Renaissance DNA Renaissance Services has evolved a unique business DNA. The primary building blocks of our business DNA are Renaissance’s 12 core values bound together by our commitment to ethical conduct, empowered people, and a prudent entrepreneurial spirit.
His Majesty Sultan Qaboos bin Said
Renaissance Services SAOG Renaissance Services SAOG (Renaissance) is an Omani multinational company listed on the Muscat Securities Market (MSM30) in the Sultanate of Oman. Renaissance’s core operations are focused on providing safe, efficient and quality services to energy leaders predominantly in the oil & gas industry. Renaissance currently employs over 14,000 people, operates in 16 countries. 2011 revenues were in excess of US$ 0.75 billion.
This is our DNA Vision
Values
Modus Operandi
We want Renaissance to be recognised as a world-class, internationally competitive, premier oil & gas service company. This shall be achieved through the quality of our customer service; good governance; outstanding HSE, Quality and MIS systems; a sustained growth and profit record; and a proven ability to improve the economic well-being and quality of life of all stakeholders.
PEOPLE
Safe; Efficient; Green; Local
HEALTH, SAFETY & ENVIRONMENT (HSE) INTEGRITY REWARD EFFICIENCY & PRODUCTIVITY CUSTOMERS GROWTH MERIT SOCIAL RESPONSIBILITY TRANSPARENCY QUALITY PROFIT
Safe: No harm to people Efficient: Cost-effective quality services Green: No harm to the environment Local: Serious about in-country value
C
ntents
Board of Directors 6-7 Groups Overview 8-9 Financial Highlights 10-11 Chairman’s Report 12-19 Chief Executive’s Report 20-31 Sustainability Report 32-39 Auditors’ Report on Corporate Governance 40 Report on Corporate Governance 41-47 Auditors’ Report on Financial Statements 48 Financial Statements 49-105 Media Highlights 106
Renaissance Services SAOG P.O. Box 1676, PC 114, Muttrah Sultanate of Oman. Tel.: +968 24796636 Fax: +968 24796639 www.renaissance-oman.com
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Colin Rutherford
Ekaterina A. Sharashidze
Sunder George
Director
Director
Director
Board of Direct rs
Samir J. Fancy Chairman
HH Sayyid Tarik bin Shabib bin Taimur
Yashwant C. Desai
Ali bin Hassan Sulaiman
Director
Director
Director
& ITS SUBSIDIARY COMPANIES
7
GROUPS
MARINE
ENGINEERING
Main Segments and Activities
Topaz Marine’s offshore vessel operation ranks within the top ten largest in the world. With 100+ vessels, the company supports major offshore projects in the regions in which it operates, with anchor-handling vessels, platform supply vessels, survey vessels, specialised barges and ice-breakers among many others.
Topaz’s Engineering group companies, Adyard Abu Dhabi and Nico International, form the foundation of the engineering division. Each of these businesses has established capabilities and excellent results for onshore and offshore fabrication.
Total # of Employees
2011 – 1561 2010 – 1193 2009 – 1045
2011 – 4196 2010 – 3289 2009 – 4211
Subsidiaries, Divisions and Companies
Topaz Energy and Marine Limited
Topaz Marine Engineering: Topaz Marine Repair (TMR) and Topaz Ship Building (TSB)
1) Topaz Holdings Limited 2) Nico Middle East Limited (and subsidiaries)
1) Nico International 2) Adyard Abu Dhabi
BUE Marine Limited (and subsidiaries) Jointly Controlled Entities
3) Doha Marine Services Topaz Oil and Gas Engineering: Topaz Fabrication & Construction (TFC) and Topaz Maintenance Services (TMS) 1) Nico International 2) Adyard Abu Dhabi
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CONTRACT SERVICES
EDUCATION AND TRAINING
MEDIA COMMUNICATIONS
Contract Service businesses (CSG) provide facilities management, facilities establishment, contract catering, property operations and other maintenance services to large scale projects, with rapid deployment capabilities in emergencies, including for harsh, remote or beleaguered environments. The businesses serve diverse clients within the Oil & Gas, Energy Services, Healthcare, Education, Military, Commerce & Industry, Ports & Marine sectors.
Education & Training Group (ETG) provides high-quality training solutions in energy, construction, retail and hospitality sectors, and specialises in developing local workforces. ETG businesses offer people solutions in HSE, information technology, business management, financial studies and hospitality training.
As specialised communications solutions providers, Media Communications businesses (MCG) provide 360-degrees media and communications solutions encompassing advertising, interactive & IT solutions, publishing, media representation, media distribution and communications logistics, public relations, and event management.
2011 – 7895 2010 – 6544 2009 – 5701
2011 – 219 2010 – 182 2009 – 193
2011 – 175 2010 – 201 2009 – 168
1) 2) 3) 4) 5) 6)
1) National Training Institute LLC (NTI) 2) National Hospitality Institute LLC 3) New Horizons Computer Learning Centers 4) Nakshatra Hospitality India (NHI) 5) National Training Institute WLL, Qatar
1) United Media Services LLC, Oman 2) United Press & Publishing LLC 3) Oryx Advertising Co. WLL, Qatar 4) United Media Services LLC, Bahrain (Branch)
Tawoos Industrial Services Company LLC Rusail Catering & Cleaning Services LLC Renaissance Services - PAC Division Renaissance Services - Overseas Division Renaissance General Services LLC, Iraq Renaissance Contract Services AS (RS-NOC), Norway 7) Renaissance Contratos e Servicos Angola LDA 8) Renaissance Contract Services Afghanistan LLC 9) Renaissance Facilities Management Services LLC, Abu Dhabi 10) Al Wasita Emirates for Services & Catering LLC, Abu Dhabi 11) Renaissance Catering Services LLC, Dubai
& ITS SUBSIDIARY COMPANIES
9
Financial
Highlights
US$ Million
US$ Million
800.0
140.0
753.0
126.7
700.0
120.0
658.3
643.1
600.0
100.0
500.0
105.4
100.7 96.9 84.9
80.0
83.9 74.1
400.0 60.0 300.0 40.0
200.6
194.0
200.0
178.7
184.7
167.0
160.4
100.0
20.0
0
0
20.1 6.0
2009
2010
Revenue
Gross Profit
2011
Earnings Before Tax Interest Depreciation & Amortisation
2009
Profit from Operations
2010
Profit Before Tax
2011
Earnings After Tax (Before Minority)
Summary Financial Information 2009
2010 2011 RO Million
2009 2010 US$ Million
2011
247.6
253.4
289.9
REVENUE
643.1
658.3
753.0
74.7
77.2
68.8
GROSS PROFIT
194.0
200.6
178.7
40.6
48.8
37.3
PROFIT FROM OPERATIONS
105.4
126.7
96.9
61.8
71.1
64.3
EARNINGS BEFORE TAX, INTEREST, DEPRECIATION AND AMORTISATION
160.4
184.7
167.0
32.7
38.8
7.8
PROFIT BEFORE TAX*
84.9
100.7
20.1
28.5
32.3
2.3
PROFIT AFTER TAX (BEFORE MINORITY)*
74.1
83.9
6.0
282.7
391.6
454.8
NET FIXED ASSETS
734.4
1,017.0
1,181.4
168.4
195.8
193.2
TOTAL EQUITY
437.4
508.7
501.7
188.6
284.8
360.7
TERM LOANS
489.8
739.8
937.0
0.094
0.103
(0.004)
BASIC EARNINGS PER SHARE
0.244
0.268
(0.010)
0.012
0.012
-
DIVIDEND PER SHARE
0.031
0.031
-
Note:*Including Topaz one-offs of RO 11,418K
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Ratio
Ratio
2.40
2.38
2.00
25.00
1.91
20.00
1.87
18.57 17.73
1.66
1.60 1.47
1.20
15.00
1.14 10.08
10.00
8.80
0.80 5.00
0.40
3.64 1.18
0
0.00 2009
2010
Gearing
2011
2009
2010
Return on Capital Employed (ȅ)
Total Liabilities/Net Worth
2011
Return on Average Equity (ȅ)
Significant Ratios 2009
2010
2011
CURRENT RATIO
1.22
1.06
1.00
GEARING
1.14
1.47
1.91
TOTAL LIABILITIES/NET WORTH
1.66
1.87
2.38
INTEREST COVER
5.17
4.75
2.05
RETURN ON CAPITAL EMPLOYED (%)
10.08
8.80
3.64
RETURN ON AVERAGE EQUITY (%)
18.57
17.73
1.18
& ITS SUBSIDIARY COMPANIES
11
Chairman’s Rep rt
The company is emerging stronger. In 2012 we anticipate improved stability and growth.
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On behalf of the Board of Directors, I present the audited accounts for Renaissance Services SAOG for the twelve-month period ending 31 December 2011. 2011 was a difficult year. The company faced unforeseen and unprecedented challenges, which are now behind us. Solutions are in place. Some consequences remain. After 10 successive years of growth and record results, we regard the downturn in 2011 performance as contained and reversed. We have responded to the difficulties and challenges. The company is emerging stronger. In 2012 we anticipate improved stability and growth. Stakeholders recognise and value Renaissance for its growth record. The Marine business and the Contract Services business are world-class, internationally competitive enterprises. Their strength and assured future is of great value to Renaissance shareholders. We have made progress to restore the same viability to the Engineering business in 2012, although we still have work to do to achieve that.
The company ends the year with Rial 653.7 million (US$ 1.7 billion) of assets and more than Rial 37 million (US$ 96.2 million) of cash on its balance sheet. We are meeting all financial commitments and obligations. The company invested Rial 90.4 million (US$ 235 million) in new assets for growth during 2011. Our business is secure, healthy and robust in spite of a torrid year.
Financial performance In the face of numerous setbacks and one-off financial impacts, the company’s revenues continued to grow. This demonstrates the solid and sustainable strength of the Renaissance franchise. Customers appreciate the professionalism of our people, value the quality of our services and rely on the integrity of our assets. We have increased revenue from existing customers and we have opened new income streams with new customers. Stakeholders trust Renaissance companies to exceed customer expectations safely and efficiently. The result is a 14.4% growth in revenue in 2011.
& ITS SUBSIDIARY COMPANIES
13
Chairman’s Rep rt Further growth in bottom line shall follow this sustained growth in top line, as we reverse the setbacks and apply efficiency controls to new business gains.
Financial Performance 2011
2010
Rial Million US$ Million Rial Million US$ Million
Revenue
289.9
EBITDA
64.3*
Operating Profit
37.3
Net Profit
753.0
253.4
658.3
167.0
71.1
184.7
96.9
48.8
126.7
6.0
32.3
83.9
2.3**
Note: *EBITDA and Operating Profit are before any extraordinary expenses. **Net Profit is after providing for extraordinary expense of Rial 11.418 million (US$ 29.7 million), and write back of tax provision of Rial 3.121 million (US$ 8.1 million).
A series of extraordinary items has impacted profit in 2011. The company has addressed these exceptional issues. The total one-off cost was Rial 11.4 million (US$ 29.7 million), written off in the Topaz subsidiary. These include write-off of expenses of Rial 3 million (US$ 7.8 million) for an attempted Initial Public Offering (IPO) of Topaz in London; and a further Rial 8.4 million (US$ 21.8 million) primarily related to one-off items in the Topaz Engineering business. The impact is offset partially by write back of tax provisions of Rial 3.1 million (US$ 8.06 million), based on a tax ruling issued by the Supreme Court in Oman on foreign dividends. The downturn in 2011 operating performance is due also to weaker performance in the Engineering business. The Oman-based businesses absorbed higher unplanned employment costs. Finance cost throughout the group increased from Rial 10.3 million (US$ 26.8 million) to Rial 18.2 million (US$ 47.3 million). This is a consequence of the financial setbacks in the Topaz business.
Marine Marine Group Revenue Operating Profit
Rial Million
US$ Million
2011
2010
2011
2010
112.5
93.2
292.2
242.1
36.2
35.2
94.0
91.4
The Marine business is set to deliver a record performance in 2012. The young age of the 100-vessel Offshore Support Vessel (OSV) fleet (average age 6.5 years), the geography and markets where it operates, and its relevance to the International Oil Companies (IOC) it serves, bode well for the coming year in spite of global economic
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uncertainty. We expect growth in the Caspian and MENA markets. Following successful 2011 entry to the West Africa market we expect further growth opportunity in 2012. So far, the foray into the Brazil market has been unsuccessful and costly. We have had to take account of additional unseen operating costs for the two vessels deployed in Brazil, which has had further negative impact on the final period result. We are correcting these setbacks in the Brazil market. We are also correcting any other under-performing assets in the fleet. These corrections will allow the positive performance of the majority of the fleet to increase over the year and dominate 2012 results.
Engineering Engineering Group
Rial Million
US$ Million
2011
2010
2011
2010
Revenue
66.4
65.5
172.5
170.4
Operating Profit
(8.5)
3.1
(22.1)
We have experienced a crisis year of losses and write-offs in the Engineering business. We have taken all necessary measures to contain one-off negative cost impacts and reduce costs. These one-off cost impacts include our exit from some loss-making businesses, such as the investment in a ship repair yard in Kazakhstan. Most important, a new management team is succeeding in getting key engineering projects back on schedule. Setbacks are temporary, so it is important that they are not allowed to dominate the agenda, where the customer must remain our primary focus. Some residual loss-making contracts carry forward into the first half of 2012. At the same time, the company is close to securing several new profitable contract opportunities. We expect performance to move from losses to profit by the half-year; and we are maintaining a target for Engineering to break even over the whole of 2012. We recognise that the full turnaround of the Engineering business is not complete and requires continued effort going into 2012. We shall monitor that process closely and adjust remedial action if necessary. This priority is taking longer than we wish. However, we believe in the business and the people. We have to be a little more patient, but we remain resolute and determined to succeed.
8.1
Contract Services Contract Services Group Revenue Operating Profit
Rial Million
US$ Million
2011
2010
2011
2010
100.8
84.2
261.8
218.7
13.6
12.6
35.3
32.7
In 2011 we absorbed Rial 5.5 million (US$ 14.3 million) in unplanned additional costs in the Contract Services business, arising from mandatory increased employment and other costs in the key home market of Oman. In spite of this, the company still achieved profits. The additional costs tempered profit growth and margin of profitability. Clients in the oil & gas sector allowed claims to mitigate 80% of the cost increases, but the company absorbed 100% of increased costs in all other sectors. This cost impact shall prevail until cyclical renewal of contracts over the next 1 to 5 years. The company has embraced the changes with good grace and takes a positive view that this is an investment in future growth. Oman remains the most important market for this business.
Good people throughout this great company of ours have made all the difference in overcoming difficult times.
& ITS SUBSIDIARY COMPANIES
15
Chairman’s Rep rt Annus Horribilis 2011 Annus Horribilis is a Latin phrase meaning ‘horrible year’. It alludes to John Dryden’s poem about London in the year 1666, titled Annus Mirabilis (‘wonderful year’). In fact, 1666 had been a year of calamity, including the Great Plague and the Great Fire of London. But Dryden saw something to appreciate in the way London faced disaster and avoided even greater disaster. He was inspired by the vigour, courage and resourcefulness of the city in the face of such setbacks. At the outset, 2011 looked like a potential Annus Mirabilis for Renaissance but turned out to be an unprecedented Annus Horribilis. We have put these events behind us. We carry some valuable lessons with us. We move on stronger for the experience. Global events in the first quarter of 2011 conspired to change market sentiment so our planned London listing of Topaz could not go ahead. Subsequent negative impacts on the company, and how we have dealt with those issues, are well-documented in our quarterly statements and other disclosures. Yet the fundamental strengths of our business remain. Through the robust due diligence process of the IPO, a coalition of top professionals - investment banks, legal, accounting, compliance and PR advisors - concurred with our view that Renaissance owns world-class companies, delivering operational excellence to blue-chip clients from key market leadership positions, with visible scope for sustainable profitable growth. That fundamental has not changed.
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We have strengthened controls and assurance processes to ensure our commitment that all Renaissance business conduct is legal, fair and honest. Potential failings in that standard in some foreign subsidiaries, no matter how immaterial, have been disclosed and self-reported by the company in the relevant jurisdictions. Within the business itself, we are able to state categorically that these matters are behind us. Key stakeholders in the investor, analyst and regulator communities told us they have come to expect Renaissance to uphold the highest international standards of governance and disclosure. We have developed our policies to ensure we live up to those expectations. One-off negative surprises are not the norm in Renaissance and we have taken steps on risk and compliance to ensure the events of 2011 shall not be repeated. We are ensuring greater transparency in reporting from subsidiaries to the parent company and the Board, which in turn ensures greater speed and transparency of reporting to the market. We have restructured and streamlined the Topaz business: Topaz Marine and Topaz Engineering are now separate enterprises. Each is an independent legal, financial and operational entity. We have retained the flexibility to house the businesses together or apart in any future IPO or M&A initiative. The Engineering business is structured as two divisions: Topaz Oil & Gas Engineering and Topaz Marine Engineering. We have made substantial reductions in overhead costs at corporate and subsidiary levels. We have increased investment and
focus in processes and project management. The Topaz structure is flatter and leaner with increased emphasis and focus on customer service. We have reasserted the basic priorities of the business on the things that matter most to our customers: safety, quality, compliance, efficiency, on-time in-cost project and contract delivery, and developing and empowering outstanding people. We have also taken steps to ensure the continuing financial strength and stability of the business. We have completed the first phase of the re-financing initiative and have a signed term sheet in excess of US$ 200 million. This concludes the material part of the re-financing and has the effect of releasing trapped equity in excess of US$ 50 million. The second phase shall include funding for vessels under construction and future new investments. We shall conclude this in the coming months. For future financing, numerous bilateral opportunities have arisen, particularly from Islamic Banks that could not participate in the original syndication. The marine business model resonates well with this form of financing.
The company has given a mandate to BankMuscat to raise Rial 40 million (US$ 104 million) new capital as Zero Coupon Convertible Bonds. We have completed the financial and legal due diligence process. We shall present this capital raise proposal to shareholders for approval in the Extraordinary General Meeting (EGM), scheduled for 25 March 2012. If approved, this new capital shall strengthen the company’s balance sheet and provide additional capital for growth. Subscription shall be open to existing and new shareholders. In the Q3 statement we anticipated announcing the appointment of a new Topaz CEO in Q4. This has not happened yet. We are taking our time with a thorough search process. We are comfortable that the operational leadership in each of the businesses meets our criterion of ‘best team in the field’. This allows us time and space to make an appointment that complements the existing team and adds value to the strategic leadership provided by Renaissance.
