AnnuAl RepoRt 2014 - Capital Drilling · Capital Drilling limiteD annUal repOrt 2014 01 CORPORATE...

AnnuAl RepoRt 2014

CORPORATE DIRECTORY

CONTENTS01 Corporate Profile

01 Countries of Operations

02 Business Model and Strategy

04 Overview

05 Financial Summary

06 Chairman Statement

08 Chief Financial Officer’s Report

12 Directors’ Profiles

13 Financial Report

Auditor Deloitte & Touche Deloitte Place, The Woodlands20 Woodlands DriveWoodmead, SandtonJohannesburg, Gauteng 2052South Africa

Bankers Standard Bank (Mauritius) Limited 9th Floor, Tower A, 1 CyberCity,Ebene, Mauritius

HSBC Bank Bermuda LimitedHarbourview Centre 37 Front Street,Hamilton HM 11, Bermuda

Investor Relations Buchanan 107 Cheapside London EC2V 6DN

Broker GMP Securities Europe LLPStratton House, 5 Stratton Street,First FloorLondon W1J 8LA

Capital Drilling Limited Bermuda registered number 34477

Registered Office Canon’s Court22 Victoria StreetHamilton HM 12Bermuda

Corporate Office 61 Kim Yam Road Singapore 239362

RegistrarComputershare Investor Services (Jersey) LimitedQueensway HouseHilgrove StreetSt HelierJersey JE1 1ESChannel Islands

Company Secretary Uno Makotsvana

Website www.capdrill.com

Capital Drilling limiteD annUal repOrt 2014 01

CORPORATEPROFILE

Capital Drilling is an emerging and developing markets focused drilling services company that provides exploration, development, grade control, blast hole and underground drilling services to mineral exploration and mining companies. Our operations span three continents with activities in Africa, Asia and Latin America. The Company currently has a fleet of 96 drilling rigs and operates one of the youngest fleets in the industry.

Since inception in 2004, the Company has developed an enviable reputation for its ability to deliver safe, professional and reliable drilling services in remote locations and developing market countries. This ability has allowed the Company to attract and retain some of the world’s largest mining and exploration companies as major long term clients.

The Company began operations in the Lake Victoria goldfields region of Tanzania and has since expanded and operated in Zambia, Egypt, the Democratic Republic of Congo, Pakistan, Armenia, Serbia, Papua New Guinea, Mozambique, Hungary, Eritrea, Chile, The Solomon Islands, Mauritania, and Ethiopia.

The team at Capital Drilling provides decades of combined experience operating in emerging markets and strives to deliver the highest standards in safety, performance and quality. We pride ourselves on delivering “developed market standards for emerging market operations”.

The Company has been deliberately structured to retain flexibility to respond swiftly and efficiently to changes in market conditions.

COuNTRiES Of OPERaTIOns

Current Operations 2014

Regional Offices

Registered Offices/Previous Operations

EGYPTSince 2005

PAPUA NEW GUINEA

Since 2008

TANZANIASince 2005

ZAMBIASince 2006

GHANASince 2011

MAURITANIASince 2010

CHILESince 2010

02 Capital Drilling limiteD annUal repOrt 2014

BuSiNESS MOdElanD sTRaTEgY

WhAt We Do

We are a drilling services contractor that offers a wide scope of drilling services to mining and exploration companies operating in the developing markets, starting from the exploration phase of the mining cycle through to the production phase.

We are a trusted partner to a number of major mining houses and deliver our service through a fleet of 96 drill rigs located in Africa, Latin America and the Pacific Islands.

ouR oBjeCtIves

Our objectives are to deliver a safe, professional and reliable drilling service to our customers while providing solid long term returns to our investors.

hoW We CReAte vALue

We have a proven capability to deploy capital equipment and competent personnel to remote locations which we have demonstrated since inception. We are also able to operate in these challenging environments to the highest safety standards, which means we are trusted by our customers to deliver a competitively priced and quality drilling solution at various stages of the mining cycle.

We have a flexible structure that enables us to respond rapidly and efficiently to changes in market conditions. This is underpinned by a strict capital discipline process, demonstrated by the conservative gearing levels maintained by the Group.


ouR CompetItIve ADvAntAges

Our people and our equipment are our key competitive advantages.

• Our team has a long track record, with the founders of the business still involved both on a strategic and operational level. This means we are trusted by our customers to deliver a high quality drilling service;

• Our team is capable of rapidly deploying and mobilising equipment and capable personnel in some of the most challenging environments in the world, which makes us a preferred provider in time sensitive projects;

• We own and maintain one of the youngest fleets in the industry;

• We have a very strong safety culture which meets the highest levels of safety standards regardless of where we operate.

Fleet prOFile (2014)

Deep Hole Diamond

9

Diamond43

Reverse Circulation

15

Underground4

Production18

Multi Purpose

7

Client tYpeS (2014)

Mid-Tier41%

Major57%

Junior2%

Drilling tYpeS (2014)

Production57%

Development38%

Exploration5%


OvERviEw

Revenue down 15% to $98.8 million (2013: $116.3 million)

EBITDA improved by 20% despite 15% contraction in revenue

Return to positive EBIT of $3.9 million (2013: loss of $0.2 million)

Net Loss After Tax reduced to a loss of $0.6 million (2013: loss of $1.9 million)

Net debt to equity ratio of 0.4% (2013: 9.9%)

All amounts are in USD unless otherwise stated

2014 2013 $m $mAverage Fleet Size 96 91Fleet Utilisation (%) 43 55ARPOR ($) 188,000 179,000

Revenue 98.8 116.3EBITDA 20.4 17.0EBIT 3.9 (0.2)

Net (Loss) Profit After Tax (0.6) (1.9)

(Loss) Earnings per share Basic (cents) (0.4) (1.4)Diluted (cents) (0.4) (1.4)

Net Asset Value per share (cents) 67.6 68.0

Return On Capital Employed (%) 3.3 (0.2)Return on Total Assets (%) 3.0 (0.2)Net Debt / Cash 0.4 9.0Net Debt to Equity (%) 0.4 9.9


Strong cash generation with Net Operating cash flows of $22.7 million (2013: $15.0 million)

Significant Free Cash Flow of $9.1 million

Declared the Group’s maiden dividend of US1.9 cents per share

Maintained the youngest “scale” fleet in the industry

Impact of cost saving initiatives clearly demonstrated with margin despite lower revenue

Appointed new Chief Executive Officer in November 2014


fiNANCiAl summaRY

npAt

geARIng nAv peR shARe

opeRAtIng CAsh FLoW / FRee CAsh FLoW

eBItDARevenue

130.5

158.9

116.3

98.8

180

160

140

120

100

80

60

40

20

-FY11 FY12 FY13 FY14

0%

5%

10%

15%

20%

25%

30%

0

5

10

15

20

25

30

35

4040

35

30

25

20

15

10

5

0FY11 FY12 FY13 FY14

30%

25%

20%

15%

10%

5%

0%

20.5%

14.6%

17.0

20.3

37.1

34.0 23.4%

26.1%

FY11 FY12 FY13 FY14

20

15

10

5

0

-5

17.6

14.1

-1.9 -0.6

FY11 FY12 FY13 FY14

15

10

5

0

(5)

(10)

(15)(15)

(10)

(5)

0

5

10

15

Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14

Cash Generated from Operations Free Cash Flow

Jun11 Dec11 Jun12 Dec12 Jun13 Dec13 Jun14 Dec14

Cash Generated from Operations Free Cash Flow

Total Debt Net Debt to Equity %

0%

5%

10%

15%

20%

25%

0

5

10

15

20

25

30

35

FY11 FY12 FY13 FY14

35

30

25

20

15

10

5

0

25%

20%

15%

10%

5%

0%FY11 FY12 FY13 FY14

29.1

21.4%

0.4%

18.5%

18.721.4

15.19.9%

0.50

0.55

0.60

0.65

0.70

FY11 FY12 FY13 FY14

0.70

0.65

0.60

0.55

0.50FY11 FY12 FY13 FY14

0.690.68 0.67

0.59

EBITDA EBITDA%


2014 again proved highly challenging with the commodities industry facing prolonged headwinds, impacted by continued weakness in key commodity prices and an uncertain and changing global economic environment. Our customers continued their focus on strict cost management and constrained capital expenditure, driving a material impact in the demand for drilling services. Capital markets activities remain depressed, at levels last seen a decade ago, which has driven a sharp decline in exploration expenditure, down almost 50% since the 2012 peak (Source: SNL MEG Date: November 2014).

Despite these substantial and sustained headwinds facing our business we have delivered improved margins, increased free cash flow and significantly deleveraged our balance sheet. These results demonstrate the effectiveness of our strategy and the quality of our people, assets and processes. With our significantly improved financial position and an improving operational performance we are confident for the future of the Group, reflected in our decision to announce the Company’s maiden dividend of US1.9 cents per share.

Revenue for 2014 fell 15% year on year to $98.8mn, the second successive year of revenue declines driven by the weaker demand environment. Weakness was particularly pronounced in the second half of the year as a number of exploration and delineation contracts reached their conclusion, leading to the decision to exit our operations in South East Asia. Against this demand weakness the Group is pleased to report a 20% increase in EBITDA to $20.4mn and a return to positive EBIT of $3.9mn. Our early and decisive response to the weaker environment has enabled us to manage much of the impact and deliver a strong performance in this environment.

ChAiRMANsTaTEmEnT

Figure 1: Annual Fleet growth & Rig utilisation

The Group acquired 8 new rigs over 2014, all of which were deployed on the 5 year production contracts at the Geita Gold Mine (AngloGold Ashanti) and the Sukari Gold Mine (Centamin) and ended the year with a total of 96 rigs, maintaining our reputation with one of the youngest fleets in the industry. The acquisitions represented contract specific requirements therefore increasing our

Figure 2: ARpoR

A pleasing aspect of our performance in 2014 was the increase in Group Average Revenue per Operating Rig (“ARPOR”) by 5% to $188,000 (2013: $179,000). While we were impacted by inconsistent drilling activities and pricing headwinds over 2014, we have seen substantial operational improvements, a reflection of the Group’s ongoing focus on operational excellence.

capital expenditure for the year, however the majority of capital required for both contracts has now been incurred, based on the current projected activity levels. As such we expect a decrease in capital expenditure in 2015 based on current expectations and another year of strong free cash flow.

