidence of impairment of financial assets at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. All individually significant financial assets found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Financial assets that are not individually significant are collectively assessed for impairment by grouping together financial assets with similar risk characteristics. In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.
64
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 2
SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment (continued) An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in the income statement and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through the income statement. Non-financial assets (other than goodwill) The carrying amounts of the Group’s non-financial assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. An impairment loss is recognized if the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the income statement. The recoverable amount of an asset or its cash generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market assessments of time value of money and risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Derivatives Derivatives are stated at fair value. (Level 2) For the purposes of hedge accounting, hedges are classified into two categories: (a) fair value hedges which hedge the exposure to changes in the fair value of a recognised asset or liability; and (b) cash flow hedges which hedge exposure to variability in cash flows of a recognised asset or liability or a highly probable transaction. In relation to effective fair value hedges any gain or loss from remeasuring the hedging instrument to fair value, as well as related changes in fair value of the item being hedged, are recognised immediately in the income statement. In relation to effective cash flow hedges, the gain or loss on the hedging instrument is recognised initially in equity and either transferred to the other comprehensive income in the period in which the hedged transaction impacts the statement of comprehensive income, or included as part of the cost of the related asset or liability For hedges which do not qualify for hedge accounting, any gains or losses arising from changes in the fair value of the hedging instrument are taken directly to the income statement for the year. Fair value hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. For fair value hedges of financial instruments with fixed maturities any adjustment arising from hedge accounting is amortised over the remaining term to maturity. For cash-flow hedges, any cumulative gain or loss on the hedging instrument recognised in equity remains in equity until the hedged transaction occurs. If the hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement. & ITS SUBSIDIARY COMPANIES
65
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 2
SIGNIFICANT ACCOUNTING POLICIES (continued) New standards and interpretation not yet effective A number of new standards, amendment to the standards and interpretations are not yet effective for the year ended 31 December 2009, and have not been applied in preparing these consolidated financial statements. The amendments, which become mandatory for the Group’s 2010 consolidated financial statements, is not expected to have a significant impact on the consolidated financial statements. Fair values For investments traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the statement of financial position date. (Level 1) For unquoted investments, a reasonable estimate of the fair value is determined by reference to the market value of a similar investment or is based on the expected discounted cash flows. Fair value cannot be reliably measured for certain unquoted foreign investments. Such investments are measured at cost. (Level 3) The fair value of interest-bearing items is estimated based on discounted cash flows using market interest rates for items with similar terms and risk characteristics. (Level 3) Judgements In the process of applying the group’s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect in the amounts recognised in the financial statements: Classification of investments Management decides on acquisition of an investment whether it should be classified as held to maturity, held for trading, carried at fair value through profit and loss account, or available for sale. The Group classifies investments as trading if they are acquired primarily for the purpose of making a short term profit by the dealers. Classification of investments as fair value through profit and loss account depends on how management monitor the performance of these investments. When they are not classified as held for trading but have readily available reliable fair values and the changes in fair values are reported as part of income statement in the management accounts, they are classified as fair value through profit and loss. All other investments are classified as available for sale. Estimates and assumptions The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
66
ANNUAL REPORT
2009
& ITS SUBSIDIARY COMPANIES
67
3
211,255 10,532 35,055 (8,283) 248,559
43,554 13,222 (3,778) 52,998
195,561 167,701
45,062 4,179 99 49,340
18,569 3,944 22,513
26,827 26,493
31 December 2009
Depreciation 1 January 2009 Charge for the year On disposals
31 December 2009
Net carrying amount 31 December 2009
31 December 2008
Marine vessels RO’000
Cost or valuation 1 January 2009 Additions Transfers Disposals
Freehold land and buildings RO’000
PROPERTY, PLANT AND EQUIPMENT
for the year ended 31 December 2009
1,759
1,551
504
852 211 (559)
2,055
2,611 834 (1,390)
Jetty and dock RO’000
10,939
12,165
17,780
14,804 3,174 (198)
29,945
25,743 3,032 1,414 (244)
Machinery and equipment RO’000
Notes to the Consolidated Financial Statements
759
684
1,869
1,603 395 (129)
2,553
2,362 346 (155)
Motor vehicles RO’000
446
399
1,453
1,250 241 (38)
1,852
1,696 195 (39)
Furniture and fixtures RO’000
15,360
45,562
-
-
45,562
15,360 67,075 (36,568) (305)
Capital work in progress RO’000
223,457
282,749
97,117
80,632 21,187 (4,702)
379,866
304,089 86,193 (10,416)
Total RO’000
68
ANNUAL REPORT
2009
3
37,372 5,168 2,687 (165) 45,062
15,003 3,712 (146) 18,569
26,493 22,369
Cost or valuation 1 January 2008 Additions related to acquisitions Additions during the year Transfers Disposals
31 December 2008
Depreciation 1 January 2008 Charge for the year Related to acquisitions On disposal
31 December 2008
Net carrying amount 31 December 2008
31 December 2007
Freehold land and buildings RO’000
98,507
167,701
43,554
33,707 10,644 974 (1,771)
211,255
132,214 41,712 24,405 15,043 (2,119)
Marine vessels RO’000
PROPERTY, PLANT AND EQUIPMENT (continued)
for the year ended 31 December 2009
1,744
1,759
852
724 128 -
2,611
2,468 143 -
Jetty and dock RO’000
8,732
10,939
14,804
13,553 2,583 50 (1,382)
25,743
22,285 56 4,836 126 (1,560)
Machinery and equipment RO’000
Notes to the Consolidated Financial Statements
665
759
1,603
1,369 357 64 (187)
2,362
2,034 113 467 (252)
Motor vehicles RO’000
436
446
1,250
1,657 199 (606)
1,696
2,093 281 (678)
Furniture and fixtures RO’000
16,172
15,360
-
-
15,360
16,172 18,895 (17,856) (1,851)
Capital work in progress RO’000
148,625
223,457
80,632
66,013 17,623 1,088 (4,092)
304,089
214,638 41,881 54,195 (6,625)
Total RO’000
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 3