& ITS SUBSIDIARY COMPANIES
17
Chairman’s Rep rt Outlook Some consequences remain from the issues we have faced in 2011, which shall be seen in muted performance for the first half of the year, but this should not blind us to the fact that we have resolved the key challenges and are back on a growth path. In the natural business cycle of Renaissance, performance is always negatively affected in the first half of the year, with seasonal impacts such as ice in the Northern Caspian. This year the major portion of dry-docking for the Marine business is scheduled for the same period, which has a temporary higher cost / lower revenue impact. We are also carrying some loss-making engineering contracts into the first half of 2012. We have confidence in the turnaround of the Engineering businesses although we have previously been premature in our predictions when that turnaround will be complete. The important point is that the businesses are structured correctly with the right management teams, headed in the right direction. The geographic position of these businesses could not be better, with yards and assets located on both the Arabian Gulf and Indian Ocean seaboards. The investment in project management and better business processes is focused where it should be – on-time and in-cost delivery to the customer. Even with uncertainty in the global economy, industry and market trends look positive for our businesses. Barclays Capital estimates that global exploration and production (E&P) spending in 2012 will be up 10%, with Middle East E&P spending expected to rise 12% due to a pickup in activity particularly in Iraq, Saudi Arabia and Kuwait. This is good news for all our businesses, not just Engineering. The Economist survey of senior executives in the oil & gas industry predicts oil prices shall remain high and benchmark oil prices should still average US$ 83/barrel one year from now. Renaissance companies show resilience even in times of recession and low oil prices. So these predictions bode well. Added to that, there is specific opportunity ahead for the Marine business in the Caspian, the Northern Gulf and West Africa. In Oman, government infrastructure investment plans offer growth opportunity for Contract Services.
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The important point is that the businesses are structured correctly with the right management teams, headed in the right direction.
We have no current plans to revive the IPO initiative in 2012, although this remains a realistic ambition for the company – in particular for the Marine business. We believe our priority should be to press ahead with growth in the business and wait for an upturn in global economic sentiment before considering any independent listing. Nevertheless, we still believe individual listing of Renaissance’s most valuable assets may offer the most effective way to optimise future growth opportunities, achieve true value recognition and increase shareholder value. A sum-of-parts valuation of the group’s individual businesses, based on international comparative multiples in each sector, illustrates the true embedded value of the Renaissance franchise. When the time is right, there is no reason why this value may not be realized, either through listing individual assets, such as the Marine business or Contract Services business, under Renaissance founder ownership, on the appropriate international bourse; or through private placement; or similar value-creation initiatives.
Appreciation I would like to thank my fellow Directors for their unswerving support and guidance through a difficult year. The entire Board, wish to thank all our stakeholders who have seen us through this Annus Horribilis. Without them our progress would be impossible, with them our future is secure – our shareholders, our business partners, our bankers, our professional advisors (accounting, legal and strategic), suppliers, contractors, and the countries and communities in which we serve. We reserve special thanks for our customers, our employees and our management. Good people throughout this great company of ours have made all the difference in overcoming difficult times – Thank you. As an Omani public company we are proud to pay tribute and thanks to His Majesty Sultan Qaboos bin Said. The stability and growth of Oman’s economy and the pace of its social and economic development, provide a bedrock foundation for our company to thrive and prosper as an international enterprise.
Samir J. Fancy Chairman
& ITS SUBSIDIARY COMPANIES
19
Chief Executive’s Rep
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rt
Integrity is the primary genetic characteristic of Renaissance DNA. It informs how we go about our business. It sustains us in adversity. We faced a number of stern tests in 2011. a car crash, a bus crash and a suicide. We share in the grief and loss of the families and assure them of our support. What we should be doing is sending home their loved ones safe and sound. We cannot redeem that now, but we can honour these lost colleagues by learning from these tragic incidents.
HSE Tragedy hit us hard. Two of our colleagues died while attending a marine repair job offshore, in the vicinity of a third party incident explosion. Three of our colleagues died in non-work related incidents –
Safety performance is the primary measure of success Consolidated Safety Performance
2011
2010
Change
43,224,723
39,012,550
+4,212,173
2
0
+2
Number of Lost Time Incidents (LTI)
21
17
+4
Lost Time Incident Frequency (LTIF)
0.532
0.436
+0.096
23
9
+14
17,805,024
12,245,630
+5,559,394
Total Manhours Worked Number of Fatalities
Road Traffic Accidents (RTA) Total Kilometres Driven
2011 safety performance is unacceptable. We have committed to goal zero – no harm to people, no harm to the environment. We have fallen very short of that commitment. Business Sector HSE Performance Total Manhours Worked
Marine
Engineering Engineering (Oil & Gas) (Marine)
Contract Services
Other Groups
3,639,667
7,374,495
Number of Fatalities
0
0
2
0
0
Number of Lost Time Incidents (LTI)
3
8
9
1
0
Lost Time Incident Frequency (LTIF)
0.824
1.085
2.316
0.037
0
2
3
9
3
6
1,351,649
1,886,881
Road Traffic Accidents (RTA) Total Kilometres Driven
There is a direct correlation between the companies with the best HSE performance and the best financial performance. We have appointed new leadership in the areas of weakest safety performance in the Engineering businesses. The Marine Repair business (within Marine Engineering) is the area of greatest concern.
4,749,313 26,852,290
608,958
2,392,999 10,176,737 1,996,758
But I say to the Marine Repair team, do not be discouraged. Thank you for your honesty in reporting. You will see better performance this year through your increased focus in identifying hazards and mitigating risks; and through developing the correct behaviours. We will not let you down.
& ITS SUBSIDIARY COMPANIES
21
Chief Executive’s Rep Organisation
rt
hierarchy. We removed unnecessary subsidiary overheads that had burgeoned in some silo divisions. We assigned the best business leaders, corporate officers and functional professionals in the line businesses. We increased focus and resource in managing risk and business processes and, most important, in project management and business delivery to the customer. Responsibility and Empowerment are back in the operating businesses where they belong. We are recruiting a new Topaz CEO. We have retained the flexibility to decide whether the new CEO shall lead both Marine and Engineering, or focus specifically on Marine. This flatter structure is closer to the customer and is delivering business turnaround.
Renaissance has three core businesses: Marine, Engineering and Contract Services. In 2011, we formally divided the Engineering business into two distinct divisions: Oil & Gas Engineering and Marine Engineering. The company also owns smaller non-core, but important, businesses in education and training, and media communications. In 2011 we responded to financial and operational challenges with a fundamental review of the subsidiary Topaz organisation. We went back to basics in terms of ensuring a flat, lean, customer-focused operation. We removed the mezzanine Topaz corporate overhead and functional
Renaissance Services
TM MENA
TM Caspian
Revenue 300
Topaz Engineering
Contract Services Group
TM New Markets
Topaz Marine Engineering (TME)
Topaz Oil and Gas Engineering (TOGD)
Net Profit
Rial Million
289.9
248
250
Topaz Marine
40
Total Equity
Rial Million
200
253
Rial Million
32
234
193
2010
2011
150
26
199
196
168
29
30 200
Other Groups
139 109
150
143
20
100
17
92
14
100 10
50
50 2.3
0
0
2006
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2007
2008
2009
2010
2011
0
2006
2007
2008
2009
2010
2011
2006
2007
2008
2009
2011 Performance The net profit of the company for 2011 is Rial 2.3 million. This derives from four sources: The parent company (which houses the Contract Services PAC operations) contributed net profit of Rial 3.2 million; the remaining Contract Services business under TISCO, contributed net profit of Rial 2.1 million; Topaz (which houses the Marine and Engineering businesses) made net losses of Rial 4.3 million; and other businesses and investments contributed net profit of Rial 1.3 million. We can understand individual business segment performance best by seeing revenue and operating profit in each of the core businesses. In 2011, Engineering is reporting as one segment. During 2012 we shall provide clearer separation between Oil & Gas Engineering and Marine Engineering.
Rial millions 2011
2010
112.5
93.2
66.4
65.6
100.8
84.2
2011
2010
Marine
36.2
35.2
Engineering
(8.5)
3.1
Contract Services
13.6
12.6
Marine Engineering Contract Services
Operating Profit Rial millions Segments
There were two contractual disputes: One Marine Engineering contract ended in lost litigation and all the costs are taken in 2011. One Oil & Gas Engineering contract, completed and handed over to the client in 2010, has had the warranty bond called in due to questions regarding a subcontractor’s performance during the execution of the contract. The warranty bond costs have been taken in 2011. We are actively seeking to clarify the client’s position and recovery of costs from the subcontractor. At the time of the change in management and organisation structure, there were four other projects that, without urgent intervention, appeared destined for dispute through time and cost overrun: One in Marine Engineering (where the client is Topaz Marine); and three in Oil & Gas Engineering. Under the new organisation structure, with improved process control and customer-centric project management focus, all four projects have gained lost time. In three cases full time catch-up is not possible and in all cases cost overrun is inevitable. So we must carry the consequences of these loss-making contracts into the first half of 2012. But there are two positives to take from this: Client satisfaction is being restored; and the new management team is proving its quality project management capability.
Revenue Segments
Within the bad news of Topaz Engineering losses there are some positive factors that affect current and future performance. We have closed down one loss-making subsidiary and withdrawn our shareholding from another. The negative effect of these actions is a one-off cost impact. There are other one-off negatives ring-fenced in 2011.
The clarity is that we have two high-value businesses that continue to perform well (Marine and Contract Services). We have another substantial business that has a negative financial impact on overall performance, which we must reverse and restore to health (Engineering). In addition, we should ensure any parent company cost or overhead sitting on top of these businesses is necessary, efficient and only exists to add value.
The Topaz Marine business continues to grow, strong and profitable. Even so, there is scope for further improvement within existing operations. A number of investments made in the Marine business in 2011 have not performed in line with the criteria submitted by management for investment approval. The Marine team is already working on corrections in under-performing assets and this bodes well for 2012.
Dividend Track Record 2007
2008
2009
2010
2011
%
RO’000
%
RO’000
%
RO’000
%
RO’000
%
RO’000
Cash dividend
15
3,344
10
2,453
12
3,385
12
3,385
-
-
Stock dividend
10
2,229
15
3,679
-
-
-
-
-
-
Total dividend
25
5,573
25
6,132
12
3,385
12
3,385
-
-
& ITS SUBSIDIARY COMPANIES
23
Chief Executive’s Rep The Fleet Utilisation graph (below) looks alarming at first sight, but is in fact encouraging when explained. The two large profitable OSV fleets in Azerbaijan and MENA are performing well and utilisation remains high in those key markets.
OSV Fleet Utilisation Azerbaijan
Kazakhstan
Turkmenistan
MENA
Total Marine
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jan Feb Mar Apr May Jun
Jul
Aug Sep Oct Nov Dec
A positive trend in the main OSV Fleet In Azerbaijan, long-term contracts secure and sustain rates. Four new vessels joined the fleet in 2011 and we have secured contracts for four new vessels joining in 2012. This assures growth. In MENA, rates are increasing in line with independent market predictions. We have made successful new market entries into West Africa and Saudi Arabia. Elsewhere, the market entry into Brazil has been costly, but we are working on a positive initiative to turn that around. In Kazakhstan, utilisation is down at the end of the year, but this only affects the small craft and some Flat Top Barges, due to delays in Kashagan capital investment projects. The full integration of the North Caspian Operating Company (NCOC) is scheduled to happen by 2013. This is important for our long-term opportunities. The core business of the OSV fleet is not affected. In Turkmenistan, our deployment has been a great success, but the construction contract that engaged our vessels is now complete. The vessels are re-deploying to Kazakhstan, and we are pursuing opportunities in both those markets. The Contract Services Group had a remarkable year of growth and profit in spite of enormous unplanned challenges. One loss-making project in UAE affected performance but the company
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ANNUAL REP RT 2 11
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compensated for this with more positive outcomes in other projects. The loss-making project arose from pricing error and occupancy shortfall, but the company still delivered compliant standards to a delighted customer. The contract ends in early 2012 and may be re-bid through cyclical re-tender. Oman is the Contract Services business’ largest market, where it enjoys a substantial market leadership position. In March the company committed to support the country’s National Objectives spelt out by His Majesty Sultan Qaboos, who called for improved employment terms and increased employment opportunities for Omani citizens. The company participated in the discussions and initiatives of the oil & gas sector and the private sector at large. By year end the Contract Services team had employed a net increase of 786 Omanis in the year, raising the total number of Omanis employed in Contract Services to 2,200. There has been an additional cost impact due to mandatory increases in employment terms and conditions, partially offset by 80% allowable claims in oil & gas contracts. But the company regards this as an investment, not a cost. We are committed to doing more in 2012.
Permanent Accommodation for Contractors (PAC) Occupancy Nimr PAC
Fahud PAC
Qarn Alam PAC
Marmul PAC
Bahja PAC
100%
80%
60%
40%
20%
Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep
Oct
One further challenge for Contract Services in 2011 was the continued slow build-up of occupancy in the new PAC facilities at Marmul and Bahja, which have currently settled around 70% occupancy with long-term residents. There is scope for increase with contract residents in 2012. Overall, occupancy levels on these projects are high and the PAC programme remains one of our finest investments.
Nov Dec
Strategic Direction At the Corporate level, Renaissance remains committed to building a world-class, internationally competitive oil & gas services business. We want the businesses we own to become the same in their specific service fields. We already have two businesses that meet those criteria: Topaz Marine and the Contract Services Group. We have a third business that can quickly match those criteria once it recovers from a temporary crisis period: Topaz Engineering. We favour the public company model as a route to unlocking value, raising capital and retaining an ownership interest. We have gained valuable experience from the aborted initiative to list Topaz (Marine & Engineering) in London earlier this year. One lesson is that we shall achieve greater clarity of value by listing businesses in clearly defined industry sectors. So this year we have ensured the legal and financial independence of Topaz Marine and Topaz Engineering. Within Topaz Engineering we have ensured the operational separation of Topaz Oil & Gas Engineering and Topaz Marine Engineering. We shall ensure the legal and financial independence of those businesses in due course. Within the next one to three years, two of our businesses will be ready for potential IPO initiatives: Topaz Marine, possibly listing independently in a market such as London or Singapore; and Contract Services, possibly listing in a market such as its home base of Muscat. Topaz Marine Engineering and Topaz Oil & Gas Engineering may follow in due course. We are not obsessed with creating independent public company status for our subsidiaries as the only route to creating shareholder value - of course not. But we are very serious at driving public company behaviours, and independent IPO aspirations at > US$ 0.5 billion to < US$ 1 billion values, within the management teams of the companies under Renaissance stewardship. We want all our companies, whether they are ultimately listed or not, to apply international best practices of governance, transparency and disclosure, and business ethics. These are businesses that are financially sound applying best accounting practices, risk and compliance procedures, within financial ratios and parameters appropriate to their business sector.
Evidence shows that independence as a public company fosters innovation and growth through transformational change and strengthening of: Corporate Governance – direct scrutiny of an independent board, committees, investors, analysts, media and other stakeholders Human Resources – enhanced motivation through independent listed status, talent retention and new talent attraction, market benchmarking, and increased entrepreneurialism Finance – funding for growth, new investors for a more focused business. Value realisation through markets that have volume, scale and specialised sector knowledge
Renaissance stature shall be enhanced as an MSM listed company that is the principal founder shareholder of listed subsidiaries that become household names in their respective industries. For Renaissance Shareholders the true value of Renaissance’s holding in its best subsidiaries shall be recognised through the scrutiny of a robust and independent IPO process and ongoing market performance. Also why Oil & Gas? Already, a business like Contract Services has major clients in sectors outside Oil & Gas. But it has an Oil & Gas base founded on the Renaissance operating mantra of Safe, Efficient, Green and Local. So we want all our businesses to serve blue chip International Oil Company (IOC) and State Oil Company (SOC) clients, while applying Oil & Gas industry standards of HSE, Quality and Compliance, no matter what other sectors they may also serve in. For these reasons we are building world class companies, specialised in their respective fields, applying best of class international public company and oil & gas industry standards in all that they do. Individual Business Unit Strategies work towards the overall Corporate Strategy and are tempered by current realities in their respective operations and markets.
& ITS SUBSIDIARY COMPANIES
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Chief Executiveâ&#x20AC;&#x2122;s Rep Topaz Marine
Topaz Engineering
Topaz Marine continues to increase the size and reduce the age proďŹ le of its Offshore Support Vessel (OSV) ďŹ&#x201A;eet. Observers will note the size of the ďŹ&#x201A;eet has remained either side of 100 vessels for over two years now. That is true of individual vessel count, but in reality, smaller, older tonnage is being replaced by state-of-the-art, often larger vessels. In 2012, Topaz Marine has already secured contracts with BP in Azerbaijan for two, 190-tonne AHTS and two, 80-tonne AHTS. Topaz Marine has a unique service differential in the markets where it leads, in terms of the scale of local onshore support on the ground, or in the region, in the form of General Management, operational, engineering, HSE, and other functional support professionals. In 2012 Topaz Marine shall:
Topaz Engineering has put in place a new leadership team in a new structure. The focus RQ RSHUDWLRQDO H[FHOOHQFH LV LQ SODFH 'XH WR the problems of 2011, some consequences carry forward to 2012, and the focus of the businesses has to be primarily concerned with turnaround initiatives:
Â&#x2021; 3DUWLFLSDWH DQG FRPSHWH LQ DOO UHOHYDQW tenders offered by existing or new major clients in existing major markets of the Caspian and MENA, including, Azerbaijan, Kazakhstan, Qatar, Saudi Arabia and Turkmenistan. Our existing clients are assured of our readiness to compete and invest if successful. Â&#x2021; &RQWLQXH WR GHYHORS HQWU\ LQWR :HVW African markets with IOC clients and consider establishing local content and support base there. Â&#x2021; &RQWLQXH WR WDNH DGYDQWDJH RI FRQWUDFW opportunities in spot markets or longer term assignments round the world. The company already has operations in the North Sea wind farm sector and other assignments in the Baltic, Brazil and South-East Asia. Â&#x2021; 7XUQDURXQG WKH ORVV PDNLQJ HQWU\ WR WKH Brazil market. Â&#x2021; 'HYHORS D FOHDU VWUDWHJ\ IRU WKH Kazakhstan ďŹ&#x201A;eet. The company has already invested over US$ 100 million in DVVHWV LQ .D]DNKVWDQ :H PXVW Ă&#x20AC;QDOLVH local content partnership and local investment in 2012. Â&#x2021; :H VKDOO FRQWLQXH WR LQYHVW LQ GHYHORSLQJ local national crews for our vessels.