Rig utilisation remained stable for 5 consecutive quarters up to and including Q3 2014, however with the conclusion of drilling activities in the Solomon Islands, Papua New Guinea and Zambia, utilisation fell to 38% in Q4 2014. Commensurate with the cessation of activity in the Pacific Islands, we made the decision to exit our operations in South East Asia, including the relocation of our Head Office from Singapore to Mauritius in order to minimise costs and critically bring the senior management team closer to the Group’s operations. This move is underway and transitioning over H1 2015. The opening quarter of 2015 has seen a continuation of low demand, with utilisation rates remaining at historical lows, albeit we continue to operate above industry levels. We continue with our active maintenance program on our idle fleet, ensuring the rigs are ready for work when we are successful on future tenders.

FIguRe 3: FY 2014 net Debt movements

15.0

10.0

5.0

-

(5.0)

(10.0)

(15.0)

CapexOpening Net Debt

FY 2014 EBITDA

WorkingCapital

Others Closing Net Debt

(9.0)

(0.4)

148

H1 09

H2 14

H2 09

H1 10

H2 10

H1 11

H2 11

H1 12

H2 12

H1 13

H2 13

H1 14

220

200

180

160

140

120

100

80

135128

136154

162

197187 192

164

193184

100

90

80

70

60

50

40

30

20

10

0H1 09

H2 14

H2 09

H1 10

H2 10

H1 11

H2 11

H1 12

H2 12

H1 13

H2 13

H1 14

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Flee

t gro

wth

utilisation

58 58 64 64 77 85 88 93 91 91 95 96

62% 62% 60%

82% 81% 84%75%

78%

64%

46%45% 41%

Fleet Growth Utilisation


Cash generation over the year in review was particularly strong, with a 20% increase in EBITDA to $20.4mn and a $4.6mn working capital inflow. The Group continued to de-lever its balance sheet over 2014 and finished the year with net debt of $0.4mn. We aim to maintain this a conservative approach to gearing going forward and we closed the year with $14.7mn of cash on the balance sheet. Having withstood the prevailing industry headwinds and further strengthened the Group’s balance sheet, the Directors are pleased to announce a maiden dividend of US1.9 cents per share. This is an important milestone for Capital Drilling, representing the Company’s first dividend since inception in 2005 and reflective of the solid performance in managing the business through the current prolonged downturn in the resources sector.

Figure 4: gross Debt vs net Debt to equity (%)

heALth AnD sAFetY

The Group continues with its strong focus on a safety culture, supported by our Training and Development programs. We recorded another strong performance in safety in 2014, with our key measure, the All Injury Frequency (days free) Rate (AIFR), recorded at 0.94 injury related incidents per 200,000 man hours.

Project milestones in 2014 for Lost Time Injuries (LTI’s) include: • Tanzania – Geita Project 2,500 days (March 2014)• Zambia – Kansanshi Project 500 days (March 2014)• Zambia – Kansanshi Project 2 years (October 2014)• Egypt – Sukari Project 1 year (October 2014)

DIvIDenD poLICY

As an expression of our confidence in the Group’s prospects, the Directors propose a dividend of US1.9 cents per share, payable on 08 May 2015 to shareholders on the register on 01 May 2015. The ex-dividend date is 30 April 2015.

The dividend policy will be based on the financial condition of, and outlook for, the Company and its cash flow and financing needs. When determining the amount

to be paid the Board will take into consideration the underlying profitability of the Company. Specifically, the Board will aim to approve an annual dividend within the range of 25-50% of the Company’s free cash flow (being operating cash flow less capital expenditure).

outLook

The market volatility seen since the start of the year suggests that 2015 will continue to be challenging, yet is slowly showing indications of improving sentiment. We are currently experiencing a transition in global growth drivers, with a moderation of growth in China and an improving growth profile in the United States. This shift is having a marked impact in global commodity markets, with increased volatility in the prices of oil, iron ore, copper and most recently gold. Accordingly, the continued drive of global mining companies to reduce costs remains firmly in focus.

On the supply front, industry utilisation rates for the global drilling fleet remain at historical lows, with an estimated global fleet utilisation of 35 to 40% based on recent company announcements. Whilst we have been operating in this environment for the past 2 years, aggressive price competition remains prevalent, particularly in exploration and delineation drilling.

Despite these challenges we are in the strongest position in the company’s history, as reflected in the announcement of a full year dividend of US1.9 cents per share for 2014. The decisive early actions taken by your management team to reduce costs, our improving operational performance across a solid base of long term contracts and our strong balance sheet, all position us well to cope with the challenges ahead. The foundations that are now in place will provide increased earnings and cash flow leverage when markets recover. As always we will retain our tight discipline on capital expenditure and maintain a focus on cash generation and sustainable returns.

I once again would like to take this opportunity to thank all employees, business partners, shareholders, our Board of Directors and all stakeholders for their continued support throughout this cycle and look forward to generating shareholder value in the years ahead.

jamie BoytonExecutive Chairman

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0H1 09

H2 14

H2 09

H1 10

H2 10

H1 11

H2 11

H1 12

H2 12

H1 13

H2 13

H1 14

Total Debt Net debt to Equity (%)


The financial year under review saw continued pressure in the mining and mining services industries, on the back of continued downward pressure on commodity prices, driving the sector wide response of capital expenditure cuts as well as an acute focus on cost reduction. The first half of the year saw the Group deliver a robust performance under these difficult market conditions, while the second half of the year saw a deterioration in our revenue base as some of our clients once again concluded their annual drilling programmes early. Total revenues for the year were $98.8mn, a 15% fall year-on-year. The Group continued to generate strong operational cash flows despite the declining revenue, with the operating cash margin outperforming 2013 both in absolute and percentage terms. This strong operational cash performance reflects the benefit of the Group’s cost reduction measures taking effect for a full year. This further confirms the effectiveness of the cost reduction and containment programme implemented by management to cope with the prevailing market conditions.

The fourth quarter experienced the sharpest decline in revenue with the early termination of the drilling contract in Papua New Guinea, as well as suspension of the drilling programme in Zambia as part of our client’s response to the new proposed royalty tax regime. The Group has maintained a heightened focus on cost management, additional cost reduction and “right sizing” decisions have been made to ensure the Group’s structure remains appropriate for the current market conditions. This will further protect and enhance the Group’s strong cash generation profile. Some of the key strategic decisions made include:

• Exit from South East Asia in response to operations in both Solomon Islands and Papua New Guinea being prematurely terminated. All staff from these countries have been made redundant and assets were relocated;

• Further head-count rationalisation, including senior management positions;

• Relocation of the Group Head Office from Singapore to Mauritius, therefore bringing senior management and key support personnel closer to the Group’s operations, further reducing costs (benefits of this decision will be recognised in 2015 and future years)

The impact of the actions described above and other related decisions on the Group’s earnings for FY 2014 is a charge to the statement of comprehensive income of $3.4mn over the year. The number includes a non-cash deferred tax impairment charge of $0.92mn for a tax asset on the Zambia balance sheet. The decision was taken to impair the asset in light of the weaker copper prices as well as the recent adverse legislative changes in Zambia relating to the country’s Mining Royalty Scheme. These circumstances make it unlikely that the Group will generate future taxable income in Zambia against which the deferred tax asset previously recognised could be utilised. The Group does not have any other material deferred tax assets on the balance sheet. The Group balance sheet continues

to be strong with an ever improving debt profile. Financial year 2015 starts with an even stronger balance sheet and conservative debt levels with a net gearing ratio (net debt/equity) of 0.4% (2013: 9.9%) and significant unutilised debt facilities providing flexibility to respond to changes in market conditions. Net equity decreased marginally to $91.0mn.

The Group achieved revenues of $98.8mn which is a 15% decrease year-on-year, due to early conclusions of some drilling programmes. The average rig utilisation was 43% of the fleet (2013: 55%) with an ARPOR of $188,000 (2013: $179,000). The ARPOR improved despite the Group’s rig utilisation being below 50% for the greater part of the year due to improved operational performance across the board. We start 2015 working on two long term production based contracts which provide a stable base for future growth of the Group.

Despite the lower revenues the key profitability ratios above the tax line have improved year on year, the gross profit margin for the year increased to 33% (2013: 26%), this translated to an Earnings Before Interest and Tax (EBIT) of $3.9mn (2013: Loss Before Interest and Tax $0.2mn). The loss for the year was $0.6mn (2013: $1.9mn). The Group was pushed into the loss after tax position largely due to the $0.92mn deferred tax impairment charge for Zambia.

The loss per share for the year was 0.4 cents compared to a loss of 1.4 cents in the comparative period. The weighted average number of shares remained unchanged at 134,592,800.

stAtement oF FInAnCIAL posItIon

As at 31 December 2014, the Statement of Financial Position showed continued strength and improvement with a $4.6mn release of working capital as shown in the reduction of current assets (excluding cash and cash equivalents) for the Group. This is largely due to improved accounts receivable collections, as well as a reduction in inventory levels.

In addition to the working capital release the Group also reduced its overall liability position through the repayment of the Group’s debt facilities, with net repayments of $6.2mn (2013: $7.7mn) made during the course of the year.

ChiEf fiNANCiAl OffiCER’S REPORT

Reported 2014 2013Revenue $m 98.8 116.3EBITDA $m 20.4 17.0EBITDA % 20.6% 14.6%EBIT $m 3.9 -0.2PBT $m 2.5 -1.9NLAT $m -0.6 -1.9Basic EPS (cents) -0.4 -1.4Diluted EPS (cents) -0.4 -1.4


The fleet size increased to 96 rigs (net of additions and retirements) from 91 rigs in 2013. Rig growth was driven by the Group acquiring 8 new blast hole rigs to service the 5 year Geita and Sukari contracts in Tanzania and Egypt respectively, with an additional grade control rig acquired for Geita. Overall property plant and equipment on the balance sheet reduced to $56.7mn from $60.0mn in 2013 as overall additions were lower than the Group’s depreciation charge. In total 9 rigs were paid for in 2014 with 8 being for 2014 and the 9th rig expected to be received and commissioned in 2015.

