Directors` Report Dear Shareholders, I am pleased to

Transcription

Directors’ Report
Dear Shareholders,
I am pleased to welcome you all on behalf of the Board of Directors to the Annual
General Meeting of Galfar Engineering & Contracting SAOG and to present to you the
Annual Report for the year ended 31st December 2015.
Overview
The Company is deeply concerned with its declining performance over the last few
years, which has largely arisen from unprecedented delays in closing out projects and
delays in payment of receivables from clients, mainly the Governmental entities.
These factors are well known but not resolved till now and Galfar and all other
contractors are affected by long outstanding receivables, including that of certified
receivables.
Some claims are also pending due to the changes in government legislation and
ministerial decisions like increase in minimum wages for National workforce. The time
taken by the client and consultants to settle contractual matters has become
exorbitantly longer than it was few years ago. At the same time these delays in
payments do not affect our contractual rights
To defend the rights of the company we have initiated a number of arbitration cases.
While this may take some time and incur costs, it should lead to a fair conclusion.
Your Company has initiated a transformation program to achieve a sustainable
improvement of its performance and operational efficiency. In this context, Roland
Berger, a leading global strategy consultancy with a strong track record in operational,
organizational and financial transformation of companies, has been appointed in
December 2015 for a long term mandate.
Key building blocks of the transformation program include organizational
transformation and enhanced talent management, enhanced liquidity management
and assets optimization, overhead cost reductions, productivity improvement and lean
on-site execution, supply chain management optimization, and information technology
transformation.
Galfar's Board of Directors is fully committed to the rigorous implementation of the
transformation program over the next 12-18 months, with tangible results expected
in Q2 2016 and better operating results in Financial Year 2016. In parallel the
transformation program will drive cost savings. Based on the company’s leading
market position and confirmed order book of over RO 640 m at end of 2015, Galfar's
revenues for 2016 are expected to be above 2015 levels despite an increasingly
challenging market environment.
Operations
During the year, the Company was awarded new projects worth RO 134 m mainly in
the Oil & Gas sector. The major contracts awarded are – ‘Construction and installation
of gas gathering system’ by BP Exploration Ltd. for RO 42 m, ‘Site preparation services
at Duqm Refinery for RO 32 m and ‘Mukhaizna civil work services’ by Occidental Oman
for RO 20 m. Currently, the Company is in final discussion with clients and main
contractors for oil and gas and petrochemical projects and expects to win work in
these areas.
The Company has completed Ras al Hadd airport and phase 1 of Salalah airport,
Hallaniyat island port and road network and many other road, building and electrical
network projects. Some of these completed projects were loss making due to many
changes in deliverables or non-approval of borrow pits for road works.
During the year the parent company has provided RO 31.917 million towards
impairment of receivables, retention and accounted fair value loss on Forex Forward
Contract of RO 1.229 mln, which is made in line with IFRS requirements and
company's accounting policies. Out of these provisions, the major portion is a provision
for Muscat Expressway and Central Corridor projects. The other provisions come from
other contracts which could not be financially closed for a long period. These
provisions are made without prejudice to the company's right to recover these dues
through amicable settlement or arbitration proceedings.
The summary of the financial performance of the company (including group
companies) is as follows:
Particulars
Total Revenue
Profit from operations
In RO millions
2015
2014
345.234
372.510
10.673
13.320
(28.859)
0.197
(before impairment of receivables, retention
and debts)
Profit / (loss) for the year
The Board has taken necessary steps to strengthen the company’s financial position
and has mandated Oman Arab Bank as Issue Manager for convertible bonds or any
other instrument.
Further to support the company’s Business Plan for the coming years, the Company
has decided to appoint a Lead Financial Advisor for financial re-engineering as well as
to arrange necessary banking facilities including term loans.
The company has formed a Core Collection Group to improve the collections position
and draw up specific action points to reduce the receivables cycle time.
Subsidiaries & Associates
Galfar Aspire Projects & Services LLC and Galfar Aspire Readymix LLC, wholly owned
subsidiaries of Galfar in Oman, have achieved good financial results. In addition to
catering to the needs of Galfar, during the year 2015 they have achieved 67% of their
revenues from non-Galfar jobs.
The Fully Owned subsidiary Galfar Engineering & Contracting India Pvt. Ltd (GI), is
carrying out road construction activities and has an order book of RO 76 m as at 31st
Dec 2015.
The parent company along with its subsidiary, Galfar India, have two fully owned
Special Purpose Vehicles (SPVs) as subsidiaries namely, Salasar Highways Private
Limited and Kashipur Sitarganj Private Limited. These SPVs are currently constructing
on Design, Build, Finance, Operate and Transfer (DBFOT) basis two roads, viz. i) twolane road on the Fatehpur-Salasar section of National Highway 65 in the State of
Rajasthan, and ii) four laning of road in the Kashipur-Sitarganj section of National
Highway 74 in the States of Uttarkhand / Uttar Pradesh. Construction of these projects
is expected to be completed in early 2017.
In the three Associate SPVs, viz. MTPL, GAEPL and SJEPL, created with other partners
for the construction of Highway Roads in India on DBFOT basis, the Company holds
26% share. Construction has been completed in the two SPVs, namely MTPL and
GAEPL and toll collection is going on. Although the present toll collection is below the
estimated level we expect collections to improve in the years to come.
The road infrastructure projects in India are expected to increase in the coming years
and offers a good opportunity for growth.
For the first time since acquiring 26% shares in 2010, Galfar Kuwait recorded a profit
for the financial year 2015. Two legacy projects were handed over to the client in the
year 2015. The Company has been awarded a project for construction of roads and
bridges for the New Refinery Project in Kuwait for a value of KD 19.5 million.
Omanisation
Galfar is committed to the development of Omani Nationals. The Company employs
3830 Omani Nationals and continues to actively recruit, train and retain them in
technical and managerial cadres.
Corporate Structure and Governance
A report on corporate governance, management discussion and analysis as well as
auditor’s report confirming the compliance with the provisions of code of corporate
governance are included in the Annual Report of the Company.
Quality, Health, Safety and Environment
The Company continues to maintain its certification to ISO 9001 (Quality), QHAS
18001 (Health & Safety), ISO 14001 (Environment) Standards and ISO 29001
(Petroleum & Petrochemical Sector specific standard).
The Lost Time Injury Frequency (LTIF) of 0.17 recorded during the year is the lowest
annual LTIF ever achieved by the Company and is amongst the best in the industry.
We have worked without LTI 50 Million man hours in Oil & Gas projects and 16 Million
man hours in Civil & Marine Infrastructure Unit.
Corporate Social Responsibility
The Company has contributed significantly to road safety campaigns throughout the
country.
Outlook
In spite of the low oil prices which have resulted in the slowing down of some projects,
the government continues to go ahead with various infrastructure and services
projects which are aimed at diversifying the economy and stimulating economic
growth. In addition the oil and gas downstream projects are at an all-time high.
The Company has tendered for various projects and expects its fair share of contracts
to be awarded. It may be mentioned that Petroleum Development Oman (PDO) has
extended the Off-plot Delivery Contract (ODC North Oman) effective from 1st April
2016 to 31st March 2018. This is a Service Contract in which Galfar expects to generate
revenue of around RO 120 Million.
On Record
The Directors take this opportunity to thank the customers, shareholders, suppliers,
bankers, business partners/associates, financial institutions and the Government of
Sultanate of Oman for their consistent support and encouragement to the Company.
On behalf of the Directors, I convey my sincere appreciation to all employees of the
Company and its subsidiaries and associates for their hard work and commitment.
Their dedication and competence has ensured that the Company continues to be a
significant and leading player in the contracting industry.
The Directors are thankful to His Majesty’s Government for its continued support and
we pray for His Majesty’s health and long life.
Salim Said Hamad Al Fannah Al Araimi
Chairman
Corporate Governance Report
Company’s Philosophy
Galfar Engineering and Contracting SOAG is committed to good corporate governance and
healthy corporate practices. The concept of good governance at Galfar envisages care of the
Company to enhance the value of all its stakeholders by adhering to proper methods of
management, internal controls, accountability, corporate governance rules and high level of
transparency to the extent of not affecting the competitive position of the Company. The
Company continues applying well-defined Management Systems Procedures (MSPs) in
accordance with ISO 9001.
The Company is committed to following high standards of Corporate Governance in
accordance with the Code of Corporate Governance of the Capital Market Authority and is
geared towards the implementation of the New Code of Corporate Governance, promulgated
by the Capital Market Authority, with effect from July 2016. The Company has made
improvements to its internal regulations by updating its manual of authority and put in place
policies for Whistle blowing, Code of conduct, Related Party Transactions and Revenue
Recognition, duly approved by the Board.
The Board Members are experienced in their diversified professional fields. They have given
great support to the Board to exercise its widest authorities in managing the Company and
supervise the good performance of the Company’s business. The Board is responsible for
achieving the company’s objectives. For this purpose, the Board is assisted by various sub
committees and the higher executive management of the company. In addition, there is a wellstructured organization for management executives whose authorities are defined in a revised
Manual of Authority.
In general the board exercises its primary functions and duties in line with the powers
stipulated in article 35 of the Articles of Association of the company.
Board of Directors
The Members of the Board have professional and practical experience in their respective
fields ensuring proper direction and control of company’s activities. No director is a member
of more than 4 joint stock public companies whose shares are listed on the Muscat Securities
Market (MSM) and no director is chairman of more than 2 public companies whose principal
office is in the Sultanate of Oman. None of the directors are members of a Board of a joint
stock public or closed company which carries out similar business and whose principal office
is in the Sultanate of Oman.
Sr.
No.
Name of Director &
Representative
1
Sheikh Dr.Salim Said Hamed Al
Fannah Al Araimi
2
Sheikh Salim Abdullah Saeed Badr
Al Rawas
3
Dr.Hatem Bakheit Saeed Al
Shanfari
Directorship in Other Joint Stock
Companies
Designation
Category
Chairman
Non Independent
Non - Executive
Oman Medical College S.A.O.C
Vice Chairman
Non Independent
Non - Executive
Oman Oil Marketing Company
S.A.O.G ,
Kunooz Oman Holding S.A.O.C.
Director
Independent
Non - Executive
Gulf Investment Services Co.
S.A.O.G, Gulf Baader Capital
Markets Co. S.A.O.C
Voltamp Energy Company SAOG,
Al Madina Insurance Company
SAOG
National Bank of Oman SAOG.
4
Mr. Hamad Mohamed Al Wahaibi
Director
Independent
Non - Executive
5
Engr. Salman Rashid Al Fannah Al
Araimi
Director
Non Independent
Non - Executive
NIL
6
Ms. Khalood Mohamed Rashid Al
Fannah Al Araimi
Director
Non Independent
Non - Executive
Gulf Plastic Industries Co.
S.A.O.G
7
Mr. Abdulqader Askalan
Director
Independent
Non - Executive
Oman Telecommunication
Company S.A.O.G
8
Engr. Mohiuddin Mohamad Ali
Director
Non Independent
Non - Executive
9
Engr. Raiz Basheeruddin
Director
Independent
Non - Executive
NIL.
Board Meetings:
During the year 2015, the Board held ten (10) meetings in twelve sessions. The following table shows
dates of the meetings and attendance details:
Board of Directors Meetings & Attendance Details - Year 2015
√
Sr.
No.
1
2
Name of
Director &
Representative
Sheikh
Dr.Salim Said
Hamed Al
Fannah Al
Araimi
Sheikh Salim
Abdullah
Saeed Badr Al
Rawas
Meeting
Meeting
Meeting
Meeting
Meeting
Meeting
Meeting
Meeting
Meeting
no:49
no:50
no:51
Meeting
no:52
no:53
no:54
no:55
no:56
no:57
no:58
07Mar-15
& 17Mar-15
10May-15
31-May15
06-Jul15
10-Aug15
20-Sep15
11Oct-15
& 18Oct-15
04Nov-15
11Nov-15
17Dec-15
√
√
X
√
X
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
3
Dr.Hatem
Bakheit Saeed
Al Shanfari
√
√
√
√
X
X
√
X
X
√
4
Mr. Abdel Qadir
Ahmed Askalan
√
√
√
X
X
√
X
X
√
X
√
√
√
√
√
√
√
√
√
√
√
√
√
√
X
X
√
√
√
√
5
6
Engr. Salman
Rashid Al
Fannah Al
Araimi
Ms. Khalood
Mohamed
Rashid Al
Fannah Al
Araimi
7
Mr. Hamad
Mohamed Al
Wahaibi
√
√
X
√
√
√
√
X
√
√
8
Engr.
Mohiuddin
Mohamad Ali
√
√
√
√
√
√
√
√
√
√
9
Engr. Raiz
Basheeruddin
√
√
√
√
√
√
√
X
X
√
Remuneration to the Board of Directors:
The total amount proposed to be paid to the Directors for the year 2015 is RO 50,000/-, being the
sitting fees for the year 2015, which will be paid to the Directors after approval by the shareholders in
the AGM scheduled to be convene on 27thMarch, 2016.
The total amount approved by the shareholders for the year 2014 and paid to the Directors during
the year 2015 is detailed as under:
Sr.
No.