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Â&#x2021; &ORVH RXW OHJDF\ LVVXHV DQG SRWHQWLDO disputes. Â&#x2021; )RFXV RQ GHOLYHU\ DQG FXVWRPHU satisfaction of ongoing projects. Â&#x2021; ,PSOHPHQW QHZ 3URMHFW &RQWUROV Â&#x2021; 72*' %XVLQHVV 'HYHORSPHQW )RFXV RQ 5LJ 5HSDLU DQG )DEULFDWLRQ Â&#x2021; 70( %XVLQHVV 'HYHORSPHQW KDV D signiďŹ cant sales pipeline in view. Â&#x2021; ,QYHVW LQ GHYHORSPHQW RI 4XD\VLGH potential in existing yards at Adyard and Liwa. Â&#x2021; ,QYHVW LQ H[SDQVLRQ RI :RUNVKRSV IRU Maintenance Services at Adyard and )XMDLUDK Â&#x2021; &RQWLQXH FRPSHWHQFH DVVXUDQFH LQLWLDWLYH
Contract Services Group Contract Services Group is considering the GLYHVWPHQW RI LWV $O :DVLWD EXVLQHVV LQ 8$( through a local management buy-out (MBO). The deal is close to completion. Contract Services Group shall continue its UAE SUHVHQFH WKURXJK LWV $EX 'KDEL -9 5HQDLVVDQFH )DFLOLWLHV 0DQDJHPHQW //& Renaissanceâ&#x20AC;&#x2122;s short tenure of ownership of $O :DVLWD KDV EHHQ VXFFHVVIXO DQG SURĂ&#x20AC;WDEOH Renaissance no longer requires an overlapping business with potential duplication of overhead costs in the same market. The $O :DVLWD PDQDJHPHQW LV LQWHUHVWHG LQ pursuing some contracts that are not within Renaissance criteria of interest. It therefore makes sense for the company to divest $O :DVLWD LQ DQ DPLFDEOH SURIHVVLRQDO arrangement with our valued colleagues who shall continue to manage and own the business. The 2012 programme for Contract
Services Group is growth-oriented with a primary focus on the opportunities offered in the home market of Oman: Â&#x2021; &RQWLQXH WR GHYHORS VFDOH DQG VL]H LQ existing overseas markets: Angola and Norway. Â&#x2021; &RQWLQXH WR WDUJHW ODUJH FRQWUDFW opportunities in Qatar as a potential new market, with possible interest in other GCC countries. Â&#x2021; 'LYHVW RZQHUVKLS RI $O :DVLWD (PLUDWHV IRU Services & Catering LLC through MBO. Â&#x2021; &RQWLQXH WR GHYHORS FRPSHWHQFH DQG experience in turnkey integrated facilities management capabilities. Â&#x2021; &RQWLQXH LQYHVWPHQW LQ EXLOG RZQ RSHUDWH opportunities such as the PAC facilities, whenever the competitive opportunity arises.
Â&#x2021; &RQWLQXH WR ELG IRU ODUJH VFDOH international projects and service contracts, if and when opportunities arise (including major regional sporting events). Â&#x2021; 'HYHORS UHJLRQDO DQG LQWHUQDWLRQDO procurement capability, using newly-built central facilities as a hub, to drive down unit food costs for the company and clients. Â&#x2021; )RFXV RQ 2PDQ DV D PDMRU JURZWK KRPH market. Â&#x2021; &RQWLQXH WR LQYHVW LQ UHFUXLWPHQW WUDLQLQJ and development of Omani workforce, with special focus on senior management and supervisory positions. Â&#x2021; )RFXV RQ HQKDQFLQJ WKH FRPSDQ\¡V in-country value within Oman.
We are building world class companies, specialised in their respective ďŹ elds, applying best of class international public company and oil & gas industry standards in all that they do.
& ITS SUBSIDIARY COMPANIES
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Chief Executiveâ&#x20AC;&#x2122;s Rep
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0HGLD &RPPXQLFDWLRQV DQG (GXFDWLRQ 7UDLQLQJ 5HQDLVVDQFH¡V RWKHU EXVLQHVVHV LQ (GXFDWLRQ 7UDLQLQJ 17, DQG 1+, DQG 0HGLD &RPPXQLFDWLRQV 806 FRQWLQXH WR OHDG WKHLU respective markets. The fact these businesses do not ďŹ t the core Oil & Gas strategy of Renaissance does not diminish their stature and reputation in their respective ďŹ elds. We continue to nurture and support their progress DQG JURZWK 1HYHUWKHOHVV RXU SRVLWLRQ remains that we shall divest these businesses at an appropriate time and value if the right prospective owner is found.
Operating Strategy Operating Strategy is similar for all Renaissance companies. Our operating mantra is clear, we want all Renaissance companies to EH 6$)( ()),&,(17 *5((1 DQG /2&$/ What do we mean by that?
Â&#x2021; 6DIH 1R KDUP WR SHRSOH Â&#x2021; (IĂ&#x20AC;FLHQW &RVW HIIHFWLYH TXDOLW\ VHUYLFHV Â&#x2021; *UHHQ 1R KDUP WR WKH HQYLURQPHQW Â&#x2021; /RFDO 6HULRXV DERXW LQ FRXQWU\ YDOXH This operating mantra expands in a full explanation of the Renaissance Modus Operandi.
28 4
ANNUAL REP RT 2 11
The focus on operational excellence is in place.
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. 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? Continuous improvement of HSE Continuous upgrading and renewal of assets and infrastructure Serious commitment to local content and in-country value in every host nation 7UDLQLQJ DQG GHYHORSPHQW RI ORFDO ZRUNIRUFH 8VLQJ ORFDO VHUYLFHV DQG JRRGV WKDW PHHW TXDOLW\ FULWHULD $OLJQLQJ ZLWK JRRG ORFDO SDUWQHUV (QVXULQJ ORFDO FRPPXQLW\ EHQHÀW DQG VRFLDO UHVSRQVLELOLW\ LQLWLDWLYHV Drive efficiency and lower cost base 6KDULQJ RXU FOLHQWV· RZQ FRQFHUQ WR GULYH GRZQ WKH XQLW FRVW RI SURGXFWLRQ 3URJUDPPHV WR PHDVXUH DQG UHGXFH RXU RZQ HQHUJ\ XVDJH &RQVHUYDWLRQ LQLWLDWLYHV (IÀFLHQF\ RU FRVW UHGXFWLRQ SURJUDPPHV IRU FOLHQWV
& ITS SUBSIDIARY COMPANIES
29
Chief Executive’s Rep
rt
Geographical Presence 2011
People
Revenue - Geographical
Three things have grown in 2011: Customers, Revenue and the number of people employed by the group. The company now employs over 14,000 people:
Comparison in Rial Millions Oman, 65 Others, 54
Employees
MENA, 93
Caspian, 78 Oman, 65
MENA, 93
Caspian, 78
2011
2010
Marine
1,561
1,193
Engineering
4,196
3,289
Contract Services
7,895
6,544
Media Communications
175
201
Education and Training
219
182
Others, 54
The home market of Oman represents 22% of the company’s business; the Caspian region is 27% and MENA is 32%.
Sustainability The sustainability movement presents an opportunity for companies to align their corporate goals with those of society. Renaissance is committed to promote sustainable economic development and to collaborate with employees, their families and the local community and society at large to help foster a better quality of life. This year we have incorporated Global Reporting Initiative (GRI 3.1) disclosure parameters for the first time in an effort to enhance the focus and transparency of our reporting. The selection and prioritisation of our reporting parameters seeks to acknowledge the material concerns of our stakeholders whom the company engages through a variety of open communication channels throughout the year. Through this integrated report we have introduced new measurements for the company’s financial, social and environmental performance in areas that our stakeholders view as material for our business. Renaissance’s vision for a safe and sustainable future is reflected throughout the report. Specific additional GRI measures follow the CEO Report.
Renaissance companies have a track record for retention and longevity of service. It is rare that we have a large scale exodus of people. The overall growth in employee numbers for growing operations masks some significant changes in personnel at the Topaz Corporate Office and line company overheads. The significant problems we faced required changes to be made in order to reassert the priorities of the business and its direction. Others have lost their jobs as a consequence of the need for cost-cutting arising from poor performance results. That does not happen often in our group and I am saddened to see people forced to leave for those reasons. Others decided to leave of their own accord due to the alarm and uncertainty caused by events in the company. I would like to thank all of you who stood firm through this crisis. Through your efforts the company has faced down peril and we are able to look forward to a period of recovery that will restore prosperity. The worst is behind us. We still have more work to turn around Engineering, but that prospect improves every day through the efforts of our people – Thank you and well done.
Key Geographies MENA
Sultanate of Oman, Qatar, Saudi Arabia, United Arab Emirates
CASPIAN
Azarbaijan, Kazakhstan
OTHERS
Angola, Brazil, Norway
Renaissance groups have carried out operations in 19 countries in 2011.
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ANNUAL REP RT 2 11
The order of seasonal and projected events in 2012, and enduring consequences from 2011, means we will have a low performance in Q1 and Q2 of 2012. But as secured new contracts and growth commence during the course of the year, I am conďŹ dent we shall all be reading a far happier report one year from now.
Stephen R. Thomas OBE Chief Executive OfďŹ cer
& ITS SUBSIDIARY COMPANIES
31
Sustainability Rep rt Communicating with Stakeholders Renaissance is committed to a continuous effort to increase stakeholder engagement. The company takes a firm commitment to transparency and to reporting the company’s progress, plans and problems to all its stakeholders in a timely manner. Renaissance has a very good track record of compliance with MSM Regulations and Guidelines which provide the regulatory framework in Oman.
from the consistent measurement of these indicators. To achieve our sustainability reporting objectives we commit to report on these indicators on an annual basis. This report is presented at the company’s annual general meeting and made available to stakeholders through the company website and Company Secretary. Our company has self-declared a grade C against the GRI G3.1 Guidelines.
Materiality
Measuring Performance Rising to the sustainability challenge requires a coordinated effort. In the 2011 Annual Report, we have presented new indicators relating to operational impact on the triple bottom line of economy, environment and society. This report encompasses the boundaries of our groups and diverse service operations which are detailed on page 10-11, and reports on the performance period of the fiscal year (January 1 – December 31, 2011). The report specifies where limitations were encountered in light of the opportunities arising
Stakeholders regard Renaissance as not just a local company, but rather as an Omani multinational company, and as such have come to expect the company to abide by the highest international standards of governance and disclosure. We have committed to live up to this requirement. The following chart identifies our stakeholder groups, the frequency and channels by which we engage them, and summarises the material aspects of stakeholder concerns and how the company responds to them.
Quarterly Reports Shareholder meetings Maintaining reliable financial returns and sustainable growth
Open Investor Relations meetings with upper management Open Conference Calls
Key disclosures during the IPO process and the disclosure of material changes in core groups
Open Letters, Company Statements and Press Releases Trade-related Conferences
Expressed desire for increased Omanisation across management
Website
Shareholders and Providers of capital
Enhancing the content and analysts’ data in quarterly reports
EC1 Page 12-13; 16-17
GRI Index
32 4
1.1-1.2 Page 24-32
2.1-2.10 Page 10-13; 24;41
3.1-3.3 Page 34
3.5-3.8; 3.10-3.12 Page 34-35
4.1-4.4 Page 43-48
4.14-4.15 Page 34-35
ANNUAL REP RT 2 11
3.4 Page 5
Increased number of statements addressing shareholder and market concerns, adopting open platforms to engage with external stakeholders fairly and transparently
Quarterly Reports QHSE Reports Monthly Customer Service Surveys Emails and Meetings Brochures and Websites Advertising and Publicity PR1, PR2, PR5
Events and Conferences
Page 36
Website EC6 Page 39
Customers and Suppliers Maintaining reliable and safe operations while minimising adverse impacts to environment
New organisational structure at Topaz to streamline efficiencies
Monthly Management Reports
Shortening the supply line to be as local as efficiently and qualitatively possible
Continuous HSE and quality management
Policies, HSE and Quality Manuals Training Emails and Meetings Company Newsletter Staff Events Volunteer Programmes
LA7
Events and Conferences
Page 23
CSR Programme LA10 Advertising and Publicity
Page 39
Website Environmental and social impacts on the local community
Local Communities EN1, EN2, EN3, EN5, EN8, EN12, EN14, EN16, EN22 Page 40-41
Supporting national initiatives focusing on education, environment and youth
Employees and other workers
Business conduct, working conditions Engagement and Development
Recruitment and retention assessments, specifically with increased hiring in CSG Roll-out of a business ethics and conduct assessments with strict internal auditing
Engagement Method
Stakeholder’s Priorities
Company Responses
GRI Indicator and page reference
& ITS SUBSIDIARY COMPANIES
33
Sustainability Rep rt Our Customers The main way in which we try to achieve our vision for sustainable impact is through the services we offer and from the way we manage our customer relationships. Renaissance encourages a close to the customer standard whereby our companies are challenged to exceed customer expectations. With our Safe, Efficient, Green and Local, customer-centric business model, we seek to sustain and grow our leadership positions in current markets and light up new markets that would welcome the quality and competitiveness we bring.
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 and gas industry, as well as governments and leading institutions. Renaissance businesses regularly conduct product/service safety audits and customer service surveys to ensure best business practices and standards are consistently measured.
GRI Indicators on Product and Service Quality (PR1, PR2, PR5) Marine
34 4
ANNUAL REP RT 2 11
Engineering
CSG
Other Groups
Does the company follow a life cycle or stages in which health and safety impacts of products and services are assessed for improvement?
Yes. Monthly performance review meetings with the client to review KPI’s for improvement. Products are supplied with a Material Safety Data Sheet (MSDS).
Yes. Periodic audits, preventative maintenance, HSE inspections, management visits.
Yes. With particular attention to food safety, Should a food product be unfit for consumption it is kept in a non-conforming product area and returned to the supplier with an NCR.
No significant health and safety risks in products and services.
Did the company have incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services during the year?
No
No
No
No
Does the company conduct surveys or have customer satisfaction practices in place to maintain customer satisfaction?
Yes. Data is monitored by commercial departments and reviewed with the client in meetings and safety forums for further improvement against KPI’s.
A new system has been developed for implementation in
Yes. Customer Satisfaction is a part of our ISO standard. Views are collected on customer survey forms and results are compiled and discussed with the crew and executed. Another best practice is meeting clients daily and taking feedback on day-to-day service.
Yes. Business review forums held at regular intervals ensure service levels and client statisfaction.
Oil & Gas Related Customers
Non-Oil & Gas Related Customers Oman
Abu Dhabi National Oil Company (ADNOC, ADNATCO and NGSCO) Azerbaijan International Operating Company AGIP BG Oman BP Dubai Petroleum Exxon Mobil Fujairah ReďŹ nery Malaysia Marine & Heavy Engineering Maersk Contractors Norge AS MAERSK OIL Occidental Petroleum Oman LNG Oman ReďŹ neries & Petrochemical Co. Petroleum Development Oman (PDO) Qalhat LNG ROC Oil SAIPEM Schlumberger
Diwan of Royal Courts Haya Water Ministry of Health Ministry of Education Ministry of Defense Ministry of Manpower Oman Aviation Services Oman Dry Dock Oman Mining Company Port of Salalah Royal Guard of Oman Shangrila Hotel Sultan Qaboos University Sultan Qaboos University Hospital Vale Oman Palletizing Company
International ADMAR Alderly Plc APL Shipping International DynCorp International Kellogg Brown & Root LLC (KBR) Lamprell Maersk Line Royal Navy of Oman SEHA Abu Dhabi United Nations Assistance Mission Iraq (UNAMI) US Navy UK Navy Van Oord Wilhelmsen Group
TOTAL Vela International
Accreditations held within the group Topaz Marine
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& ITS SUBSIDIARY COMPANIES
35
Sustainability Rep rt Social and Environmental Impact 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. Today, many companies regard Corporate Social Responsibility (CSR) as a standard for being responsible, and CSR is evolving towards Corporate Responsibility (CR) which entails integrated commitments in the company’s people, suppliers and local community. Sustainable economic development impacts the local community and society at large to help realise a better standard of living. Renaissance promotes sustainable economic development by employing and training local workforces, using local suppliers of goods and services, and investing in initiatives to support local development and good causes. We have a simple philosophy that says we must not reap where we have not sown. It is one of the important factors that give people throughout our organisation a great sense of purpose in what we do. Our progress is reported under the following areas: 3(23/( 6833/,(56 &25325$7( 62&,$/ 5(63216,%,/,7< (19,5210(17
3HRSOH People are a vital source of competitive advantage. At the heart of building a high performance company is talent management – attracting and hiring the right people to the organisation. Renaissance thrives 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. Throughout 2011, several Renaissance businesses have reorganised at several intervals, and the impacts on performance have been acknowledged in the CEO Report. In addition to business-related goals, normal job expectations have been intensified during restructuring, with promotions and increased spending on the development of employees across the groups. Renaissance strives to meet shareholder expectations for higher Omanisation rates in senior executive roles. At year-end 2011, Renaissance had 14,406 employees, compared to 11,483 employees the previous year. The company has over 40
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ANNUAL REP RT 2 11
nationalities represented in its staff. Renaissance has an equal opportunity policy for all employees, irrespective of their nationality, gender or age. While remaining competitive, the company and its groups provide compensation packages that meet or exceed the standard wage averages at national scales, and our full-time employees, which represent the majority of our company’s workforce, are given full benefits that match or exceed the labor laws of our host nation. Further, due to the nature of our core operations our core groups have low male to female employee ratios, however enabling female employees is high on our agenda for developing competence.
2PDQLVDWLRQ Renaissance has laid down its Omanisation Policy since the company’s start in 1986. The policy states that Omanisation is a prime business objective to be managed and measured on a par with the company’s other business objectives. This is especially relevant for the company’s Contract Services Group (CSG), which by year end employed 2,200 Omanis. Of new hires for CSG, 786 new employees, or 58.2%, were Omani. Parallel to its boost in new hires, CSG has rolled out in 2011 an assessment programme across its Oman-based locations, to manage, measure and organise the requirements for the large scale Omanisation drive, as well as ensure the development and performance of its current staff. CSG has positioned its Omani talent to work side by side with expatriates, so that within a year or two there can be a successful replacement of jobs, to achieve what we regard as meaningful Omanisation. That does not mean that our expatriate leaves the company, as CSG has many projects overseas and the group head office has strengthened its capabilities to tender and mobilise overseas contracts over several years. While there is no significant requirement of our companies operating outside of Oman to hire local residents, our companies are encouraged to train and employ local workforces in reflection of our sustainable economic impact, and we are committed to reporting increased indicators in future reports. Within our Topaz Marine subsidiaries, many of our offices have achieved high local employment rates – 85% in Azerbaijan, 51% in Kazakhstan, and 73% in Turkmenistan. Additionally, CSG operations in Angola have maintained a local employee rate of 90%, while CSG’s workforce in Norway is 100% from the local workforce. Renaissance believes that indigenous people provide the local connections and knowledge needed for the company to grow in international markets.
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Renaissance recognises that on the job training is an important part of competence development and leads to higher job satisfaction. Programmes for continuous training and development are in place to assess and support career development, and we commit to achieving higher ďŹ gures across groups in the year. The following chart reďŹ&#x201A;ects the responsive measurement of average hours of training for employees across all groups.
Corporate Social Responsibility (CSR) is one of the 12 Renaissance Values that provide the signposts and guidelines of how and why we conduct our business. At the Renaissance corporate level we allocate 1% of the previous yearâ&#x20AC;&#x2122;s proďŹ t to CSR for the coming year. In line with Capital Market regulations we have the CSR allocation approved by our shareholders at the Annual General Meeting. Since 2008, the company has announced its donations transparently as a reďŹ&#x201A;ection of good governance, and can be found within our annual reports and company website.
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Marine Average number of hours of training in 2011
Engineering Contract Services
32 hours
18 hours
22 hours
Other Groups 12.5 hours
The downturn in the companyâ&#x20AC;&#x2122;s ďŹ nancial position has impacted the high activity of the companyâ&#x20AC;&#x2122;s CSR programmes this year. As a result, the company has provisioned approximately 36% of the total CSR 2011 budget, or approximately Rial 117,000 from Rial 323,000, in order to sustain ďŹ nancial support to ongoing initiatives in 2012.