Net debt decreased by $8.6 million as a significant portion of the cash generated was applied to debt reduction.

The Group continued to generate strong operational cash flows despite the revenue reductions due to the efficacy of a full year’s impact of the cost reduction and containment programmes commenced in 2012. Operational cash flows generated in 2014 were 19% higher than 2013 (excluding the working capital release) despite revenues being 15% lower which supports strong operational improvement. The operational cash generated after accounting for the working capital release was 48% higher than 2013.

Gross cash used in investing in the acquisition of property, plant and equipment was $13.7mn (net $13.5mn) driven mainly by the acquisition of 9 blast hole rigs, 8 of which were received and commissioned in 2014 for the long term production drilling based contracts in Tanzania and Egypt, the 9th rig is scheduled to be received in 2015. Operating capital expenditure was lower on account of the lower rig utilisation with average fleet age remaining at an industry leading 4.5 years.

Cash used in financing activities was $6.2mn, for the repayment of debt and interest.

The Group’s cash position at year end was $14.7mn and total debt decreased to $15.0mn (2013: $21.4mn).

The net debt position of the business was $0.4mn (2013: $9mn) and, as a result, net gearing (net debt/equity) was 0.4% (2013: 9.9%).

stAtement oF FInAnCIAL posItIon (summARY)

Reported 2014$m

2013$m

Non-current assets 56.9 61.1Current assets 56.7 62.2Total Assets 113.6 123.3

Current liabilities 7.6 10.8Non-current liabilities 15.0 21.0Total Liabilities 22.6 31.8Total Shareholder’s Equity 91.0 91.5

stAtement oF CAsh FLoW (summARY)

2014$m

2013$m

Net Cash from Operating Activities 22.7 15.0Net Cash used in Investing Activities (13.6) (4.3)Net Cash (used in) from Financing Activities

(6.2) (7.7)

Net Increase in Cash and Cash Equivalents

2.9 3.1

Cash Balance at Beginning of Period 12.3 9.1Translation of foreign currency cash (0.5) 0.1Cash Balance at End of Period 14.7 12.3

ReConCILIAtIon oF CAsh posItIon

2014$m

2013$m

Net Debt at beginning of year (9.0) (20.0)Increase in cash and cash equivalent 2.9 3.1Decrease (increase) in loans 6.2 7.9Translation of foreign currency cash (0.5) 0.1Net debt at end of year (0.4) (9.0)

tReAsuRY AnD RIsk mAnAgement

The Group operates under standard finance procedures with a centralised treasury function. As a result, more than 50% of the receivables are centrally received to mitigate part of the in country cash risk. In cases were the local legislation does not permit receivables to be collected centrally, the Group has procedures in place to repatriate the funds to head office. The Group therefore manages cash and cash flow from Head Office.

The Group does not undertake any formal currency hedging, though it endeavours to increase the percentage of all transactions in USD denominations as an informal hedge. During the financial year under review there have been some changes in monetary regulations in some jurisdictions in which we operate which adds a delay in the timing of receiving funds in the Group’s Head Office bank accounts. The policy of pooling all of the Group’s cash balances in accounts at Head Office remains unchanged.

The Group successfully concluded refinancing of the maturing debt obligations extending the tenure of the borrowings from maturing in February 2016 to a maturity date of February 2018. The new facility of $30mn with Standard Bank South Africa announced in February 2015, also cancelled unnecessary headroom reducing the overall cost of committed facilities.

A reconciliation of the movement in the net cash position is found below.

10 Capital Drilling limiteD annUal repOrt 2014 Capital Drilling limiteD annUal repOrt 2014 11

CRItICAL ACCountIng poLICIes

The Financial Statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. The principal accounting standards are set out in the Group’s Financial Statements.

The Financial Statements have been prepared on the historical cost basis and are presented in US dollars, given the Groups transactions are primarily denominated in US dollars.

pRopeRtY, pLAnt AnD equIpment

The Group depreciates all fixed assets over their estimated useful lives, less any pre-agreed salvage value. The carrying value of fixed assets are reviewed annually or more frequently if a triggering event occurs.

tAxAtIon

A deferred tax asset and liability is recorded in the Statement of Financial Position. The Group has tax losses carried forward of $30.0mn (2013: $20.5mn) with a tax value of $7.5mn (2013: $5.9mn) available for offset against future profits. A deferred tax asset has however only been recognised to the value of $0.8mn (2013: $2.8mn) in respect of such losses. No deferred tax asset has been recognised in respect of the remaining tax losses amounting to $22.9mn (2013: $10.7mn) with a tax value of $6.7mn (2013: $3.1mn) as there is uncertainty whether there will be sufficient future taxable profits available to offset these losses. These losses may be carried forward up to five years or indefinitely depending on the jurisdiction.

shARe BAseD pAYments

There were no additional share based payment transaction in the 2014 financial year. All the 2.34mn share options issued under the 2011 share option scheme have not been exercised.

In March 2015, 3,000,000 share options convertible into ordinary shares have been issued to the newly appointed Chief Executive Officer Mark Parsons. The share options issued by the Company have an exercise price of $0.66 each and depending on the fulfilment of certain conditions, are exercisable up to 9 August 2019.

pRImARY RIsks

The Group operates in environments that pose various risks and uncertainties. The primary risks associated with the business are:

• Fluctuation in levels of mining activity The Group is highly dependent on the levels of mineral

exploration, development and production activity

within the markets in which it operates. A reduction in exploration, development and production activities, or in the budgeted expenditure of mining and mineral exploration companies, will cause a decline in the demand for drilling rigs and drilling services, as was evident in the 2014 financial year.

• Key personnel and staff retention The Group’s ability to implement a strategy of pursuing

expansion opportunities is dependent on the efforts and abilities of its executive directors and senior managers. In addition, the Group’s operations depend, in part, upon the continued services of certain key employees. If the Group loses the services of any of its existing key personnel without timely and suitable replacements, or is unable to attract and retain new personnel with suitable experience as it grows, the Group’s business, financial condition, results of operations and prospects may be materially and adversely affected. In addition, business may be lost to competitors which members of senior management may join after leaving their positions with the Group.

• Currency fluctuations The Group receives the majority of its revenues in US

dollars. However, some of the Group’s costs are in other currencies in the jurisdictions in which it operates. Foreign currency fluctuations and exchange rate risks between the value of the US dollar and the value of other currencies may increase the cost of the Group’s operations and could adversely affect the financial results. As a result, the Group is exposed to currency fluctuations and exchange rate risks. To minimise the Group’s risk, the Group tries to match the currency of operating costs with the currency of revenue.

• Operating risks Operations are subject to various risks associated with

drilling including, in the case of employees, personal injury and loss of life and, in the Group’s case, damage and destruction to property and equipment, release of hazardous substances in to the environment and interruption or suspension of drill site operations due to unsafe drill operations. The occurrence of any of these events could adversely impact the Group’s business, financial condition, results of operations and prospects, lead to legal proceedings and damage the Group’s reputation. In particular, clients are placing an increasing focus on occupational health and safety, and deterioration in the Group’s safety record may result in the loss of key clients.

• Political, economic and legislative risk The Group operates in a number of countries where

the political, economic and legal systems are less predictable than in countries with more developed industrial structures. Significant changes in the political, economic or legal landscape in such countries may have a material effect on the Group’s operations in those

ChiEf fiNANCiAl OffiCER’S REPORT

10 Capital Drilling limiteD annUal repOrt 2014 Capital Drilling limiteD annUal repOrt 2014 11

countries. Potential impacts include restrictions on the export of currency, expropriation of assets, imposition of royalties or other taxes targeted at mining companies, and requirements for local ownership. Political instability can also result in civil unrest and nullification of existing agreements, mining permits or leases. Any of these may adversely affect the Group’s operations or results of those operations. The Group has invested in a number of countries thereby diversifying exposure to any single jurisdiction.

• Business interruptions and weather conditions Significant business interruptions as a result of natural

disasters, extreme weather conditions, unstable drilling sites, regulatory intervention, delays in necessary approvals and permits or delays in supplies, may reduce the Group’s ability to complete drilling services, resulting in performance delays, increased costs and loss of revenue.

As operations are conducted outdoors, they are generally vulnerable to weather and environmental conditions. The Group operates in a variety of locations, some of which are prone to extreme weather conditions. High rainfall can significantly impact drilling activity, as well as impede the ability to move drilling rigs between drill sites. Accordingly, weather conditions as well as natural disasters may adversely impact the financial performance of the Group.

goIng ConCeRn BAsIs

The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman and Interim Chief Executive’s Review as well as this Chief Financial Officer’s Report. The financial position of the Group, its cash flows and liquidity position are also described in from pages 27 to 64 of the consolidated annual financial statements.

As highlighted in note 20 to the consolidated financial statements, the Group has borrowings and a debt facility which, together with its clients’ receipts, fund its day to day working capital requirements. Volatile economic conditions may on occasion create uncertainty particularly over (a) the level of demand for the Group’s services; and (b) exchange rate fluctuations against the US Dollar and the consequent effect on the Group’s direct costs.

The Group’s forecasts and projections, taking into account potential changes in its performance, show that the Group should be able to operate within the level of its capital structure, current facilities and related covenants. The Group has held discussions with its bankers about its future borrowing needs and no matters have been drawn to its attention to suggest that these needs may not be met on acceptable terms.

The Directors have reviewed the overall Group strategy, the budget for 2015, considered the assumptions contained in the budget and reviewed the critical risks which may impact the Group’s performance. After making such enquiries, the directors believe that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing the annual financial statements.

ResponsIBILItY stAtement

The Directors confirm to the best of their knowledge that the financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and give a true and accurate reflection of the operating result, cash position and Statement of Financial Position at 31 December 2014.