PROPERTY, PLANT AND EQUIPMENT (continued) Most of the assets including vessels, plant and equipment, buildings and other assets are pledged against bank loans and bank borrowings. Certain marine vessels at a carrying value of RO 19.83 million (2008: RO 20.84 million) are subject to commercial agreements with a third party whereby that third party has a call option to purchase each of the relevant vessels owned by the Group at a price related to the US dollar borrowing remaining outstanding against those vessels. The Group has not been notified of any intention to exercise such a call option and consequently the call option and associated implications are not reflected in these financial statements. Capital work-in-progress includes progress payments for the construction of new vessels and workshop facilities for marine repair and fabrication and construction. Advances or deposits paid for construction or acquisition of assets are classified as advances to suppliers and contractors, and the amount will be transferred to capital work-in-progress after the commencement of construction. During the year 2009, the Group has capitalised borrowing cost amounting to RO 1,948,000 (2008: RO 900,000). The depreciation charge has been allocated in the income statement as follows:
Operating expenses Administrative expenses
4
2009
2008
RO’000
RO’000
19,700 1,487
16,471 1,152
21,187
17,623
INTANGIBLE ASSETS 2009
2008
Goodwillp
RO’000
RO’000
Initial goodwill Additions Disposal of a subsidiary
39,960 -
41,497 2,997 (4,534)
31 December
39,960
39,960
Amortisation and impairment 1 January Disposals
5,968 -
7,356 (1,388)
31 December
5,968
5,968
33,992
33,992
Net carrying amount at 31 December
& ITS SUBSIDIARY COMPANIES
69
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 4
INTANGIBLE ASSETS (continued) Goodwill represents the excess of the cost of acquiring shares in certain subsidiaries companies over the aggregate fair value of their net assets. The carrying amount of goodwill at 31 December allocated to each of the cash-generating units: Goodwill
Topaz Energy and Marine Group Tawoos Industrial Services Company LLC Norsk Offshore Catering AS Others (UMS, NTI and NHI)
2009
2008
RO’000
RO’000
29,079 1,900 1,007 2,006
29,079 1,900 1,007 2,006
33,992
33,992
The recoverable amount of each cash-generating unit is determined based on a value in use calculation, using cash flow projections based on financial budgets approved by senior management. The key assumptions of the value in use calculations are those regarding discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates that reflect current market assessments of the time value of money and the risks specific to each cash-generating unit. The growth rates are based on management estimates having regard to industry growth rates. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. Sensitivity to changes in assumptions: With regard to the assessment of value in use of the cash generating units, management believes that no reasonably possible change in any of the key assumptions would cause the carrying value of the unit to materially exceed its recoverable amount. For the year ended 31 December 2009, there have been no events or changes in circumstances to indicate that the carrying values of goodwill of the above cash-generating units may be impaired. 2009
2008
RO’000
RO’000
1 January Addition on acquisition of subsidiary Amortisation
65 (34)
106 42 (83)
Net carrying amount at 31 December
31
65
34,023
34,057
Computer software
Total intangible assets
70
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 5
SUBSIDIARIES AND ASSOCIATES The Group and Parent Company investments in Subsidiary and Associate companies are as follows: Ownership interest (%) 2009
2008
100 100 100 100 46
100 100 100 100 46
Subsidiary Companies Topaz Energy and Marine Limited (“TOPAZ”) (incorporated in UAE) Tawoos Industrial Services Company LLC (“TISCO”) United Media Services Company LLC (“UMS”) National Training Institute LLC (“NTI”) National Hospitality Institute SAOG (“NHI”) Associate Companies Dubai Wire FZE (“DW”) (incorporated in the UAE) Darium Thai Offshore Limited (incorporated in Thailand)
20 -
20 49
The Group’s subsidiaries have investments in the following subsidiaries: Subsidiary Companies of TOPAZ Nico Middle East Limited (incorporated in Bermuda) Topaz Holding Limited (incorporated in the UAE)
100 100
100 100
Nico Middle East Limited has a subsidiary BUE Marine Ltd, incorporated in UK, which operates through its subsidiaries and engaged principally in charter of marine vessels and vessel management. In 2008 the Group acquired 49% interest in Doha Marine Service WLL (“DMS”), an entity incorporated in the state of Qatar. In addition to 49% ownership interest in DMS, the Group has a beneficial interest in remaining 51% equity in DMS. Accordingly the Group also has power to govern the financial and operating policies of DMS, and therefore, DMS has been dealt as a wholly owned subsidiary in these consolidated financial statements. DMS is operating as sub subsidiary under Nico Middle East Limited. Subsidiary Companies of TISCO Rusail Catering and Cleaning Services LLC (“RCCS”) Supraco Limited (incorporated in Cyprus) Renaissance Contract Services International LLC (“RCSI”)
100 100 100
100 100 100
Supraco Limited through its subsidiaries in Norway and Angola provides contract catering services. Subsidiary Companies of UMS United Press and Publishing Company LLC (“UPP”) Oryx Advertising Company WLL (incorporated in Qatar)
100 49
100 49
Subsidiary Company of NTI National Training Institute Qatar WLL (incorporated in Qatar on 11 May 2009)
100
-
Subsidiary Company of NHI Nakshatra Hospitality India Private Limited (incorporated in India on 6 February 2009)
100
-
Except as otherwise stated, the companies are incorporated in Oman. & ITS SUBSIDIARY COMPANIES
71
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 6
INVESTMENTS
Non-current investments Investment in associates companies Available for sale investments Investment in jointly controlled entity
2009
2008
RO’000
RO’000
975 391 1,366
1,186 391 847 2,424
Investment in associates During 2009, Darium Thai Offshore Limited, an associate was dissolved (note 19). At 31 December 2009, the Group has an associate Dubai Wire FZE. Available for sale investments Available for sale investments represents investments in Global Fasteners Limited (incorporated in the Isle of Man), Fund for Development of Youth Projects SAOC and Industrial Management Technology and Contracting LLC. 7
INVESTMENTS IN JOINTLY CONTROLLED ENTITIES The Group’s share of income, expenses, assets and liabilities in the jointly controlled entities at 31 December are set out below: 2009
2008
RO’000
RO’000
Current assets Current liabilities Non-current assets Non-current liabilities
6,282 (2,366) 4,193 (2,769)
4,767 (2,624) 4,127 (1,838)
Net assets
5,340
4,432
5,917 (3,828) (1,001) (166) 1 (15)
5,300 (3,437) (709) (83) 45 (49)
Revenue Cost of sales Administrative expenses Finance cost Finance income Tax Net profit for the year
72
ANNUAL REPORT
2009
908
1,067
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 7
INVESTMENTS IN JOINTLY CONTROLLED ENTITIES (continued) Investments in jointly controlled entities are in:
Nico Dososan Babcock (previously known as Nico Mitsui Babcock) DMS Jaya Marine WLL Jaya DMS Marine Pte Ltd.