Name of Director & Representative
Sitting Fees
1
Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi
2
Dr.P. Mohamed Ali (Director Till 14.01.2014)
3
Dr.Adil Abdul Aziz Yahya Al Kindy (Director Till
26.03.2014)
4
Dr.Hatem Bakheit Saeed Al Shanfari
5
Sheikh Salim Abdullah Saeed Badr Al Rawas
6
Sheikh Yahya Abdullah Al Fannah Al Araimi
(Director Till 26.03.2014)
7
Engr. Salman Rashid Al Fannah Al Araimi
8
9 Ms. Khalood Mohamed Rashid Al Fannah Al Araimi
10 Mr. Abdel Qadir Ahmed Askalan
11 Engr. Mohiuddin Mohamad Ali
12 Engr. Raiz Basheeruddin
Total
Remuneration
Total
5,000
-
5,000
700
-
700
1,400
-
1,400
9,700
-
9,700
8,300
-
8,300
2,900
-
2,900
10,000
-
10,000
10,000
-
10,000
10,000
-
10,000
4,800
-
4,800
5,500
-
5,500
5,200
-
5,200
73,500
-
73,500
Board Secretary
The elected Board has re-appointed Mr. Abdelbagi Daffalla, a legal professional, as secretary of the
Board. The secretary facilitates holding and smooth conduct of the Board Meetings, records the
minutes of the meetings, drafting of resolutions, following-up implementation of the Board resolutions
and inform the competent bodies with the same. The secretary also serve as a liaison between the
board and its Sub-Committees, and follow up the decisions issued by the subsidiaries and associated
companies, as well as the decisions that issued on their respect by the parent company.
Other Committees:
Supervisory and Follow up Committee (SAFCOM):
Supervisory and Follow up Committee (SAFCOM) consisting of 5 members. The Committee
assists the board to provide its support to the executive management to run effectively and
efficiently the businesses of the Company in order to achieve the Company’s objectives and to
ensure that the interests of the Shareholders are protected. In this context the committee extends
a follow-up support to overcome the difficulties faced by the executive management including
collection of outstanding receivables. The committee also studies Investment opportunities for the
company and monitors performance of all Company’s units.
Sr. No.
Name of Director & Representative
Designation
1
Sheikh Dr.Salim Said Hamed Al Fannah Al Araimi
2
Sheikh Salim Abdullah Saeed Badr Al Rawas
Member
3
Member
4
Mr. Abdel Qadir Ahmed Askalan
Member
5
Member
Chairman
SAFCOM Meetings:
During the year 2015, SAFCOM held 13 meetings. The following table shows dates of the meetings
and attendance details:
Sr
No
1
2
3
4
5
Name of Director &
Representative
Sheikh Dr.Salim
Said Hamed Al
Fannah Al Araimi
Sheikh Salim
Abdullah Saeed
Badr Al Rawas
Dr.Hatem Bakheit
Saeed Al Shanfari
Mr. Abdel Qadir
Ahmed Askalan
Engr. Mohiuddin
Mohamad Ali
1st
08Jan
-15
2nd
01Feb
-15
3rd
08Feb15
4th
19Feb15
5th
22Mar15
6th
30Apr15
7th
21May15
8th
29Jun15
9th
14Jul15
10th
08Sep15
11th
26Oct15
12th
17Nov15
13th
10Dec15
√
X
X
√
√
X
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
X
√
√
√
X
√
X
√
√
X
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
X
√
√
√
Audit Committee
The primary responsibilities and functions of Audit Committee are to provide assistance to the
Board of Directors in fulfilling its responsibilities of monitoring and overseeing the adequacy
and effectiveness of the internal control systems, procedures, financial reporting process, the
effectiveness of the internal audit function; the independent audit process including
recommending the appointment and assessing the performance of the external auditor; the
company’s process for monitoring compliance with laws and regulations affecting financial
reporting and code of business conduct.
The Audit Committee reviews and approves the annual audit plan which is prepared based
on risk based audit approach. It also reviews the Audit Committee Charter, Internal Audit
Charter periodically. These are key to reinforce the organizational independence of Internal
Audit and to establish their rules of engagement throughout the Company.
The Audit Committee’s focus to create awareness on the code of ethics and whistleblower
policy and ensured that all the staff of the Company has gone through the whistleblower
awareness program.
In performing its duties, the committee maintains effective working relationships with the board
of directors, management, and the external and internal auditors. To perform its role
effectively, each committee member will need to develop and maintain his skills and
knowledge, including an understanding of the committee’s responsibilities and of the
company’s business, operations and risks. The Committee held six meetings during the year
2015.
Sr. No.
Name of the members of the committee
Designation
1
2
Member
3
Ms. Khalood Mohamed Rashid Al Fannah Al Araimi
Member
Member
Engr. Raiz Basheeruddin
Member
4
5
Chairman
Audit Committee Meetings:
During the year 2015, the Audit Committee held 6 meetings. The following table shows dates of the
meetings and attendance details:
Sl
#
Name of the members of the
committee
1st
05-0315
2nd
07-0515
3rd
11-0615
4th
09-0815
5th
08-1115
6th
17-1215
1
Dr Hatem Al Shanfari
√
√
√
X
√
√
2
Ms. Khulood Mohamed Rashid Al
Fannah Al Araimi
√
√
√
X
√
√
3
Mr. Hamad Mohammad Al Wahaibi
√
√
√
√
X
√
4
Eng. Salman Rashid Abdullah Al
Fannah Al Araimi
√
√
√
√
√
√
5
Mr. Raiz Basheeruddin
√
√
√
√
√
√
Human Resource Committee:
The Human Resources Committee (HR Committee) consists of 4 members. The roll of HR
Committee is to assist the Board in fulfilling its oversight responsibilities on HR matters and to
reorganize and restructure the Human Resources Unit in order to enhance organizational
effectiveness. The committee also reviews from time to time the systems, regulations and policies
of the HR Unit of the company.
Name of members of the committee
Ms. Khulood Mohamed Rashid Al Fannah Al Araimi
Designation
Chairperson
Member
Member
Member
HR Committee Meetings:
During the year 2015, the HR Committee held 5 meetings. The following table shows dates of the
meetings and attendance details:
Sr.
No.
Name of Director &
Representative
1st
2nd
3rd
4th
5th
10-Feb15
18-Mar15
15-Apr15
08-Jun15
07-Sep15
1
Ms. Khalood Mohamed Rashid Al
Fannah Al Araimi
√
√
√
√
√
2
Engr. Salman Rashid Al Fannah Al
Araimi
√
√
√
√
√
3
√
√
√
√
√
4
√
√
√
√
√
Procurement Committee
The Board of Directors, on 11 November 2015, formed a Procurement Committee to assists
the board in overseeing the management of procurement process and practices. The
Committee consists of 4 members chaired by Mr. Hamad Mohammed Hamood Al
Wahaibi and membership of Engr. Mohiuddin Mohamad Ali and Ms. Khulood Mohammed
Rashid Al Fannah Al Araimi. The committee which was formed in November 2015 didn’t hold
a meeting during 2015.
Procedure for Standing as a Candidate for the Board:
The right to stand as a candidate for membership of the Board of Directors of the Company is
open to shareholders and non-shareholders who satisfies the legal requirements provided for
in the Commercial Company Law 1974 as amended, the Articles of Associations of the
Company and principles of the Code of Corporate Governance.
In case of a shareholder, whether in personal capacity or representing a juristic person, he
must have a minimum equity of not less than 10000 shares.
Key Management Remuneration:
Total remuneration during the financial year 2015 to top Management (top 5) was RO
548,664/-
Compliance with Rules and Regulations:
The Company has been following the applicable rules and regulations issued by MSM, CMA
and those stipulated in the Commercial Companies Law 1974 as amended and Articles of
Association of the Company.
Communication with Shareholders and Investors:
The company maintains good communication relations with the shareholders and Investors
and responds as much as possible to their queries and requests in line with the disclosures
rules. The company, during the period, conducted several phone interviews with financial
analysts and investors and held press conference on 09 June 2015.
The company publishes its un-audited financial results in the newspapers on a quarterly basis
and the audited financial statements annually. Detailed financial statements are sent to
shareholders on request. The company posts its quarterly and annual results on MSM
website, and also on the Company’s website: www.galfar.com. All the Company’s
announcements are posted on MSM’s website.
The Management discussions and analysis report forms an integral part of the Annual Report.
Statement on Market Price and distribution of Holdings:
Market High/Low price during each month of 2015
Sr.
No.
1
2
3
4
5
6
7
8
9
10
11
12
Month
January-15
February-15
March-15
April-15
May-15
June-15
July-15
August-15
September-15
October-15
November-15
December-15
High
0.198
0.183
0.160
0.142
0.133
0.140
0.137
0.122
0.106
0.102
0.088
0.077
Low
0.145
0.144
0.116
0.125
0.120
0.121
0.119
0.084
0.091
0.083
0.073
0.069
Closing
0.172
0.159
0.124
0.128
0.120
0.122
0.121
0.103
0.092
0.086
0.074
0.070
Distribution of Ownership of Shares shareholders
(Including Shares preferential voting rights) 2015
Sr.
No.
1
2
3
Category
Less than
5%
5% to 10%
Above
10%
Total
No. of
Sharehol
ders
No. of
Shares
% of
Shareholdin
g
4,717
140,563,045
33.85
2
51,442,431
12.39
4
223,210,161
53.76
4,723
415,215,637
100.00
Distribution of ownership of shares between shareholders
(Including Shares having preferential voting rights)
There are no Securities / Convertible Financial Instruments as on the Balance Sheet date which
will have an impact on the Shareholders’ equity.
Profile of the Statutory Auditors
PwC is a global network of firms operating in 157 countries with more than 208,000 people who
are committed to delivering quality in assurance, tax and advisory services. PwC also provides
corporate training and professional financial qualifications through PwC's Academy.
Established in the Middle East for over 40 years, PwC Middle East has firms in Bahrain, Egypt,
Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, the Palestinian territories, Qatar, Saudi Arabia and
the United Arab Emirates, with around 3,000 people. (www.pwc.com/me).
PwC has been established in Oman for over 40 years and the Firm comprises 3 partners,
including one Omani national, and over 140 professionals and support staff. Expert assurance,
tax and advisory professionals are able to combine internationally acquired specialist consulting
and technical skills with relevant local experience.
PwC refers to the PwC network and/or one or more of its member firms, each of which is a
separate legal entity. Please see www.pwc.com/structure for further details.
.
Audit fees of the Company and Subsidiaries:
In addition to the below stated fees, the Company has paid RO. 600/- towards participation fee
for the Company’s delegates to attend a seminar on International Financial Reporting Standards,
organized by PricewaterhouseCoopers LLP. The Company has also paid RO. 4,200/- during the
year as fee towards their professional services rendered for issuing various tenders related
certificates in their capacity as the statutory auditors of the Company.
Audit Fees of Company and Subsidiaries and fees for other services paid to the Auditors for 2015
Sr.
No.
Particulars
1
Statutory Audit Fees (Parent)
2
Statutory Audit Fees Al Khalij Heavy Equipment & Engineering LLC (Subsidiary)
3
Statutory Audit Fees Galfar Training Institute LLC (Subsidiary)
4
Statutory Audit Fees Galfar Engineering & Contracting India Pvt. Ltd (Subsidiary)
5
Statutory Audit Fees Aspire Projects & Services LLC (Subsidiary)
6
Statutory Audit Fees Galfar Aspire Readymix LLC (Subsidiary)
7
Statutory Audit Fees Salasar Highways Pvt. Ltd. (Subsidiary)
8
Statutory Audit Fees Kashipur Sitarganj Highways Pvt. Ltd. (Subsidiary)
Amount
(In RO)
39,000
2,750
1,700
1,287
2,300
2,200
878
878
The Board of Directors acknowledges as at December 31, 2015:
The Board of Directors acknowledges:



With its liability for the preparation of financial statements in accordance with the
applicable standards and rules.
Review of the efficiency and adequacy of internal control systems of the Company and
that it complies with internal rules and regulations. In order to enhance and strengthen
the efficiency of the internal control systems, the Company has appointed a chief
internal auditor and also recruited technical auditors in the Internal Audit Department.
That there is no material matter that affects the continuation of the Company and its
ability to continue its production and operations during the next financial year.
Salim Said Hamed Al Fannah Al Araimi
Chairman
ManagementDiscussionandAnalysisReport2015
GCC and Omani market context in 2015
Economic growth in the GCC region slowed down in 2015 driven by the sharp drop in oil
prices. Price per barrel halved over the past 18 months and wiped out estimated OMR
140 bn of export earnings. This situation required Governments to increasingly focus on
diversifying revenues, selectively reduce public spending and utilizing their reserves. The
region continued to expand through fiscal deficits.
Oman Budget 2015 was aimed towards driving and sustaining growth and economic
diversification. Despite the decline in oil prices and its potential adverse effect on the
macro-economic environment, the country showed healthy GDP growth. According to
IMF, GDP growth increased from 2.9% in 2014 to an estimated 4.4% in 2015. The Omani
non-oil sector played a significant role in achieving this growth; rapid infrastructural
developments paired with continued economic diversifications are among the key
contributing factors.
The GCC (and in the Sultanate) construction market has remained robust, driven partially
by long-term mega projects. The Omani government remained instrumental in driving the
construction sector thanks to its continued focus on economic diversification and its
leading role in various development plans and initiatives. However competition intensified
and the market became increasingly challenging putting pressure on local and regional
construction players, impacting industry profitability and liquidity.
Galfar performance overview in 2015
Galfar Engineering and Contracting SAOG maintained its position as one of the leading
contracting companies in Oman with operations across the Sultanate and India, with a
turnover of OMR 326 m. Galfar remains the largest employer of Omani nationals in the
Private Sector.
Galfar’s objectives are always aligned with the policies of the Sultanate, with its core
objective to satisfy its stakeholders and clients through committed efforts to deliver
projects in time and in strict compliance with safety and quality standards.
The Company, including its subsidiaries, has recorded for the year 2015 turnover of OMR
345 m (2014: OMR 373 m) with after tax loss of OMR 29 m (2014: profit OMR 0.2 m).