The Directors further confirm that to the best of their knowledge that the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company’s performance, business model and strategy.

CAutIonARY stAtement

This Business Review, which comprises the Chairman’s Statement, Chief Executive Officer’s Review and Chief Financial Officer’s Report, has been prepared solely to provide additional information to shareholders to assess the Group’s strategies and the potential for those strategies to succeed.

The Business Review contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

By order of the Board

uno makotsvanaChief Financial Officer

17 March 2015

12 Capital Drilling limiteD annUal repOrt 2014 Capital Drilling limiteD annUal repOrt 2014 PB

BRIAn RuDD Executive Director Brian Rudd is one of the founders of the Company and an Executive Director, with a focus on business development and client relations. He was appointed as a Director in May 2005. As one of the founders of the Company, Brian

has been instrumental in the successful establishment and development of the Company since 2005. Brian has over 28 years of experience in the mining industry in both Australia and Africa. Before establishing the Company, Brian was the operations manager and subsequently, the general manager of Stanley Mining Services (Tanzania) Ltd, a subsidiary of Layne Christensen Co., in East Africa.

jAmIe phILLIp BoYton Executive Chairman Jamie Boyton is Executive Chairman of the Company and was appointed as a Director in January 2009. He is responsible for overseeing the Company’s strategic and business development, which includes advising

on capital markets requirements and growth opportunities. He was previously an Executive Director and the Head of Asian Equity Syndication and Corporate Broking of Macquarie Securities Limited in Hong Kong, Prior to this, he was a director of ABN AMRO Asia (Hong Kong). Jamie has a Bachelor of Commerce (Accounting and Finance) degree from the University of Western Australia.

diRECTORS’ PROFILEs

ALexAnDeR john DAvIDsonIndependent Non-Executive DirectorAlex Davidson is an Independent Non-Executive Director and was appointed in 2010. He has over 35 years’ experience in designing, implementing and managing gold and base metal exploration and acquisition programmes throughout the

world. Alex was Executive Vice President, Exploration and Corporate Development at Barrick Gold with responsibility for its international exploration programmes and corporate development activities. Prior to joining Barrick Gold, Alex was Vice President, Exploration for Metall Mining Corporation. In April 2005, he was presented the 2005 A.O. Dufresne Award by the Canadian Institute of Mining, Metallurgy and Petroleum. In 2003, he was named the Prospector of the Year by the Prospectors and Developers Association of Canada. Alex is a director of a number of London and Toronto listed companies, including Yamana Gold and US Silver and Gold. He received his B.Sc. and his M.Sc. in Economic Geology from McGill University.

CRAIg IAn BuRtonNon-Executive DirectorCraig Burton is an experienced and active investor in emerging businesses, both publicly listed and private. Over the last 25 years, he has co-founded numerous projects and businesses, with a focus on the resources, oil and

gas, and mining services sectors. Mr Burton is Chairman of Cradle Resources Limited and Transerv Energy Limited and a Director of Hutton Energy Limited.

mARk pARsonsChief Executive Officer(effective 1 April 2015)Mark Parsons is the Chief Executive Officer and was recently appointed to the role in November 2014. Prior to joining the Company, Mark held a Chief Executive position with Imdex Limited running their global AMC division, one

of their three major operating subsidiaries providing drilling fluid design, engineering and products globally. Prior to Imdex, Mark was Vice President – Operations for BHP Billiton’s Minerals Exploration, accountable for planning and delivery of their global greenfield projects. Mark was also part of the Minerals Exploration Executive Committee accountable for setting strategy and delivery of their short and long term planning cycles. Prior to this, Mark worked for Halliburton Energy Services for over 30 years managing all facets of their oilfield services in several international regions, the last being Vice President of Australasia and South East Asia.

tImothY phILIp ReAD Senior Independent Non-Executive Director Tim Read is the Senior Independent Non-Executive Director and was appointed in May 2010. He has some 45 years’ experience in the natural resources sector. Tim was President

and CEO of Adastra Minerals Inc (TSX and AIM) for 7 years, until its takeover by First Quantum in 2006. Prior to this, Tim was global co-head of mining investment banking at Merrill Lynch. He joined Merrill Lynch in 1995 on its takeover of Smith New Court, where he had acted latterly as a director in the corporate finance department (from 1991) and previously as head of mining stock-broking (from 1988). Tim is now a non-executive director for three listed minerals companies namely Faroe Petroleum plc (AIM), Metminco Limited (ASX and AIM) and Lydian International (TSX), where he is the nominee of the International Finance Corporation (a member of the World Bank Group). He had previously served on the boards of Cumerio SA and Kopane Diamond Developments plc (as Chairman) and Nevoro Inc (as Chairman). He has a BA (Honours) in Economics and was, until his retirement, a Fellow of the Chartered Institute of Securities and Investment. Tim is also a member of the Audit Committee Institute.

CONTENTS

14 Corporate Governance Statement21 Directors’ Remuneration Report24 Directors’ Responsibilities25 Report of the Independent Auditors27 Statements of Comprehensive Income28 Statements of Financial Position29 Statements of Changes in Equity30 Statements of Cash Flows31 Notes to the Annual Financial Statements

GLOSSARY

ARPOR Average Revenue Per Operating RigEBIT Earnings Before Interest and TaxesEBITDA Earnings Before Interest, Taxes, Depreciation and AmortisationEPS Earnings Per ShareETR Effective Tax RateHSSE Health, Safety, Social and EnvironmentKPI Key Performance IndicatorLTI Lost Time InjuryNPAT Net Profi t After TaxYOY Year On YearReturn on capital employed EBIT / (Average Total Assets - Average Current Liabilities)Return on total assets EBIT / Average Total Assets

FINANCIAL

14 CAPITAL DRILLING LIMITED ANNUAL REPORT 2014

CORPORATE GOVERNANCE

Capital Drilling recognises the value and importance of high standards of corporate governance and has put in place a

framework appropriate for a smaller quoted company to ensure that such standards are met. The Company is subject

to the UK Corporate Governance Code which was issued in September 2012 by the Financial Reporting Council (the

“Code’), the Company falls outside the FTSE 350 Share Index and is considered a “smaller quoted company”.

This section of our annual report sets out how the Company has applied the Code in 2014. The Code is available

at www.frc.org.uk. Details of the Company’s corporate governance policies and procedures (including the terms of

reference of each of its corporate governance committees) can be found on the governance page of the Company’s

website at www.capdrill.com.

Statement of compliance with the Code

During the year ended 31 December 2014, the Company has been in compliance with the Code except as explained

below.

The Code recommends that at least half the board, excluding the chairman, should comprise independent

non-executive directors. The Code recommends that for smaller quoted companies the board should have at least two

independent non-executive directors. The Board considers that Alex Davidson and Tim Read are independent, and so

the Company satisfi es the requirements of the Code for smaller quoted companies. The Board does not consider Craig

Burton to be independent because of his historic ties and his signifi cant shareholding in the Company.

The Code also recommends that the Chairman of the Board should be independent. The directors do not

consider Jamie Boyton to be independent because of his historic ties with the Company, his employment with the

Company and his signifi cant shareholding in the Company and so the Company will not satisfy this requirement of

the Code. However, in view of his knowledge of the Company and specifi c strategic role within the Company, the

Board considers it appropriate at this stage to maintain Jamie Boyton as Chairman. In addition, the Company has

appointed a senior independent director (as described below) to be available to address any queries or concerns from

shareholders.

The Code also recommends that the Board should appoint one of its independent non-executive directors to be the

senior independent director. The senior independent director should be available to shareholders if they have concerns

that contact through the normal channels of chairman, chief executive offi cer or chief fi nancial offi cer has failed to

resolve or for which such contact is inappropriate. The Company’s senior independent director is Tim Read.

In accordance with the Code, the Company has established guidelines requiring specifi c matters to be subject to

decision by a majority of the full Board including material acquisitions and disposals, investments and capital projects.

The Code recommends that a UK listed company should establish an audit committee, a remuneration committee and

a nomination committee. The Company has each of these committees, the terms of reference of which are described

in further detail below. In view of the Company’s commitment to health and safety and its desire to minimise the

environment impact of the business, the Board has also established a Health, Safety, Social and Environmental

Committee (“HSSE”) , details of which are set out below.

Board of directors

The Board comprises:

Executive Directors:

Jamie Boyton – Executive Chairman and interim Chief Executive Offi cer (acting as interim Chief Executive until

17 November 2014)

Brian Rudd – Executive Director

Non-Executive Directors:

Tim Read – Senior Independent Director

Alex Davidson – Independent Director

Craig Burton – Non-Independent Director

CAPITAL DRILLING LIMITED ANNUAL REPORT 2014 15


The executive and non-executive directors are satisfi ed that the Company operates an effective board which is

collectively responsible for the success of the Company. Together, the executive and non-executive directors bring a

broad range of business, commercial and other relevant experience to the Board, which is vital to the management of

an expanding company. Page 12 contains descriptions of the background of each director.

The terms and conditions of appointment of the non-executive directors are available for inspection at the Company’s

registered offi ce and will also be available at the AGM. Brief details of these terms and conditions are also set out in

the Directors’ Remuneration Report.

The Board is satisfi ed that each of the non-executive directors committed suffi cient time during 2014 for the fulfi lment

of their duties as directors of the Company. None of the non-executive directors have any confl ict of interest which

has not been disclosed to the Board.

The number of Board and Committee meetings eligible for attendance and attended by each of the directors during

the year was as follows:

Board meetings*

Audit and Risk Committee meetings*

Remuneration Committee meetings*

Nomination Committee meetings*

HSSE Committee meetings*

Number of meetings held in period 4 4 5 3 1

Jamie Boyton 4 – – – 1

Brian Rudd 4 – – – 1

Tim Read 4 4 5 3 –

Alex Davidson 4 4 5 3 1

Craig Burton 4 4 5 3 –

* include meetings held until 17 March 2015

On appointment, and throughout their tenure, directors receive appropriate training and regular presentations are made

to the Board by senior management and external advisors.