2009
2008
%
%
50 51 50
50 51 50
2009
2008
RO’000
RO’000
6,096 4,946
4,792 5,123
11,042
9,915
2009
2008
RO’000
RO’000
57,460 15,365 13,224 777
52,766 15,965 16,281 1,035
86,826
86,047
The above entities are incorporated in the UAE, Qatar and Singapore. 8
INVENTORIES AND WORK-IN-PROGRESS
Stock and consumables – net Work-in-progress for long-term contracts
9
TRADE AND OTHER RECEIVABLES
Trade receivables, net Prepayments and other receivables Advances to suppliers and contractors Amounts due from related parties (note 22)
As at 31 December 2009, trade receivables of RO 3,902,000 (2008: RO 2,587,000) were impaired. Movements in the allowance for impairment of receivables were as follows: 2009
2008
RO’000
RO’000
At 1 January Charge for the year Amounts written off Unused amounts reversed Adjustment relating to subsidiary disposed off
2,587 1,450 (125) (10) -
At 31 December
3,902
4,666 1,190 (2,789) (37) (443) 2,587 & ITS SUBSIDIARY COMPANIES
73
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 9
TRADE AND OTHER RECEIVABLES (continued) As at 31 December, the ageing of unimpaired trade receivables is as follows: Past due but not impaired
Total RO’000
Neither past due nor impaired RO’000
< 30 days RO’000
30 – 60 days RO’000
60 – 90 day RO’000
90 – 120 day RO’000
>120 days RO’000
2009
57,460
35,057
14,727
2,070
1,492
1,861
2,253
2008
52,766
34,983
7,699
3,763
2,070
2,383
1,868
Unimpaired receivables are expected, on the basis of past experience, to be fully recoverable. It is not the practice of the Group to obtain collateral over receivables and the vast majority are, therefore, unsecured. 10 CASH AND CASH EQUIVALENTS
Cash and bank balances Bank borrowings (note 12)
2009 RO’000
2008 RO’000
30,692 (3,520)
15,011 (2,803)
27,172
12,208
Included in cash and bank balances are fixed and call deposits of RO 10,364,000 (2008: RO 6,022,000) maintained with commercial banks. These are denominated mainly in Rial Omani, US Dollar, UAE Dirhams and Qatari Rial, are short term in nature. 11 TRADE AND OTHER PAYABLES
Trade payables Accrued expenses and other payables Income tax payable Amounts due to related parties (note 22)
2009
2008
RO’000
RO’000
20,167 38,703 5,529 361
22,896 36,822 7,806 478
64,760
68,002
12 BANK BORROWINGS Certain of the Group’s bank borrowings are secured by a registered first mortgage over Group’s certain assets, guarantees and assignment of receivables. Bank borrowings carries interest rates ranging from 6% to 8% per annum (2008: 6% to 7% per annum).
74
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 13 TERM LOANS AND LEASES Term loans 31 December 2009
Parent company Subsidiary companies
31 December 2008
Parent company Subsidiary companies
Total RO’000
1 year or less RO’000
2 -5 years RO’000
More than 5 years RO’000
60,375 126,986
15,790 22,494
34,460 95,051
10,125 9,441
187,361
38,284
129,511
19,566
Total RO’000
1 year or less RO’000
2 -5 Years RO’000
More than 5 years RO’000
35,719 114,462
7,827 23,408
26,758 78,152
1,134 12,902
150,181
31,235
104,910
14,036
Included in term loans from bank are the following: Term loans in Parent Company Term loans in Parent Company amounting to RO 60,374,000 are secured by charge over certain assets, investment rights on leasehold land, assignment of certain project receivables, assignment of insurance interests in certain contract assets and guarantees. Term loans in Subsidiaries Term loans in TOPAZ amounting to RO 126,987,000 are secured by a first preferred mortgage over certain assets of the subsidiaries, the assignment of marine vessel insurance policies, the assignment of the marine vessel charter lease income. The equipment finance loan is secured against plant and machinery acquired with the proceeds of the loan. The borrowing arrangements include undertakings to comply with various covenants like senior interest cover, current ratio, debt to EBITDA ratio, gearing ratio, total assets to net worth ratio and equity ratio including an undertaking to maintain a minimum net worth of TOPAZ which, at no time, shall be less than RO 62 million. Term loans in subsidiaries include financing under Ijarah-fil-Thimma which represent funds advanced to the Group by a bank under an Islamic financing scheme. Total amount of such financing is RO 13,483,000 (2008: RO 6,996,000) out of which RO 1,740,000 (2008: RO 2,079,000) is classified as current portion. Term loans carries interest rates ranging from 4.5% to 7.5% per annum (2008: 5% to 6% per annum).