6XSSOLHUV Renaissance actively supports using local suppliers for materials and services wherever possible and feasible. Investing in local supply chains generates value that is core to the sustainability of local businesses. Renaissance is itself a â&#x20AC;&#x153;home-grownâ&#x20AC;? Omani company that integrated into the fabric of the supply chain in Oman and grew from its core competencies in efďŹ cient and quality services. The Local principle is one of four drivers in our operating mantra: Safe, EfďŹ cient, Green, Local, where we assign to the responsibility of being serious about local content. Renaissance businesses use a wide-range of services and materials that are required for operations that are equally varied. In reporting on the policy and proportion of spending on locally-based suppliers (GRI EC6), our Oman-born businesses assessed their responsible business practices with a satisfactory degree of transparency. The companyâ&#x20AC;&#x2122;s smaller businesses, represented by the ďŹ&#x201A;agship companies NTI under the ETG group and UMS for MCG group, account over 90% of total purchases in 2011 to local suppliers. While these businesses are small in scale of Renaissanceâ&#x20AC;&#x2122;s core businesses, the Contract Services Group, a market-leader in Oman, attributes 62% of total purchases in 2011 from local Omani companies. In the Engineering group, based on analysis of top 100 suppliers covering 70% of total procurement value, the expenditure of local stocks averages 40%. In the Marine group, our Topaz Marine Azerbaijan division monitors local spend in a programme entitled â&#x20AC;&#x2DC;Commitment to the Local Economyâ&#x20AC;&#x2122; and reports local expenditure for 2011 to be 76%. In the coming year we aim to reach an even higher level of reporting for our core groups and geographies that reďŹ&#x201A;ect over 20% of our business income.
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& ITS SUBSIDIARY COMPANIES
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Sustainability Rep rt Recognising the need for collaborative CSR models, Renaissance aims to work closely with stakeholders such as its employees as well as non-profit, sustainability, and civil society organisations to address societal challenges across the communities we serve. Renaissance’s CSR programme is currently focused on addressing our home nation of Oman, however, our groups do engage in meaningful CSR practice and activities abroad. One such initiative is Topaz Marine’s support of The Flying Angel, which was recognised during the year at the 8th CSR Summit in Dubai as Best Corporate Social Responsibility Initiative in the Private Sector. The company’s CSR Policy and key impacts of our CSR Programme are detailed in the company website, while the monetary support distributed in 2011 can be found in the Annual Report on page 105. Allocation of CSR fund across key social aspects: 2011
2010
9%
7%
Education
20%
56%
Environment
30%
2%
4%
5%
37%
30%
Community
Health Sport
Environmental Impact Being recognised as a green company reinforces one of four core values in our organisation under Safe, Efficient, Green and Local, and contributes to the successful implementation of our strategy for sustainability. The table in this section shows results of our premiere company-wide survey on environmental matters. We are proud of the focus and progress on environmental impact shown by Renaissance people throughout the group. We do have a focus on environmental issues in our HSE management systems, but we are planning to seriously step up our activity in this regard to help us achieve recognised credentials as a truly green company. We are looking at initiatives to measure and manage waste better, and we are being even more environmentally conscious at the design stage when we build things – whether vessels, infrastructure or onshore life support facilities. Wind and solar energy projects present an opportunity for our organisation’s operations in Marine and Engineering. The Marine Group has supported the offshore wind industry in the North Sea operations for two years. The Topaz Engineering’s Oil & Gas subdivision is looking to
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ANNUAL REP RT 2 11
position the business to be able to work on new energy projects for new builds. The Contract Services Group has given support to a solar power project on site of PAC Bahja and is reviewing new technologies that reduce power consumption and operate on reduced energy. These new growth opportunities take into consideration the wider range of environmental, social and economic impacts that arise during the course of our services. Through the services we deliver to our customers, we seek to deliver a greater positive impact on the environment than the negative impact of our operations. Environmental impacts that represent the concerns of our stakeholders in Oman and abroad include water and energy use, waste management and impact to biodiversity. The tragic Deepwater Horizon accident in the Gulf of Mexico in 2010 has led to greater controls for safety and environmental risks in offshore activities, where there is growing concern the impact on the ocean’s biodiversity. The company’s Marine group does have minor exposure to some hazardous oil-related material such as empty oil drums, oil filters and oil contaminated spill kit material. Topaz Marine has introduced in 2012 an IMO ballast water-management plan which aims to mitigate the harmful impacts to marine ecosystems. Also during 2011, MEG’s Caspian operations were successfully accredited with International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention. Further, none of our groups has received fines for non-compliance with environmental laws and regulations, and the company does not own, lease, or manage any land in, or adjacent to, a protected area or area of high biodiversity value. Within the company’s CSR programme, financial support to environmental initiatives increased tenfold, whereby in 2011 approximately 30% of the total CSR budget was allocated to an environmental project, in comparison to 3% allocated in 2010. The financial support is primary extended to a new initiative launched in 2011 entitled the Renaissance Whale and Dolphin Research Project (RWDP), which bridges the relevance of the company’s marine operations and geographical relevance to research being conducted on unique populations of Oman’s marine species. The impacts of the RWDP project will assist decision makers in Oman’s Ministry of Fisheries, Ministry of Environment and Climate Affairs and other governmental bodies to plan a healthy balance between marine environments and economic development, and to design effective conservation strategies to ensure the survival of species under threat of extinction. Our aim is to
support the project into further tangible impacts such as guidelines for eco-tourism and other economic verticals, and to be documented for Oman’s future marine studies and museums. Renaissance launched an Office Green Team (OGT) initiative in 2010 with the purpose of engaging employees and promoting the green activities and efficiencies taking place at the company’s various businesses and locations. Through OGT, groups reported on replacing office lights with energy saving lights, conducting energy audits and examples of office lighting and air conditioning
controls, reducing and recycling paper and plastic programmes, and controlling domestic water usage at various locations. Concurrently in the UAE, the Topaz group launched Topaz Earth in 2010 with the intention of influencing corporate culture and became a corporate member of the Emirates Environmental Group. Renaissance was honoured among winners of the Oman Green Awards 2011 in recognition of the company’s green initiatives, winning the title of ‘Green Champion’ among the nine categories.
Amount of Waste and Energy Expenditure Generated By Reporting Locations Marine
Engineering
CSG
Other Groups
Opportunities/Risk identified by climate change
Topaz Marine has introduced new tonnage and propulsion machinery designed to reduce emissions to the atmosphere. Monitoring of engine gasses is a potential competitive advantage.
No near-term risks although our business is entirely part of the Oil & Gas Sector. We are looking to position ourselves on both wind and solar energy projects in new builds.
Climate change is slowly impacting business through drought and flood, declining crop yields and water shortages. Current food stock is measured at 14,000 tonne. Studies regarding new technologies that reduce power and water consumption i.e. kitchen equipment to reduce energy.
Opportunities for conducting awareness programmes to corporates, government and individuals. Increasing cost in paper and material impact the bottom line. Opportunities for digital media and sustainability awareness events that shape consumer and customer habits.
Significant Gas Emissions – CO2 emissions in tonnes
102,644 tonne
1,229 tonne
2,921 tonne
573 tonne
Significant Water Consumption and Recycling Initiatives
Domestic water usage controlled signs posted.
Municipal supply: 29,200 m3. No water is recycled.
CSG uses potable water supplied by local Municipal Authorities and through client provided systems i.e. reverse Osmosis. Total volume of water consumption 2,083,832 m3. Total volume of water recycled 514,829 m3 or 25%.
Water discharge is not significant.
Significant Waste and Recycling Initiatives
Hazardous material include oil-related items and chemical waste from containers and equipment. Office lighting and air conditioning controlled.
On site recycling bins set up for collecting plastic, paper and metal.
Hazardous waste measured at 14.321 tonne while a non-hazardous waste measured at 620.716 tonne. Cooking oil is recycled via the client’s oil recovery process. Energy conservation signs posted at all PACs since opening.
The company encourages reuse and recycling for primary material, namely stationary (paper, printers and computers) and saving electricity by switching off lights and utilising digital tools. Reduction in energy consumption by 10% by utilising energy saving devices and reducing unnecessary light points.
Disposal methods
Waste is disposed of by government-approved waste management companies.
All waste material is segregated and removed by specialist vendors.
Solid waste is disposed of in landfills by waste companies approved by the Ministry of Environment and Climate Affairs and meeting client requirements.
Waste discharge is not significant.
& ITS SUBSIDIARY COMPANIES
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41 to 47.
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ANNUAL REP RT 2 11
Rep rt 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 encourages transparency so that Shareholders can understand and monitor the development of the Company. The Board and the 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 creating, safeguarding and enhancing the Shareholders’ value while at the same time protecting the interests of its stakeholders. 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. 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 recognition of the Company’s excellent and exemplary model of corporate governance, the Company has been awarded the Corporate Governance Excellence Award for the year 2010 in the Services Sector, in the contest organised by Oman Centre for Corporate Governance of the CMA. 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 2011.
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 a decision-maker in fostering the overall success of the Company by 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. 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. 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 and has developed a Code of Ethics that promotes values among its employees. 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, IT Policies Manual, and HR Manual.
2. Board of Directors During 2011 the Board consisted of 7 Directors. All the Directors are Non-Executive and Independent. Five Directors on the Board are Shareholders/ representatives of Shareholders and two Directors are Non-Shareholder Directors.
& ITS SUBSIDIARY COMPANIES
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Rep rt On Corporate Governance 2.1/3 The Composition and Category of Directors, Attendance of Board Meetings 6U 1DPH RI 'LUHFWRU 1R
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2.2 Statement of the Names & ProďŹ les 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.
ANNUAL REP RT 2 11
Ali bin Hassan Sulaiman â&#x20AC;&#x201C; Deputy Chairman
Mr. Samir J. Fancy is the Chairman of the Board of Directors since 1996. He has held senior positions and undertaken leading roles such as:
0U $OL ELQ +DVVDQ 6XODLPDQ LV D PHPEHU RI WKH Board of Directors of the Company since 1996 and is Deputy Chairman since March 2010. He is a IRXQGHU RI $OL DQG $EGXO .DULP *URXS DQG 'LUHFWRU of the following companies:
Â&#x2021; )RXQGHU DQG 9LFH &KDLUPDQ RI 7DZRRV *URXS VLQFH DQG &KDLUPDQ RI 7DZRRV *URXS VLQFH 2005. Â&#x2021; &KDLUPDQ RI 7RSD] (QHUJ\ 0DULQH 6$2* VLQFH foundation and up to its acquisition by the Company in May 2005. Â&#x2021; &KDLUPDQ RI $PDQL )LQDQFLDO 6HUYLFHV 6$2& since 1997. Â&#x2021; ([HFXWLYH &KDLUPDQ RI 7RSD] (QHUJ\ 0DULQH Ltd.
Â&#x2021; 'LUHFWRU RI 7RSD] (QHUJ\ 0DULQH 6$2* IRU several years up to its acquisition by the Company in May 2005. Â&#x2021; 'LUHFWRU RI 0DMDQ *ODVV 0DQXIDFWXULQJ &R 6$2* Â&#x2021; 'HSXW\ &KDLUPDQ RI 1DWLRQDO +RVSLWDOLW\ ,QVWLWXWH 6$2* Â&#x2021; 'LUHFWRU RI 7RSD] (QHUJ\ 0DULQH /WG Â&#x2021; 'LUHFWRU RI 0XVFDW )LQDQFH &RPSDQ\ 6$2* Â&#x2021; 0HPEHU RI 9LVLRQ *&& )XQG ,QYHVWPHQW Committee
Samir J. Fancy â&#x20AC;&#x201C; Chairman
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HH Sayyid Tarik bin Shabib bin Taimur â&#x20AC;&#x201C; Director HH Sayyid Tarik bin Shabib bin Taimur is a member of the Board of Directors of the Company VLQFH 2WKHU SRVLWLRQV KHOG E\ KLP LQFOXGH the following: Â&#x2021; )RXQGHU DQG 'LUHFWRU RI 7DZRRV *URXS Â&#x2021; &KDLUPDQ RI 0DULQD %DQGHU $O 5RZGKD 6$2* IRU VL[ \HDUV XQWLO LWV WDNHRYHU E\ WKH *RYHUQPHQW RI WKH 6XOWDQDWH RI 2PDQ LQ $SULO Â&#x2021; &KDLUPDQ RI 1DWLRQDO +RVSLWDOLW\ ,QVWLWXWH 6$2* since 1995. Â&#x2021; 'LUHFWRU RI 7RSD] (QHUJ\ 0DULQH /WG
Sunder George â&#x20AC;&#x201C; Director 0U 6XQGHU *HRUJH LV D PHPEHU RI WKH %RDUG RI Directors of the Company since 2001. He has H[WHQVLYH H[SHULHQFH LQ %DQNLQJ )LQDQFH DQG KDV KHOG VHQLRU H[HFXWLYH SRVLWLRQV LQ 2PDQ DEURDG including the following Â&#x2021; 'HSXW\ &KLHI ([HFXWLYH RI %DQN0XVFDW 6$2* Â&#x2021; 'LUHFWRU RI 7RSD] (QHUJ\ 0DULQH /WG
Yeshwant C. Desai â&#x20AC;&#x201C; Director Mr. Yeshwant C Desai is a member of the Board of Directors of the Company since 2001 and is the &KDLUPDQ RI WKH $XGLW &RPPLWWHH +H KDV KDG D successful career and extensive experience in %DQNLQJ )LQDQFH DQG KDV KHOG VHQLRU H[HFXWLYH SRVLWLRQV LQ 2PDQ DEURDG ZKLFK LQFOXGH Â&#x2021; ([ &(2 RI %DQN0XVFDW 6$2* Â&#x2021; 'LUHFWRU RI 7RSD] (QHUJ\ 0DULQH 6$2* IRU several years up to its acquisition by the Company in May 2005. Â&#x2021; 'LUHFWRU RI 7RSD] (QHUJ\ 0DULQH /WG
Colin Rutherford â&#x20AC;&#x201C; Director Mr. Colin Rutherford is a member of the Board of Directors since 2005 and has formerly chaired BUE Marine Holdings prior to its acquisition by the 5HQDLVVDQFH *URXS +H KDV YDVW H[SHULHQFH RI public and private companies having served on many Boards around the world. He is a Chartered accountant and a former corporate ďŹ nancier and currently holds the following positions within his diverse portfolio: Â&#x2021; &KDLUPDQ RI 'H 9HUH *URXS SOF Â&#x2021; &KDLUPDQ RI %URRNJDWH /LPLWHG Â&#x2021; 'LUHFWRU RI 6DPHQD &DSLWDO He holds further positions in global fund management, retail, specialist building products DQG WHFKQRORJ\ +H LV DOVR D 'LUHFWRU RI 7RSD] (QHUJ\ 0DULQH /WG
Ekaterina Sharashidze â&#x20AC;&#x201C; Director 0V (NDWHULQD 6KDUDVKLG]H LV D PHPEHU RI WKH Board of Directors of the Company since 2011. 3ULRU WR MRLQLQJ WKH &RPSDQ\ DV 'LUHFWRU VKH VHUYHG LQ WKH *RYHUQPHQW RI *HRUJLD IRU \HDUV DQG KHOG high level posts such as the Minister of Economic Development. She has 15 years of business H[SHULHQFH LQ 1RUWK $PHULFD (XURSH HPHUJLQJ DQG developed markets, which include: Â&#x2021; 9LFH &KDLUPDQ RI )LQDQFLDO 6HUYLFHV $XWKRULW\ *HRUJLD Â&#x2021; ,QGHSHQGHQW 'LUHFWRU RI 3XQM /,R\G /LPLWHG Â&#x2021; 0DQDJHPHQW DQG &RQVXOWLQJ DW %RR] &R Â&#x2021; ([HFXWLYH 'LUHFWRU RI 6DPHQD &DSLWDO
Stephen R. Thomas OBE â&#x20AC;&#x201C; Chief Executive OfďŹ cer 0U 6WHSKHQ 5 7KRPDV MRLQHG 7DZRRV *URXS DV *HQHUDO 0DQDJHU RI 7DZRRV ,QGXVWULDO 6HUYLFH &R LLC in1988. He took over as Chief Executive 2IĂ&#x20AC;FHU RI 5HQDLVVDQFH 6HUYLFHV 6$2* LQ +H KDV KHOG VHQLRU SRVLWLRQV LQ WKH *URXS LQFOXGLQJ WKH following positions: Â&#x2021; 'LUHFWRU RI 5HQDLVVDQFH +RVSLWDOLW\ 6HUYLFHV 6$2* VLQFH IRXQGDWLRQ DQG XQWLO LWV PHUJHU ZLWK 5HQDLVVDQFH 6HUYLFHV 6$2* LQ $SULO Â&#x2021; 'LUHFWRU RI 1DWLRQDO +RVSLWDOLW\ ,QVWLWXWH 6$2* Â&#x2021; )RXQGHU DQG IRUPHU &KDLUPDQ RI 2PDQ 6RFLHW\ IRU 3HWUROHXP 6HUYLFHV ´23$/Âľ Â&#x2021; 'LUHFWRU RI 7RSD] (QHUJ\ 0DULQH /WG Â&#x2021; ,QWHULP &KLHI ([HFXWLYH 2IĂ&#x20AC;FHU RI 7RSD] (QHUJ\ Marine Ltd.
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& ITS SUBSIDIARY COMPANIES
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Rep rt On Corporate Governance 2.5 Number & Dates of Meetings of the Board of Directors The Board held four meetings during 2011 on the following dates: January 29, 2011 - February 27, 2011 - May 25, 2011 - September 24, 2011
3. Audit Committee & Other Sub-committees Audit Committee The Audit Committee is a sub-committee of the Board comprising of three Directors, majority of who have to be Independent Directors.
3.1 Brief Description & Terms of Reference The functions of the Audit Committee are as follows: 5HFRPPHQG WR WKH %RDUG WKH 6WDWXWRU\ $XGLWRUV in the context of their independence, fee and terms of engagement for approval by the Shareholders. 5HYLHZ WKH DXGLW SODQ DQG UHVXOWV RI WKH DXGLW DQG whether Statutory Auditors have full access to all relevant documents. 2YHUVHH WKH ,QWHUQDO $XGLW IXQFWLRQ LQ JHQHUDO DQG with particular reference to reviewing the scope of internal audit plan for the year, reports of internal auditors pertaining to critical areas, efficacy of internal auditing and whether the internal auditors have full access to relevant documents. 2YHUVHH WKH DGHTXDF\ RI LQWHUQDO FRQWURO V\VWHPV and Internal Audit Reports. 5HYLHZ DQ\ QRQ FRPSOLDQFH ZLWK GLVFORVXUH UHTXLUHPHQWV SUHVFULEHG E\ &0$ 2YHUVHH WKH &RPSDQ\ V ÀQDQFLDO UHSRUWLQJ SURFHVV and the disclosure of its financial information to ensure accuracy, sufficiency and credibility of the financial statements. (QVXUH WKDW SURSHU V\VWHP LV LQ SODFH IRU DGRSWLRQ of appropriate accounting policies and principles leading to fairness in financial statements. 5HYLHZ DQQXDO DQG TXDUWHUO\ ÀQDQFLDO VWDWHPHQWV and recommend to the Board. 6HUYH DV D FKDQQHO RI FRPPXQLFDWLRQ EHWZHHQ Statutory & Internal Auditors and the Board. 5HYLHZ ULVN PDQDJHPHQW SROLFLHV 5HYLHZ SURSRVHG VSHFLÀF UHODWHG SDUW\ transactions for making appropriate recommendations to the Board. 0DNH UHFRPPHQGDWLRQV WR WKH %RDUG IRU HQWHULQJ into small value transactions with related party without securing prior approval of Audit
44 4
ANNUAL REP RT 2 11
Committee & the Board. $FFRUG SULRU DSSURYDO WR WKH 6WDWXWRU\ $XGLWRUV WR provide non-audit services, in accordance with CMA Circular E/12/2009.