The parent company’s turnover for the year 2015 is OMR 326 m (2014: OMR 354 m) and
incurred a loss after tax is OMR 29 m (2014: profit OMR 1.2 m). The loss was the result
of a provision of OMR 32 million.
Page 1 of 5
This provision is for impairment of receivables and stock and is in line with International
Financial Reporting Standards (IFRS) requirements and the Company's accounting
policies. Out of the total provision amount, the major portion is a provision for the Muscat
Expressway project and Central Corridor project. The provision was made in line with the
offer made by Muscat Municipality. Galfar had received offers from Muscat Municipality
together with draft supplemental agreements. The Board, after careful consideration, did
not accept the client's proposal and decided to pursue recovery of the amount due to the
company through the proper mechanism. These provisions are made without prejudice
to the company's right to recover these dues through amicable settlement or arbitration
proceedings.
Galfar recognizes the urgent need to significantly improve its operational and financial
performance. In the second half of 2015, a detailed analysis on the market outlook and
Galfar's current performance and capabilities were conducted and measures are now
being taken to enhance performance (see section Galfar outlook and operational focus
for 2016).
In 2015 a significant number of jobs have been completed. Amongst them are:
Ras al Hadd airport and phase 1 of Salalah airport
Five road projects
Hallaniyat port and road network
Nizwa water distribution network and four high end building projects
Four electrical grid stations
Galfar has five subsidiaries and three associates in operations. The performance of the
subsidiaries is as follows: Galfar Engineering & Contracting India Pvt. Ltd., which is
engaged in BOOT contracts in India, recorded a turnover of OMR 14 mln (2014: 16 mln)
with profit after tax OMR 0.7
mln (2014: OMR 0.1 mln). Galfar Aspire Readymix LLC, which produces ready mix
concrete, recorded a turnover of OMR 20 mln (2014: OMR 17 mln) with profit after tax
OMR 1 mln (2014: OMR 1.1 mln). Aspire Projects and Services LLC which is a specialized
engineering and services company had a turnover of OMR 3.3 mln (2014: OMR 3 mln)
with profit after tax OMR 0.3 mln (2014: OMR 0.2 mln). Al Khalij Heavy Equipment &
Engineering LLC which specializes in hiring out of equipment recorded a turnover of OMR
1.8 mln (2014: OMR 1.8 mln) with profit after tax OMR 0.1 mln (2014: OMR 0.1 mln).
Galfar Training Institute LLC which specializes in the field of training Omanis in various
Page 2 of 5
trades recorded a turnover of OMR 0.3 mln (2014: OMR 0.9 mln) and incurred loss OMR
0.3 mln (2014: 0.1 mln).
Human Resources and Omanization
Galfar is committed to develop its resource and maintaining its Omanization targets.
Omanization policies in the company are critical and directed towards development,
performance and steady growth. Galfar aims to accomplish employee development
through transparent and harmonious HR policies, and maintain a motivating work
environment and retain talent. Our goal is to be seen as the employer of choice.
Quality, Health, Safety and Environment
The Company continues to maintain its certification to ISO 9001 (Quality), OHSAS 18001
(Health & Safety), ISO 14001 (Environment) standards and ISO 29001 (Petroleum &
Petrochemical Sector specific standard).
The Company has worked 84.5 million man-hours and has driven 110.8 million kilometres
collectively during year 2015, in projects across the country. In spite of exposure to such
enormous amount of activities, Lost Time Injury Frequency (LTIF) of 0.17 recorded during
the year is the lowest annual LTIF ever achieved by the company and is amongst the best
in the industry.
The Company has also recorded several achievements in terms of man-hours worked
without Lost Time Injury in projects / units. The significant ones are 50 million hours of
Oil & Gas projects and 16 million man hours of Civil & Marine Infrastructure Unit.
The Management Review Committee chaired by the CEO with the participation of all Unit
Heads is reviewing the HSEMS and QMS performance on a regular basis and initiating
actions for continual improvement.
Oman economic outlook for 2016
Real GDP is forecasted to increase by 2.0% in 2016 (compared to 3.2% in 2015) due to
lower oil revenues, austerity measures and lower regional trade. Oman’s 2016 budget
proposes reduced oil price subsidies and increased corporate income taxes, with total
budgeted expenditure for 2016 dropping to OMR 11.9 bln (11% lower than estimated
actual spending in 2015). Public development spending is set to decrease by 18%, with
non-core projects postponed.
The Budget indicates that the Government is going ahead with the essential projects
planned, in line with the strategic objectives, amongst others of becoming a regional
logistics hub by 2020. If oil prices remain low for a prolonged period of time, it is expected
Page 3 of 5
that some investment plans will be delayed or cancelled, and that the government will
further rely on external borrowings and tap into international debt markets.
Galfar outlook and operational focus for 2016
Building on its strong market position and its reputation for delivering high-quality
construction projects across various sectors, Galfar has a confirmed healthy order book
of around OMR 665 million as of today. Revenues for 2016 are expected to be at par or
above 2015 levels despite an increasingly challenging market environment.
Several projects are seen to be in the pipeline and Galfar stands a good chance at winning
some of them during the year 2016. The outlook to win additional projects is particularly
promising in the oil and gas sector.
Operating profits in 2016 should see a healthy recovery. 2015 was adversely affected by
a number of loss making projects, the majority of which have been completed last year.
During 2016 a holistic transformation program will be executed driving enhanced financial
and operational performance. In this context, Roland Berger, a leading global strategy
consultancy with a strong track record in operational, organizational and financial
company transformation, has been appointed in December 2015.
Key building blocks of this program include organizational transformation and enhanced
talent management, enhanced liquidity management and assets optimization, overhead
cost reductions, productivity improvement and lean on-site execution, supply chain
management optimization, and information technology transformation.
Beyond the core business, the outlook of subsidiaries is overall positive.
For example, Galfar Aspire Readymix LLC counts today ten batching plants at seven
different locations compared to only one batching plant in 2011. In 2016, the company is
expecting to increase production to 900,000m3 (+4.7%). Aspire Projects and Services
LLC will continue focusing on providing specialized facilities management and
engineering services.
The Indian operations of Galfar have a positive long-term outlook with significant value
creation potential. In the very short-term funding is required.
Page 4 of 5
Risks
Risks remain an integral part of the construction business in the region.
The construction sector, and Galfar in particular, face the risk of higher cost of capital and
increasingly difficult access to capital in the future. A deteriorating macro-economic
environment might result in banks tightening their lending. This could affect the company's
funding and might have broader repercussions on the country as a whole.
Galfar has a strong confirmed order book paired with a positive business development
pipeline. However, an increasingly difficult macroeconomic context could cause clients to
slow down or even stop ongoing projects and delay award of new projects.
A major risk is the delay of collecting outstanding payments. Construction companies
have large concentrations of receivables and continue to deal with outstanding payments
that are increasingly hard to collect.
Additionally, there lies a risk of delay in completion of jobs due to various external reasons
like the long process to obtain government approvals, changes of scope and approval for
variation orders. These factors are outside Galfar's control and can have significant
negative impact on profitability.
The profitable delivery of projects relies on the right talent. Higher salaries in other
countries in the Arabian Peninsula are driving away expatriate workforce and pose a risk
to Galfar operations. At the same time, the construction sector is struggling in attracting
qualified Omani nationals.
Our gratitude and commitment
Galfar salutes His Majesty Sultan Qaboos, who in the 46 years of his commendable rule
has transformed Oman into a powerful modern economy in the region. Galfar shall
endeavour to reach even higher standards of project delivery through continuous
improvement in processes and wishes to lead by action in Omanization as a true Omani
enterprise.
Hans Erlings
Chief Executive Officer
Page 5 of 5
Galfar Engineering & Contracting SAOG & Subsidiaries
Consolidated Statement of Financial Position
As at 31 December 2015
Notes
ASSETS
Non-current Assets
Property, plant and equipment
Intangible assets
Investment in subsidiaries
Investment in associates
Investment available for sale
Retentions receivables
Amount in RO '000s
Consolidated
2015
2014
88,282
760
10,203
8,706
125
30,507
138,583
91,891
1,131
4,496
8,706
125
30,816
137,165
101,411
29,307
3,899
145
30,539
165,301
104,685
19,225
4,861
145
30,896
159,812
7
8
9
10
11
12
13,353
59,547
195,944
23,936
1,258
14,795
308,833
447,416
21,131
67,557
213,162
22,094
1,293
735
325,972
463,137
15,055
59,985
207,828
28,839
1,263
18,035
331,005
496,306
22,379
68,743
225,927
21,532
1,324
2,568
342,473
502,285
13
14
15
16
Non controlling interest
Total Equity
Non-current Liabilities
Term loans
Employees' end of service benefits
Advance payables
Deferred tax liability
41,522
18,337
13,840
1,005
74,704
74,704
37,747
23,370
12,582
29,514
103,213
103,213
41,522
18,337
14,093
(2,660)
539
71,831
975
72,806
37,747
23,370
12,835
(1,859)
29,421
101,514
980
102,494
18
22
23
24
60,658
12,181
27,224
1,325
101,388
68,202
11,066
16,146
6,039
101,453
74,947
12,396
27,224
1,924
116,491
73,588
11,253
17,744
6,638
109,223
Current Liabilities
Term loans -current portion
Short term loans
Bank borrowings
Trade payables
Other payables and provisions
Provision for taxation
18
19
20
21
23
24
38,912
32,750
39,521
78,101
81,108
932
271,324
372,712
447,416
32,380
28,000
62,691
77,507
56,720
1,173
258,471
359,924
463,137
39,523
37,547
40,193
88,772
96,867
4,107
307,009
423,500
496,306
32,982
33,027
63,503
87,044
70,159
3,853
290,568
399,791
502,285
32
0.180
0.273
0.173
0.269
Current Assets
Inventories
Due from customers on contracts
Contract and trade receivables
Advances, prepayments and other receivables
Deposits with banks
Cash and cash equivalents
Total Assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Statutory reserve
Foreign currency translation reserve
Retained earnings
3
4
5
6
Parent Company
2015
2014
9
Total Liabilities
Total Equity and Liabilities
Net Assets per share (RO)
The consolidated financial statements were approved by board of directors on 9 March, 2016 and were signed on their behalf by:
____________________
Chairman
The attached notes 1 to 39 are an intergral part of these consolidated financial statements.