All directors are authorised to obtain, at the Company’s expense and subject to the Executive Chairman’s approval,

independent legal or other professional advice where they consider it necessary. All directors have access to the

Company Secretary, who oversees their ongoing training and development needs.

Election and re-election of directors

The Company’s Bye-Laws contains detailed rules for the appointment and retirement of directors. There is a formal

procedure in place to select and appoint new directors to the Board. These directors are required to retire at the next

AGM, but can offer themselves for re-election by shareholders. All directors are required to submit themselves for re-

election at intervals not exceeding three years.

The Board annually evaluates the performance of individual directors, the Board as a whole and its Committees. The

evaluation comprises structured interviews led by the Executive Chairman and the Senior Independent Director with

the other directors. The performance of the executive and non-executive directors was appraised by the Executive

Chairman, taking into account the views of the other directors. Led by the Senior Independent Director, the

performance of the Executive Chairman was assessed by the non-executive directors, taking into account the views of

the other executive directors.



Operation of the Board

The Board meets regularly and four meetings (including the Board meeting held on 3 March 2015) were held in 2014.

All directors are supplied, in advance of meetings, with appropriate information covering matters which are to be

considered. The Executive Chairman also met with the non-executive directors in the absence of the other executive

directors.

There is a formal schedule of decisions reserved for the Board. This includes approval of the following: the Group’s

strategy; the annual operating plan and budget; the annual and interim fi nancial statements; signifi cant transactions;

major capital expenditures; risk management policies; the authority levels vested in management; Board appointments;

and remuneration policies. As described below, the review of certain matters is delegated to Board Committees, which

make recommendations to the Board in relation to those matters reserved for the Board as a whole.

Audit and Risk Committee

The Audit and Risk Committee comprises Tim Read (Chairman), Alex Davidson and Craig Burton.

The profi les of the Audit and Risk Committee members are on page 12 and are considered to have recent and relevant

fi nancial experience. The Committee met four times (including two meetings held in March 2015) in 2014 and had met

the external auditors separately on three occasions.

The Committee may, from time to time, invite the Company’s Chief Executive Offi cer and Chief Financial Offi cer to

attend its meetings.

The Code recommends that smaller quoted companies have two independent non-executive directors appointed to

the Audit and Risk Committee. Tim Read and Alex Davidson are independent non-executive directors and therefore

the Company complies with the Code for smaller quoted companies.

The Audit and Risk Committee is primarily concerned with the effectiveness of the Company’s accounting policies and

practices, fi nancial reporting and internal controls. It is among other things responsible for:

(i) monitoring the integrity of fi nancial statements, including reviewing the fi nancial statements and signifi cant

fi nancial returns to regulators and any formal announcements relating to the Company’s fi nancial performance;

(ii) reviewing the integrity of internal fi nancial control and risk management systems and codes of corporate

conduct and ethics;

(iii) making recommendations to the Board regarding the engagement of independent auditors;

(iv) reviewing the plan, scope and results of the annual audit, the independent auditor’s letter of comments and

management’s response thereto;

(v) reviewing and approving the internal audit plan and management’s response to the internal audit;

(vi) receiving reports from the internal audit and others relating to risk control;

(vii) approving all audit and non-audit services;

(viii) reviewing policies and procedures with respect to internal accounting and fi nancial controls; and

(ix) reviewing any changes in accounting policy.



In 2014, the Audit and Risk Committee:

(i) reviewed the 2014 interim fi nancial statements and the 2014 annual fi nancial statements, in advance of their consideration by the Board, and considered the appropriateness and consistency of application of accounting policies adopted in their preparation and the basis of any major judgements and estimates. As part of this review, the Audit and Risk Committee received a report from the external auditors on their review of the 2014 interim fi nancial statements and their audit of the 2014 annual fi nancial statements;

(ii) reviewed proposed changes to the Group’s internal controls;

(iii) received a report from the external auditors on, and considered the effectiveness of, the Group’s accounting and internal control systems and monitored the actions taken by management in response;

(iv) considered and agreed the scope of the review to be undertaken by the external auditors on the 2014 interim fi nancial statements and 2014 annual fi nancial statements;

(v) agreed the fees to be paid to the external auditors for the review of the 2014 interim fi nancial statements and for the audit of the 2014 annual fi nancial statements;

(vi) received updates from the auditors on new accounting pronouncements, regulation and best practice; and

(vii) reviewed its own effectiveness.

The Chairman of the Audit and Risk Committee reported to the Board on its activities after each meeting, identifying relevant matters requiring communication to the Board and recommendations on the steps to be taken.

External auditors

The Audit and Risk Committee is responsible for making recommendations to the Board, to be put to shareholders at the Annual General Meeting, in relation to the appointment, re-appointment and removal of the external auditors, as well as for the approval of their remuneration and their terms of engagement. The Committee has considered the independence of the external auditors and is satisfi ed that independence has been maintained. Following consideration and satisfaction of the performance of the Company’s auditors, the Audit and Risk Committee has recommended to the Board that the external auditors be re-appointed. The Audit and Risk Committee also pre-approves any material permitted non-audit engagements with the Group auditors (of which there were none during the period under review). Regular reports were presented on the fees paid to the external auditors in order to ensure that the relationship between non-audit fees and audit fees was not inappropriate. The Audit and Risk Committee reviewed the external audit plan proposed by the auditors and participated in the review of the quality of the service that they provided. It has also met privately with the external auditors during the year without senior executive management being present.

Internal auditors

The Company did not have a formal internal audit function for the fi nancial year under review. For the fi nancial year under review, the Audit and Risk Committee, having considered the size, complexity of the operations as well as the existing internal control environment, has not recommended the need for an internal audit function.

Remuneration Committee

The Remuneration Committee comprises Craig Burton (Chairman), Tim Read and Alex Davidson.

In respect of smaller quoted companies, the Code recommends that a company’s remuneration committee has at least two independent non-executive directors appointed. Tim Read and Alex Davidson are independent directors and therefore the Company complies with the Code for smaller quoted companies.

The Remuneration Committee sets the remuneration packages for the directors, including basic salary, bonuses and other incentivised compensation payments and awards. It ratifi es policy and framework proposals made by the executive directors in respect of the remuneration for senior executives within the Group. The Remuneration Committee also approves the grant of options under the 2010 Discretionary Share Option Plan. The Remuneration Committee is assisted by the Company Secretary and takes advice as appropriate from external advisers. The Remuneration report is set out on pages 21 to 23.



Nomination Committee

The Nomination Committee comprises Craig Burton (Chairman), Tim Read and Alex Davidson.

The Code recommends that the majority of members of the nomination committee should be independent non-

executive directors. Tim Read and Alex Davidson are independent non-executive directors and therefore the

Company complies with the Code for smaller quoted companies. The Code also recommends that the Chairman

or an independent non-executive director chairs the nomination committee. Craig Burton, who is not considered

independent, is chairman and so the Company does not meet the requirements of the Code in this respect. However,

in view of his experience and knowledge of the industry sector and the Company, the Board considers it appropriate

for Craig Burton to be a member and chairman of the Nomination Committee.

The Nomination Committee deals with appointments to the Board, monitors potential confl icts of interest and

reviews annually the independence of the non-executive directors. The Nomination Committee is also responsible

for proposing candidates for appointment to the Board having regard to the balance and structure of the Board. The

Nomination Committee also continues to look to identify further non-executive directors for appointment with the help

of external search consultants to bring the composition of the Board in compliance with the Code. Mark Parsons was

appointed to become the permanent Chief Executive Offi cer on 17 November 2014 and Mr Jamie Boyton who was

acting as interim Chief Executive Offi cer stepped down on the same day to become Executive Chairman.

Health, Safety, Social and Environment Committee (the “HSSE Committee”)

The Health, Safety, Social and Environment (the “HSSE Committee”) comprises of Alex Davidson (Chairman), Brian

Rudd and Graham Almond (Group General Manager, HR & Risk). The HSSE Committee is responsible for formulating

and recommending to the Board a policy on health, safety, social and environmental issues related to the Group’s

operations. In particular, the HSSE Committee focuses on compliance with applicable standards to ensure that

an effective system of health, safety, social and environmental standards, procedures and practices is in place at

each of the Group’s operations. The HSSE Committee is also responsible for reviewing management’s investigation

of incidents or accidents that occur and to assess whether policy improvements are required. While the HSSE

Committee is expected to make recommendations, the ultimate responsibility for establishing the Group’s health,

safety, social and environmental policies remain with the Board. The terms of reference of the HSSE Committee are

available on the Company’s website at www.capdrill.com.

Internal Controls

The Company has complied with the Code’s provisions on internal control having established the procedures

necessary to implement the guidance issued in October 2005 (the Turnbull Guidance) and by reporting in accordance

with that guidance.

Maintaining a sound system of internal control

The Board conducts a periodic review of the effectiveness of the Group’s system of internal controls.

The Board’s assessment includes a review of the major fi nancial and non-fi nancial risks to the business and the

corresponding internal controls. Where weaknesses or opportunities for improvement are identifi ed, clear action plans

are put in place and implementation is monitored by senior management and the executive directors.

In instances where the Group is setting up operations in a new country or a new region, appropriate personnel are

deployed or recruited and training is conducted to facilitate the integration with Group operational and fi nancial

policies.

In addition, there are clear lines of responsibilities for key risk areas such as acquisitions, capital expenditure,

compliance, information technology and operations. These lines of responsibilities are continuously monitored by the

executive directors and to ensure that the Group’s strategic risk management principles are met.



Reviewing the effectiveness of internal control

The Board has overall responsibility for the Company’s system of internal control and reviewing its effectiveness. The

system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives.

In pursuing these objectives, internal controls can only provide reasonable and not absolute assurance against material

misstatement or loss.