& ITS SUBSIDIARY COMPANIES
75
for the year ended 31 December 2009 13 TERM LOANS AND LEASES (continued) Leases 2009
2008
RO’000
RO’000
Total lease payments outstanding as at 31 December Less: Due within a year (disclosed as current liability)
1,223 (210)
101 (101)
Long term lease obligations (note 24 c)
1,013
-
2009
2008
RO’000
RO’000
149,077 1,013
118,945 -
150,090
118,945
38,284 210
31,235 101
38,494
31,336
2009
2008
RO’000
RO’000
732 5,506 11,597
1,117 1,721 5,393
17,835
8,231
Term loans and leases are disclosed in the statement of financial position as:
Non-current liabilities: Term loans Finance leases Current liabilities: Term loans Finance leases
14 NON-CURRENT PAYABLE AND ADVANCES
Deferred income Income tax payable Other payables and advances
76
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 15 STAFF TERMINAL BENEFITS Defined contribution plan 2009
2008
RO’000
RO’000
Movements in the liability recognized in the statement of financial position are as follows: 1 January Accrued during the year Payments during the year Adjustments on sale of a subsidiary
4,151 1,278 (606) -
3,647 1,438 (594) (340)
31 December
4,823
4,151
15 STAFF TERMINAL BENEFITS Defined benefit plan The pension scheme of one of Group’s subsidiary covers a total of 477 employees (2008: 369 employees). The pension scheme gives the right to defined future benefits, which are mainly dependent on number of years worked, salary level at time of retirement and the amount of payment from the national insurance fund. The obligations are covered through an insurance company. The calculated pension obligations are based on actuarial valuation. The actuarial valuations are based on assumptions of demographical factors normally used within the insurance industry. 16 CAPITAL AND RESERVES Share capital The authorised share capital of the Parent Company comprises 400,000,000 ordinary shares of RO 0.100 each (2008 : 400,000,000 of RO 0.100 each). At 31 December 2009, the issued and fully paid up share capital comprised 282,094,452 ordinary shares of RO 0.100 each (2008: 245,299,524 of RO 0.100 each). During 2009, the share capital increased by RO 3,679,493 due to the issue of 36,794,928 bonus shares. Details of shareholders, who own 10% or more of the Parent Company’s share capital, are as follows:
Tawoos LLC
2009
2009
2008
Number of shares ‘000
%
Number of shares ‘000
42,538
15.08
36,989
2008 %
15.08
& ITS SUBSIDIARY COMPANIES
77
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 16 CAPITAL AND RESERVES (continued) Legal reserve The Omani Commercial Companies Law of 1974 requires that 10% of an entity’s net profit be transferred to a non-distributable legal reserve until the amount of legal reserve becomes equal to one-third of the entity’s issued share capital. The legal reserve is not available for distribution. Legal reserve also includes transfer relating to non-Oman registered subsidiary companies as per the respective regulations in their country of incorporation. The Group utilises the share premium for transfers to legal reserve. Treasury shares These are shares held by certain subsidiaries in the Parent Company at the cost of RO 1,703,826 (2008: RO 1,703,826). Dividend received on these treasury shares have been directly transferred to retained earnings and shown as movement in the statement of changes in equity. At 31 December 2009, the subsidiaries held 14,554,586 shares (2008: 12,656,163) in the Parent Company. The market value of these shares at 31 December 2009 was approximately RO 11.13 million (2008: RO 7.85 million). Treasury shares are pledged against a bank loan. Share premium The Group utilises the share premium for issuing bonus shares. In 2008 an amount of RO 3,679,492 is utlised to issue the bonus shares. 16 CAPITAL AND RESERVES Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. 17 NET ASSETS PER SHARE Net assets per share is calculated by dividing the net assets at the year end attributable to the shareholders of the Parent Company by the number of shares outstanding as follows: 2009 2008 RO’000 RO’000 Net assets 168,417 Net assets 138,694 (20,401) Minority interest (13,381) Net assets attributable to the shareholders of the Parent Company
148,016
125,313
Number of shares Number of shares at 1 January Bonus shares issued
245,299 36,795
223,000 22,299
Treasury shares (refer note 16)
282,094 (14,555)
245,299 (12,656)
Number of shares at 31 December
267,539
232,643
0.553
0.539
Net assets per share (RO)
78
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 18 INCOME TAX The expense relates to tax payable on the profits earned by the Group, as adjusted in accordance with the taxation laws and regulations of various countries in which the Group operates. 2009
2008
RO’000
RO’000
Charge for the year
4,181
7,122
Current liability Non-current liability
5,529 5,506
7,806 1,721
11,035
9,527
Deferred tax asset Opening as on 1 January (Debited) credited to income statement
1,239 (10)
1,675 (436)
At 31 December
1,229
1,239
The Parent Company and its Oman incorporated subsidiaries are subject to income tax at the rate of 12% of taxable income in excess of RO 30,000 in accordance with the income tax law of the Sultanate of Oman. The Parent Company’s assessments for the tax years 2005 to 2008 have not been finalised with the Secretariat General for Taxation at the Ministry of Finance (the ‘Department’). The Parent Company and some of its Omani incorporated subsidiaries have filed objections and further appeals against certain decisions of the Department on disallowances made by the Department in the assessments. The Company has established provisions at 31 December 2009 against the potential tax liabilities which might arise in this regard. As required under the tax laws, the Company and its subsidiaries have paid the tax dues and are continuing to appeal to the higher authorities on some of the disallowances made by the Department in assessments. 19 NET PROFIT FOR THE YEAR Net profit for the year is stated after charging:
Staff costs
2009
2008
RO’000
RO’000
78,408
69,277
Net finance costs Net interest expense (Reversal) / provision for derivative used for hedging (refer note 25)
8,247 (402)
7,390 2,713
7,845
10,103
& ITS SUBSIDIARY COMPANIES
79
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 19 NET PROFIT FOR THE YEAR (continued) Net gain on sale of investment Subsidiary With effect from 1 January 2008 the Group sold 98.75% equity in its subsidiary Industrial Management Technology and Contracting LLC (“IMTAC”) and its subsidiaries and recognised a net gain before tax on disposal of RO 6,028,000 for the year 2008. Associate The Group had an interest of 49% in Darium Thai Offshore Limited (DTOL), a company incorporated in Thailand. In 2007, the shareholders of DTOL resolved to dissolve the company and the dissolution was registered with the Ministry of Commerce on 24 August 2007. On 29 December 2009, the dissolution of DTOL was completed and the Group received an amount of RO205,000. A loss of RO 7,000, being difference between the proceeds on dissolution of investment and the carrying amount of investment at the effective date of sale, has been recognised in the consolidated statement of comprehensive income. DTOL was involved in the charter of marine vessels, provision of on-board accommodation and catering services and sale of fuel and other consumables. 20 BASIC AND DILUTED EARNINGS PER SHARE Basic and diluted earnings per share is calculated by dividing the net profits for the year attributable to the shareholders of the Parent Company by the weighted average number of shares as follows: 2009