____________________
Chief Finance Officer
Consolidated Statement of Comprehensive Income
DRAFT
For the year ended 31 December 2015
Amount in RO '000s
Parent Company
Notes
Contract income
Sales and services income
25
Total revenue
Consolidated
2015
2014
2015
2014
322,558
350,977
325,692
357,282
3,412
2,982
19,542
15,228
325,970
353,959
345,234
372,510
Other income
26
3,422
3,012
3,422
3,039
Contract and other direct costs
27
(310,213)
(335,465)
(326,708)
(350,070)
19,179
21,506
21,948
25,479
(9,799)
(10,357)
(11,275)
(12,159)
9,380
11,149
10,673
13,320
(31,917)
-
(31,408)
(660)
(22,537)
11,149
(20,735)
12,660
Gross Profit
General and administrative expenses
28
Profit from operations before provision for
impairment of receivables
Provision for impairment of receivables
9,10
(Loss) / profit from operations after provision
for impairment of receivables
Financing costs, net
30
(8,555)
(9,755)
(9,402)
(10,371)
Share in loss of associates
6
-
-
(758)
(1,366)
Fair value loss on forex forward contracts
23
(1,229)
-
(1,229)
-
(32,321)
1,394
(32,124)
923
3,812
(185)
3,265
(726)
(28,509)
1,209
(28,859)
197
-
-
(801)
(71)
(28,509)
1,209
(29,660)
126
(28,509)
1,209
(28,882)
169
-
-
23
28
(28,509)
1,209
(28,859)
197
(0.069)
0.003
(0.070)
0.001
(Loss) / profit before tax
Taxation
24
(Loss) / profit for the year
Other comprehensive income / (loss)
Item that may be subsequently reclassified to
profit or loss:
Foreign currency translation difference
Total comprehensive (loss)/income for the year
(Loss)/profit attributable to:
Equity shareholders of parent company
Non-controlling interests
Basic earnings per share
31
Consolidated Statement of Cash Flows
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
Operating Activities
(Loss)/profit before taxation
(32,321)
1,394
(32,124)
923
20,772
21,794
22,835
23,571
398
400
408
409
8,555
9,755
9,402
10,371
-
-
758
1,366
Employees' end of service benefits
1,115
147
1,143
186
Gain on disposal of plant and equipment's
(2,014)
(1,549)
(2,011)
(1,555)
7,778
14,438
7,324
14,109
Trade and other receivables
23,386
(27,914)
19,550
(35,330)
Trade and other payables
24,982
(12,784)
28,436
1,713
309
1,430
357
1,350
Adjustments for:
Depreciation on property, plant and equipment's
Amortisation of intangible assets
Finance cost
Share of loss of associates
Working capital movements:
Inventories
Retention receivables
11,078
6,696
9,480
8,294
Income tax paid
Advance payables
(1,143)
(1,049)
(1,195)
(331)
Net cash generated from operating activities
62,895
12,758
64,363
25,076
Investing Activities
Purchases of property, plant and equipment's
(18,632)
(5,025)
(21,298)
(9,708)
Purchases of intangible assets
(27)
(15)
(10,468)
(18,099)
Disposal of property, plant and equipment's
3,483
3,291
3,726
3,352
Investment in associates and subsidiaries
(5,707)
(2,556)
(597)
146
Bank deposits
35
10,258
61
10,267
Interest income
85
98
85
110
Net cash (used in) / generated from investing activities
(20,763)
6,051
(28,491)
(13,932)
Financing Activities
Term loans
(1,012)
23,807
7,900
28,740
Short term loans
4,750
(7,400)
4,520
(2,373)
Bank borrowings
(23,170)
(25,022)
(23,310)
(26,745)
Interest expenses
(8,640)
(9,853)
(9,487)
(10,481)
-
(3,775)
(28)
(3,809)
Net cash used in financing activities
(28,072)
(22,243)
(20,405)
(14,668)
Net increase/(decrease) in cash and cash equivalents
14,060
(3,434)
15,467
(3,524)
735
4,169
2,568
6,092
14,795
735
18,035
2,568
Dividend paid
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the period
Statement of Changes in Equity -Parent Company
Amount in RO '000s
Attributable to equity holders of the parent company
Share
Premium
Statutory
Reserve
Retained
Earnings
37,747
23,370
12,582
32,080
105,779
-
-
-
1,209
1,209
-
-
-
(3,775)
(3,775)
37,747
23,370
12,582
29,514
103,213
-
(28,509)
(28,509)
Share Capital
Balance as at 1 January 2014
Total
Comprehensive income:
Profit and total comprehensive income for the year
Transcations with shareholders
Dividend paid - 2013
Comprehensive loss:
Loss and total comprehensive loss for the year
-
-
Transcations with shareholders
Transfer to statutory reserve (note 15)
-
(1,258)
1,258
-
-
Stock dividend - 2014 (note 17)
3,775
(3,775)
-
-
-
Total transactions with shareholders
3,775
(5,033)
1,258
-
-
41,522
18,337
13,840
1,005
74,704
Balance as at 31 December 2015
Statement of Changes in Equity -Consolidated
Amount in RO '000s
Share
Capital
Balance at 1 January 2014
Attributable to equity holders of the parent company
Foreign
Share
Statutory
Retained
Currency
Premium
Reserve
Earnings
Translation
Total
Non
controlling
interest
Grand
Total
37,747
23,370
12,888
(1,788)
32,978
105,195
986
106,181
-
-
-
-
169
169
28
197
-
-
(71)
-
(71)
-
(71)
Total comprehensive income for the year
-
-
-
(71)
169
98
28
126
Adjustment of earlier year in subsidiary companies
-
-
(115)
-
111
(4)
-
(4)
Transfer of statutory reserve
-
-
62
-
(62)
-
-
-
Dividend paid - 2013
-
-
-
-
(3,775)
(3,775)
(34)
(3,809)
Comprehensive income:
Profit for the year
Other comprehensive income:
Transactions with shareholders
-
-
(53)
-
(3,726)
(3,779)
(34)
(3,813)
37,747
23,370
12,835
(1,859)
29,421
101,514
980
102,494
Comprehensive loss:
Loss for the year
-
-
-
-
(28,882)
(28,882)
23
(28,859)
Other comprehensive income:
-
-
-
(801)
-
(801)
-
(801)
Total comprehensive loss for the year
-
-
-
(801)
(28,882)
(29,683)
23
(29,660)
3,775
3,775
41,522
(1,258)
(3,775)
(5,033)
18,337
1,258
1,258
14,093
(2,660)
539
71,831
(28)
(28)
975
(28)
(28)
72,806
Transactions with shareholders
Transfer to statutory reserve (note 17)
Stock dividend - 2014 (note 15)
Dividend paid - 2014 (note 15)
Balance as at 31 December 2015
Notes to Consolidated Financial Statements
1. Activities
Galfar Engineering and Contracting SAOG (“the parent company”) is an Omani joint stock company registered under the Commercial Companies Law of
the Sultanate of Oman and listed on the Muscat Security Exchange.
The principal activities of Galfar Engineering and Contracting SAOG and its subsidiaries (“the group”) are road, bridge and airport construction, oil and gas
including EPC works, civil and mechanical construction, public health engineering, electrical, plumbing and maintenance contracts and Design, Build,
Finance , Operate and Transfer (DBFOT) projects.
2. Significant Accounting Policies
Basis of preparation
These consolidated financial statements are prepared on the historical cost basis, as modified by the revaluation of derivative financial instruments at fair
value through statement of comprehensive income , available-for-sale financial assets that have been measured at fair value and in accordance with
International Financial Reporting Standards (IFRS) and the IFRS Interpretations committee(IFIC) appplicable to companies reporting under IFRS, the
requirements of the Commercial Companies Law of the Sultanate of Oman, 1974 (as amended) and comply with the disclosure requirements set out in
the ‘Rules and Guidelines on Disclosure by issuer of Securities and Insider Trading’ issued by the Capital Market Authority (CMA) of the Sultanate of
Oman.
The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the
reported amount of assets and liabilities at the date of the financial statements and the resultant provisions and changes in fair value for the year. Such
estimates are necessarily based on assumptions about several factors involving varying, and possibly significant, degrees of judgment and uncertainty
and actual results may differ from management’s estimates resulting in future changes in estimated assets and liabilities. The assumptions concerning
the key sources of estimation uncertainty at the reporting date are set out in note 38.
These consolidated financial statements have been presented in Rial Omani which is the functional and presentation currency for these consolidated
financial statements and all values are rounded to nearest thousand (RO '000) except when otherwise indicated.
Going concern
During the year ended 31 December 2015 the group incurred a loss of RO 28,859 (2014 - profit of RO 197) thousands. As at that date the retained
earnings amounted to RO 539 (2014 - RO 29,421) thousands. The Board of Directors are committed to take necessary measures to strengthen the
financial position of the Group to ensure that the Group becomes profitable. The parent company has taken necessary steps to strengthen the company’s
financial position and has mandated Oman Arab Bank as Issue Manager for convertible bonds or any other instrument. Further to support the company’s
Business Plan for the coming years, the Company has decided to appoint a Lead Financial Advisor for financial re-engineering as well as to arrange
necessary banking facilities including term loans. A leading global strategy consultancy, Roland Berger, with strong track record in operational,
organizational and financial company transformation has been also appointed with a long-term mandate to achieve a sustainable improvement in the
company's financial performance and operational efficiency. A holistic transformation program has been initiated to drive sustainable profitability. Key
building blocks of this process include organizational transformation and enhanced talent management, enhanced liquidity management and assets
optimisation, overhead cost reductions, productivity improvement and lean on-site execution, supply chain management optimisation, and IT
transformation.
The Parent Company has been profitable in the past and has a dividend paying history. The parent company has never defaulted in servicing its lenders.
Though at the reporting date, there were certain breach of covenants with two banks (as referred in note 18), the company continues enjoying adequate
ongoing banking facilities. The group is committed to meeting all the loan repayment obligations as they fall due. The parent company regularly pays its
employees and creditors and not defaulted in tax payment. Building on the company's strong market position as Oman's largest construction entity and
having a strong order book, the business in year 2016 is expected to be better than previous year levels despite an increasingly challenging market
environment.
Change in accounting policy and disclosures
The accounting policies are consistent with those used in the previous financial year.
Standards and amendments effective in 2015 and relevant for the group’s operations:
For the year ended 31 December 2015, the group has adopted all of the new and revised standards and interpretations issued by the International
Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its
operations and effective for periods beginning on 1 January 2015.
The adoption of these standards and interpretations has not resulted in changes to the group’s accounting policies and has not affected the amounts
reported in the consolidated financial statements.
Basis of preparation (continued)
Change in accounting policy and disclosures (continued)
The following standards, amendments and interpretations to existing standards have been published and are mandatory for the group’s accounting
periods beginning on or after 1 January 2016 or later periods, but the group has not early adopted them and the impact of these standards and
interpretations is not reasonably estimable as at 31 December 2015:
IFRS 9, ‘Financial instruments’, (effective on or after 1 January 2018);
IFRS 15, ‘Revenue from contracts with customers’ (effective on or after 1 January 2018); and
IFRS 16, ‘Leases’ (effective on or after 1 January 2019)
The significant accounting policies adopted by the group are as follows:
Basis of consolidation
The consolidated financial statements comprise those of Galfar Engineering and Contracting SAOG, its subsidiaries and its associates as at closing of
each year. A subsidiary is a company in which the group controls an entity when the group is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity.
The subsidiary is consolidated from the date on which control is transferred to the group and ceases to be consolidated from the date on which control is
transferred out of the group.
The financial statements of the subsidiary are prepared for the same reporting period as the parent company using consistent accounting policies.
Adjustments are made to bring into line any dissimilar accounting policies which may exist.
All intercompany balances, income and expenses, unrealised gains and losses and dividends resulting from intra-group transactions are eliminated.
A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction.
Losses are attributed to the non-controlling interest even if that results in a deficit balance.
If the group loses control over a subsidiary, it:
• Derecognises the assets (including goodwill) and liabilities of the subsidiary
• Derecognises the carrying amount of any non-controlling interests
• Derecognises the cumulative translation differences, recorded in equity
• Recognises the fair value of the consideration received
• Recognises the fair value of any investment retained
• Recognises any surplus or deficit in profit or loss
• Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit
In the parent company’s separate financial statements, the investment in the subsidiary is carried at cost less impairment.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration
transferred, measured at the acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business combination,
the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.
Acquisition costs incurred are expensed and included in administrative expenses.
When the group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance
with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded
derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is
remeasured to fair value at the acquisition date through statement of comprehensive income.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value
of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or as a
change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within
equity.
2. Significant Accounting Policies (continued)
Business combinations and goodwill (continued)
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling
interest, over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the
subsidiary acquired, the difference is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. 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 that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed off,the goodwill associated with the operation
disposed off 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.
Changes in ownership interests in subsidiaries without change of control:
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the
owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of
net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
Disposal of subsidiaries:
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the
owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of
net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
Investments in associates
The group’s investments in its associates are accounted for under the equity method of accounting. In the parent company's separate financial
statements, the investment in an associate is carried at cost less impairment. An associate is an entity in which the group has significant influence and
which is neither a subsidiary nor a joint venture.
Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post- acquisition changes in the
group’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment. After application of the
equity method, the group determines whether it is necessary to recognise any additional impairment loss with respect to the group’s net investment in the
associate. The statement of comprehensive income reflects the share of the results of operations of the associate. Where there has been a change
recognised directly in the equity of the associate, the group recognises its share of any changes and discloses this, when applicable, in the statement of
changes in equity. Profits and losses resulting from transactions between the group and the associate are eliminated to the extent of the interest in the
associate.
The financial statements of the associates are prepared for the same reporting period as the parent company using consistent accounting policies.
Adjustments are made to bring into line any dissimilar accounting policies which may exist.
Property, plant and equipment
All items of property, plant and equipment held for the use of group’s activities are recorded at cost less accumulated depreciation and any identified
impairment loss. Land is not depreciated. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for longterm construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at
intervals, the group recognises such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection
is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other
repair and maintenance costs are recognised in the statement of comprehensive income as incurred.
Depreciation is charged so as to write off the cost of property, plant and equipment over their estimated useful lives, using the straight line method, on the
following bases:
Buildings
Camps
Plant and machinery
Motor vehicles and heavy equipment
Furniture and office equipment
Project equipment and tools
Items costing less than RO 100 are expensed out in the year of purchase.
15 years
4 years
7 & 10 years
7 & 10 years
6 years
6 years
Property, plant and equipment (continued)
The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end. Where the carrying value of an asset is
greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain or loss arising on derecognition of the asset, calculated as the difference between the net disposal
proceeds and the carrying amount of the asset is recognised in the statement of comprehensive income when the asset is derecognised.
Capital work in progress
Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any
recognised impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their
intended use.
Intangible assets
Computer software:
Computer software costs that are directly associated with identifiable and unique software products and have probable economic benefits exceeding the
costs beyond one year are recognised as an intangible asset. Direct costs include staff costs of the software development team and an appropriate portion
of relevant overheads. Computer software costs recognised as an asset are amortised using the straight-line method over the estimated useful life of five
years.
Concessionaire rights:
Concessionaire rights arising from Design, Build, Finance, Operate and Transfer (DBFOT) road projects are shown at historical cost. These have a finite
useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of intangible
assets over their estimated lease period and is recognised in the statement of comprehensive income.
Available-for-sale investments
Available-for-sale investments are initially recognised at cost, which includes transaction costs, and are, subsequently carried at fair value.
Available-for-sale equity investments that do not have a quoted market price in an active market, and for which other methods of reasonably estimating
fair value are inappropriate, are measured at cost, as reduced by allowances for estimated impairment. Changes in fair value are reported as other
comprehensive income.
An assessment is made at each reporting date to determine whether there is objective evidence that an investment may be impaired. If such evidence
exists, any impairment loss (being the difference between cost and fair value, less any impairment loss previously recognised) is removed from other
comprehensive income and recognised in the income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises purchase price and all direct costs incurred in bringing the inventories
to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price
less all estimated costs to be incurred in marketing, selling and distribution. Provision is made where necessary for obsolete, slow moving and defective
items.
Impairment of non-financial assets
At each reporting date, the group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered
an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss,
if any. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is
determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of
assets.
The loss arising on an impairment of an asset is determined as the difference between the recoverable amount and carrying amount of the asset and is
recognised immediately in the statement of comprehensive income.
Impairment of non-financial assets (continued)
An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or
may have decreased. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its
recoverable amount and the increase is recognised as income immediately, provided that the increased carrying amount does not exceed the
carrying amount that would have been determined, had no impairment loss been recognised earlier.