3.2 Composition of Audit Committee and Attendance of Meetings In 2011 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.
Sr. No
Name
Position
Meetings held during the year
Meetings attended during the year
1
Yeshwant C. Desai
Chairman
4
4
2
Ali bin Hassan Sulaiman
Member
4
4
3
Sunder George
Member
4
3
During its meetings the Audit Committee discussed and approved the annual internal audit plan. The Committee reviewed and recommended to the %RDUG WKH DXGLWHG DQG TXDUWHUO\ DFFRXQWV DQG WKH related party transactions. The Committee had recommended the appointment of the Statutory Auditors for the year 2011. 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 policies. The Committee, which consists of the following Directors held one meeting during 2011: Sr. No
Name
Position
Meetings held during the year
Meetings attended during the year
1
Yeshwant C. Desai
Chairman
1
1
2
Colin Rutherford
Member
1
1
4. Process of Nomination of the Directors
5. Remuneration Matters
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.
As per the approval accorded by the AGM held on 28 March 2011, 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 the attending of the meetings paid to the Chairman & Directors for 2011 are as follows:
Remuneration Matters Sr. No
Name of Director
Position
Sitting Fees Paid for Board & Sub-committees’ Meetings for 2011
Remuneration Paid for 2010
Travelling Expenses
1
Samir J. Fancy
Chairman
4,000/-
56,784/-
2,472/-
2
Ali bin Hassan Sulaiman
Deputy Chairman
4,600/-
19,195/-
1,926/-
3
HH Sayyid Tarik bin Shabib bin Taimur
Director
1,500/-
28,391/-
297/-
4
Sunder George
Director
3,450/-
19,195/-
1,410/-
5
Yeshwant C. Desai
Director
5,750/-
24,195/-
4,392/-
6
Colin Rutherford
Director
2,650/-
14,195/-
9,130/-
7
Ekaterina Sharashidze
Director
1,500/-
-
6,270/-
8
Rishi Khimji *
Director
500/-
14,195/-
-
TOTAL
23,950/-
176,150/-
25,897/-
* Tartan LLC appointed Ms. Ekaterina Sharashidze in replacement to Mr. Rishi Khimji in February 2011.
For the financial year 2011, no remuneration is recommended for Directors. The remuneration paid during 2011 for the financial year 2010 amounted to Rial 176,150/-. Total remuneration paid to the top five senior executives of the Company (including its subsidiaries) during the year was Rial 843,838/-. 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
& ITS SUBSIDIARY COMPANIES
45
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.
8.2 Renaissance Share Price movement in comparison to the MSM Index and MSM Services Index
6. Details of Non-Compliance by the Company
Share Price in Rial
Rep rt On Corporate Governance MSM Index
MSM Index
There were no penalties or strictures imposed on the Company by the MSM/ CMA or any statutory authority for the last three years. There are no areas in which the Company is still not compliant with the Code of Corporate Governance.
RS Closing price
7. Means of Communication
MSM Services Index
MSM Service Index
7.2 The financial results and information on the company are posted at: www.renaissance-oman.com
Closing price
Share Price in Rial
7.1 The Company has been sending financial results and material information to the 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.
7.3 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
8.3 Distribution of Shareholding as on 31 December 2011 (Source of statistics: Muscat Clearing & Depository Co SAOC)
8.1 High / Low share prices during each month of 2011:
Sr. No
Category
(Source of statistics: MSM) 1 Month January 2011
High (Rial) 1.250
Low (Rial) 1.119
February 2011
1.354
0.977
March 2011
1.225
0.942
April 2011
1.106
0.984
May 2011
1.065
0.816
June 2011
0.874
0.835
July 2011
0.898
0.799
August 2011
0.824
0.521
September 2011
0.730
0.635
October 2011
0.642
0.575
November 2011
0.627
0.500
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
December 2011
0.575
0.520
TOTAL
High/Low share price movement
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ANNUAL REP RT 2 11
2 3 4 5 6 7
Number of Shareholders
No. of shares
% Shareholding
4,689
18,540,421
6.57%
48
6,573,277
2.33%
52
17,094,672
6.06%
45
48,713,139
17.27%
8
33,266,795
11.79%
11
115,368,123
40.90%
1
42,538,025
15.08%
4,854
282,094,452
100%
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 2011. KPMG is one of the leading accounting firms in Oman. The Oman practice of KPMG, which forms part of KPMG Lower Gulf, was established in 1974 and employs more than 130 people, including 4 partners, 5 directors and 19 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 150 countries and employs 138,000 people worldwide. KPMG in Oman is accredited by the Capital Market Authority (CMA) to audit joint stock companies (SAOGs). As per Article 9 (para b) of the Code of Corporate Governance pertaining to the rotation of external auditors, KPMG have completed four years as Statutory Auditors of the Company by the end of 2011 , and therefore, are not eligible for re-appointment as Statutory Auditors of the Company for the financial year 2012.
rigorous implementation of the new Code of Business conduct, Management has taken further steps, including greater oversight of the activities of the Group by Senior Management of the Holding Company and strengthening the relevant internal controls. Management is confident that, based on the foregoing measures and the rigorous implementation of the new Code of Business Conduct, they will ensure that such instances do not recur in the future. 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.
10. Audit Fees paid to the Auditors During the year 2011 , aggregate professional fees in the amount of Rial 605,482/- were rendered to KPMG Oman and other KPMG offices in respect of the services provided (Rial 242,297/- for audit, Rial 275,185/- for tax and Rial 88,000/- for other services).
_____________________
_____________________
Chairman
Director
11. Confirmation by the Board of Directors Renaissance is committed to conducting business legally and professionally under the highest standards of business ethics and moral code. This same high standard is expected and required of all Renaissance subsidiary companies and people working at every level throughout the Group. In the process of announcing and implementing a new Code of Business Conduct (COBC) in one of its subsidiaries outside Oman, the Company uncovered circumstances suggesting financial misconduct. The Company immediately appointed and instructed independent auditors to carry out an investigation. Also, the Management promptly took all appropriate steps within their power to ensure that any inappropriate practices ceased immediately and permanently, and ended the employment of certain personnel. In addition to
& ITS SUBSIDIARY COMPANIES
47
49
48 4
ANNUAL REP RT 2 11
104,
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December
Notes Revenue Operating expenses Gross profit Administrative expenses Profit from operations Net finance costs Other non-operating expenses Amortization of intangible assets Share of profit from associate companies Net gain on investments
19 20 4 6
2011 RO’000
2010 RO’000
289,922 (221,126)
253,429 (176,209)
68,796 (31,505)
77,220 (28,457)
37,291 (18,194) (11,418) (33)
48,763 (10,338) (13) 368 3
109 1
Net profit before income tax Income tax expenses
18
7,756 (5,465)
38,783 (6,501)
Net profit for the year
19
2,291
32,282
Other comprehensive income (loss) Foreign currency translation differences Effective portion of changes in fair value of cash flow hedges
14 (1,628)
5 (143)
Other comprehensive loss for the year
(1,614)
(138)
Total comprehensive income for the year Net (loss) profit attributable to: Shareholders of the Parent Company Non-controlling interest Net profit for the year Total comprehensive (loss) income attributable to: Shareholders of the Parent Company Non-controlling interest Total comprehensive income for the year Basic and diluted (loss) earnings per share (RO)
21
677
32,144
(1,000) 3,291
27,648 4,634
2,291
32,282
(2,614) 3,291
27,510 4,634
677
32,144
(0.004)
0.103
Dividend per share: Cash dividend (RO)
22
0.012
-
The attached notes 1 to 32 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 48.
& ITS SUBSIDIARY COMPANIES
49
CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December
Notes
2011 RO’000
2010 RO’000
3 4 6 18
454,838 38,871 1,919 1,255
391,555 38,855 1,734 448
496,883
432,592
16 8,991 110,453 37,354
15 13,270 93,779 22,437
156,814
129,501
74,516 8,245 73,858
62,422 3,485 56,308
156,619
122,215
195
7,286
286,886 10,368 6,657
228,508 9,871 5,667
Total non-current liabilities
303,911
244,046
Net assets
193,167
195,832
28,209 19,496 (1,704) 10,771 5,714 105,746 (1,859) 121 166,494 26,673 193,167 0.622
28,209 19,496 (1,704) 10,577 3,385 112,479 (231) 107 172,318 23,514 195,832 0.644
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
8 9 10
Total current assets Current liabilities Trade and other payables Bank borrowings Term loans
11 10 & 12 13
Total current liabilities Net current assets Non-current liabilities Term loans Non-current payables and advances Staff terminal benefits
Equity Share capital Share premium Treasury shares Legal reserve Subordinated loan reserve Proposed distribution Retained earnings Hedging reserve Exchange reserve
13 14 15
16 16 16 16 13&16 22 16 16
Non-controlling interest Total equity Net assets per share (RO)
17
The financial statements were authorized for issue in accordance with a resolution of the Directors on 27 February 2012.
Chairman
50 4
ANNUAL REP RT 2 11
Director
The attached notes 1 to 32 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 48.
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December
Notes OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees
2011 RO’000
2010 RO’000
261,019 (217,924)
252,547 (195,126)
43,095 (19,142) (4,669)
57,421 (10,522) (6,273)
19,284
40,626
INVESTING ACTIVITIES Acquisition of property, plant and equipment Acquisition of intangible assets Investment in an associate Acquisition of a subsidiary Dividend received
(82,588) (49) (76) 198
(134,355) (149) (5,964) 176
Cash used in investing activities
(82,515)
(140,292)
FINANCING ACTIVITIES Net receipt of term loans Net movement in related party balances Cash dividends paid Funds paid to non-controlling interest
75,928 977 (3,385) (132)
96,232 120 (3,385) (1,521)
Cash flows from financing activities
73,388
91,446
Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year
10,157 18,952
(8,220) 27,172
29,109
18,952
37,354 (8,245)
22,437 (3,485)
29,109
18,952
Cash generated from operations Net finance costs Income tax paid Cash flows from operating activities
Cash and cash equivalents at the end of the year
10
Cash and cash equivalents comprise the following: Cash and bank balances Bank borrowings
The attached notes 1 to 32 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 48.
& ITS SUBSIDIARY COMPANIES
51
52 4
ANNUAL REP RT 2 11
19,496 -
19,496
28,209 -
28,209
1 January 2010 Total comprehensive income for the year: Net profit for the year Other comprehensive income: 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 Proposed dividend Income from treasury shares Transfers to legal reserve Movement related to non-controlling interests
Transactions with owners, directly recorded in equity
31 December 2010
Share premium RO’000
Share capital RO’000
for the year ended 31 December 2010
(1,704)
-
-
-
-
-
-
(1,704)
Treasury shares RO’000
10,577
137
-
137
-
-
-
10,440
3,385
-
-
(3,385) 3,385 -
-
-
-
3,385
Legal Proposed reserve distribution RO’000 RO’000
112,479
(3,345)
-
(3,385) 177 (137)
27,648
-
27,648
88,176
Retained earnings RO’000
(231)
-
-
-
(143)
(143) -
-
(88)
Hedging reserves RO ‘000
Attributable to Shareholders’ of the Parent Company
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
107
-
-
-
5
5
-
102
Exchange reserves RO’000
172,318
(3,208)
-
(3,385) 177 -
27,510
(143) 5
27,648
148,016
Total RO’000
23,514
(1,521)
(1,521)
-
4,634
-
4,634
20,401
Noncontrolling interest RO’000
195,832
(4,729)
(1,521)
(3,385) 177 -
32,144
(143) 5
32,282
168,417
Total RO’000
& ITS SUBSIDIARY COMPANIES
53
-
Total comprehensive income for the year
28,209
19,496
-
(1,704)
-
-
-
-
-
-
-
(1,704)
10,771
194
-
-
194
-
-
-
10,577
5,714
5,714
-
5,714
-
-
-
-
-
(5,733)
-
(5,714)
175 (194)
(1,000)
-
(1,000)
- 105,746
(3,385)
-
-
(3,385) -
-
-
-
3,385 112,479
(1,859)
-
-
-
-
(1,628)
(1,628) -
-
(231)
Attributable to shareholders’ of the Parent Company -Sub Treasury Legal ordinated Proposed Retained Hedging shares reserve loan reserve distribution earnings reserves RO’000 RO’000 RO,000 RO’000 RO’000 RO ‘000
The attached notes 1 to 32 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 48.
31 December 2011
-
Transactions with owners, directly recorded in equity
-
-
-
-
-
Movement related to non-controlling interest
Transactions with owners, directly recorded in equity: Dividend paid Income from treasury shares Transfers to legal reserve Transfer to subordinated loan reserve
-
-
-
19,496
-
28,209
Share premium RO’000
Total comprehensive income for the year: Net profit for the year Other comprehensive income: Changes in fair value of cash flow hedge Foreign currency translation differences
1 January 2011
Share capital RO’000
for the year ended 31 December 2011
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(3,210)
-
-
(3,385) 175 -
(2,614)
(1,628) 14
(1,000)
121 166,494
-
-
-
-
14
14
-
26,673 193,167
(132)(3,342)
(132)(132)
--
- (3,385) - 175 --
3,291 677
- (1,628) - 14
3,291 2,291
23,514 195,832
Noncontrolling Total interestTotal RO’000 RO’000RO’000 107 172,318
Exchange reserves RO’000
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
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, afloat 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, unless otherwise stated. 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.
Basis of consolidation Subsidiaries Subsidiaries are 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. In assessing control, potential voting rights that currently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interest in a subsidiary are attributed to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Upon loss of control the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in the statement of comprehensive income. If Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that the control is lost. Subsequently, it is accounted for as equity accounted investee or as an available for sale financial asset depending on the level of influence retained. 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.
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ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of consolidation (continued) 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 Jointly controlled entities are those entities in which the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. 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 A jointly controlled operation is a joint venture carried on by each venturer using its own assets in pursuit of the joint operations. The consolidated financial statements include the assets that the Group controls and the liabilities that it incurs in the course of pursuing the joint operation and the expenses that the Group incurs and its share of the income that it earns from the joint operation. 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. Accounting for business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The Group measures goodwill at the acquisition date as: • • •
the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.
& ITS SUBSIDIARY COMPANIES
55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
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. Acquisition of non-controlling interests is accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognised as a result of such transactions. The adjustments to non-controlling interests arising from transactions that do not involve the loss of control are based in a proportionate amount of net assets of the subsidiary. Revenue recognition Marine charter Revenue comprises operating lease rent from charter of marine vessels, mobilisation income, and 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. Income generated from the mobilisation or demobilisation of the vessel to or from the location of charter under the vessel charter agreement is recognised when the mobilisation or demobilisation service has been rendered. 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. Percentage of completion is determined by reference to the proportion that accumulated costs up to the period end bear to the estimated total costs of the contract. Cost includes all expenditure directly related to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contractual activities. Where the outcome of a contract can be assessed with reasonable certainty, a prudent estimate of attributable profit is recognised in the statement of comprehensive income. Full provision is immediately made for all known or expected losses on individual contracts, when such losses are foreseen. Revenue arising from contract variations and claims is not accounted for unless it is probable that the customer will approve the variations/ claims and the amount of revenue arising from the variations/claims can be measured reliably. Goods sold and services rendered Revenue from the sale of goods is recognised in the statement of comprehensive income 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 statement of comprehensive income 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.
56 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue recognition (continued) 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 statement of comprehensive income in proportion to the stage of completion of the contract. An expected loss on a contract is recognised immediately in the statement of comprehensive income. 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 statement of comprehensive income on a straight line basis evenly over the term of the contract. Commission income Commission income is recognised when the amount is notified 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 statement of comprehensive income. Dividend income Dividend income is recognised in the statement of comprehensive income on the date that the dividend is declared. Sale of vessels Revenue from sale of vessels is recognised in the statement of comprehensive income when pervasive evidence exists, usually in the form of an executed sales agreement, that significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the vessel and the amount of revenue can be measured reliably. Tuition fee Revenue from tuition fee represents the fee value of courses conducted during the year, net of provisions for drop outs. Fees are billed at different stages of the course; however, income is accrued evenly over the duration of each course. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due or associated losses. 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. Earnings per share The Group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for own shares held. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, adjusted for own shares held, for the effects of all dilutive potential ordinary shares.
& ITS SUBSIDIARY COMPANIES
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) 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. Cost of marine vessels includes purchase price paid to third party including registration and legal documentation costs, all directly attributable costs incurred to bring the vessel into working condition at the area of planned use, mobilisation costs to the operating location, sea trial costs, significant rebuild expenditure incurred during the life of the asset and financing costs incurred during the construction period of vessels. In certain operating locations where the time taken for mobilisation is significant and the customer pays a mobilisation fee, certain mobilisation costs are charged to profit or loss. Costs for other items of property, plant and equipments include expenditure that is directly attributable to the acquisition of the asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Subsequent to initial recognition 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 benefits embodied in property, plant and equipment. All other expenditure is recognised in the statement of comprehensive income as an expense as incurred. Depreciation Depreciation is charged to the statement of comprehensive income 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 - 30 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. Depreciation method, useful lives and residual values are reviewed at each reporting date. Vessels that are no longer being chartered and are held for sale are transferred to inventories at their carrying value.
58 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) Property, plant and equipment (continued) 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. No depreciation is charged on capital work-in-progress. 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. Goodwill Goodwill that arises with acquisition of subsidiaries is presented within intangible assets. Goodwill is initially measured at the fair value of consideration transferred plus the recognised amount of any non-controlling interest in the acquiree plus, if the business combination is achieved in stages, the fair value of pre-existing equity interest in the acquiree less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. Any negative goodwill is immediately recognised in profit or loss. 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.
& ITS SUBSIDIARY COMPANIES
59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) Goodwill (continued) Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cashgenerating 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 cash-generating 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 amortization 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 statement of comprehensive income 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 statement of comprehensive income. Other investments held by the Group are classified as being available for sale and are stated at fair value. Unrealised gains and losses on re-measurement 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 de-recognition any gain or loss, previously reported as “cumulative changes in fair value” within equity is included in the statement of comprehensive income for the period. Inventories and work-in-progress Inventories are valued at the lower of cost and net realisable value. Cost is determined applying the first-in, firstout 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.
60 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) Inventories and work-in-progress (continued) Construction contracts in progress represent the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognised to date less progress billings and recognised losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity. Construction contracts in progress is presented as part of current assets for all contracts in which costs incurred plus recognised profits exceed progress billings. If progress billings exceed costs incurred plus recognised profits, then the difference is presented as billings in excess of valuation in the current liabilities. Trade and other receivables Trade and other receivables are stated at cost less impairment losses, if any. Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. 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 statement of comprehensive income over the period of the borrowings on an effective interest basis.
& ITS SUBSIDIARY COMPANIES
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) 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. Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. 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 statement of comprehensive income. 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 statement of comprehensive income 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 statement of comprehensive income as incurred. The Group provides end of service benefits to its expatriate employees. Provision from non-Omani employee terminal contributions, which is an unfunded defined benefit retirement plan, is made in accordance with Oman Labor Law and calculated on the basis that the liability that would arise if the employment of all employees were terminated at the reporting date. 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.