2008
25,085
23,894
Number of shares at 1 January (‘000)
282,094
282,094
Less: weighted average treasury shares (‘000)
(14,555)
(14,555)
Weighted average number of shares (‘000)
267,539
267,539
0.094
0.089
Net profit for the year attributable to the shareholders of the Parent Company (RO‘000) Weighted average number of shares (‘000)
Basic and diluted earnings per share (RO)
80
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 21 DIVIDEND PER SHARE 2009
2008
3,385
6,132
282,094
245,299
Distribution per share (RO)
0.012
0.025
Cash dividend (RO‘000)
3,385
2,453
-
3,679
3,385
6,132
Total distribution for the Shareholders (RO‘000) Number of shares outstanding at 31 December (‘000)
Bonus shares, at par (RO‘000)
The dividend proposed by the Board of Directors is subject to the approval of shareholders at the Annual General Meeting (AGM) of the Company on 28 March 2010. Dividend for the year 2008 was approved by the shareholders at the AGM held on 29 March 2009. As required by CMA regulation, unclaimed dividends of previous years have been deposited with the CMA Investors’ Trust Fund. There were no unclaimed dividends for 2009. 22 RELATED PARTY TRANSACTIONS The Group has entered into transactions with entities over which certain Directors are able to exercise significant influence. In the ordinary course of business, such related parties provide goods, services and funding to the Group. The Group also provides goods, services and funding to the related parties. The Board of Directors believes that the terms of purchases, sales, provision of services and funding arrangements are comparable with those that could be obtained from unrelated third parties. The value of significant related party transactions during the year was as follows: 2009
2008
RO’000
RO’000
Income Service rendered and sales
941
4,188
Advances due from related parties Net advances
328
775
Expenses Services received and purchases
1,071
542
174 26
176 24
Directors’ remuneration and sitting fees Remuneration Sitting fees Remuneration and sitting fees above relate only to the Parent Company.
Out of above related party transactions, the following are the details of transactions entered into with the related parties holding 10% or more interest in the Parent Company: Service rendered and sales
20
22
& ITS SUBSIDIARY COMPANIES
81
for the year ended 31 December 2009 22 RELATED PARTY TRANSACTIONS Compensation of key management personnel The remuneration of directors and other members of key management during the year was as follows:
Short-term benefits Employees’ end of service benefits
2009
2008
RO’000
RO’000
1,631 26
1,354 49
1,657
1,403
Topaz Energy and Marine Limited has paid RO 202,788 as remuneration to its Executive Chairman who is also the Chairman of the Parent Company. Amounts due from and due to related parties have been disclosed in notes 9 and 11 respectively. Outstanding balances at the year-end arise in the normal course of business. For the year ended 31 December 2009, the Group has not recorded any impairment of amounts owed by related parties (2008: Nil). 23 COMMITMENTS AND CONTINGENT LIABILITIES 2009
2008
RO’000
RO’000
Commitments Letters of credit Capital expenditure commitments
893 67,223
1,026 60,781
Contingent liabilities Letters of guarantee Bills discounted – receivables
28,627 -
20,068 3,069
Litigation During the year, one of the Group’s customers has cancelled contracts for building two marine vessels. The Group is of the view that the cancellation is a breach of contract and a case has been filed in the English courts, challenging the cancellation. The Management believes that, it is unlikely that the Group will incur losses as a consequence of this breach of contract. The Group has recognised revenue in the amount of RO 7.5 million in respect of this contract and established provision for costs of modification including foreseeable losses in the income statement.
82
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 24 LEASES a) Operating leases - receivable The Group leases its marine vessels under operating leases. The leases typically run for a period of ten years and are renewable for similar periods after the expiry date. The lease rental is usually renewed to reflect market rentals. Future minimum lease rentals receivable under non-cancellable operating leases are as follows as of 31 December:
Within one year Between one and five years More than five years
2009
2008
RO’000
RO’000
58,898 132,415 54,430
54,087 110,685 58,256
245,743
223,028
b) Operating leases - payable The Group has future minimum lease payments under operating leases for marine vessels with payments as follows:
Within one year Between one and five years More than five years
2009
2008
RO’000
RO’000
6,946 6,537 4,530
6,582 6,428 5,913
18,013
18,923
c) Finance lease commitments The Group has entered into finance lease commitments with rentals payable as follows: Present value of minimum lease payments
Within one year After one year but not more than five years More than five years Total minimum lease payments
2009
2008
RO’000
RO’000
210 362 651
101 -
1,223
101
& ITS SUBSIDIARY COMPANIES
83
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 25 DERIVATIVE FINANCIAL INSTRUMENTS The table below shows the positive and negative fair values of derivative financial instruments, which are equivalent to the market values, together with the notional amounts analysed by the term to maturity. The notional amount is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding at year end and are neither indicative of the market risk nor credit risk. 31 December 2009:
Interest rate swaps Forward foreign exchange contracts
Notional amounts by term to maturity Notional Over 1 amount Within 1 year to Total year 5 years RO’000 RO’000 RO’000
Positive fair value RO’000
Negative fair value RO’000
-
2,870
45,335
1,093
_________ ==========
74 _________ 2,944 ==========
17,346 _________ 62,681 ==========
17,346 _________ 18,439 ==========
44,242 ___________ 44,242 ==========
31 December 2008:
Interest rate swaps Forward foreign exchange contracts
Notional amounts by term to maturity Notional Over 1 amount Within 1 year to Total year 5 years RO’000 RO’000 RO’000
Positive fair value RO’000
Negative fair value RO’000
-
3,190
44,251
1,595
83 _________ 83 ==========
54 _________ 3,244 ==========
15,244 _________ 59,495 ==========
15,244 _________ 16,839 ==========
42,656 ___________ 42,656 ==========
The term loan facilities of the Group bear interest at US LIBOR plus applicable margins. In accordance with the financing documents, the Group has fixed the rate of interest through Interest Rate Swap Agreements (“IRS”) amounting to approximately RO 21.15 million at a fixed interest rate of 3.95% per annum excluding margin, RO 4.23 million at a fixed rate of 4.89% per annum excluding margin, RO 19.23 million at the rate of 2% per annum excluding margin, and an amount of RO 3.85 million at the rate of 3.25% per annum excluding margin. At 31 December 2009, the US LIBOR was approximately 0.43% per annum, whereas the Group has fixed interest at 3.95%, 4.89%, 2% and 3.25% per annum. Accordingly, the gaps between US LIBOR and fixed rate under IRS were approximately 3.52%, 4.46%, 1.57% and 2.82% per annum.