At the time of assessing the impairment on its investments in associates, the group determines, after application of the equity method, whether it is
necessary to recognise an additional impairment loss of the group’s investment in its associates. The group determines at each reporting date whether
there is any objective evidence that the investment in associate is impaired. If this is the case the group calculates the amount of impairment as being the
difference between the fair value of the associate and the acquisition cost and recognises the amount in the statement of comprehensive income.
Financial instruments
Financial assets and financial liabilities are recognised on the group’s statement of financial position when the group becomes a party to the contractual
provisions of the instrument.
The principal financial assets are trade and other receivables, term deposits, available for sale investments and cash and bank balances.
The principal financial liabilities are trade payables, liabilities against finance leases, term loans, bank borrowings,overdrafts and advaces from clients.
Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value.
Changes in the fair value of derivative instruments are recognised immediately in the statement of comprehensive income.
Trade and other receivables
Trade receivables are amounts due from customers for billing in the ordinary course of business for construction contracts. If collection is expected in one
year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current
assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less
provision for impairment.
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due
according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of
estimated future cash flows, discounted at the original effective interest rate.
Term deposits
Term deposits are carried in the statement of financial position at amortised cost using the effective interest method.
Cash and cash equivalents
For the purpose of the cash flows statement, the group considers cash on hand and bank balances with a maturity of less than three months from the date
of placement as cash and cash equivalents.
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable
are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are
presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Interest-bearing loans and borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost using the
effective interest method. Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability
for at least 12 months after the reporting date.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get
ready for its intended use or sale are capitalised as part of the cost of the respective assets until such time as the assets are substantially ready for their
intended use. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whether fulfillment
of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.
For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitional
requirements of IFRIC 4.
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
commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are
apportioned between 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 recognised in the statement of comprehensive income.
Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the group will obtain ownership by the end
of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
Derecognition of financial assets and liabilities
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:
The rights to receive cash flows from the asset have expired; or
The group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without
material delay to a third party under a ‘pass-through’ arrangement; and either:
The group has transferred substantially all the risks and rewards of the asset, or
The group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is
replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange
or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference between the fair value of new
liability and the carrying value of exsisting liability is recognised in the statement of comprehensive income.
Impairment of financial assets
The group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial
asset or a group of financial assets is impaired and an impairment loss is incurred if, and only if, there is objective evidence of impairment as a result of
one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated
future cash flows of the financial asset or group of financial assets that can be reliably estimated.
Impairment is determined as follows:
(a) For available for sale assets carried at fair value, impairment is the difference between cost and fair value;
(b) For assets carried at cost, impairment is the difference between cost and the present value of future cash flows discounted at the weighted avereage
of cost of capital.
(c) For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at
the original effective interest rate.
Offsetting
Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legally
enforceable right to set off the recognised amounts and the group intends to either settle on a net basis, or to realise the asset and settle the liability
simultaneously.
Provisions
Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the group has a present legal or constructive obligation
as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated.
Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating
losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of
obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations
may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation and the risks specific to the obligation.
Provision for employees’ benefits
Termination benefits for Omani employees are contributed in accordance with the terms of the Social Securities Law of 1991.
End of service benefits are accrued in accordance with the terms of employment of the group's employees at the reporting date, having regard to the
requirements of the applicable labour laws of the countries in which the group operates and in accordance with IAS 19. Employee entitlements to annual
leave and leave passage are recognised when they accrue to employees and an accrual is made for the estimated liability arising as a result of services
rendered by employees up to the reporting date. These accruals are included in current liabilities, while that relating to end of service benefits is disclosed
as a non-current liability.
Dividend on ordinary shares
Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the company’s shareholders.
Taxation
Current income tax
Taxation is provided based on relevant laws of the respective countries in which the group operates. Current income tax assets and liabilities for the
current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The current income tax charge is
calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the companies
subsidiaries and associates operate and generate taxable income
Deferred taxation
Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to
the period when the asset is realised or the liability is settled, based on laws that have been enacted at the reporting date.
Deferred income tax assets are recognised for all deductible temporary differences and carry-forward of unused tax assets and unused tax losses to the
extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets
and unused tax losses can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date
and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the
underlying transaction either in other comprehensive income or directly in equity.
Contract revenue recognition
A construction contract is defined by IAS 11 as a contract specifically negotiated for the construction of an asset.
When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that
are likely to be recoverable. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable,
contract revenue is recognised over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, the expected
loss is recognised as an expense immediately. Contract revenue corresponds to the initial amount of revenue agreed in the contract and any variations in
contract work, claims and incentive payments to the extent that it is probable that they will result in revenue, and they can be reliably measured.
A variation is included in contract revenue when:
(a) it is probable that the customer will approve the variation and the amount of revenue arising from the variation; and
amounts of revenue can be reliably measured.
(b) the
Claims are included in contract revenue only when:
(a) negotiations have reached an advanced stage such that it is probable that the customer will accept the claim; and
(b) the amount that it is probable will be accepted by the customer can be measured reliably.
Incentive payments are included in contract revenue when:
(a) the contract is sufficiently advanced that it is probable that the specified performance standards will be met or exceeded; and
(b) the amount of the incentive payment can be measured reliably.
The company uses the ‘percentage of completion method’ to determine the appropriate amount to recognise in a given period. The stage of completion is
measured by reference to the contract costs incurred up to the reporting date as a percentage of total estimated costs for each contract. Costs incurred in
the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. They are presented as
inventories, prepayments or other assets, depending on their nature.
Contract work in progress
Work in progress on long term contracts is calculated at cost plus attributable profit, to the extent that this is reasonably certain after making provision for
contingencies, less any losses foreseen in bringing contracts to completion and less amounts received and receivable as progress payments. These are
disclosed as 'Due from customers on contracts'. Cost for this purpose includes direct labour, direct expenses and an appropriate allocation of overheads.
For any contracts where receipts plus receivables exceed the book value of work done, the excess is included as ' Due to customers on contracts' in
accounts payable and accruals.
Sales and service income
Revenue from sales of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of
revenue can be measured reliably.
Revenue from rendering of services is recognised when the outcome of the transaction can be estimated reliably, by reference to the stage of completion
of the transaction at the reporting date.
Contract costs
Contract costs include costs that relate directly to the specific contract and costs that are attributable to contract activity in general and can be allocated to
the contract. Costs that relate directly to a specific contract comprise: site labour costs (including site supervision); costs of materials used in construction;
depreciation of equipment used on the contract; costs of design, and technical assistance that is directly related to the contract.
The Group’s contracts are typically negotiated for the construction of a single asset or a group of assets which are closely interrelated or interdependent in
terms of their design, technology and function. In certain circumstances, the percentage of completion method is applied to the separately identifiable
components of a single contract or to a group of contracts together in order to reflect the substance of a contract or a group of contracts.
Contract costs are recognised as expenses by reference to the stage of completion of the contract activity at the end of the reporting period. When it is
probable that total contract cost exceed total contract revenue the expected loss is recognised as expense immediately.
Interest income
Interest income and expense are accounted for on an accrual basis using the effective interest rate method.
Dividend income
Dividend income is recognised when the right to receive the dividend is established.
Directors’ remuneration
The Parent Company follows the Commercial Companies Law 1974 (as amended), and other latest relevant directives issued by CMA, in regard to
determination of the amount to be paid as Directors’ remuneration. Directors’ remuneration is charged to the statement of comprehensive income in the
succeeding year to which they relate after its approval in AGM.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are shown in equity as a deduction, net
of tax, from the proceeds.
Where any group company purchases the company’s equity share capital (treasury shares), the consideration paid, including any directly attributable
incremental costs (net of income taxes) is deducted from equity attributable to the company’s equity holders until the shares are cancelled or reissued.
Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the
related income tax effects, is included in equity attributable to the company’s equity holders.
Foreign currency translation
Each entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using that
functional currency. Items included in the financial statements of the company are measured and presented in Rials Omani being the currency of the
primary economic environment in which the parent company operates.
Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to the
statement of comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the
exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined.
Group companies
The results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into the
presentation currency as follows:
- assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet
- income and expenses for each statement of profit or loss and statement of comprehensive income are translated at average exchange rates (unless this
is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are
translated at the dates of the transactions), and
- all resulting exchange differences are recognised in other comprehensive income.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Board of Directors. A segment is a distinguishable
component of the group that is engaged in providing products or services (business segment) or in providing products or services within a particular
economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The segment
information is set out in note 35.
3. Property, plant and equipment - Parent Company
Particulars
Costs
At 1 January 2014
Additions
Disposals/writtenoff
Transfers
Land
1,278
Amount in RO '000s
Building &
Camps
Plant & Motor Vehicles
Machinery & Equipment
Furniture &
Equipment's
Project
Capital Work-inEquipment
Progress
& Tools
Total
-
33,404
772
(2,040)
212
127,694
2,076
(8,055)
315
74,999
1,508
(6,525)
-
14,584
401
(5,443)
(1,386)
15,055
252
(6,888)
670
16
-
267,014
5,025
(28,951)
(189)
At 1 January 2015
1,278
32,348
122,030
69,982
8,156
9,089
16
242,899
Additions
Disposals
Transfers
At 31 December 2015
1,278
750
(147)
7,480
(4,297)
578
(56)
430
(2)
32,951
125,213
9,400
(6,251)
10
73,141
8,678
9,517
(6)
(10)
-
18,632
(10,753)
250,778
At 1 January 2015
-
19,400
73,742
44,825
6,603
6,438
-
151,008
Charge for the year
Disposals
Transfers
At 31 December 2015
-
1,696
(144)
11,100
(3,651)
6,448
(5,431)
514
(56)
1,014
(2)
-
20,952
81,191
45,842
7,061
7,450
-
20,772
(9,284)
162,496
At 31 December 2015
1,278
11,999
44,022
27,299
1,617
2,067
-
88,282
At 31 December 2014
1,278
12,948
48,288
25,157
1,553
2,651
16
91,891
Depreciation
Net book value
3. Property, plant and equipment - Consolidated
Description
Amount in RO '000s
Building &
Camps
Land
Plant &
Machinery
Motor Vehicles
& Equipment
Furniture &
Equipment's
Project
Equipment
& Tools
Capital Workin- Progress
Total
Costs
At 1 January 2015
Additions
Disposals
Transfers
At 31 December 2015
1,278
1,278
32,517
750
(147)
33,120
136,012
8,688
(4,669)
15
140,046
76,752
10,758
(6,420)
10
81,100
8,613
653
(71)
22
9,217
9,306
451
(11)
9,746
383
(2)
(74)
307
264,861
21,298
(11,318)
(27)
274,814
Depreciation
At 1 January 2015
Charge for the year
Disposals
Transfers
At 31 December 2015
-
19,459
1,708
(145)
21,022
80,070
12,428
(3,916)
(13)
88,569
47,383
7,118
(5,481)
49,020
6,787
552
(59)
13
7,293
6,473
1,029
(3)
7,499
-
160,172
22,835
(9,604)
173,403
At 31 December 2015
1,278
12,098
51,477
32,080
1,924
2,247
307
101,411
At 31 December 2014
1,278
13,058
55,942
29,369
1,822
2,833
383
104,685
Net book value
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
3. Property, plant and equipment (continued)
Capital work-in-progress represents a building under construction in a subsidiary company.
Land and buildings with a net book value of RO 10,820 (2014: RO 11,674) thousands have been mortgaged in favour of the Bank
against term loan obtained by the parent company. Vehicles and equipment have been jointly registered with bank / finance companies
for insured value of RO 181,420 (2014: RO 121,958) thousands to obtain term loan. (note 18)
Depreciation of property, plant and equipment is allocated as follows:
Contract costs (note 27)
19,445
20,402
21,479
1,327
1,392
1,356
1,422
20,772
21,794
22,835
23,571
Costs
Balance at beginning of the year
Addition for the year
Written off
Transfer from property,plant and equipment
Balance at end of the year
2,689
27
2,716
2,693
15
(208)
189
2,689
20,793
10,468
27
31,288
2,713
18,099
(208)
189
20,793
Amortisation
Charge for the year
Written off
Transfer from property, plant and equipment
1,558
398
1,956
1,179
400
(208)
187
1,558
1,568
408
5
1,981
1,180
409
(208)
187
1,568
760
1,131
29,307
19,225
General and administrative expenses (note 28)
22,149
4. Intangible assets
Net book value at end of the year
The intangible assets of the parent company comprise of the computer soft ware.
The intangible assets of the group comprise of the computer soft ware and concessionaire rights under development as follows:
Computer soft ware
Concessionaire rights under
development
2015
2014
2015
2014
2,744
2,713
18,049
-
34
50
10,434
18,049
Written off
-
(208)
-
-
Transfers
27
189
-
2,805
2,744
28,483
1,568
1,180
-
-
408
409
-
-
Written off
-
(208)
-
-
Transfers
5
187
-
-
1,981
1,568
-
-
824
1,176
28,483
18,049
4,552
2,898
1,276
600
307
200
163
149
58
10,203
1,595
148
1,276
600
307
200
163
149
58
4,496
-
-
Costs
Addition for the year (Refer note 5(1))
18,049
Amortisation
Charge for the year
Net book value at end of the period
5. Investment in subsidiaries
Galfar Engineering & Contracting India Pvt. Ltd.
Galfar Aspire Readymix LLC
Salasar Highways Pvt. Ltd.
Al Khalij Heavy Equipment & Engineering LLC
Kashipur Sitarganj Highways Pvt. Ltd.