62 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) Employee benefits (continued) For non-Omani companies the end of service benefits are provided as per the respective regulations in their country. Dividends Dividends are recognised as a liability in the period in which they are declared. 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. 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 time-proportion 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 statement of comprehensive income 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 statement of comprehensive income. Interest income is recognised in the statement of comprehensive income 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. Segment results that are reported to the Group CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets and head office expenses. Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment, and intangible assets other than goodwill.
& ITS SUBSIDIARY COMPANIES
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) 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 statement of comprehensive income 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 reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences at the reporting date 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 substantively enacted at the reporting date. Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and tax credits to the extent that it is probable that taxable profit will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different taxable entities, but they intend to settle current tax assets and liabilities on a net basis or their tax assets and liabilities will be realised simultaneously. In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Group to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. Foreign currency transactions Transactions denominated in foreign currencies are translated to the respective functional currencies of the Group entities at exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate ruling at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in functional currency at the beginning of the year, adjusted for effective interest and payments during the year and the amortised cost in foreign currency translated at the exchange rate at the end of the year. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of the transaction.
64 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign currency transactions (continued) Foreign currency differences arising on retranslation are recognised in profit or loss except for differences arising in retranslation of a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, to the extent these hedges are effective, which are recognised in other comprehensive income. Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Rial Omani at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Rial Omani 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 in equity. When a foreign operation is disposed of, in part or in full, the relevant amount in the exchange reserve is transferred to statement of comprehensive income 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 judgment 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. 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 statement of comprehensive income 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 statement of comprehensive income.
& ITS SUBSIDIARY COMPANIES
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment (continued) 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 recognised if the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognised in the statement of comprehensive income. 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 amortization, if no impairment loss had been recognised. Derivatives Derivatives are stated at fair value. 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. The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. On initial designation of the hedge, the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss. Derivatives are recognised initially at fair value, attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
66 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) Derivatives (continued) Cash flow hedges When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in other comprehensive income and presented in the hedging reserve in equity remains there until the forecast transaction affects profit or loss. When the hedged item is a non-financial asset, the amount recognised in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognised. If the forecast transaction is no longer expected to occur, then the balance in other comprehensive income is recognised immediately in profit or loss. In other cases the amount recognised in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss. Other non-trading derivatives When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in profit or loss. New standards and interpretation not yet effective A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2011, and have not been applied in preparing these financial statements. None of these will have an effect on the financial statements of the Group, with the exception of: •
IFRS 9 Financial Instruments, published on 12 November 2009 as part of phase I of the IASB’s comprehensive project to replace IAS 39, deals with classification and measurement of financial assets. The requirements of this standard represent a significant change from the existing requirements in IAS 39 in respect of financial assets. The Standard contains two primary measurement categories for financial assets: amortised cost and fair value. The standard eliminates the existing IAS 39 categories of held to maturity, available for sale and loans and receivables. The standard is effective for annual periods beginning on or after 1 January 2015.
•
IFRS 10 Consolidated financial statements, published in May 2011, establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more entities. The IFRS supersedes IAS 27 Consolidated and Separate Financial Statements and SIC 12 – Consolidation – Special Purpose Entities and is effective for annual periods beginning or after 1 January 2013.
•
IFRS 11 Joint Arrangements, published in May 2011, establishes principles for financial reporting by parties to a joint arrangement. The IFRS is concerned principally with addressing two aspects of IAS 31: first that the structure of the arrangement was the only determinant of the accounting and, second, that an entity had a choice of accounting treatment for interests in jointly controlled entities. IFRS 11 improves IAS 31 by establishing principles that are applicable to the accounting for all joint arrangements. The standard is effective for annual periods beginning on or after 1 January 2013.
& ITS SUBSIDIARY COMPANIES
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) New standards and interpretation not yet effective (continued) •
IFRS 12 Disclosure of interests in Other Entities, published in May 2011, requires an entity to disclose information that enables users of its financial statements to evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial positions, financial performance and cash flows. Interests in other entities are categorized as interests in subsidiaries, joint arrangements and associates and structured entities that are not controlled by the entity. The standard is effective for annual periods beginning on or after 1 January 2013.
•
In October 2010 the International Accounting Standards Board (“IASB”) issued Disclosures – Transfers of Financial Assets (Amendments to IFRS 7) with an effective date of 1 July 2011.The amendments relate to the disclosure requirements for transfers of financial assets to supplement other disclosures requirements of IFRS 7.
•
In June 2011 IASB issued Presentation of items of other comprehensive income (Amendments to IAS 1) with an effective date of 1 July 2012. The amendments improved the consistency and clarity of the presentation of items of other comprehensive income (“OCI”). The amendments also highlighted the importance of presenting profit or loss and OCI together and with equal prominence.
•
IAS 27 Separate Financial Statements (Amendments to IAS 27), published in May 2011, contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The Standard requires an entity preparing separate financial statements to account for those investments at cost or in accordance with IFRS 9 Financial Instruments. The standard is effective for annual periods beginning on or after 1 January 2013.
•
IAS 28 Investments in Associates and Joint Ventures (Amendments to IAS 28), published in May 2011, prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The standard is effective for annual periods beginning on or after 1 January 2013.
•
IFRS 13 Fair Value Measurement, published in May 2011, applies when another IFRS requires or permits fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements). An entity shall apply this IFRS for annual periods beginning on or after 1 January 2013.
The Group does not intend to adopt these standards early and the extent of the impact has not been determined. Determination of fair values Certain of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to the asset or liability. Forward exchange contracts and interest rate swaps The fair value of forward exchange contracts is based on their quoted price, if available. If a quoted price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a credit adjusted risk free interest rate (based on government bonds).
68 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
2
SIGNIFICANT ACCOUNTING POLICIES (continued) Determination of fair values (continued) Forward exchange contracts and interest rate swaps (Continued) The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group entity and counterparty when appropriate. Investments 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) Other interest bearing items 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) Judgments 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.
& ITS SUBSIDIARY COMPANIES
69
70 4
ANNUAL REP RT 2 11
3
92,708
26,637 4,910 31,547
31 December 2011
Depreciation 1 January 2011 Charge for the year Transfers Disposals
31 December 2011
61,161 62,715
31 December 2011
31 December 2010
Net carrying amount
89,352 2,837 519 -
Freehold land and buildings RO’000
Cost or valuation 1 January 2011 Transfer from current assets Additions Transfers Disposals
PROPERTY, PLANT AND EQUIPMENT
for the year ended 31 December 2011
291,997
338,824
80,932
64,193 16,739 -
419,756
356,190 8,078 37,149 18,339 -
Marine vessels RO’000
1,407
1,299
756
648 108 -
2,055
2,055 -
Jetty and dock RO’000
13,140
14,225
25,337
21,257 4,271 8 (199)
39,562
34,397 5,571 9 (415)
Machinery and equipment RO’000
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
860
725
2,446
2,087 509 (8) (142)
3,171
2,947 361 24 (161)
Motor vehicles RO’000
557
816
1,928
1,708 338 (118)
2,744
2,265 610 (131)
Furniture and fixtures RO’000
20,879
37,788
-
-
37,788
20,879 35,800 (18,891) -
Capital work in progress RO’000
391,555
454,838
142,946
116,530 26,875 (459)
597,784
508,085 8,078 82,328 (707)
Total RO’000
& ITS SUBSIDIARY COMPANIES
71
3
22,513 2 4,135 (13) 26,637
62,715
Depreciation 1 January 2010 Adjustment on deconsolidation of a subsidiary Acquisitions through business combination Charge for the year Disposals
31 December 2010
Net carrying amount 31 December 2010 26,827
89,352
31 December 2010
31 December 2009
49,340 (1,276) 8 10,344 32,157 (1,221)
Freehold land and buildings RO’000
Cost or valuation 1 January 2010 Adjustment on deconsolidation of a subsidiary Acquisitions through business combination Additions Transfers Disposals
PROPERTY, PLANT AND EQUIPMENT (continued)
for the year ended 31 December 2011
195,561
291,997
64,193
52,998 13,270 (2,075)
356,190
248,559 70,349 40,463 (3,181)
Marine vessels RO’000
1,551
1,407
648
504 144 -
2,055
2,055 -
Jetty and dock RO’000
12,165
13,140
21,257
17,780 96 3,681 (300)
34,397
29,945 (711) 422 5,256 24 (539)
Machinery and equipment RO’000
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
684
860
2,087
1,869 (1) 467 (248)
2,947
2,553 (10) 665 (261)
Motor vehicles RO’000
399
557
1,708
1,453 10 261 (16)
2,265
1,852 43 399 (29)
Furniture and fixtures RO’000
45,562
20,879
-
-
20,879
45,562 (542) 49,311 (72,644) (808)
Capital work in progress RO’000
282,749
391,555
116,530
97,117 (1) 108 21,958 (2,652)
508,085
379,866 (2,539) 473 136,324 (6,039)
Total RO’000
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
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. Marine vessels with a net book value of RO 296,125,000 (2010: RO 231,188,000) and plant and machinery with a net book value of RO 3,543,000 (2010: RO 2,314,000) are pledged against bank loans obtained. Buildings with a net book value of RO 3,782,000 (2010: RO 4,671,000) are pledged against bank overdrafts (refer note 13). Building amounting to RO 2,458,000 (2010: RO 2,426,000) is situated on leased hold premises which is renewable every year. The Management of the Group believes that the lease will continue to be available to the Group for the foreseeable future. Capital work in progress includes progress payments for the construction of new vessels and workshop facilities for marine repair and fabrication and construction. During the year, capital work in progress includes RO 9,673,000 relating to two marine boats constructed by the Engineering Division of Topaz for the Marine division, which are transferred from work in progress to capital work in progress. These vessels relate to a cancelled contract with one of the Group’s customers (refer note 20). 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. Transfer from current assets represents capitalisation of advances given for the acquisition of vessels. During the year 2011, the Group has capitalised borrowing cost amounting to RO 1,114,000 (2010: RO 2,074,000). The depreciation charge has been allocated in the statement of comprehensive income as follows: 2011 RO’000
2010 RO’000
25,063 1,812
20,251 1,707
26,875
21,958
Initial goodwill Additions
44,656 -
39,960 4,696
31 December
44,656
44,656
5,968
5,968
38,688
38,688
Operating expenses Administrative expenses
4
INTANGIBLE ASSETS Goodwill
Amortisation and impairment 1 January and 31 December Net carrying amount 31 December
72 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
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
2011 RO’000
2010 RO’000
Topaz Energy and Marine Group Tawoos Industrial Services Company LLC Al Wasita Emirates Catering Services LLC Norsk Offshore Catering AS Others (UMS, NTI and NHI)
29,079 1,900 4,696 1,007 2,006
29,079 1,900 4,696 1,007 2,006
38,688
38,688
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 2011, 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. Computer software
2011 RO’000
2010 RO’000
1 January Additions Amortisation
167 49 (33)
31 149 (13)
31 December
183
167
38,871
38,855
Total intangible assets
& ITS SUBSIDIARY COMPANIES
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
5
SUBSIDIARIES AND ASSOCIATES The Group and Parent Company investments in subsidiary and associate companies are as follows: Ownership interest (%) Subsidiary Companies Topaz Energy and Marine Limited (“TOPAZ”) (incorporated in the UAE) Tawoos Industrial Services Company LLC (“TISCO”) United Media Services Company LLC (“UMS”) National Training Institute LLC (“NTI”) National Hospitality Institute SAOG (“NHI”) Renaissance Energy Limited (“REL”) (incorporated in the UAE) Associate Companies Dubai Wire FZE (“DW”) (incorporated in the UAE) Global Fasteners Limited (“GFL”) (incorporated in the Isle of Man) National Saudi Training Institute for Development LLC (“NSTI”) (incorporated in KSA)
2011
2010
100 100 100 100 46 100
100 100 100 100 46 100
37.65 43.50
20 10
49
-
In 2011 the Parent Company has increased its holding in DW and GFL by 17.65% and 33.50% respectively for nil consideration. This acquisition of shares is through an agreement, where the Parent Company has provided a corporate guarantee of RO 4,200,000 to a bank to provide financing facilities to DW and GFL. An additional guarantee of RO 11,200,000 has been provided to a bank to provide working capital loan to DW and GFL. The corporate guarantees have been provided jointly and severally by both the Parent Company and the other shareholder (refer note 24). During 2011, the Group has incorporated a new associate NSTI in KSA, for the provision of various training services. 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) Topaz Energy and Marine Services DMCC (incorporated in the UAE) Topaz Energy and Marine Plc (incorporated in the UK) Topaz Engineering Limited (incorporated in Bermuda)
100 100 100 100 100
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 2011 Topaz incorporated a new wholly owned subsidiary Topaz Energy and Marine Plc (“Topaz Energy”) in the UK with the objective of listing Topaz in the London Stock Market and raising equity capital from the public markets. At 31 December 2011 Topaz Energy was dormant. Topaz Engineering Limited is a wholly owned subsidiary of Topaz, incorporated in 2011. It has been formed for the purpose of taking over business, assets and liabilities of Topaz Engineering division (refer note 31).
74 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
5
SUBSIDIARIES AND ASSOCIATES (continued) Ownership interest (%) 2011
2010
100 100 100 100
100 100 100 100
Subsidiary Companies of TISCO Rusail Catering and Cleaning Services LLC (“RCCS”) Supraco Limited (incorporated in Cyprus) Renaissance Contract Services International LLC (“RCSI”) Al Wasita Catering Services LLC (“Al Wasita”) Al Wasita through its subsidiary in UAE provides catering services. Supraco Limited through its subsidiaries in Norway provides contract catering services.
RCSI through its subsidiaries in Angola and Abu Dhabi, UAE provides catering and allied services in the respective countries. RCSI subsidiaries in Iraq, Qatar and Dubai, UAE are dormant as at 31 December 2011. Renaissance Facilities Management Services LLC, a subsidiary of RCSI, started its operations during 2011. Subsidiary Companies of UMS Ownership interest (%) 2011
2010
United Press and Publishing Company LLC (“UPP”) Oryx Advertising Company WLL (incorporated in Qatar)
100 49
100 49
Subsidiary Company of NHI Nakshatra Hospitality India Private Limited (“NHI India”) (incorporated in India)
100
100
100
100
2011 RO’000
2010 RO’000
1,597 322
1,343 391
1,919
1,734
Subsidiary Company of NTI National Training Institute Qatar WLL (“NTI Qatar”) (incorporated in Qatar) As at 31 December 2011, NHI India and NTI Qatar are dormant. Except as otherwise stated, the companies are incorporated in Oman. 6
INVESTMENTS
Non-current investments Investment in associate companies Available for sale investments
& ITS SUBSIDIARY COMPANIES
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
6
INVESTMENTS (continued) Investment in associates The movement in the carrying value of the Group’s investments in associates is as follows:
1 January Investment made during the year Reclassification from available for sale investments Share in associates’ profits
2011 RO’000
2010 RO’000
1,343 76 69 109
975 368
1,597
1,343
Investment made during the year represents the investment made by the Group in NSTI (refer note 5). During 2011, the Group increased its holding in GFL from 10% to 43.50% (refer note 5) resulting in a reclassification of investment from available for sale to investment in associate. Available for sale investments Available for sale investments represent the cost of investments in the following entities: Ownership interest (%)
Fund for Development of Youth Projects SAOC Industrial Management Technology & Contracting LLC 7
2011
2010
2.33 1.25
2.33 1.25
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: 2010 2011 RO’000 RO’000 Current assets Current liabilities Non-current assets Non-current liabilities Net assets Revenue Cost of sales Administrative expenses Finance cost Other income Tax Net loss for the year
76 4
ANNUAL REP RT 2 11
8,406 (5,714) 7,192 (8,489)
9,293 (6,530) 8,167 (6,430)
1,395
4,500
8,200 (8,270) (795) (232) 1 186
10,029 (8,858) (1,493) (373) 9 (39)
(910)
(725)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
7
INVESTMENTS IN JOINTLY CONTROLLED ENTITIES (continued) Investments in jointly controlled entities are in: Ownership interest (%) Nico Doosan Babcock (previously known as Nico Mitsui Babcock) DMS Jaya Marine WLL Jaya DMS Marine Pte Ltd. Mangistau Oblast Boat Yard LLP (refer note 5)
2011 50 51 50 50
2010 50 51 50 50
Nico Doosan Babcock Nico Doosan Babcock (“Nico Doosan”), incorporated in the UAE, is a joint venture between Nico International Limited and Doosan Energy Services Limited. The principal activities of Nico Doosan include provision of services relating to marine boiler repairs and related works (refer note 31). DMS Jaya Marine WLL DMS Jaya Marine WLL (“DMS Jaya”), incorporated in Qatar, is a joint venture between Doha Marine Services WLL and DMS Jaya Marine (W.L.L.). The principal activities of DMS Jaya include ship owning, ship chartering, ship operations and agency and other related activities. Jaya DMS Marine Pte Ltd. Jaya DMS Marine Pte Ltd (“Jaya Marine”), incorporated in Singapore, is a joint venture between Doha Marine Services WLL and Jaya DMS Marine Pte Ltd. The principal activities of Jaya Marine are to carry out the business of ship owning and ship chartering. Mangistau Oblast Boat Yard LLP Mangistau Oblast Boat Yard LLP (“MOBY”), incorporated in Kazakhstan, is a joint venture between Kyran Holdings Ltd. (50%), KazMor Transflot JSC (30%) and Balykshi LLP (20%). The principal activities of MOBY include repair of vessels at the workshop located in Mangistau Oblast, Bautino. The Group is in the process of exiting from this joint venture, which is expected to be completed during 2012 (refer note 20). Accordingly all the provisions relating to closure of MOBY have been made as at 31 December 2011. 8
INVENTORIES AND WORK IN PROGRESS
Stock and consumables – net Work in progress
2011 RO’000
2010 RO’000
7,666 1,325
7,981 5,289
8,991
13,270
& ITS SUBSIDIARY COMPANIES
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
9
TRADE AND OTHER RECEIVABLES 2011 RO’000
2010 RO’000
77,359 24,658 7,966 470
59,897 20,598 11,914 1,370
110,453
93,779
Trade receivables - net Prepayments and other receivables Advances to suppliers and contractors Amounts due from related parties (note 23)
As at 31 December 2011, trade receivables of RO 4,131,000 (2010: RO 3,725,000) were impaired. Movements in the allowance for impairment of receivables were as follows: 2011 RO’000
2010 RO’000
1 January Charge for the year Amounts written off Unused amounts reversed
3,725 612 (206) -
3,902 533 (263) (447)
31 December
4,131
3,725
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 days RO’000
2011
77,359
50,885
10,537
7,077
3,161
2,083
3,616
2010
59,897
43,261
6,500
2,858
2,393
1,576
3,309
90 – 120 days >120 days RO’000 RO’000
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)
78 4
ANNUAL REP RT 2 11
2011 RO’000
2010 RO’000
37,354 (8,245)
22,437 (3,485)
29,109
18,952
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
10 CASH AND CASH EQUIVALENTS (continued) Included in cash and bank balances are fixed and call deposits of RO 17,869,000 (2010: RO 5,217,000) maintained with commercial banks. These are denominated mainly in Rial Omani, US Dollar, UAE Dirham and Qatari Rial and 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 23)
2011 RO’000
2010 RO’000
25,928 40,065 7,373 1,150
22,792 33,507 5,050 1,073
74,516
62,422
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 4% to 9% per annum (2010: 3% to 9.5% per annum). 13 TERM LOANS 31 December 2011
Parent company – term loans Parent company – subordinated loan Subsidiary companies
31 December 2010
Parent company Parent company - subordinated loan Subsidiary companies
Total RO’000
1 year or less RO’000
2-5 Years RO’000
More than 5 years RO’000
140,452 40,000 180,292
25,898 47,960
99,213 30,000 112,199
15,341 10,000 20,133
360,744
73,858
241,412
45,474
Total RO’000
1 year or less RO’000
2-5 Years RO’000
More than 5 years RO’000
110,399 20,000 154,417
27,026 29,282
66,504 10,000 103,362
16,869 10,000 21,773
284,816
56,308
179,866
48,642
Included in term loans from bank are the following: Term loans in Parent Company Term loans in Parent Company amounting to RO 140,452,000 (2010: RO 110,399,000) 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.