84
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 25 DERIVATIVE FINANCIAL INSTRUMENTS (continued) Based on the interest rates gaps, over the life of the IRS, the indicative losses were assessed at approximately RO 2.86 million (2008: RO 3.29 million) by the counter parties to IRS. In case the Group terminates the IRS at 31 December 2009, it may incur losses to the extent of approximately RO 2.86 million (2008: RO 3.29 million). Consequently, in order to comply with International Accounting Standard 39 “Financial Instruments: Recognition and Measurement” fair value of the hedge instruments’ indicative losses in the amount of approximately RO 2.86 million (2008: RO 3.29 million) has been recorded under accounts payables and accruals and the impact for the year amounting to RO 0.51 million (2008: RO 2.82 million) has been recorded under finance costs and RO 88,000 (2008: Nil) has been recognized in the hedging reserve. Similarly, an amount of RO 0.07 million (2008: RO 0.03 million) has been recorded under accounts payable and accruals in respect of forward foreign exchange contracts and the net impact for the year amounting to RO 0.10 million (2008: RO 0.10 million) has been recorded under finance costs (refer note 19). The Parent Company has entered into USD LIBOR callable accruals swaps as an interest cost reduction strategy. The accruals range is between 0% to 7% per annum. Any gains or loss related to these swaps are recognised as finance cost. 26 OPERATING SEGMENTS The Group has three reportable segments, as described below, which are the Group’s strategic business units. The strategic business units offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic business units, the Group’s CEO reviews internal management reports on a regular basis. The following summary describes the operations in each of the Group’s reportable segments: Engineering services: includes ship repair, ship building and fabrication and maintenance services for the oil and gas industry. Marine services: includes vessel chartering to oil and gas off shore companies. Contract services: includes facilities management, facilities establishment, contract catering and operations and maintenance services. Other operations include the provision of training services, media publishing, advertising and distribution, manufacturing, general trading, investments and related activities. Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group’s CEO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segment pricing is determined on an arm’s length basis.
& ITS SUBSIDIARY COMPANIES
85
86
ANNUAL REPORT
2009 (860) 87,979 (279)
(313) 77,591 (463)
External revenue
Net finance cost
60,527 277,366 45,064
5,028 38,891 150,352
58,288 9,762 39,521
Reportable segment assets
Capital expenditure
Reportable segment liabilities
22,639
7,056
3,625
Reportable segment profit after income tax
(1,963) (13,427)
(2,452)
(7,000)
95,500
Depreciation and amortisation
Less: Inter-segment revenue
-
95,500
Total revenues
88,839
2009
77,904
2008
2008
2009
155,223
85,168
235,033
15,016
(10,764)
(6,038)
75,227
-
75,227
45,875
30,955
91,881
7,017
(4,536)
(574)
64,909
(126)
65,035
2008
2009
21,368
5,341
62,180
6,631
(4,229)
(938)
61,907
(171)
62,078
58,880
412
39,091
(3,992)
(551)
(210)
10,093
(211)
10,304
2008
2009
(779)
(255)
402
(503)
-
(503)
41,157 (15,106)
538
39,879 (18,687)
655
(529)
(134)
9,723
(182)
9,905
2009
(650)
(7,845)
28,510
86,193 (23,171) 279,522
-
(25,457) 447,939
(3,161)
(221) (21,221)
(2,714)
(576) 247,590
-
(576) 248,240
RO’000
2008
233,468
96,075
372,162
26,197
(17,706)
(10,103)
234,260
(1,213)
235,473
Total
RO’000 RO’000
2008
Adjustments
RO’000 RO’000
Others
RO’000 RO’000
Contract services
RO’000 RO’000
Marine services
RO’000 RO’000
2009
Engineering services
RO’000
Information about reportable segments:
26 OPERATING SEGMENTS (continued)
for the year ended 31 December 2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 26 OPERATING SEGMENTS (continued) Geographical segments: Revenue as based on the geographical location of the business activities is as follows:
Oman Middle East and North Africa (excluding Oman) Caspian Others
2009
2008
RO’000
RO’000
42,943 135,665 51,553 17,429
39,650 132,931 46,834 14,845
247,590
234,260
27 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT Financial instruments carried on the statement of financial position comprise investments, trade receivables, amount due from related parties, cash in hand and at bank, term loans, bank borrowings, trade and other payables, amount due to related parties and employee terminal benefits. The Group has exposure to the following risks from its use of financial instruments: (i) Credit risk (ii) Liquidity risk (iii) Market risk This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout these financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.
& ITS SUBSIDIARY COMPANIES
87
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 27 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the receivables from customers and investments. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the statement of financial position date was:
Investments Trade receivables Advances to suppliers and contractors Amount due from related parties Cash and bank balances
2009
2008
RO’000
RO’000
1,378 57,460 13,224 777 30,692
2,436 52,766 16,281 1,035 15,011
103,531
87,529
The Group has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are generally performed on all customers requiring credit over specified amounts. The Group does not require collateral in respect of financial assets. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position. With respect to credit risk arising from the other financial assets of the Group, including cash and cash equivalents, and derivative instruments with positive values, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group limits its liquidity risk by ensuring that bank facilities are available. Short term loans and overdraft are, on average, utilized for period of 90 days to bridge the gap between collections of receivables and settlement of payables during the month.