Aspire Projects & Services LLC
Galfar Mott MacDonald LLC
Galfar Training Institute LLC
Galfar Wasen Contracting Company
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
5. Investment in subsidiaries (continued)
Information on principal activities and shareholding is summarised below:
Galfar Aspire Readymix LLC
Salasar Highways Pvt. Ltd. (i)
Principal activity
Construction
Manufacturing
Concessionaire
Kashipur Sitarganj Highways Pvt. Ltd. (i)
Hiring Equipment's
Concessionaire
Training
Construction
EPC consultancy
Construction
Place and year of incorporation
India
2009
2012
Oman
India
2013
Oman
India
2006
2013
2009
2011
2013
2010
Oman
Oman
Oman
Libya
Galfar Aspire Readymix LLC (ii)
Salasar Highways Pvt. Ltd. (i)
Shares acquired
by parent company
100%
100%
100%
99%
20%
24%
Shares acquired
by the group
100%
100%
100%
100%
100%
100%
Kashipur Sitarganj Highways Pvt. Ltd. (i)
52%
4%
99%
100%
65%
65%
52%
100%
100%
100%
65%
65%
52%
9%
99%
100%
65%
65%
52%
100%
100%
100%
65%
65%
(i) Salasar Highways Pvt. Ltd. and Kashipur Sitarganj Highways Pvt. Ltd., the two companies are incorporated in India as concessionaire
to handle DBFOT road projects with total project costs at equivalent RO 37,750 thousands and RO 42,500 thousands respectively. The
projects were awarded to the parent company in November, 2012 and are being executed by the subsidiary company Galfar Engineering
and Contracting India Pvt. Ltd. (GECIPL). The total investment in these companies made by the parent company and GECIPL is RO
1,583 thousands (2014 - 1583 thousands ) and RO 11434 thousands (2014 - 7046 thousands) respectively . The construction of both
the projects are under progress and expected to be completed in year 2016.
(ii) During the year, Galfar Aspire Redimix LLC where the parent company now owns 100% of the issued share capital, has further
issued shares amounting to RO 2,750 thousands (2014 - 100 Thousands) to the parent company.
6. Investment in associates
Galfar Engineering & Contracting Kuwait KSC (GEC) (i)
Mahakaleswar Tollways Pvt. Ltd. (MTPL) (ii)
Shree Jagannath Expressway Pvt. Ltd. (SJEPL) (ii)
Ghaziabad Aligarh Expressway Pvt. Ltd. (GAEPL) (ii)
International Water Treatment LLC (IWT) (iii)
Binani Aspire LLC (iv)
5,323
2,255
739
344
45
8,706
5,323
2,255
739
344
45
8,706
2,598
(771)
1,264
1,659
(926)
75
3,899
2,590
(710)
1,427
2,010
(456)
4,861
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
6. Investment in associates (continued)
Information on principal activities and shareholding is summarised below:
Principal activity
Place of
incorporation
Year of
incorporation
Galfar Engineering & Contracting Kuwait KSC (i)
Construction
Kuwait
Concessionaire
Concessionaire
Concessionaire
Construction
Manufacturing
India
India
India
Oman
Oman
2010
2010
2011
2011
2013
2015
Shares acquired
by parent company
Shares acquired
by the group
Galfar Engineering & Contracting Kuwait KSC (i)
26%
26%
26%
26%
26%
6%
2%
30%
0%
26%
6%
2%
30%
0%
26%
26%
26%
30%
50%
26%
26%
26%
30%
0%
(i) The Group holds 26% shareholding in this company (earlier known as 'Shaheen Al Ghanim Contracting Co. KSC'). The company is
engaged in construction activities.
(ii) The Group holds 26% shareholding in these companies incorporated in India to handle DBFOT road projects. The MTPL and
GAEPL have commenced commercial activities in year 2011 and 2015 respectively while SJEPL project is still under construction.
(iii) The parent company have 30% shareholding in this company in partnership with VA Tech Wabag Ltd. of India and Cadagua SA of
Spain with 32.5% and 37.5% shareholding respectively. IWT has completed the construction of 'Al Ghubrah independent water
desalination project' during the current year which is being executed by the parent company as one of the sub contractors.
(iv) This company is incorporated in the current year, where subsidiary company Galfar Aspire Readymix and Binani Cement, UAE
holds 50% shareholding each. The company is yet to start any operation.
The following table illustrates summarised information of the group’s investment in its associates:
Share of associate’s statement of financial position:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets and carrying amount of the investment
Share of associate’s statement of income:
Revenue
Costs of revenue
Loss for the year
6,221
51,593
(10,840)
10,124
54,543
(12,139)
(43,075)
(47,667)
3,899
4,861
11,559
12,317
(758)
18,635
20,001
(1,366)
Loss for the period comprises of MTPL, India RO 16 (2014: RO 296) thousands, GAEPL, India RO 416 (2014: RO Nil) thousands,GEC,
Kuwait 2015 Profit RO 144 (2014: Loss RO 584) thousands and IWT Oman Loss RO 470 (2014: RO 486) thousands.
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
6. Investment in associates (continued)
The summarised financial information of two major associate companies are stated below GEC, Kuwait
Statement of financial position:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets and carrying amount of the investment
Reconciliation of carrying amount:
Net assets at the beginning of the year
Profit / (loss) for the year
Profit on self assets elimination
Currency translation impact
Net assets at the end of the year
Group's share in %
Carrying amount
Statement of comprehensive income:
Revenue
Costs of revenue
Profit / (loss) before tax
Taxation
Profit / (loss) after tax
MTPL, India
8,173
15,404
(6,654)
(6,932)
9,991
10,919
15,829
(10,682)
(6,105)
9,961
99
15,047
(1,721)
(16,390)
(2,965)
219
14,483
(1,651)
(15,781)
(2,730)
9,961
554
(524)
9,991
26%
2,598
12,419
(2,242)
(216)
9,961
26%
2,590
(2,730)
(60)
(212)
37
(2,965)
26%
(771)
(1,562)
(1,138)
(42)
13
(2,730)
26%
(710)
18,204
(17,650)
554
554
11,937
(14,179)
(2,242)
(2,242)
1,329
(463)
(866)
(926)
(60)
1,341
(2,744)
(1,403)
(265)
(1,138)
16,183
(2,830)
13,353
22,916
(1,785)
21,131
17,914
(2,859)
15,055
24,190
(1,811)
22,379
1,785
1,045
2,830
451
1,334
1,785
1,811
1,048
2,859
477
1,334
1,811
7. Inventories
Materials and consumables
Less: allowance for non-moving inventories
Movement for the provisions for inventories is as follows:
At the beginning of the year
Charged for the year
At the end of the year
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
8.Due from / (to) customers on Contracts
Work-in-progress on long term contracts at cost plus
attributable profit considered as receivables
59,547
67,557
59,985
68,743
To customers under construction contracts recorded as
billings in excess of work done (note 23)
11,941
1,470
20,315
7,713
1,224,022
(1,164,475)
59,547
1,162,655
(1,095,098)
67,557
1,224,977
(1,164,992)
59,985
1,166,071
(1,097,328)
68,743
109,418
(97,477)
11,941
154,627
(153,157)
1,470
137,892
(117,577)
20,315
181,117
(173,404)
7,713
210,067
2,021
15,278
(31,422)
195,944
182,382
1,491
29,289
213,162
216,540
7,426
15,327
(31,465)
207,828
190,647
5,951
29,372
(43)
225,927
30,507
30,816
30,539
30,896
-
43
31,917
(495)
31,465
43
43
5,316
452
4,139
11,024
606
510
47
22,094
6,464
408
2,512
5,265
11,555
906
519
1,635
(425)
28,839
6,468
458
2,418
4,247
7,570
606
544
155
(934)
21,532
-
-
934
(509)
425
274
660
934
1,258
1,258
1,293
1,293
1,258
5
1,263
1,293
31
1,324
Due from customers on construction contracts:
Revenue recognised at cost plus attributable profit
Less: Progress claims received and receivable
Due to customers on construction contracts:
Progress claims received and receivable
Less: Revenue recognised at cost plus attributable profit
9. Contract and trade receivables
Contract billed receivables
Trade receivables
Retention receivables - current
Less : provision for impaired receivables and retentions
Retentions receivables
Non-current portion
Movement on the provision for impairment of receivables and retentions are as follows:
At beginning of year
Charge for the year
31,917
Written off
(495)
At end of year
31,422
10. Advances, prepayment and other receivables
Advance on sub-contracts and supplies
Advances to employees
Income tax receivables
Prepaid expenses
Due from related parties (note 33)
Insurance claims receivable
Deposits
Other receivables
Less : provision for impaired advances
3,147
400
5,163
13,804
905
483
34
23,936
Movement on the provision for impairment of advances are as follows:
At beginning of year
Charge/(reversal) for the year
At end of year
11. Deposits with bank
Term deposits
Margin deposits
The term deposit carry interest rates of 1.0% to 2.0% (2014: 1% to 2%) per annum and are kept for a period more than three months
from date of placement.
12. Cash and cash equivalents
Cash in hand
Bank balances with current accounts
330
14,465
14,795
204
531
735
365
17,670
18,035
223
2,345
2,568
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
13. Share capital
Authorised:
500,000,000 (2014: 500,000,000) ordinary shares of par
value RO 0.100 (2014: RO 0.100) each
50,000
50,000
50,000
50,000
Issued and fully paid:
Bonus shares issued during the year
Balance at end of the Year
37,747
3,775
41,522
37,747
37,747
37,747
3,775
41,522
37,747
37,747
The issued and fully paid share capital comprises of 415,215,637 (2014: 377,468,761) shares having a par value of RO 0.100 (2014:
RO 0.100) each. Pursuant to the terms of its IPO, as detailed below, the share capital of the Company has been divided into two classes
comprising of 289,980,637 (2014: 263,618,761) ordinary shares and 125,235,000 (2014: 113,850,000) preferential voting rights shares.
The preferential voting rights shares are held by the promoting shareholders and carry two votes at all general meetings while otherwise
ranking pari-passu with ordinary shares in all rights including the dividend receipt.
14. Share premium
During the current year, the company has issued 37,747 thousands bonus shares to shareholders as stock dividend at 10% out of share
premium account, for which RO 3,775 thousands are reduced from this account. In addition to this RO 1,258 thousands transferred to
statutory reserve account.
This reserve is available for distribution to the shareholders.
15. Statutory reserve
As required by the Commercial Companies Law of Oman, the statutory reserve is maintained at at least one third of the issued share
capital.
During the current year, the company has transferred RO 1,258 thousands (2014 : Nil) , being one third of share capital addition, to
statutory reserve account from share premium account, in order to state the statutory reserve at one third of the revised issued capital.
16. Foreign currency translation reserve
Foreign currency translation reserve represents impact of translation of subsidiaries and associates financial statement figures in foreign
currency to functional currency of the parent company as allowed under IAS 21.
17. Dividend
For the year 2014, a stock dividend of 10% totaling to 37,747 thousands shares of RO 0.100 each was proposed out of share premium
account in the Board meeting on 7th March, 2015 and approved at Annual General Meeting of the parent company on 25th March, 2015.
For the year 2015, no dividend was proposed in the Board meeting held on 9 March, 2016.
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
18. Term loans
Term loans:
- from banks
- finance companies
Current portion
- from banks
- finance companies
Non-current portion
- from banks
- finance companies
91,249
8,321
99,570
89,665
10,917
100,582
104,764
9,706
114,470
94,449
12,121
106,570
35,061
3,851
38,912
28,108
4,272
32,380
35,399
4,124
39,523
28,342
4,640
32,982
56,188
4,470
60,658
61,557
6,645
68,202
69,365
5,582
74,947
66,107
7,481
73,588
38,912
27,007
33,651
99,570
32,380
27,002
41,200
100,582
39,523
27,728
47,219
114,470
32,982
27,589
45,999
106,570
The term loans are repayable as follows:
Within one year
In the second year
In the third onwards
The long term loans are stated at amortised cost and amounts repayable within next twelve months have been shown as a current
liability. The term loans from banks are secured against the contract receivable assignments and/or joint registration of
vehicle/equipment/land mortgage. The term loans from finance companies are secured against the jointly registered vehicle/equipment.
Also refer note 3 for land and buildings mortgaged in favour of a comemcial bank against term loan obtained by the company.
The interest rates on term loans were as follows:
Current period
Floating rate loans
Fixed interest rate loans
Previous period
LIBOR + 2.0%
4.0% to 7.0%
LIBOR + 2.0%
4.25% to 7.0%
At 31 December 2015, the company is in breach of following financial covenants with two commercial banks with term loan facilities
Bank 1
- Minimum net worth of RO 85 million to be maintained with one of the commercial banks
- Maximum gearing ratio to be maintained at 1.5
Bank 2
'- Maximum leverage ratio to be maintained at 4.5
'- Maximum adjusted leverage ratio to be maintained at 6.5
The long term portion of the respective term loans have been reclassified under short terms loans in accordance with IAS 1.
19. Short term loans
- from banks
32,750
28,000
37,547
33,027
Bank short term loans are repayable in one year and are secured against the contract receivables assignments and/or joint registration
of vehicle/equipment. The interest rates on these loans vary between 4.0% to 4.5% (2014: 4.0% to 4.75%) per annum.
20. Bank borrowings
Bank overdrafts
Loan against trust receipts
Bills discounted
3,937
14,684
20,900
39,521
6,950
48,491
7,250
62,691
4,609
14,684
20,900
40,193
7,762
48,491
7,250
63,503
Bank borrowings are repayable on demand or within one year. The interest rates on bank borrowings vary between 4.0% to 5.5% (2014:
4.0% to 5.5%) per annum. Bank borrowings are secured against the contract receivables assignments and/or joint registration of
vehicle/equipment.