In addition to the process of assessment of internal control and the monitoring of the effectiveness of internal fi nancial

control by the Audit and Risk Committee, the process used by the Board to review the effectiveness of the system of

internal control can be summarised as follows:

(i) Control environment

The Board is committed to maintaining a control-conscious culture across the Group whilst allowing the

business streams suffi cient autonomy to manage and develop their businesses. This is communicated to

employees by way of regular management meetings and dissemination of updated Group policies. Monthly

commercial meetings are also held between the corporate headquarters in Singapore and the respective

country managers where weaknesses in internal controls are identifi ed and clear action plans are drawn up.

(ii) Financial reporting

There is a comprehensive system of fi nancial reporting to the Board including comparison to an annual budget

prepared in line with the Group’s strategic plan and formally adopted by the Board, rolling forecasts and

monthly reporting of fi nancial and operating results. Key performance indicators are continuously monitored by

senior management and executive directors.

(iii) Group procedures manual

Responsibility levels are communicated throughout the Group as part of the Group procedures manual, which

sets out delegation of authority and authorisation levels and other control procedures, together with accounting

and reporting procedures. The manual is updated periodically to take into account changes in the accounting

standards, reporting requirements and operational procedures. Senior management is also provided with

training and guidance, where necessary, to ensure that the current and future needs of the Group are met.

Independence and controlling shareholders

Three directors (Jamie Boyton, Craig Burton and Brian Rudd) between them hold 57.5 percent of the Company’s

voting share capital. According to the UK Listing Rules to which the Company is subject, these directors are together

deemed to be a controlling shareholder. The Company has entered into an agreement with these directors to ensure

that any dealings between them and the Company are conducted at arm’s length and on normal commercial terms.

Share dealing policy

The Company has a share dealing policy, which imposes dealing obligations at least as rigorous as those required

by the Model Code of the London Stock Exchange Listing Rules. The share dealing policy applies to the directors,

persons discharging managerial responsibilities (“PDMR”) identifi ed by the Board and other relevant insider employees

of the Group, and their respective connected persons. All employees under the share dealing policy are restricted from

dealing in the Company’s shares during close periods or if they are in possession of inside information.



Shareholder relations

The Executive Chairman and interim Chief Executive Offi cer and the Chief Financial Offi cer are the Group’s principal

spokesmen with investors, analysts, fund managers, the press and other interested parties. Access is available to

the Senior Independent Director and other non-executive directors if required. The Board is kept informed about

shareholder relations and in particular the Senior Independent Director is kept informed of the views of major

shareholders. This is done by a combination of reports to the Board on meetings held and feedback to the Board

from the Group’s advisers. The Group holds briefi ng meetings with analysts and institutional shareholders, usually

following the half year and fi nal results announcements, to ensure that the investing community receives a balanced

and complete view of the Group’s performance and the issues faced by the business.

The Group provides fi nancial statements to all shareholders twice a year when its half year and full year results are

announced and provides interim management statements as required. These results and all other stock exchange

announcement information are available on the Group’s website www.capdrill.com. Management presentations as well

as other information relevant to investors are also available on the website.

All shareholders are given at least 21 working days’ notice of the AGM. It is standard practice for all directors to

attend the AGM to which all shareholders are invited and at which they may raise questions to the chairmen of the

various committees or the Board generally. The proxy votes for and against each resolution, as well as abstentions

(which may be recorded on the proxy form accompanying the notice of AGM) are counted before the AGM

commences and are made available to shareholders at the close of the formal business of the meeting. The proxy

votes are announced through the stock exchange and posted on the Company’s website shortly after the close of the

meeting.


DIRECTORS’ REMUNERATION REPORT

The Remuneration Committee

The Remuneration Committee comprises Craig Burton (Chairman), Tim Read and Alex Davidson.

The Remuneration Committee reviews and determines, on behalf of the Board, the salary and benefi ts packages of

the Executive Chairman and the other executive directors. The Remuneration Committee also considers and approves

all awards made by the Company to employees under the 2010 Discretionary Share Option Plan. Fees for the non-

executive directors are based on their letters of appointment entered into with the Company and reviewed annually by

the Board.

In determining the executive directors’ remuneration for the year, the Remuneration Committee consulted the

Executive Chairman and/or Chief Executive Offi cer as appropriate, save in relation to his own remuneration. No

director is involved in deciding his own remuneration. In deciding the executive directors’ remuneration, the

Remuneration Committee draws on its members’ experience and knowledge of the industry sector of the Company

and also makes use of published reports on directors’ remuneration packages within the same industry, taking into

account the size and complexity of the business. The Remuneration Committee also has access to advice from

independent external advisers where necessary.

Remuneration policy

Compensation packages for executive directors are based on their service agreements entered into with the Company.

The package for each executive director currently comprises an annual salary. In addition, each executive director was

also issued with share options under the 2010 Discretionary Share Option Plan. The 2010 Discretionary Share Option

Plan was replaced by the 2013 Bonus Incentive Scheme which requires the Company to meet certain pre-determined

fi nancial performance targets before any bonus is payable to an executive director. In 2014, the fi nancial performance

targets were not met across the Group and accordingly discretionary targeted bonuses were paid to some executives.

Other than as disclosed below, the executive directors did not receive any other remuneration.

In reviewing and setting compensation packages for executive directors, the Remuneration Committee takes into

account a wide range of factors, including the Group’s fi nancial performance, market trends and practices, and

individual contributions across a range of performance measures, such as health and safety standards, training

standards and reducing any negative environmental and social impact of the business.

Annual salary

The Remuneration Committee’s policy is to set the annual salaries of each executive director at levels that refl ect their

roles, experience and the practices in the employment market whilst ensuring that they are in line with the pay and

employment conditions of other employees within their business units. The remuneration of the executive was as

follows:

Bonus2014

US$’000

Salary2014

US$’000

Salary2013

US$’000

Executive Chairman and Interim CEO

Jamie Boyton 250 450 483

Executive Director

Brian Rudd – 378 406



Share Option

The 2010 Discretionary Share Option Plan

The 2010 Discretionary Share Option Plan was approved by shareholders on 28 May 2010 and will expire on

31 December 2020 or on such earlier date as the Remuneration Committee may at any time determine. It is designed

to motivate directors and senior employees, whilst retaining them in the Company’s employment, by granting options

to acquire shares in the Company. The Remuneration Committee regularly considers when and to whom awards

should be granted having regard to the importance of retaining and motivating key employees who make a material

contribution to the business. The Remuneration Committee did not believe that the share incentive structure raises

any environmental, social and governance risks.

Under the rules of the 2010 Discretionary Share Option Plan, an employee may not receive options in any fi nancial

year such that the aggregate market value of the Company’s shares comprised in the options exceeds 200% of his

annual salary.

At 31 December 2014, the share options that had been awarded to each director were as follows:

At 1 January

2014 Granted Lapsed Exercised

At 31 December

2014Exercise price £

Date from which exercisable Expiry date

Executive Chairman and Interim CEO

Jamie Boyton 150,000 – – – 150,000 0.80 1 January 2012 31 December 2020

150,000 – – – 150,000 0.80 1 January 2013 31 December 2020


Executive Director

Brian Rudd 150,000 – – – 150,000 0.80 1 January 2012 31 December 2020



Non-executive directors

Alex Davidson – – – – – – – –

Tim Read – – – – – – – –

Craig Burton – – – – – – – –

Service contracts

The executive directors’ employment service contracts have no specifi ed term. They are however subject to the three

years rotation rule and are presented to the members for re-election as directors every three years at the AGM. No

director has a service contract containing more than a six months notice period or with pre-determined compensation

provisions upon termination exceeding six months’ salary and benefi ts. It is the Company’s policy that, except where

prescribed by law, there should be no automatic entitlement to bonuses in the event of an early termination.

External appointments

The Company recognises that executive directors may be invited to become non-executive directors of other

companies and that such appointments can broaden their knowledge and experience to the benefi t of the Company

and they are entitled to retain any fees earned. Mr Jamie Boyton holds directorships of Sahar Minerals Ltd, Cannon

Investment Advisors, JJROK Limited and Cannon Partners Fund. None of the other current executive directors held

non-executive directorships for which they were remunerated.




Non-executive directors are appointed initially until the fi rst AGM of the Company following appointment when they are

required to stand for re-election and, subject to their re-election, thereafter for three years before standing again for re-

election.

The non-executive directors entered into letters of appointment with the Company on 28 May 2010 for an initial period

of three years commencing, thereafter renewable on the agreement of both the Company and the director. The letters

of appointment, revised subsequently on 16 March 20121, specify the following termination notice periods and fees:

Notice Period Annual Fee / US$

Alex Davidson 3 months 80,000

Timothy Read 3 months 90,000

Craig Burton 3 months 80,000

The annual fees of the non-executive directors were as follow:

Fees2014

US$’000

Fees2013

US$’000

Total 2014

US$’000Total 2013 US$’000


Alex Davidson 72 78 72 78

Timothy Read 81 88 81 88

Craig Burton 72 78 72 78

Approval

This report was approved by the Board of Directors on 17 March 2015 and signed on its behalf by:

Craig Burton

Remuneration Committee Chairman

1 The letters of appointment were varied on 25 September 2013 reducing the annual fee payable to the directors by 10% to

account per the prevailing tough market conditions.


DIRECTORS’ RESPONSIBILITIES

The directors are responsible for preparing this Annual Report, directors’ remuneration report and the fi nancial

statements in accordance with applicable laws and regulations.

The directors are required to prepare group fi nancial statements for each fi nancial year giving a true and fair view

of the Group’s state of affairs at the end of the year and profi t or loss for the year, in accordance with International

Financial Reporting Standards (IFRSS) as issued by the International Accounting Standards Board. The directors have

also chosen to prepare the parent company fi nancial statements under IFRSs. The directors must not approve the

accounts unless they are satisfi ed that they give a true and fair view of the state of affairs of the company and of the

profi t or loss of the company for that period. In preparing these fi nancial statements International Accounting Standard

“Presentational Financial Statements” require the directors to:

properly select and apply accounting policies;

present information, including accounting policies, in a manner that provides relevant, reliable, comparable and

understandable information; and

provide additional disclosures when compliance with the specifi c requirements in IFRSs are insuffi cient to

enable users to understand the impact of particular transactions, other events and conditions on the entity’s

fi nancial position and fi nancial performance; and

make an assessment of the company’s ability to continue as a going concern.