88
ANNUAL REPORT
2009
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 27 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued) Liquidity risk (continued) The contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements at statement of financial position date is as below: 31 December 2009
Carrying Contractual amount cash flows RO’000 RO’000
Upto 1 year RO’000
1 year to 5 years RO’000
More than 5 years RO’000
188,584 3,520
213,477 3,520
41,952 3,520
144,218 -
27,307 -
87,418
87,418
64,760
22,658
-
279,522
304,415
110,232
166,876
27,307
31 December 2008
Carrying amount RO’000
Contractual cash flows RO’000
Upto 1 year RO’000
1 year to 5 years RO’000
More than 5 years RO’000
Term loans and leases Bank borrowings Trade and other payables
150,281 2,803 80,384
169,615 2,803 80,384
33,558 2,803 68,002
100,882 12,382
35,175 -
233,468
252,802
104,363
113,264
35,175
Term loans and leases Bank borrowings Trade and other payables
Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk. The Group also enters into derivative transactions, primarily interest rate swaps and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of finance. Currency risk Trade accounts payable include amount due in foreign currencies, mainly US Dollars, Euros, Pounds Sterling, UAE Dirham and Norwegian Krone. The table below indicates the Group’s foreign currency exposure at 31 December, as a result of its monetary assets and liabilities. The analysis calculates the effect of a reasonably possible movement of the RO currency rate against the foreign currencies, with all other variables held constant, on the profit or loss (due to the fair value of currency sensitive monetary assets and liabilities).
& ITS SUBSIDIARY COMPANIES
89
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 27 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued) Market risk (continued) Currency risk (continued) Effect on profit before tax Increase/decrease in respective Currency rate to the RO ‘000 2009 Euro (EUR) Azerbaijan Manat (MNT) Kazakhstan Tenge (KZT) UK Pound (GBP) Norwegian Krone (NOK)
+5%
-5%
(39) (15) (30) (14) (32)
39 15 30 14 32
(31) (35) (11) (14) (38)
31 35 11 14 38
2008 Euro (EUR) Azerbaijan Manat (MNT) Kazakhstan Tenge (KZT) UK Pound (GBP) Norwegian Krone (NOK)
The Group is also exposed to foreign exchange risk on sales, purchases, receivables and payables arising primarily from GCC currencies and US Dollar exposures which are pegged to the Omani Rial. Interest rate risk The Group’s borrowings are on fixed as well as floating interest rate basis. The Group is exposed to interest rate risk due to fluctuation in the market interest rate of floating interest rate borrowings. The following table demonstrates the sensitivity of the statement of comprehensive income to reasonably possible changes in interest rates, with all other variables held constant. The sensitivity of the profit or loss is the effect of the assumed changes in interest rates on the Group’s profit for the year, based on the floating rate financial assets and financial liabilities held at 31 December 2009. Increase/decrease in basis points 2009 Borrowings converted to Rial Omani Borrowings converted to Rial Omani 2008 Borrowings converted to Rial Omani Borrowings converted to Rial Omani
90
ANNUAL REPORT
2009
Effect on profit for the year RO’000
+15 -10
(216) 144
+15 -10
(387) 373
Notes to the Consolidated Financial Statements for the year ended 31 December 2009 27 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued) Other market price risk Equity price risk arises from available-for-sale equity securities. Management of the Group monitors the mix of debt and equity securities in its investment portfolio based on market indices. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Board of Directors. Capital management The Group’s policy is to maintain an optimum capital base to maintain investor, creditor and market confidence to sustain future growth of business as well as return on capital. 28 FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values of all financial assets and liabilities are not significantly different from their carrying amounts. 29 KEY SOURCES OF ESTIMATION UNCERTAINTY Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The net carrying amount of goodwill at 31 December 2009 was RO 33,992,000 (2008: RO 33,992,000). Impairment of accounts receivable An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates. At the statement of financial position date, gross trade accounts receivable were RO 61,362,000 (2008: RO 55,353,000) and the provision for doubtful debts was RO 3,902,000 (2008: RO 2,587,000). Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the income statement. Impairment of inventories Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their net realisable value. For individually significant amounts this estimation is performed on an individual basis. Amounts which are not individually significant, but which are old or obsolete, are assessed collectively and a provision applied according to the inventory type and the degree of ageing or obsolescence, based on historical selling prices. At the statement of financial position date, gross inventories were RO 6,675,000 (2008: RO 5,344,000) with provisions for old and obsolete inventories of RO 579,000 (2008: RO 552,000). Any difference between the amounts actually realised in future periods and the amounts expected will be recognised in the income statement. 30 COMPARATIVE FIGURES The comparative figures for the previous year have been reclassified, where necessary, in order to conform to the current year’s presentation. & ITS SUBSIDIARY COMPANIES
91
Schedule to the Consolidated Financial Statements Statement of Comprehensive Income (Parent Company) for the year ended 31 December 2009 2009
2008
RO’000
RO’000
24,449
25,178
(18,048)
(17,518)
Gross profit
6,401
7,660
Other income
2,615
9,673
Administrative expenses
(2,588)
(2,590)
Net financing costs
(2,122)
(1,856)
-