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
21. Trade payables
Sundry creditors
Provision for purchases and sub-contracts
44,210
33,891
78,101
46,318
31,189
77,507
53,897
34,875
88,772
55,256
31,788
87,044
11,066
2,029
(914)
12,181
10,919
2,084
(1,937)
11,066
11,253
2,156
(1,013)
12,396
11,067
2,213
(2,027)
11,253
33,802
12,655
11,941
10,799
6,142
1,920
1,229
1,612
647
361
81,108
32,776
1,034
1,470
9,926
6,637
2,006
1,980
507
384
56,720
36,406
12,929
20,315
13,714
6,233
2,141
1,229
2,128
790
982
96,867
35,798
1,139
7,713
13,021
6,664
2,200
2,422
601
601
70,159
27,224
16,146
27,224
17,744
22. Employees’ end of service benefits
Charge for the Year
Paid during the Year
23. Other payables and provisions
Advance from customers -current
Creditors for capital purchases
Due to customers on contracts (note 8)
Accrued expenses
Provision for employees’ leave pay and passage
Retention on sub-contracts
Fair value changes on Forex forward contracts
Due to related parties (note 33)
Other payables
Statutory dues payable
Advance from customers
Non-current portion
The company has entered into a forex forward contracts with a commercial bank against orders placed for a specific project in order to
manage its foreign exchange risk . The changes in the fair value of foreign currency forward contract as at 31 December 2015 are
charged to the statement of comprehensive income. The fair value loss is due to the timing difference. On utilization/maturity of forex
contracts, the fair value loss will be adjusted against the actual gain or loss (refer note 34).
Advances from customers which can be adjusted against the estimated amounts to be billed in next 12 months are considered as current
advances.
24. Taxation
Income tax is provided for parent company and Omani subsidiaries as per the provisions of the 'Law of Income Tax on Companies' in
Oman @ 12% of taxable profit after adjusting non-assessable and disallowable items and statutory exemption of RO 30,000. It is
provided for Indian subsidiary as per 'Income tax Act' in India @ 33% of taxable profit after adjusting non-admissible expenses and
depreciation difference.
Income tax expense
Current tax charge for current year
Deferred tax credit for current year
Current tax credit for prior years
Deferred tax charge for prior years
774
(4,597)
11
(3,812)
1,045
(860)
185
1,234
(4,597)
98
(3,265)
1,397
(670)
(4)
3
726
1,394
164
21
185
(30,046)
(3,371)
106
(3,265)
923
494
232
726
The reconciliation between tax on accounting profit and tax profit is as follows:
(Loss)/Profit before tax
Tax on accounting (Loss) /profit
Tax effect on non admissible expenditure and adjustments
(32,321)
(3,882)
70
(3,812)
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
24. Taxation (Continued)
Provision for tax
The parent company income tax assessment up to the year 2011 has been completed by the taxation department. The income tax
assessments of the subsidiaries are at various stages of completion. The management believes that any taxation for the unassessed
years will not be material to the financial position of the Group as at the reporting date. The status of tax provision is as follows:
Charge during the year
Tax paid during the year
1,173
785
(1,026)
932
1,177
1,045
(1,049)
1,173
3,853
1,332
(1,078)
4,107
2,787
1,397
(331)
3,853
Deferred tax liability
Deferred income taxes are calculated on all temporary differences under the balance sheet liability method using a principal tax rate as
per tax law of the respective country.
Charge during the year
Balance at end of the Year
6,039
(4,714)
1,325
6,899
(860)
6,039
6,638
(4,831)
1,807
7,305
(667)
6,638
The net deferred tax liability and deferred tax charge/(release) in the comprehensive income statement are attributable to following items:
Property, plant and equipment:
Release to income statement
Trade receivables and inventories
Release to income statement
6,253
(967)
5,286
6,953
(700)
6,253
6,807
(967)
5,840
7,314
(507)
6,807
(214)
(3,747)
(3,961)
1,325
(54)
(160)
(214)
6,039
(169)
(3,747)
(3,916)
1,924
(9)
(160)
(169)
6,638
2,792
620
3,412
2,024
958
2,982
17,028
2,426
88
19,542
12,014
2,738
476
15,228
2,014
30
1,378
3,422
1,549
38
1,425
3,012
2,011
1,411
3,422
1,555
1,484
3,039
25. Sales and services income
Sales and services
Hiring services
Training services
26. Other income
Gain on sale of assets
Dividend income
Miscellaneous income
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
27. Contract and other direct costs
Materials
Manpower costs (note 29)
Sub-contracting costs
Plant and equipment's repair and maintenance
Fuel expenses
Plant and equipment's hiring costs
Training expenses
Duties and taxes
Depreciation (note 3)
General and administrative expenses (note 28)
97,892
93,591
51,423
16,402
13,412
4,383
19,445
13,665
310,213
111,600
99,187
53,527
18,180
13,868
4,326
20,402
14,375
335,465
102,097
97,509
51,587
17,804
14,949
5,998
80
738
21,479
14,467
326,708
115,633
103,031
53,051
19,518
15,536
5,070
368
741
22,149
14,973
350,070
4,006
4,134
3,971
2,664
2,165
1,740
960
719
154
358
297
160
74
337
1,725
23,464
13,665
9,799
5,035
4,357
3,250
3,740
2,045
1,079
1,105
679
274
400
386
153
200
237
1,792
24,732
14,375
10,357
5,182
4,446
4,072
2,841
2,212
1,878
1,055
733
169
429
327
162
74
398
1,764
25,742
14,467
11,275
6,139
4,640
3,364
3,959
2,123
1,314
1,187
695
287
474
415
161
200
343
1,831
27,132
14,973
12,159
71,798
11,808
9,310
1,069
3,612
97,597
93,591
4,006
73,731
12,144
12,049
2,996
3,302
104,222
99,187
5,035
74,605
12,294
9,859
1,798
340
3,795
102,691
97,509
5,182
76,891
12,600
12,606
3,413
234
3,426
109,170
103,031
6,139
8,640
(85)
8,555
9,853
(98)
9,755
9,487
(85)
9,402
10,481
(110)
10,371
28. General and administrative expenses
Manpower costs (note 29)
Rent
Electricity and water charges
Insurance charges
Bank guarantee and other charges
Professional and legal charges
Communication expenses
Repairs and maintenance -others
Business promotion expenses
Traveling expenses
Printing and stationery
Tender fees
Directors fees
Miscellaneous expenses
Depreciation and amortisation (note 3 and 4)
Pertaining to contract and other direct costs (note 27)
29. Manpower costs
Salary and wages
Employees service benefits
Camp and catering expenses
Hired salary and wages
Staff incentives
Other expenses
Pertaining to contract and other direct costs
Pertaining to general and administration expenses
30. Financing costs, net
Interest expense
Interest income
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
31. (Loss) / Earnings per share
The basic (loss) / earnings per share is calculated by dividing the profit for the year attributable to the shareholders of the parent
company by the weighted average number of shares outstanding during the year as follows:
(Loss) / profit for the year
Number of shares in '000 (note 13)
Basic (loss)/earnings per share for the year (RO)
(28,509)
415,220
(0.069)
1,209
377,470
0.003
(28,859)
415,220
(0.070)
197
377,470
0.001
32. Net assets per share
Net assets per share is calculated by dividing the equity attributable to shareholders of the parent company at the reporting date by the
number of shares outstanding as follows:
Net assets
Number of shares outstanding at the year end in '000
(note 13)
Net assets per share (RO)
74,704
103,213
71,831
101,514
415,220
377,470
415,220
377,470
0.180
0.273
0.173
0.269
33. Related party transactions
Related parties comprise the Subsidiaries, Associates, directors and business entities in which they have the ability to control or exercise
significant influence in financial and operating decisions.
The group maintains significant balances with these related parties which arise in the normal course of business from commercial
transactions, and are entered into at terms and conditions which the management consider to be comparable with those adopted for
arm’s length transactions with third parties.
The following is a summary of significant transactions with related parties which are included in the financial statements:
Contract income
Sales and services
Sale of property, plant and equipment
Purchase of property, plant and equipment
Purchase of goods and services
Director's remuneration
4,587
2,443
197
13,096
74
2,835
2,001
617
169
16,949
200
17,518
2,443
197
13,096
74
18,457
2,009
617
169
16,949
200
Balances of related parties recognised and disclosed in notes 10 and 23 respectively are as follows:
Due from shareholders
Due from subsidiary and associate companies
Due from other related parties
Due to shareholders
Due to subsidiary and associate companies
Due to other related parties
23
9,727
4,054
13,804
171
8,254
2,599
11,024
23
7,477
4,055
11,555
171
4,799
2,600
7,570
62
93
1,457
1,612
156
322
1,502
1,980
62
609
1,457
2,128
156
764
1,502
2,422
The amounts outstanding are unsecured and fully receoverable. No expense has been recognized in the year for bad or doubtful debts
in respect of the amounts owed by related parties.
Amount in RO '000s
Parent Company
2015
2014
Consolidated
2015
2014
33. Related party transactions (continued)
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of
the Group, directly or indirectly, including any director (whether executive or otherwise).
The remuneration of the members of key management during the year was as follows:
Short term benefits
Post employment benefits
497
30
527
505
30
535
1,002
30
1,032
997
30
1,027
Included in due from related parties RO 486 (2014: RO 486) thousands is due from key management personnel of the parent company.
34. Commitments and contingencies
Bonds and guarantees
Letter of credit
Corporate guarantees
Forex forward contracts
Capital commitments
178,075
28,537
17,851
9,420
78
233,961
167,018
25,727
27,021
10,895
260
230,921
178,075
28,537
63,598
9,420
78
279,708
167,483
25,727
75,396
10,895
260
279,761
The parent company has provided corporate guarantees for subsidiaries and associates amounting to RO 8,641 (2014: RO 8,334)
thousands and RO 9,210 (2014: RO 18,687) thousands respectively. The parent company does not anticipate any material liability to
arise from these guarantees.
The parent company has provided support sponsor's undertakings for any shortfall in project funding and repayment obligations of all
concessionaire companies (MTPL, SJEPL, GAEPL, KSHPL and SHPL) for DBFOT road projects in India, on joint and several basis. The
contingent liability for the same is not determinable.
Legal cases
The parent company and its subsidiaries, in common with the significant majority of contractors, is subject to litigation in the normal
course of its business. The parent company and its subsidiaries, based on independent legal advice, does not believe that the outcome
of these court cases will have a material impact on the group’s income or financial condition.
Penalties
Penalties amounting to RO 6,653 (2014: RO 9,203) thousands have been levied and notified to the parent company. Though the
penalties are countered by the extension of time claims from the parent company and cases are under various stages of
negotiations/arbitration and expected to be settled in due course, the provision is made RO 6,653 (2014: nil), which is included in
'Provision for impaired receivables' shown under note 9.
35. Business segments
The Group operates in two geographical segments, Sultanate of Oman and India.
Segmental information is presented in respect of the Group’s business segments. Business segment is based on the Group’s management and internal reporting structure. Segment results,
assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
The group business is divided in four segments - construction, manufacturing, hiring of equipment and training of personnel. The principal activities of the group are road, bridge and airport
construction, oil and gas including EPC works, civil and mechanical construction, public health engineering, electrical, plumbing and maintenance contracts. The other activities are hiring out
of cranes, equipment and other vehicles and training of drivers, operators, manufacturing of readymix concrete and others.
The financial results, assets and liabilities of business segments are as follows:
Construction
2015
2014
Manufacturing
2015
2014
2015
Hiring
2014
2015
Training
2014
Amount in RO '000s
Consolidated
2015
2014
Inter segments
2015
2014
Segment revenue and expenses
Segment revenue
342,975
371,742
20,009
17,381
1,839
1,814
88
476
(19,677)
(18,903)
345,234
372,510
Segment expenses
370,511
370,192
19,044
16,327
1,789
1,753
348
602
(17,599)
(16,561)
374,093
372,313
Segment results
(27,536)
1,550
965
1,054
50
61
(260)
(126)
(2,078)
(2,342)
(28,859)
197
Segment assets and liabilities
Segment assets
516,442
514,568
11,061
6,387
3,208
2,893
(202)
133
(34,203)
(21,696)
496,306
502,285
Segment liabilities
417,239
394,736
4,838
3,879
1,343
1,021
80
155
-
-
423,500
399,791
As at 31st December, 2014
Amount in RO '000s
36. Financial instruments and related risk management
The Group’s principal financial liabilities other than derivatives, comprise loans and borrowings, trade and other payables. The main purpose
of these financial liabilities is to raise finances for the Group’s operations. The Group has loans and other receivables, trade and other
receivables, and cash and short-term deposits that arrive directly from its operations. The Group also holds available-for-sale investments.
The Group’s activities expose it to various financial risks, primarily being, market risk (including currency risk, interest rate risk, and price
risk), credit risk and liquidity risk. The Group’s risk management is carried out internally in accordance with the policies approved by the
Board of Directors.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices.
Market prices comprise three types of risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity risk.
Financial instruments affected by market risk include loans and borrowings, deposits, available-for-sale investments, and derivative financial
instruments
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates.
The Group is exposed to interest rate risk on its interest bearing assets and liabilities (short term bank deposits, held to maturity investments,
bank borrowings and term loans). The management manages the interest rate risk by constantly monitoring the changes in interest rates
and availing lower interest bearing facilities.
As at the reporting date, had the interest rate were to move up or down by 1%, the impact on the parent and consolidated income statement
would have been RO 1,772 thousands (2014: RO 2,004 thousands) and RO 1,946 thousands (2014: RO 2,134 thousands) respectively.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign
exchange rates. The Group operates in international markets and is exposed to foreign exchange risk arising from various currency
exposures, primarily with respect to the US dollar, Euros, Pound sterling and all GCC currencies.