& ITS SUBSIDIARY COMPANIES
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
13 TERM LOANS (continued) Subordinated loan in Parent Company In 2010 the Parent Company has raised a subordinated loan of RO 40,000,000 through an issue of subordinated loan notes, which is secured by a second charge over the assets of the Parent Company and its subsidiaries. The loan has been raised by the Parent Company for funding its subsidiary company, TOPAZ for meeting the financing requirements of the expansion plans in Topaz’s marine and engineering businesses. The first drawdown of RO 20,000,000 of the loan was made on 6 December 2010 and the second drawdown of RO 20,000,000 on 28 February 2011. The tenure of the loan is 7 years with repayment of four annual installments of RO 10,000,000 with effect from November 2014. Pursuant to the subordinated loan agreement, the Parent Company is required to restrict dividends, raise additional capital and create a subordinated reserve by transferring an amount equal to 1/7th of the outstanding aggregate amount of loan notes out of annual profit after tax of the company from 31 December 2011. The subordinated loan carries a fixed interest rate of 8.5% per annum. During the year, the Parent Company has made a transfer of RO 5,714,000 from retained earnings to a subordinated loan reserve. At the reporting date, the Parent Company has not complied with certain financial covenants relating to subordinated loan such as debt service coverage ratio and capitalisation ratio. However, the Parent Company has obtained a waiver of compliance with the aforesaid ratios at the reporting date from the bank. The management believes that the breach of covenants has resulted due to the non-recurring, one-off charges incurred by Topaz during the year (refer note 20) and the decline in the performance of Topaz Engineering Division. The management has initiated several measures during the year to improve the liquidity and profitability of the Group to ensure that these breaches are rectified. Term loans in Subsidiaries Term loans relate to Topaz and TISCO. The term loans of TISCO amounting to RO 4,739,000 are secured by the corporate guarantee of the Parent Company and a subsidiary of TISCO. The borrowing arrangements include undertakings by a subsidiary of TISCO to comply with various covenants like total debts to net worth ratio and an undertaking to maintain a minimum net worth of RO 1,574,000. Term loans carry interest rates ranging from 3% to 3.5% per annum. The term loans of Topaz amounting to RO 175,554,000 are denominated either in USD or UAE Dirham and are secured by a first preferred mortgage over certain assets of the subsidiaries, the assignment of marine vessel insurance policies, corporate guarantees, lien on fixed deposits and 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 property loan is secured by first preferred mortgage over the underlying property. 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 115,385,000 (2010: RO 86,500,000). Term loans carry interest rates ranging from 2% to 7.5% per annum (2010: 4.5% to 9.5% per annum). At the reporting date, Topaz has complied with all financial covenants except some covenants in respect of some banks as mentioned above. The management believes that the breach in the covenants has resulted due to non-operating expenses which are one-off charges incurred by Topaz during the year (refer note 20) and decline in the performance of Topaz Engineering Division. The long term portion pertaining to these loans amounted to RO 42,087,000.
80 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
13 TERM LOANS (continued) During 2011, Topaz’s management, anticipating the covenant breaches as at 31 December 2011, had initiated negotiations with the lenders to obtain waivers. Topaz has obtained waivers from certain lenders and in addition has also obtained an addendum to the waiver from a significant lender which in the opinion of the management indicates that the waiver in principal was agreed before the reporting date by the lender. Topaz has not defaulted on any of its payment obligations for the bank loans and there has been no formal demand for prepayment from any lenders arising out of these financing covenants breach. One of the key measures undertaken by Topaz has been to undertake bank borrowings refinancing initiative, which is expected to conclude shortly. This will be used to refinance certain existing term loans to improve liquidity and also provide funds for capital expansion purposes (refer note 31). Further measures include proposed reorganization of the group structure whereby the parent entities of marine and engineering divisions will be separated into different legal entities resulting in two independent and separate divisions with distinct financing facilities (refer note 31). Topaz will however continue to act as the holding company for both the divisions. In the current situation most of the covenants are related to facilities for the marine division, however the covenants breaches are tested at group level. The new structure will therefore ensure that performance in any one division will not impact the credit facilities of the other division. Progressively, the Group plans to move towards credit arrangements at each division level where covenants are tested exclusively to measure the performance of that division. These new arrangements have been discussed with all the lenders to give them further comfort on the measures initiated by the Group to improve its liquidity and profitability. In the intervening period, the Parent Company has provided full and continued support to meet the funding requirements of the Group, and has undertaken to continue to do so by way of new equity injection and bridge financing to meet the Group funding requirements. The management of the Group, on the basis of their review of the measures undertaken and of the presently ongoing negotiations with the lenders, are of the opinion that these negotiations for restructuring the borrowings will conclude in a satisfactory manner (as the initial term sheet has already been signed) and will not result in a discontinuance or immediate demand for repayment of the existing credit facilities. Accordingly, the Group has continued to classify the term loans into current and non-current portions as per the original loan repayment schedule. Term loans are disclosed in the statement of financial position as:
Non-current liabilities Current liabilities
2011 RO’000
2010 RO’000
286,886 73,858
228,508 56,308
360,744
284,816
& ITS SUBSIDIARY COMPANIES
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
14 NON-CURRENT PAYABLE AND ADVANCES
Deferred income Income tax payable Other payables and advances
2011 RO’000
2010 RO’000
1,172 4,711 4,485
2,093 5,431 2,347
10,368
9,871
15 STAFF TERMINAL BENEFITS Movements in the liability recognised in the statement of financial position are as follows: 2011 RO’000
2010 RO’000
1 January Addition on acquisition of a subsidiary Accrued during the year Pension obligations relating to a subsidiary Payments during the year
5,667 1,702 228 (940)
4,823 64 1,897 (1,117)
31 December
6,657
5,667
Significant amount of terminal benefits as at 31 December 2011 is comprised of end of service obligations of Topaz (2011: RO 3,967,000; 2010: RO 3,520,000). Principal actuarial assumptions for Topaz at the reporting date are:
•
Normal retirement age: 60-65 years
•
Mortality, withdrawal and retirement: 5% turnover rate. Due to the nature of the benefit, which is a lump sum payable on exit due to any cause, a combined single decrement rate has been used for maturity, withdrawal and retirement.
•
Discount rate: 5.25% per annum
•
Salary increases: 3% - 5% per annum
The pension scheme of one of the Group’s overseas subsidiaries covers a total of 300 employees (2010: 543 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.
82 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
16 CAPITAL AND RESERVES Share capital The authorized share capital of the Parent Company comprises 400,000,000 ordinary shares of RO 0.100 each (2010: 400,000,000 of RO 0.100 each). At 31 December 2011, the issued and fully paid up share capital comprised 282,094,452 ordinary shares of RO 0.100 each (2010: 282,094,452 of RO 0.100 each). Details of shareholders, who own 10% or more of the Parent Company’s share capital, are as follows: 2011 Number of shares ‘000 Tawoos LLC
42,538
% 15.08
2010 Number of shares ‘000 42,538
% 15.08
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 Parent Company utilises the share premium for transfers to legal reserve. Transfers to legal reserves made during the year relates to the legal reserves of certain subsidiaries. Treasury shares These are shares held by certain subsidiaries in the Parent Company at the cost of RO 1,703,826 (2010: 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 2011, the subsidiaries held 14,554,586 shares (2010: 14,554,586) in the Parent Company. The market value of these shares at 31 December 2011 was approximately RO 7,932,000 (2010: RO 16,130,000). Treasury shares are pledged against a bank loan. Share premium The Group utilises the share premium for issuing bonus shares and transfers to legal reserve. No such transfers took place during 2011. Subordinated loan reserve As per the subordinated loan agreement, the Parent Company is required to create a subordinated reserve by transferring an amount equal to 1/7th of the outstanding aggregate amount of loan notes out of annual profit after tax of the Parent Company from 31 December 2011. Accordingly, during the year, the Parent Company has made a transfer of RO 5,714,000 from retained earnings to a subordinated loan reserve. 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. Exchange reserve The exchange reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.
& ITS SUBSIDIARY COMPANIES
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
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: 2011
2010
Net assets Net assets (RO ‘000) Non-controlling interest (RO ‘000)
193,167 (26,673)
195,832 (23,514)
Net assets attributable to the shareholders of the Parent Company (RO ‘000)
166,494
172,318
Number of shares Number of shares at 1 January (‘000) Treasury shares (refer note 16) (‘000)
282,094 (14,555)
282,094 (14,555)
Number of shares at 31 December (‘000)
267,539
267,539
0.622
0.644
Net assets per share (RO) 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. 2011 RO’000
2010 RO’000
Charge for the year
5,465
6,501
Current liability Non-current liability
7,373 4,711
5,050 5,431
12,084
10,481
Deferred tax asset 1 January Credited (debited) to statement of comprehensive income 31 December
448 807 1,255
1,229 (781) 448
The deferred tax balance at 31 December 2011 comprises capital allowances in excess of depreciation charge of RO 912,000 (2010: RO 322,000), short term timing differences of RO 278,000 (2010: RO 125,000) and timing differences relating to pension obligations of RO 65,000 (2010: nil). 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 2007 to 2011 have not been finalised with the Secretariat General for Taxation at the Ministry of Finance (“the Department”).
84 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
18 INCOME TAX (continued) The Parent Company has filed objection to the Secretariat General for Taxation and appeals to the Tax Committee and the Courts against certain decisions of the Department on disallowances made by the Department in the assessments. The main issues under the appeals are taxation of overseas income, taxation of overseas dividend, double taxation of management fees paid by the subsidiaries to the Parent Company and disallowances relating to interest and some specific expenses. On 22 February 2011, the Tax Committee has upheld its decision to nullify double taxation of management fees, in a case relating to management fees received by the Parent Company from the subsidiaries for the years 2000 and 2001. The Supreme Court, on 18 January 2012, has ruled in favour of the Parent Company in a case relating to taxation of overseas dividend received by Topaz Energy and Marine SAOG (later merged with the Parent Company) for the years 2002 to 2004. In accordance with the Supreme Court decision, the Parent Company has written back RO 3,121,000 being provisions relating to the taxation of overseas dividend received up to the year 2009. The Parent Company has established provisions at 31 December 2011 against the tax liabilities, which might arise relating to taxation of overseas income and disallowance relating to interest and some specific expenses. As required under the tax laws, the Parent Company has paid the tax dues relating to those issues and are continuing to appeal to the higher authorities. 19 NET PROFIT FOR THE YEAR Net profit for the year is stated after charging:
2011 RO’000
2010 RO’000
Staff costs
95,820
82,896
19,141 (947)
10,522 (184)
18,194
10,338
2011 RO’000
2010 RO’000
2,068 3,095 1,116 3,767 680 692
-
11,418
-
Net finance costs Net interest expense Reversal for derivative used for hedging (refer note 26)
20 OTHER NON-OPERATING EXPENSES
Provision for guarantee issued against MOBY bank loan Write off of IPO costs Provision for impairment against receivable from MOBY Provision against litigation and claims Impairment of claim and other receivables Others
& ITS SUBSIDIARY COMPANIES
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
20 OTHER NON-OPERATING EXPENSES (continued) During 2008, Topaz along with two other partners jointly invested in MOBY, which is involved in providing ship repair and ship building services in Kazakhstan. MOBY has obtained a facility of RO 3,521,000 with a bank to finance their operations which is secured by corporate guarantees from the joint venture partners to the extent of their ownership interest in MOBY. During the year ended 31 December 2011, MOBY has incurred a loss of RO 468,000 and has net current liabilities and net liabilities of RO 922,000 and RO 177,000 respectively as at that date. MOBY has further breached certain financial covenants as specified in the loan agreements. The management of MOBY is of the view that it is highly probable that the bank will call back the loan facility in which case all the joint venture partners will be required to settle the liability to the extent of the corporate guarantees provided. Accordingly, Topaz has created a provision of RO 2,068,000 being their share of the obligations of the loan facility and other related costs of the joint venture (refer note 5). During the year, Topaz incorporated a wholly owned subsidiary Topaz Energy and Marine Plc, United Kingdom with the objective of listing the entity on London Stock Exchange and to raise equity capital from the public market to finance the future growth plans of Topaz. Topaz incurred RO 3,095,000 of IPO costs mainly including professional and arrangement fees paid to various consultants for their services provided to Topaz and other related and ancillary costs. However, Topaz decided to postpone the proposed listing. Accordingly, the management has decided to write off all IPO costs incurred until 31 December 2011 to statement of comprehensive income. At the reporting date, Topaz has a total receivable exposure from MOBY amounting to RO 1,116,000 in respect of services provided to MOBY by certain group entities. Due to continued loss incurred by the joint venture and its net liability position at the reporting date as mentioned above, Topaz expects the above amount to be impaired and hence has created a full provision against the exposure. Provisions against litigations and claims include:
86 4
ANNUAL REP RT 2 11
•
Provision in respect of certain claims received from a Group’s customer for the reimbursements of alleged tax savings enjoyed by the Group relating to current and previous years. The Group is in advanced stage of negotiations with the customer on this matter and estimates that these claims will be settled for RO 755,000 and has made provision in these financial statements for this amount.
•
During 2009, one of the Group’s customers cancelled the contracts for building two marine vessels. The Group challenged the cancellation in the UK courts since the Directors of the Group were of the view that the cancellation was a breach of the contract. During the current year, the court has awarded a judgment in favor of the customer and directed the Group to pay the amount of advances received from the customer of RO 9,153,000 (already accounted for as a liability in the financial statements of the Group) along with related costs. Accordingly, the Group has charged off an amount of RO 1,846,000 to profit or loss being the net settlement costs related to the contract. Later the Marine Division of the Group agreed to take over those two vessels under construction.
•
During the year one of the Group entities was served with a notice of warranty claim by a customer who called upon the performance bond. The Group entity, in turn served a notice on the sub-contractor who had carried out the related works. The performance bond along with related costs amounting to RO 777,000 has been charged off to profit or loss. Until the reporting date, the Group entity has not received any other notification from the customer declaring any further claim in this regard. Accordingly, no further provision has been made in these financial statements.
•
During the year one of the Group’s customers cancelled a ship building contract. The work in progress of RO 389,000 relating to such contract has been charged off to the statement of comprehensive income.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
20 OTHER NON-OPERATING EXPENSES (continued) •
In the earlier years, the Group entered into contract with one of its customers for providing marine vessels on charter. The customer subsequently did not take the delivery of these vessels, pursuant to the delays made by the Group in the delivery of these vessels. Furthermore, the customer refused to reimburse the capital expenditure incurred by the Group in respect of those vessels. The management is actively pursuing the customer for reimbursement of these costs. However, the Group has created a provision of RO 680,000 against the entire amount receivable from the customer.
•
During the year 2011 the Company charged off an amount of RO 692,000 to profit and loss in respect of the unamortised portion of processing fee for the existing loans, as the Group is planning to restructure the entire amount of existing loans.
21 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: 2010
2011 Net (loss) profit for the year attributable to the shareholders of the Parent Company (RO‘000) Weighted average number of shares
(1,000)
27,648
Number of shares at 1 January (‘000) Less: weighted average number of treasury shares (‘000)
282,094 (14,555)
282,094 (14,555)
Weighted average number of shares (‘000)
267,539
267,539
Basic and diluted (loss) earnings per share (RO)
(0.004)
0.103
-
3,385
282,094
282,094
Distribution per share (RO)
-
0.012
Cash dividend (RO ‘000)
-
3,385
22 DIVIDEND PER SHARE Total distribution for the Shareholders (RO ‘000) Number of shares outstanding at 31 December (‘000)
No dividend is proposed by the Board of Directors for the year 2011. Dividend for the year 2010 was approved by the shareholders at the AGM held on 28 March 2011. 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 2011. 23 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.
& ITS SUBSIDIARY COMPANIES
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
23 RELATED PARTY TRANSACTIONS (continued) The value of significant related party transactions during the year was as follows: 2011 RO’000
2010 RO’000
360
408
Net advances due to related parties Net advances
4,201
14
Expenses Services received and purchases
1,217
285
24
176 24
Income Service rendered and sales
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, 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
21
20
804 40
1,737 263
844
2,000
Compensation of key management personnel The remuneration of key management personnel during the year are as follows: Short-term benefits Employees’ end of service benefits
Topaz Energy and Marine Limited has paid RO 270,900 (2010: RO 270,900) 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 2011, the Group has not recorded any impairment of amounts owed by related parties (2010: Nil).
88 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
24 COMMITMENTS AND CONTINGENT LIABILITIES
Commitments Letters of credit Capital expenditure commitments Contingent liabilities Corporate guarantee Letters of guarantee Bills discounted – receivables
2011 RO’000
2010 RO’000
8,405 28,710
4,737 39,297
15,435 48,106
46,595
992
1,987
The contingent liabilities are non-cash banking instruments like bid bond, performance bond, refund guarantee, retention bonds etc, which are issued by banks on behalf of group companies to customers and suppliers under the non-funded working capital lines with the banks. These lines are secured by the corporate guarantee from various group entities. The amounts are payable only in the event when certain terms of contracts with customers or suppliers are not met. 25 LEASES a)
Operating leases - receivable The Group leases its marine vessels under operating leases. The leases typically run for a period between 3 months to 10 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: 2010 2011 RO’000 RO’000 Within one year Between one and five years More than five years
b)
67,986 151,927 50,667
64,507 126,070 52,044
270,580
242,621
Operating leases - payable The Group has future minimum lease payments under operating leases for marine vessels with payments as follows: 2010 2011 RO’000 RO’000 Within one year Between one and five years More than five years
7,005 23,807 11,327
8,493 23,855 14,468
42,139
46,816
During the year an amount of RO 8,521,000 (2010: RO 9,313,000) was recognised as an expense in the statement of comprehensive income in respect of bareboat charter of marine vessels obtained on operating lease.