The directors are responsible for keeping proper accounting records that are suffi cient to show and explain the group’s

transactions and disclose with reasonable accuracy at any time the fi nancial position of the group. They are also

responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and

detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and fi nancial information included on

the company’s website.

Directors’ responsibility statement

We confi rm to the best of our knowledge:

1. the fi nancial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities,

fi nancial position and profi t or loss of Capital Drilling Limited and the undertakings included in the consolidation

taken as a whole; and

2. the management report, which is incorporated into the Chairman statement and the Chief Financial Offi cer’s

Report, includes a fair review of the development and performance of the business and the position of the

Company and Group and the undertakings included in the consolidation taken as a whole, together with a

description of the principal risks and uncertainties that they face.

In addition, the directors as at the date of this report consider that the annual report taken as a whole is fair, balanced

and understandable and provides the information necessary for shareholders to assess the Company and Group’s

performance, business model and strategy.

By order of the Board

Executive Chairman Executive Director

Jamie Boyton Brian Rudd

17 March 2015


REPORT OF THE INDEPENDENT AUDITORS

To the Shareholders of Capital Drilling Limited

We have audited the consolidated and separate fi nancial statements of Capital Drilling Limited set out on pages

27 to 64, which comprise the statements of fi nancial position as at 31 December 2014, and the statements of

comprehensive income, statements of changes in equity and statements of cash fl ows for the year then ended, and

the notes, comprising a summary of signifi cant accounting policies and other explanatory information.

Directors’ Responsibility for the Consolidated Financial Statements

The company’s directors are responsible for the preparation and fair presentation of these consolidated and separate

fi nancial statements in accordance with International Financial Reporting Standards as issued by the International

Accounting Standards Board, and for such internal control as the directors determine is necessary to enable the

preparation of consolidated and separate fi nancial statements that are free from material misstatement, whether due to

fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated and separate fi nancial statements based on our

audit. We conducted our audit in accordance with International Standards on Auditing as issued by the International

Auditing and Assurance Standards Board. Those standards require that we comply with ethical requirements and

plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate fi nancial

statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial

statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of

material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the

auditor considers internal control relevant to the entity’s preparation and fair presentation of the fi nancial statements

in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing

an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of

accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating

the overall presentation of the fi nancial statements.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit

opinion.

Opinion

In our opinion, the consolidated and separate fi nancial statements present fairly, in all material respects, the

consolidated and separate fi nancial position of Capital Drilling Limited as at 31 December 2014, and its consolidated

and separate fi nancial performance and consolidated and separate cash fl ows for the year then ended in accordance

with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Going concern

As required by the Listing Rules of the London Stock Exchange we have reviewed the directors’ statement contained

within the Chief Financial Offi cer’s report on page 8 that the Group is a going concern. We confi rm that based on our

audit of the fi nancial statements:

we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the

fi nancial statements is appropriate; and

we have not identifi ed any material uncertainties that may cast signifi cant doubt on the Group’s ability to

continue as a going concern.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the

Group’s ability to continue as a going concern.


REPORT OF THE INDEPENDENT AUDITORSTo the Shareholders of Capital Drilling Limited

Other Information

As part of our audit of the consolidated and separate fi nancial statements, we have read the annual report for the

purpose of identifying whether there are material inconsistencies between the annual report and the audited fi nancial

statements. The annual report is the responsibility of the directors. Based on reading the annual report we have not

identifi ed material inconsistencies between the annual report and the audited consolidated and separate fi nancial

statements. However, we have not audited the annual report and accordingly do not express an opinion on it.

Report on Other Legal and Regulatory Requirements

Matters on which we are required to report by exception:

Corporate Governance Statement

Under the Listing Rules of the London Stock Exchange we are also required to review the part of the Corporate

Governance Statement relating to the company’s compliance with the nine provisions of the UK Corporate

Governance Code. We have nothing to report arising from our review.

Deloitte & Touche

Registered Auditors

Per: Allan W Brown

Partner

27 March 2015

Deloitte & Touche

Building 2, Deloitte Place, The Woodlands, Woodlands Drive, Woodmead, Johannesburg, Republic of South Africa

National Executive: *LL Bam Chief Executive *AE Swiegers Chief Operating Offi cer *GM Pinnock Audit

DL Kennedy Risk Advisory *NB Kader Tax TP Pillay Consulting *K Black Clients & Industries *JK Mazzocco

Talent and Transformation *MJ Jarvis Finance *M Jordan Strategy S Gwala Managed Services *TJ Brown

Chairman of the Board *MJ Comber Deputy Chairman of the Board

A full list of partners and directors is available on request

* Partner and Registered Auditor

B-BBEE rating: Level 2 contributor in terms of the Chartered Accountancy profession Sector Code

Member of Deloitte Touche Tohmatsu Limited


STATEMENTS OF COMPREHENSIVE INCOME

for the fi nancial year ended 31 December 2014

Group Company

Notes 2014 2013 2014 2013

$ $ $ $

Revenue 4 98,827,790 116,265,753 7,642,877 12,480,638

Cost of sales (65,864,577) (85,706,170) (5,156,093) (4,906,002)

Gross profi t 32,963,213 30,559,583 2,486,784 7,574,636

Other income – – 2,736,483 4,959,606

Administration expenses (12,537,980) (13,609,366) (11,513,056) (19,260,143)

Depreciation 10 (16,483,595) (17,194,244) (3,344,662) (3,691,423)

Profi t (loss) from operations 5 3,941,638 (244,027) (9,634,451) (10,417,324)

Finance charges 6 (1,410,401) (1,663,018) – (12,958)

Profi t (loss) before tax 2,531,237 (1,907,045) (9,634,451) (10,430,282)

Taxation 7 (3,086,738) 30,690 – (270,524)

Loss for the year (555,501) (1,876,355) (9,634,451) (10,700,806)

Other comprehensive loss:

Other comprehensive income to be reclassifi ed to profi t or loss in subsequent periods

Exchange differences on translation

of foreign operations 91,358 84,139 – –

Total comprehensive loss for the year (464,143) (1,792,216) (9,634,451) (10,700,806)

Loss per share:

Basic (cents per share) 8 (0.4) (1.4)

Diluted (cents per share) 8 (0.4) (1.4)


STATEMENTS OF FINANCIAL POSITIONfor the fi nancial year ended 31 December 2014

Group Company

Notes 2014 2013 2014 2013

$ $ $ $

ASSETS

Non-current assets

Property, plant and equipment 10 56,706,524 59,962,343 15,561,217 17,572,040

Investment in subsidiaries 11 – – 1,071,483 1,071,483

Deferred taxation 12 160,361 1,111,738 – –

Total non-current assets 56,866,885 61,074,081 16,632,700 18,643,523

Current assets

Inventory 13 22,670,509 23,698,231 – –

Trade and other receivables 14 10,761,649 18,431,718 66,959 74,822

Prepaid expenses and other assets 7,001,416 5,805,770 1,657,476 1,124,299

Taxation 1,397,631 1,931,608 – –

Affi liate accounts receivable 15 – – 36,597,826 37,877,301

Investments 16 189,440 – – –

Cash and cash equivalents 17 14,743,976 12,328,148 1,035,585 292,145

Total current assets 56,764,621 62,195,475 39,357,846 39,368,567

Total assets 113,631,506 123,269,556 55,990,546 58,012,090

EQUITY AND LIABILITIES

Equity

Share capital 18 13,459 13,459 13,459 13,459

Share premium 18 21,561,190 21,561,190 21,561,190 21,561,190

Equity-settled employee benefi ts reserve 19 205,146 205,146 205,146 205,146

Foreign currency translation reserve 138,749 47,391 – –

Retained earnings (Accumulated loss) 69,089,299 69,644,800 (46,120,161) (36,485,710)

Total equity 91,007,843 91,471,986 (24,340,366) (14,705,915)

Non-current liabilities

Long-term liabilities 20 15,000,000 21,000,000 – –

Deferred taxation 12 22,277 – – –

Total non-current liabilities 15,022,277 21,000,000 – –

Current liabilities

Trade and other payables 21 7,313,435 10,249,060 934,208 873,922

Taxation 22 188,725 194,538 – –

Affi liate accounts payable 23 – – 79,396,704 71,844,083

Current portion of long-term liabilities 20 99,226 353,972 – –

Total current liabilities 7,601,386 10,797,570 80,330,912 72,718,005

Total equity and liabilities 113,631,506 123,269,556 55,990,546 58,012,090


STATEMENTS OF CHANGES IN EQUITY


Share capital

Share premium

Equity-settled

employee benefi ts reserve

Foreign currency

translation reserve

Retained earnings Total

$ $ $ $ $ $

GROUP

Balance at 31 December

2012 13,459 21,561,190 184,171 (36,748) 71,521,155 93,243,227

Recognition of share-based

payments – – 20,975 – – 20,975

Total comprehensive loss

for the year – – – 84,139 (1,876,355) (1,792,216)


2013 13,459 21,561,190 205,146 47,391 69,644,800 91,471,986

Total comprehensive loss

for the year – – – 91,358 (555,501) (464,143)


2014 13,459 21,561,190 205,146 138,749 69,089,299 91,007,843

Share capital

Share premium

Equity-settled

employee benefi ts reserve

Accumulated loss Total

$ $ $ $ $

COMPANY

Balance at 31 December 2012 13,459 21,561,190 184,171 (25,784,904) (4,026,084)

Recognition of share-based payments – – 20,975 – 20,975

Total comprehensive loss for the year – – – (10,700,806) (10,700,806)


Total comprehensive loss for the year – – – (9,634,451) (9,634,451)



STATEMENTS OF CASH FLOWSfor the fi nancial year ended 31 December 2014

Group Company

Notes 2014 2013 2014 2013

$ $ $ $

Operating activities:

Cash from (used in) operations 24 25,776,837 20,802,260 1,387,172 (981,538)