The majority of the Group’s financial assets and financial liabilities are either denominated in local currency (Rials Omani) or currency fixed
against Rials Omani. Term loan is due in US Dollars. As the Omani Rial is pegged to the US Dollar, balances in US Dollars are not
considered to represent significant currency risk, hence the management believes that there would not be a material impact on the
profitability if these foreign currencies weakens or strengthens against the Omani Rials with all other variables held constant.
However, the management has set up a policy to require the Company to manage its foreign exchange risk against their functional currency.
The Company is required to hedge its foreign exchange risk exposure as needed. To manage its foreign exchange risk arising from future
commercial transactions and recognised assets and liabilities, the Company uses forward contracts. These contracts are not however
designated as hedges under IAS 39 and are consequently initially recognised at cost and subsequently re-measured to their fair value at
each reporting date. Material changes in the fair value of foreign currency forward contracts are recorded in the statement of comprehensive
income account as they arise. At 31 December 2015, with all the other variables held constant, management believes that there would be no
significant impact on the post tax profits due to fluctuations in these currencies.
Commodity price risk
The Group is affected by the volatility of certain commodities. Due to the significantly increased volatility of the price of the underlying, the
Group’s Board of Directors has developed and enacted a risk management strategy regarding commodity price risk and its mitigation.
Amount in RO '000s
36. Financial instruments and related risk management (continued)
Equity price risk
The Group do not hold any quoted investment.
Credit risk
Credit risk primarily arises from credit exposures to customers, including outstanding receivables and committed transactions. The Group
has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers
requiring credit over a certain amount. The Group seeks to limit its credit risk with respect to banks by only dealing with reputable banks and
with respect to customers by setting credit limits for individual customers and monitoring outstanding receivables.
Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and benefit other stake
holders. The management’s policy is to maintain a strong capital base so as to maintain creditor and market confidence and to sustain
future development of the business.
There has been no change in the group’s objectives, policies or process during the year ended 31 December 2015 and 31 December 2014.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting
date was:
Parent Company
2015
2014
Advances, prepayments and other receivables
Deposits with banks
Cash and bank balances
271,635
45,785
23,936
1,258
14,795
357,409
251,430
60,105
22,094
1,293
735
335,657
2015
Consolidated
2014
283,951
45,866
28,839
1,263
18,035
377,954
265,341
60,268
21,532
1,324
2,568
351,033
The exposure to credit risk for contract billed receivables, trade receivables and work in progress at the reporting date by type of customer
was:
Government customers
Petroleum Development Oman
Other private customers
216,452
42,672
12,511
271,635
183,083
51,178
17,169
251,430
216,915
42,672
24,364
283,951
183,852
51,178
30,311
265,341
The group has established credit policies and procedures that are considered appropriate for the parent company and its subsidiaries. The
Company’s business is conducted mainly by participating in tenders / bids. On acceptance of a tender / bid it enters into a detailed contract
with the customer. This contract specifies the payment and performance terms as well as the credit terms. Also refer to note 38 key
sources of estimation of uncertainty for the impairment of the trade receivables.
The age of receivables as above at the reporting date was:
Not past due
Past due 0- 180 days
Past due 181 - 365 days
More than 365 days
Impairment
120,347
33,731
38,971
78,586
271,635
(31,422)
129,844
33,311
25,048
63,227
251,430
-
128,596
36,911
39,384
79,060
283,951
(31,465)
141,875
34,397
25,461
63,608
265,341
(43)
Amount in RO '000s
Exposure to credit risk (continued)
The credit quality of the cash at bank and deposits with bank are as follows:
Rating
P-1
P-2
P-3
Not rated
Parent Company
2015
2014
2015
Consolidated
2014
1,945
13,548
230
15,723
1,420
226
178
1,824
2,815
15,443
319
356
18,933
2,188
1,119
184
178
3,669
99,570
32,750
39,521
198,614
370,455
100,582
28,000
62,691
161,439
352,712
114,470
37,547
40,193
225,259
417,469
106,570
33,027
63,503
186,200
389,300
8,411
8,749
21,752
60,658
99,570
6,170
8,972
17,238
68,202
100,582
8,411
8,749
22,363
74,947
114,470
7,209
10,012
15,761
73,588
106,570
27,750
5,000
32,750
23,000
5,000
28,000
27,750
5,000
4,797
37,547
23,000
5,000
5,027
33,027
29,487
10,034
39,521
51,049
11,642
62,691
30,159
10,034
40,193
51,861
11,642
63,503
110,085
28,889
20,235
39,405
198,614
98,550
18,403
17,274
27,212
161,439
127,247
33,152
25,240
39,620
225,259
115,698
21,774
19,731
28,997
186,200
Liquidity risk
The following are the financial liabilities including interest payments:
Term loans
Short term loans
Bank borrowings
The contractual maturities of above financial liabilities were:
Term Loans:
Upto 90 days
91 - 180 days
181 - 365 days
More than 365 days
Short term loans:
Upto 90 days
91 - 180 days
181 - 365 days
Bank Borrowings:
Upto 90 days
91 - 180 days
181 - 365 days
Trade and other payables:
Upto 90 days
91 - 180 days
181 - 365 days
More than 365 days
Amount in RO '000s
Interest rate risk
The Group’s exposure to interest rate risk relates to its bank deposits, borrowings, and term loans.
Term loans of RO 111,968 (2014: RO 104,068) thousands are recognized at fixed interest rates and expose the Group to the fair value
interest rate risk. The remaining term loans of RO 2,502 (2014: RO 2,502) thousands are recognized at floating rates thus exposing the
Group to cash flow interest rate risk.
The company’s short term bank deposits carry fixed rates of interest and therefore are not exposed to interest rate risk.
37. Fair values of financial instruments
Fair values
Financial instruments comprise financial asset, financial liabilities and derivatives.
Financial assets consist of bank balances, receivables and available for sale investments. Financial liabilities consist of term loans,
government soft loan and payables. Derivatives relates to forward currency and commodity hedging contracts.
Group’s financial instruments that are carried in the financial statements are having same fair value as set out below:
Financial assets
Parent Company
2015
2014
Due from related parties
Other receivables (excluding prepaid expenses, advances
and due from related parties)
Investment in associates and subsidiaries
Investment available for sale
Cash and bank balances and deposits
Financial liabilities
Trade payables
Due to related parties
Other payables and provisions (excluding advances and
due to related parties)
Bank borrowings
Term loans
2015
Consolidated
2014
242,377
43,621
13,804
251,430
60,105
11,024
254,693
43,702
11,555
265,341
60,268
7,570
1,422
1,163
5,147
2,789
18,909
125
16,053
336,311
13,202
125
2,028
339,077
3,899
145
19,298
338,439
4,861
145
3,892
344,866
78,101
1,612
77,507
1,980
88,772
2,128
87,044
2,422
45,694
21,964
58,333
31,939
39,521
132,320
297,248
62,691
128,582
292,724
40,193
152,017
341,443
63,503
139,597
324,505
Amount in RO '000s
38. Key sources of estimation uncertainty
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting 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 :
(a) Revenue recognition
The company uses the percentage-of-completion method in recognising its project revenues. Use of this method requires the company to
estimate revenues and costs over the remaining period of the projects. However, the deviations are not anticipated to be of a material nature
as the estimates are based on historical experience, progress to date on contracts and other factors, including expectations of future events
that are believed to be reasonable under the circumstances, and are regularly evaluated.
(b) Claims
The group has filed certain claims with its Government and Quasi Government customers and made an assessment of the recoverable
amount of claims based on ongoing negotiations at the reporting date, which in some cases involve arbitration and litigation. In accordance
with the group's accounting policy on revenue recognition, after considering the advanced stage of negotiations with customers and the
independent third party consultants reports and the internal assessments, a portion of such claims has been recognised in these
consolidated financial statements based on management’s assessment of the amount of claims that will be recoverable from customers.
The claims raised by the Group against the customers are mainly in relation to variations from the originally agreed contract scope, changes
in costs incurred due to the effects of royal decrees issued after the commencement of contracts and additional costs incurred due to
extension of the project completion time. Claims are determined mostly based on evaluation by third party consultants appointed by the
group and the group’s internal experts. The determination of claims to be recovered requires the use of estimates based on the evaluation
performed by third party consultants and stage of negotiations of these claims with customers. The amount of claims which will be accepted
by the customers after negotiations may be different from the amount claims recognised in the group’s financial statements. Management is
of the view that the amount of claims to be recovered from customers will not be less than the amount recognised in these consolidated
financial statements.
Other estimates that involve uncertainties and judgments which have significant effect on the financial statements include whether any
liquidated damages will apply when there has been a delay in completion of contracts.
(c ) 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.
At the reporting date, the Group’s contract billed receivables were RO 216,540 (2014: RO 190,647) thousands, most of these receivables
were from Government and quasi Government entities. This balance includes value of RO 138,102 (2014: RO 117,226) thousand
certification in process, which is in the normal course of business activity in the construction industry. At 31 December 2015, the Provision
for impaired contract receivables was RO 31,422 (2014: nil) thousand. Management believes the balance amounts are fully recoverable. In
addition to this, the groups’ trade receivables and provision for impaired debts were RO 7,426 (2014: RO 5,951) thousand and RO 43 (2014:
RO 43) thousands respectively. (refer note 9).
During the year 2015, the Parent company has received an offer from Muscat Municipality for final account settlement of Muscat
Expressway and Central corridor projects. The amount offered as settlement is less than the amounts originally recognised by the Parent
company. This settlement offer is subject to certain conditions among which include clauses which the management consider represent an
open-ended financial obligation that cannot be accurately quantified. Accordingly the terms of the offer have not been accepted. Further,
the final offer letter with respect to Muscat Express way did not explicitly refer to any penalty amounts that may be contractually levied due to
delay in projects. Accordingly management believes that no penalty is payable as the Muscat Express way was opened to traffic by end of
year 2010. The Parent Company is yet to receive completion certificate which is being followed up with the client..Under the contractual
terms such penalty could amount to approximately RO 13 million being 10% of the original contract value. Management believes that no
penalty is payable. An Impairment provision has been recognised in 2015 the difference between the revenue recognised by the Parent
company and the final contract value proposed by Muscat Municipality in their offer letter although the Parent company continues to
negotiate with its customer for a higher recovery.
Amount in RO '000s
38. Key sources of estimation uncertainty (continued)
(c ) Impairment of accounts receivable (continued)
The parent company estimated that its receivables over 365 days disclosed in note 36 of these financial statements would be collected over
a period of 1 to 3 years from the reporting date. Should the actual collection period in future vary by 1 year impairment recognised under IAS
39 will increase/decrease by RO 2.4 million approximately.
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 through physical verification of inventories carried out annually. As majority of the inventories are at ongoing project sites
these are considered as usable in nature by management as these are closely monitored by the respective project teams. During the year,
the company has appointed an independent third party for carrying out the valuation of the inventories relating to the closed projects and
central warehouse. The company has recognised an impairment provision against these inventories based on the the net realisable values
reported by the independent valuer.Dedicated project teams also monitors surplus inventories on closed/completed jobs for assessing their
usability to consider necessary provisions. 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. Management believes that
provision of RO 2,859 (2014 : RO 1,811) thousands for the group is adequate (refer note 7).
(e ) Useful lives of property, plant and equipment
The group's management determines the estimated useful lives of its property, plant and equipment for calculating depreciation. This
estimate is determined after considering the expected usage of the asset or physical wear and tear. Management reviews the residual value
and useful lives annually and future depreciation charge would be adjusted where the management believes the useful lives differ from
previous estimates.
(f) Impairment of intangible assets
The Group follows the guidance of IAS 36 to determine when an intangible asset recognised is impaired. This determination requires
significant judgment and in making this judgment, the management evaluates, among other factors, the carrying amount of the entity’s
intangible assets and the future free cash flows from the operations of these entities which are based on the project feasibility reports and
long-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and the
operational and financing cash flow.
The management tests annually whether these intangible assets of the group have suffered any impairment in accordance with IAS 36,
‘Impairment of Assets’ which require the use of the above estimates.(refer note 4)
(g) Impairment of equity investments
The group treats available-for-sale equity investments as impaired when there has been a significant or prolonged decline in the fair value
below its cost or where other objective evidence of impairment exists. The determination of what is ‘significant’ or ‘prolonged’ requires
judgment, which is critically evaluated by the Group on a case to case basis.
(h) Impairment of investments in associates
The parent company test annually whether investment in associates have suffered any impairment in accordance with IAS 36, ‘Impairment
of Assets’ which require the use of estimates. The parent company considers impairment of investments in associate companies when there
has been a significant decline in the carrying value below its cost or where other objective evidence of impairment exists. At 31 December
2015, management has made a specific assessment with respect to associates (GEC, Kuwait and MTPL, India) based on the future cash
flows and profits of these associates and believes that the future profits would be sufficient to recover the accumulated losses existing at the
reporting date. Accordingly no impairment was considered necessary in these financial statements (refer note 6).
(i) Taxes
Uncertainties exist with respect to the interpretation of tax regulations and the amount and timing of future taxable income. Given the wide
range of business relationships and nature of existing contractual agreements, differences arising between the actual results and the
assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already
recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of finalisation of tax assessments
of respective Group companies. The amount of such provisions is based on various factors, such as experience of previous tax
assessments and differing interpretations of tax regulations by the taxable entity and the responsible tax authority.(refer note 24)
39. Comparative amounts
Certain of the corresponding figures of previous year have been reclassified in order to conform with the presentation for the current year.
Such reclassifications do not affect previously reported profit or shareholder’s equity.

Directors` Report Dear Shareholders, I am pleased to

Transcription

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