& ITS SUBSIDIARY COMPANIES
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
26 DERIVATIVE FINANCIAL INSTRUMENTS The table below shows the fair values of derivative financial instruments, which are equivalent to the market values, together with the notional amounts analyzed 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. Notional amounts by term to maturity Positive fair value RO’000
Negative fair value RO’000
Notional amount Total RO’000
Within 1 year RO’000
Over 1 year to 5 years RO’000
Over 5 years RO’000
-
3,584
85,620
10,283
72,148
3,189
-
2,903
70,562
5,726
57,394
7,442
31 December 2011 Interest rate swaps 31 December 2010 Interest rate swaps
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”) as follows: •
RO 21,150,000 (2010: RO 21,150,000) at a fixed interest rate of 3.95% (2010: 3.95%) per annum excluding margin;
•
RO 20,785,000 (2010: nil) at a fixed margin of 2.5% (2010: nil) per annum excluding margin;
•
RO nil (2010: RO 4,120,000) at a fixed margin of nil (2010: 4.89%) per annum excluding margin;
•
RO 19,230,000 (2010: RO 19,230,000) at the rate of 2% (2010: 2%) per annum excluding margin;
•
an amount of RO 2,762,000 (2010: RO 3,230,000) at the rate of 3.25% (2010: 3.25%) per annum excluding margin ; and
•
an amount of RO 21,692,000 (2010: 22,810,000) at the rate of 1.97%% (2010: 1.97%) per annum excluding margin.
At 31 December 2011, the US LIBOR was approximately 0.77% (31 December 2010: 0.46%) per annum. Accordingly, the gap between US LIBOR and fixed rate under IRS was approximately 3.18%, 1.73%, 1.23%, 2.48% and 1.20% (2010: 3.49%, nil, 1.54%, 2.79% and 1.51%) per annum. Based on the interest rates gaps, over the life of the IRS, the indicative losses were assessed at approximately RO 3,584,000 (2010: RO 2,903,000) by the counter parties to IRS. 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 3,584,000 (2010: 2,903,000) has been recorded under the current and non-current liabilities and the impact for the year amounting to RO 947,000 (2010: RO 184,000) has been recorded under the finance income (refer note 19) and RO 1,628,000 (2010: RO 143,000) has been recognised in the hedging reserve.
90 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
27 OPERATING SEGMENTS The Group has three reportable segments, as described next, 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 next. 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
91
92 4
ANNUAL REP RT 2 11
70,534 3,918 46,333
56,735 410,592 2,819 47,354 33,800 207,499
373,054 137,514 119,566 18,163 220,849 85,685
8,931
(3,203) (5,348)
(7,524)
(853) (643)
11,068
11,164 (96)
2011 RO’000
117,576 91,667 12,741 419 71,500 230,417
9,540
(1,473) (4,412)
84,213
84,387 (174)
2010 RO’000
298
(29) (289)
(859)
(859) -
2011 RO’000
2011 RO’000
Total 2010 RO’000
2,291
(18,194) (26,907)
(35,289) 653,697 (475) 82,377 (26,139) 460,530
(3,662)
-
(3,552) 289,922
562,093 136,797 366,261
32,282
(10,338) (21,971)
253,429
(3,552) 306,930 267,225 - (17,008) (13,796)
2010 RO’000
Adjustments
50,017 (56,610) 2,146 12,523 66,251 (109,404)
1,341
493 (858)
13,988
14,083 (95)
2010 RO’000
Others
Reportable segment profit after income tax of Engineering, Marine and Other segments for the year 2011 include non-operating expense of RO 6,196,000, RO 1,435,000 and RO 3,787,000 respectively.
Reportable segment assets Capital expenditure Reportable segment liabilities
22,331
2,732 15,649
(9,005) (13,558)
(353) (13,607) (3,143) (17,028)
Net finance (cost)/income (502) Depreciation and amortisation (3,599) Reportable segment profit after income tax (15,063)
93,226 100,800
65,554 112,502
66,411
2011 RO’000
Contract services
94,931 100,974 (1,705) (174)
2010 RO’000
External revenue
77,376 112,995 (11,822) (493)
2011 RO’000
82,656 (16,245)
2010 RO’000
Marine services
Total revenues Less: Inter-segment revenue
2011 RO’000
Engineering services
Information about reportable segments:
27 OPERATING SEGMENTS (continued)
for the year ended 31 December 2011
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
27 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
2011 RO’000
2010 RO’000
65,254 92,414 78,239 54,015
56,075 85,201 70,174 41,979
289,922
253,429
28 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 and amount due to related parties. 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
93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
28 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued) During the year, the Group implemented a new code of business conduct across various Group entities. Whilst implementing this code, management uncovered potential financial misconduct in a Group entity and an urgent investigation was immediately undertaken. The outcome of the investigation suggested that certain unacceptable financial and ethical practices had taken place in the entity concerned over a number of years. In particular, it emerged that, over several years, in aggregate approximately RO 1.1 million of cash payments had not been properly approved and / or classified and may have been used for improper purposes, although, as the payments had been recorded as expenses in the relevant years, there was no misstatement of the profit for any period. At an early stage, the Group established a special committee with an independent chairman to assist in resolving these matters including, where appropriate, reporting certain findings to the relevant authorities. Further investigations were also undertaken to determine whether there might be issues elsewhere in the Group. Management promptly took all appropriate steps within their power to ensure that any inappropriate practices ceased immediately and permanently, and ended the employment of certain personnel. In addition to rigorous implementation of the new code of business conduct, management has taken further steps, including greater oversight of the activities of the Group by senior management of the Parent Company and strengthening the relevant internal controls. Management is confident that, based on the foregoing measures and the rigorous implementation of the new code of business conduct, they will ensure that such instances do not recur in the future. 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 Amount due from related parties Cash and bank balances
2011 RO’000
2010 RO’000
338 77,359 470 37,354
406 59,897 1,370 22,437
115,521
84,110
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.
94 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
28 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued) 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, utilised for period of 90 days to bridge the gap between collections of receivables and settlement of payables during the month. 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 2011 Term loans Bank borrowings Trade and other payables
31 December 2010 Term loans and leases Bank borrowings Trade and other payables
Carrying Contractual amount cash flows RO’000 RO’000
Upto 1 year RO’000
1 year to More than 5 years 5 years RO’000 RO’000
360,744 8,245 67,143
434,969 8,245 67,143
111,504 8,245 67,143
284,091 -
39,374 -
436,132
510,357
186,892
284,091
39,374
284,816 3,485 57,372
333,262 3,485 57,372
68,866 3,485 57,372
210,515 -
53,881 -
345,673
394,119
129,723
210,515
53,881
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 optimising 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
95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
28 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued) Currency risk (continued) Effect on profit before tax Increase/decrease in respective Currency rate to the RO ‘000 2011 Euro (EUR) Azerbaijan Manat (MNT) Kazakhstan Tenge (KZT) UK Pound (GBP) Norwegian Krone (NOK) Japanese Yen (JPY) Singapore Dollars (SGD)
+5%
-5%
22 11 7 33 32 1 23
(22) (11) (7) (33) (32) (1) (23)
23 18 12 6 38 3 16
(23) (18) (12) (6) (38) (3) (16)
2010 Euro (EUR) Azerbaijan Manat (MNT) Kazakhstan Tenge (KZT) UK Pound (GBP) Norwegian Krone (NOK) Japanese Yen (JPY) Singapore Dollars (SGD)
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 2011. Increase/ Effect on profit decrease for the year in basis points RO’000 2011 Borrowings converted to Rial Omani Borrowings converted to Rial Omani
+15 -10
(265) 177
+15 -10
(234) 156
2010 Borrowings converted to Rial Omani Borrowings converted to Rial Omani
96 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
28 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. 29 FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value hierarchy The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
•
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices);
•
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). Level 1 RO’000
Level 2 RO’000
Level 3 RO’000
Total RO’000
31 December 2011 Investments Derivative financial instruments
16 -
(3,584)
322 -
338 (3,584)
31 December 2010 Investments Derivative financial instruments
15 -
(2,903)
391 -
406 (2,903)
30 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 2011 was RO 38,688,000 (2010: RO 38,688,000).
& ITS SUBSIDIARY COMPANIES
97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
30 KEY SOURCES OF ESTIMATION UNCERTAINTY (continued) Impairment of vessels The Group determines whether its vessels are impaired when there are indicators of impairment as defined in IAS 36. This requires an estimation of the value in use of the cash-generating unit which is the vessel owning and chartering segment. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from this cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying value of the vessels as at 31 December 2011 was approximately RO 338,824,000 (2010: RO 291,997,000). 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 81,490,000 (2010: RO 63,622,000) and the provision for doubtful debts was RO 4,131,000 (2010: RO 3,725,000). Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the statement of comprehensive income. 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 8,572,000 (2010: RO 8,596,000) with provisions for old and obsolete inventories of RO 906,000 (2010: RO 615,000). Any difference between the amounts actually realised in future periods and the amounts expected will be recognised in the statement of comprehensive income. Useful lives of property, plant and equipment The useful lives, residual values and methods of depreciation of property, plant and equipment is reviewed, and adjusted if appropriate, at each financial year end. In the review process, the Group takes guidance from recent acquisitions, as well as market and industry trends. Provision for tax The Group reviews the provision for tax on a regular basis. In determining the provision for tax, laws of particular jurisdictions (where applicable entity is registered) are taken into account. The management considers the provision for tax to be a reasonable estimate of potential tax liability after considering the applicable laws and past experience.
98 4
ANNUAL REP RT 2 11
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
30 KEY SOURCES OF ESTIMATION UNCERTAINTY (continued) Effectiveness of hedge relationship At the inception of the hedge, the management documents the hedging strategy and performs hedge effectiveness testing to assess whether the hedge is effective. This exercise is performed at each reporting date to assess whether the hedge will remain effective throughout the term of the hedging instrument. As at the reporting date the cumulative fair value of the interest rate swap was RO 3,584,000 (2010: RO 2,903,000). Accounting for investments The Group reviews its investment in entities to assess whether the Group has control, joint control or significant influence over the investee. This includes consideration of the level of shareholding held by the Group in the investee as well as other factors such as representation on the Board of Directors of the investee, terms of any agreement with the other shareholders etc. Based on the above assessment the Group decides whether the investee needs to be consolidated, proportionately consolidated or equity accounted in accordance with the accounting policy of the Group (also refer note 2). Leases Management exercises judgments in estimating whether a lease is a finance lease or an operating lease by assessing whether in substance the risks and rewards of ownership of the assets have been transferred or not. In the instances where management estimates that the risks and rewards have actually been transferred the lease is considered as a finance lease, otherwise it is accounted for as an operating lease. Current and non-current classification of bank borrowings The Group’s management has exercised significant judgment during the year in determining the current and non-current classification of bank borrowings. The classification is based on the repayment terms agreed with the bank, assessing the events and circumstances which can render a loan becoming payable on demand and the status of any negotiations and communications with the creditor banks in this regard. Determining percentage completion of contracts in progress and estimating foreseeable losses Contract work-in-progress is stated at cost plus estimated attributable profits less foreseeable losses and progress billings. In determining estimated attributable profits or foreseeable losses if any to be recognised, the Group needs to estimate the outcome of each contract and also the percentage of completion of the contract which is determined by the actual cost incurred to date in relation to the total estimated costs. The final results of the contract may differ from the estimates made at the time of preparation of these consolidated financial statements. 31 SUBSEQUENT EVENTS Reorganisation of group structure Subsequent to the year-end, Topaz has undertaken to reorganise its operations with the intention of distinctly separating the Marine and Engineering divisions. Currently both the division are owned and operated through a single holding company Nico Middle East Limited (“NMEL”) which in turn is wholly owned by Topaz. Effective 1 January 2012, the Group has decided to transfer the entire business, assets and liabilities of Topaz Engineering division from NMEL to another wholly owned subsidiary of the Company, Topaz Engineering Limited. Management expects that the reorganization will result in optimal performance and structural efficiencies for both the divisions. Since the transaction is between entities which are under common control, hence the transfer of assets and liabilities is proposed to be accounted for at book values and no goodwill will be recognised thereon.
& ITS SUBSIDIARY COMPANIES
99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011
31 SUBSEQUENT EVENTS (continued) Refinancing of term loans Subsequent to the year-end, Topaz has entered into an agreement with a syndicate of banks for a financing facility of RO 146,154,000. The Group intends to use part of this facility to refinance certain existing term loan facilities and the balance to finance vessels under construction and investment in new vessels (refer note 13). Raising of new finance The Parent Company is in the process of raising RO 40,000,000 through Zero Coupon Convertible Bonds (“ZCCB”). ZCCB will be converted to equity shares on a structured basis over a period of 7 years. The Parent Company has signed a mandate agreement with BankMuscat SAOG to act as the financial advisor and also appointed Trowers & Hamlins as the legal advisor for the transaction. Divestment of a subsidiary In December 2011 the Group has received an indicative offer from the management of Al Wasita Emirates Catering Services LLC (“Al Wasita Emirates”) to buy Al Wasita Emirates. The divestment process is expected to be completed by 31 March 2012. Dissolution of a joint venture During January 2012, Nico Doosan has been dissolved and the ship repair unit of Topaz Engineering Limited is planning to run this boiler unit as an independent business unit within its fold. 32 COMPARATIVE FIGURES Certain comparative figures for the previous year have been reclassified, where necessary, in order to conform to the current year’s presentation.
100 4 ANNUAL REP RT 2 11
SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF COMPREHENSIVE INCOME (PARENT COMPANY) for the year ended 31 December
2011 RO’000
2010 RO’000
34,428
29,969
(23,747)
(22,698)
10,681
7,271
6,419
6,772
Administrative expenses
(3,311)
(3,347)
Net finance costs
(6,242)
(3,796)
7,547
6,900
Revenue Operating expenses Gross profit Other income
Profit before income tax Income tax expense
686
(1,450)
Net profit and total comprehensive income for the year
8,233
5,450
Basic and diluted earnings per share (RO)
0.029
0.019
-
0.012
Dividend per share: Cash dividend (RO)
& ITS SUBSIDIARY COMPANIES
101
SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF COMPREHENSIVE INCOME (PARENT COMPANY) as at 31 December
2011 RO’000
2010 RO’000
Non-current assets Property, plant and equipment Investments Subordinated loan to a subsidiary
67,482 140,238 40,000
59,681 140,238 20,000
Total non-current assets
247,720
219,919
Current assets Inventories Trade and other receivables Cash and bank balances
652 66,485 17,014
831 35,812 5,563
Total current assets
84,151
42,206
Current liabilities Trade and other payables Bank borrowings Term loans
12,510 3,759 25,898
9,842 2,796 27,026
Total current liabilities
42,167
39,664
Net current assets
41,984
2,542
Non-current liabilities Term loans Subordinated loan Non-current payables and advances Amount due to a subsidiary Staff terminal benefits
114,554 40,000 5,570 19,050 600
83,373 20,000 6,220 7,214 572
Total non-current liabilities
179,774
117,379
Net assets
109,930
105,082
28,209 19,496 9,404 5,714 47,107
28,209 19,496 9,404 3,385 44,588
109,930
105,082
0.390
0.373
Equity Share capital Share premium Legal reserve Subordinated loan reserve Proposed distribution Retained earnings Total equity Net assets per share (RO)
102 4 ANNUAL REP RT 2 11
SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF COMPREHENSIVE INCOME (PARENT COMPANY) for the year ended 31 December
2011 RO’000
2010 RO’000
26,643 (21,541)
32,014 (20,856)
Cash generated from operations Net finance costs Income tax paid
5,102 (6,242) (370)
11,158 (3,796) (2,341)
Cash (used in) flows from operating activities
(1,510)
5,021
OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees
INVESTING ACTIVITIES Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Investments Dividend received
(12,669) 1 5,749
(19,181) 44 (38,504) 6,399
(6,919)
(51,242)
50,053 (27,751) (3,385)
70,024 (26,022) (3,385)
Cash flows from financing activities
18,917
40,617
Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the year
10,488 2,767
(5,604) 8,371
Cash and cash equivalents at the end of the year
13,255
2,767
17,014 (3,759)
5,563 (2,796)
13,255
2,767
Cash used in investing activities FINANCING ACTIVITIES Net receipts of term loans Net movement in related parties Dividend paid
Cash and cash equivalents comprise the following: Cash and bank balances Bank borrowings
& ITS SUBSIDIARY COMPANIES
103
SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF COMPREHENSIVE INCOME (PARENT COMPANY) for the year ended 31 December 2011
Share Share capital premium RO’000 RO’000
1 January 2010
19,496
9,404
3,385
Total comprehensive income for the year: Net profit for the year
-
-
-
-
5,450
5,450
Total comprehensive income for the year
-
-
-
-
5,450
5,450
Transactions with owners, directly recorded in equity: Dividend paid Proposed dividend
-
-
-
(3,385)
(3,385) -
Transactions with owners, directly recorded in equity
-
-
-
-
(3,385)
(3,385)
28,209
19,496
9,404
3,385
Share Share capital premium RO’000 RO’000 1 January 2011
Legal reserve RO’000
(3,385) 3,385
42,523 103,017
44,588 105,082
Subordinated loan Proposed Retained reserve distribution earnings RO’000 RO’000 RO’000
Total RO’000
28,209
19,496
9,404
-
3,385
Total comprehensive income for the year: Net profit for the year
-
-
-
-
-
8,233
8,233
Total comprehensive income for the year
-
-
-
-
-
8,233
8,233
-
-
-
-
(3,385) -
-
-
-
-
5,714
-
(5,714)
-
-
-
5,714
(3,385)
(5,714)
28,209
19,496
9,404
5,714
-
Transactions with owners, directly recorded in equity: Dividend paid Proposed dividend Transfer to subordinated loan reserve Transactions with owners, directly recorded in equity 31 December 2011
2 11
Total RO’000
28,209
31 December 2010
104 4 ANNUAL REP RT
Legal Proposed Retained reserve distribution earnings RO’000 RO’000 RO’000
44,588 105,082
(3,385) (3,385)
47,107 109,930
ATTACHMENT LIST OF CORPORATE SOCIAL RESPONSIBILITY (CSR) DONATIONS PAID IN 2011
At the AGM held on 28 March 2011, Renaissance Shareholders approved a CSR budget of RO 323,000 for the year 2011. During 2011, total donations amounted to RO 196,855 whereas the balance amount of RO 126,145 has been carried forward as a provision for CSR contributions for the subsequent years. The total donations made through the year are as follows: Category
Details Outward Bound Oman
EDUCATION
HEALTH
Amount (RO) 24,000
BizPro
2,500
Magic Bus, Child Link India Foundation
8,000
UNICEF Oman
3,000
National Association for Cancer Awareness Stars in their Eyes Charity Event
2,000
SPORTS
Oman Sail
74,550
ENVIRONMENT
Whale & Dolphin Research Project
60,000
COMMUNITY
TOTAL
OCCI Beach Cleanup
2,000
Charity Event – Friends of Japan
5,000
Charity Event – Colours of Fusion
5,000
Charity Event – Autism Awareness
3,000
Charity Event – Thin Red Line
1,500
Charity Event – Crystal Ball – Women’s Guild in Oman
2,000
Charity Event – Battle of Britain Ball
1,500
Charity Event – Trafalgar Dinner
1,000
Charity Event – BankMuscat Hearts
1,000
Ramadan Charity Packs
505
Mangalorean Catholic Centre
300 196,855
& ITS SUBSIDIARY COMPANIES
105
IN THE NEWS 2011
Renaissance Services SAOG