8,961
4,306
21,848
(1,406)
(3,309)
Net profit for the year
2,900
18,539
Total comprehensive income for the year
2,900
18,539
Basic and diluted earnings per share (RO)
0.010
0.066
Cash dividend (RO)
0.012
0.010
Stock dividend (RO)
-
0.015
0.012
0.025
Revenue Operating expenses
Gain on sale of investments Profit before income tax Income tax expense
Dividend per share:
92
ANNUAL REPORT
2009
Schedule to the Consolidated Financial Statements Statement of Financial Position (Parent Company) as at 31 December 2009 2009
2008
RO’000
RO’000
Non-current assets Property, plant and equipment Investments
51,926 101,734
25,425 95,958
Total non-current assets
153,660
121,383
Current assets Inventories Trade and other receivables Cash and bank balances
890 24,458 8,853
837 29,484 3,174
Total current assets
34,201
33,495
Current liabilities Trade and other payables Bank borrowings Term loans
10,094 482 15,790
13,949 373 7,828
Total current liabilities
26,366
22,150
7,835
11,345
Non-current liabilities Term loans Non-current payables and advances Staff terminal benefits
44,585 13,228 665
27,893 1,721 544
Total non-current liabilities
58,478
30,158
103,017
102,570
28,209 19,496 9,404 3,385 42,523
24,530 20,723 8,177 6,132 43,008
103,017
102,570
Net current assets
Net assets Equity Share capital Share premium Legal reserve Proposed distribution Retained earnings Total equity Net assets per share (RO)
0.365
0.418
& ITS SUBSIDIARY COMPANIES
93
Schedule to the Consolidated Financial Statements Statement of Cash Flows (Parent Company) for the year ended 31 December 2009
ANNUAL REPORT
2008
RO’000
RO’000
OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees
22,650 (16,006)
25,337 (14,687)
Cash generated from operations Net financing costs Income tax paid
6,644 (2,122) (431)
10,650 (1,856) (899)
4,091
7,895
INVESTING ACTIVITIES Acquisition of property, plant and equipment Proceeds from sale of investments Investments Dividend received
(19,771) (5,775) 2,477
(8,631) 14,239 (23,538) 9,173
Cash used in investing activities
(23,069)
(8,757)
FINANCING ACTIVITIES Net receipts of term loans Net movement in related parties Dividend paid
24,654 2,347 (2,453)
9,411 (3,656) (3,345)
Cash flows from financing activities
24,548
2,410
Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year
5,570 2,801
1,548 1,253
Cash and cash equivalents at the end of the year
8,371
2,801
Cash flows from operating activities
94
2009
2009
& ITS SUBSIDIARY COMPANIES
95
24,530
2,230
Transactions with owners, directly recorded in equity
Balance at 31 December 2008
2,230 -
-
Total comprehensive income for the year
Transactions with owners, directly recorded in equity: Dividend paid and bonus shares issued Proposed dividend Proposed bonus shares Transfer to legal reserve Movement related to investment in subsidiaries
-
22,300
Share capital RO’000
Total comprehensive income for the year : Net profit for the year
1 January 2008
for the year ended 31 December 2009
20,723
(4,423)
(3,679) (744) -
-
-
25,146
Share premium RO’000
8,177
744
744 -
-
-
7,433
Legal Reserve RO’000
Schedule to the Consolidated Financial Statements Statement of Changes in Equity (Parent Company)
6,132
557
(5,575) 2,453 3,679 -
-
-
5,575
Proposed Distribution RO’000
43,008
(2,256)
(2,453) 197
18,539
18,539
26,725
Retained earnings RO’000
102,570
(3,148)
(3,345) 197
18,539
18,539
87,179
Total RO’000
Schedule to the Consolidated Financial Statements Statement of Changes in Equity (Parent Company) for the year ended 31 December 2009
Share capital
Share premium
RO’000
RO’000
24,530
20,723
Net profit for the year
-
-
Total comprehensive income for the year
-
-
3,679
-
Proposed dividend
-
-
Transfer to legal reserve
-
(1,227)
3,679
(1,227)
28,209
19,496
1 January 2009 Total comprehensive income for the year :
Transactions with owners, directly recorded in equity: Dividend paid and bonus shares issued
Transactions with owners, directly recorded in equity
Balance at 31 December 2009
96
ANNUAL REPORT
2009
Legal Reserve
Proposed distribution
Retained earnings
Total
RO’000
RO’000
RO’000
RO’000
8,177
6,132
43,008
102,570
-
-
2,900
2,900
-
-
2,900
2,900
-
(6,132)
-
(2,453)
-
3,385
(3,385)
-
1,227
-
-
-
1,227
(2,747)
(3,385)
(2,453)
9,404
3,385
42,523
103,017
& ITS SUBSIDIARY COMPANIES
97
Management Team Corporate Office
Stephen R. Thomas Chief Executive Officer
Vishal Goenka Chief Financial Officer
Hilal Al Esry General Manager GLD
Parul Burman Group Chief Internal Auditor
Saad Abdullah Ali Company Secretary
Contract Services Group
Ananda Fernando Chief Executive Officer CSG
ANNUAL REPORT
Adil Bahwan Chief Development Officer
Karim Sheikh Chief Financial Officer
Saalim Gaima Chief Support Services Officer
Joaquim D’Costa Chief Operating Officer
Peter James QA/HSE Advisor
Graham Sanderson Operations Manager RSOD Iraq
Ingvar Varhaug GM NOC Norway
Joseph Ghanoun GM RCS Angola
Chris Marjoribanks Country Manager RSOD Afghanistan
Ayman Al Humoud Country Manager RS Abu Dhabi
Baqar Haider Facilities Development Manager
Kamran Raza Construction Manager
Ahmed Shirhan Costing Manager
Viveg Sellathuraie Finance Manager
Prakash Bhat Procurement & Logistics Manager
2009
Marine & Engineering Group
Fazel Fazelbhoy Pramod Balakrishnan Roy Donaldson Bill Bayliss Chief Executive Officer Chief Financial Officer Chief Operating Officer Chief Operating Officer Topaz MEG Topaz MEG Topaz Marine Topaz Engineering
Leon Mendonsa GM Human Resources
Ron Clark GM Topaz Marine MENA
Richard Ayling GM Topaz Marine Kazakhstan
Paul Bundy GM Topaz Marine Azerbaijan
Tomasz Maszka GM Topaz Marine Turkmenistan
Tom Bower GM Topaz Ship Building
Suresh Sebastian GM Topaz Fabrication and Construction
John McFadyen GM Topaz Marine Repair
Jay Daga GM Finance Topaz Engineering
Media Communication Group
Sandeep Sehgal Chief Executive Officer MCG
Arindam Ray GM Mergers & Acquisitions
Jagdeep Makkar GM Finance Topaz Marine
Education & Training Group
Lawrence Alva General Manager, NTI
Robert Maclean Principal, NHI
& ITS SUBSIDIARY COMPANIES