Finance charges paid (1,449,925) (1,702,542) – (12,958)

Taxation paid 25 (1,584,921) (4,051,495) – (270,524)

Net cash generated from (used in)

operating activities 22,741,991 15,048,223 1,387,172 (1,265,020)

Investing activities:

Purchase of property, plant and

equipment 10 (13,731,131) (5,680,780) (750,637) (1,055,663)

Purchase of investments (189,440) – – –

Proceeds from disposal of property,

plant and equipment 10 274,257 1,359,011 108,712 1,205,089

Net cash (used in) from investing

activities (13,646,314) (4,321,769) (641,925) 149,425

Financing activities:

Long-term liabilities raised 20 13,000,000 – – –

Long-term liabilities and interest repaid 20 (19,215,222) (7,657,364) – –

Net cash used in fi nancing activities (6,215,222) (7,657,364) – –

Net increase (decrease) in cash and cash equivalents 2,880,455 3,069,089 745,247 (1,115,595)

Cash and cash equivalents at the

beginning of the year 12,328,148 9,063,606 292,145 1,407,249

Translation of foreign currency cash

and cash equivalent adjustment (464,627) 195,453 (1,807) 491

Cash and cash equivalents at the

end of the year 17 14,743,976 12,328,148 1,035,585 292,145


NOTES TO THE ANNUAL FINANCIAL STATEMENTS


1. General information

Capital Drilling Limited (the “Company”) is incorporated in Bermuda. The Company and its subsidiaries (the

“Group”) provide drilling services including but not limited to exploration, development, grade control and

blast hole drilling services to mineral exploration and mining companies located in emerging and developed

markets. The Group also provides procurement and IT services for mining and mining exploration companies.

During the year ended 31 December 2014, the Group provided drilling services in Chile, Egypt, Mauritania,

Papua New Guinea, Solomon Islands, Tanzania, and Zambia. The Group’s administrative offi ces are located in

Singapore

2. Adoption of new and revised standards

2.1 Standards and Interpretations adopted with no effect on the fi nancial statements

The following new and revised standards and interpretations issued by the International Accounting

Standards Board have been adopted in these fi nancial statements in the current year. Their adoption has

not had any signifi cant impact on the amounts reported in these fi nancial statements but may affect the

accounting for future transactions or arrangements.

IFRS 10 (Revised 2010) Amendments Consolidated Financial Statements

IFRS 12 Amendments Disclosure of Interests in Other Entities

IAS 27 (Revised 2014) Separate Financial Statements

IAS 32 (Revised 2012) Financial Instruments: Presentation

IAS 36 (Revised 2013) Impairment of Assets

IAS 39 (Revised 2013) Financial Instruments: Recognition and Measurement

2.2 Standards and Interpretations in issue not yet adopted

At the date of authorisation of these fi nancial statements, other than the standards and interpretations

adopted above, the following new and revised standards and interpretations were issued by the

International Accounting Standards Board but were not yet effective:

IFRS 2 (Revised 2013) Share Based Payments 1

IFRS 3 (Revised 2013) Business Combinations 1

IFRS 5 (Revised 2014) Non-current Assets Held for Sale and Discontinued Operations 3

IFRS 7 (as amended by IFRS 9) Financial Instruments: Disclosures 3

IFRS 8 (Revised 2013) Operating Segments 1

IFRS 9 Financial Instruments 5

IFRS 10 (Revised 2014) Amendments Consolidated Financial Statements 3

IFRS 11 (Revised 2014) Joint arrangements 3

IFRS 12 (Revised 2013) Disclosure of Interests in Other Parties 3

IFRS 13 (Revised 2014) Fair Value Measurement 1

IFRS 15 Revenue from Contracts with Customers 4

IAS 1 (Revised 2014) Presentation of Financial Statements 3

IAS 16 (Revised 2013 & 2014) Property, plant and equipment 1,3

IAS 19 (Revised 2013 & 2014) Employee Benefi ts 1,3

IAS 24 (Revised 2013) Related Party Disclosures 1

IAS 27 (Revised 2014) Separate Financial Statements 3

IAS 28 (Revised 2014) Investment in Associates and Joint Ventures 3

IAS 39 (Revised 2013 & 2014) Financial Instruments: Recognition and Measurement 5


NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the fi nancial year ended 31 December 2014

2. Adoption of new and revised standards

2.1 Standards and Interpretations adopted with no effect on the fi nancial statements

IAS 34 (Revised 2014) Interim Financial Reporting 3

IAS 38 (Revised 2014) Intangible Assets 3

IAS 40 (Revised 2014) Investment Property 1

1 Effective for annual periods beginning on or after 1 July 2014

2 Effective for annual periods beginning on or after 1 January 2015




The directors anticipate that all the above interpretations will be adopted in the consolidated fi nancial

statements in the future fi nancial periods as it becomes effective. Management has not yet completed its

assessment of the adoption of these new and amended standards and is therefore not currently able to

estimate reliably the impact of their adoption on the Group’s results or fi nancial position.

3. Summary of signifi cant accounting policies

Basis of preparation

The fi nancial statements have been prepared on the historical cost basis except for fi nancial instruments which

are measured at fair value. Historical cost is generally based on the fair value of the consideration given in

exchange for the assets.

The fi nancial statements have been prepared in accordance with International Financial Reporting Standards

issued by the International Accounting Standards Board and are presented in United States Dollars since that

is the currency in which the majority of the Group’s transactions are denominated. Where additional information

has been presented in the current year fi nancial statements, the prior year amounts have been re-presented to

be consistent with the presentation in the current year.

The principal accounting policies adopted are set out below.

Going concern

The directors have, at the time of approving the fi nancial statements, a reasonable expectation that the

Company and the Group have adequate resources to continue in operational existence for the foreseeable

future. Thus they continue to adopt the going concern basis of accounting in preparing the fi nancial statements.

Basis of consolidation

The consolidated fi nancial statements incorporate the fi nancial statements of the Company and entities

(including special purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the

Company has the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from

its activities.

Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated

statement of comprehensive income from the effective date of acquisition and up to the effective date of

disposal, as appropriate.

Where necessary, adjustments are made to the fi nancial statements of subsidiaries to bring their accounting

policies in line with those used by other members of the Group.

All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation.




3. Summary of signifi cant accounting policies (continued)

Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The consideration transferred

in a business combination is measured at the aggregate of the fair values, at the date of exchange, of assets

given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of

the acquiree. Acquisition related costs are generally recognised in profi t or loss as incurred. The acquiree’s

identifi able assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3

Business Combinations are recognised at their fair values at the acquisition date, except for deferred tax assets

or liabilities recognised in accordance with IAS 12 Income Taxes and non-current assets that are classifi ed as

held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, which

are recognised and measured at fair value less costs to sell.

Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and subsequent

impairment losses. Depreciation is charged so as to write-off the cost of assets, less their residual values, over

their expected useful lives using the straight-line basis, on the following basis;

Drilling rigs 5 - 12 years

Associated drilling equipment 2 - 7 years

Vehicles and trucks 4 - 7 years

Camp and associated equipment 3 - 5 years

The estimated useful lives, residual values and depreciation method are reviewed at each reporting date, with

the effect of any changes in estimate accounted for on a prospective basis.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefi ts

are expected to arise from the continued use of the asset. The gain or loss arising on disposal or retirement

of an item of property, plant and equipment is determined as the difference between the sales proceeds and

the carrying amount of the asset and is recognised in profi t or loss.

Impairment of tangible assets

At each reporting date, the Group and Company review the carrying amounts of its tangible assets to

determine whether there is any indication that those assets may be impaired. 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).

When it is not possible to estimate the recoverable amount for an individual asset, the recoverable amount is

determined for the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,

the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects

current market assessments of the time value of money and the risks specifi c to the asset for which the

estimates of future cash fl ows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount,

the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses

are recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which

case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is

increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does

not exceed the carrying amount that would have been determined had no impairment loss been recognised

for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income

immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the

impairment loss is treated as a revaluation increase.




Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past

event and it is probable that this will result in an outfl ow of economic benefi ts that can be reliably estimated.

Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at

the reporting date, and are discounted to present value where the effect is material.

Cash and cash equivalents

For the purpose of the statement of fi nancial position, cash and cash equivalents comprise cash on hand

and deposits held on call with banks with maturities of three months or less. Bank overdrafts are separately

disclosed as current liabilities.

For the purpose of the cash fl ow statement, cash and cash equivalents comprise cash on hand and deposits

held on call with banks net of bank overdrafts.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for

estimated customer returns, rebates and other similar allowances.

Rendering of services

Revenue from a contract to provide services is recognised by reference to the stage of completion of the

contract. The stage of completion of the contract is determined as follows:

revenue from drilling contracts is recognised at the contractual drilling rates as the drilling services are

delivered and direct expenses are incurred.

revenue from equipment rental is recognised on a straight-line basis over the lease term.

revenue from information technology services is recognised when the services are rendered.

Dividend and interest income

Dividend income from investments is recognised when the shareholder’s right to receive payment has been

established (provided that it is probable that the economic benefi ts will fl ow to the Group and the amount of

income can be measured reliably).

Interest income from a fi nancial asset is recognised when it is probable that the economic benefi ts will fl ow to

the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by

reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly

discounts estimated future cash receipts through the expected life of the fi nancial asset to that asset’s net

carrying amount on initial recognition.

Foreign currency

The individual fi nancial statements of each Group Company are presented in the currency of the primary

economic environment in which it operates (its functional currency). For the purpose of the consolidated

fi nancial statements, the results and fi nancial position of each Group Company are expressed in United States

Dollars, which is the functional currency of the Company, and the presentation currency for the consolidated

fi nancial statements.

In preparing the fi nancial statements of the individual group companies, transactions in currencies other than

the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the

dates of the transactions. At each reporting date, monetary items that are denominated in foreign currencies

are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical

cost in a foreign currency are not retranslated.





Foreign currency (continued)

Exchange differences are recognised in profi t or loss in the period in which they arise except for:

exchange differences on foreign currency borrowings relating to assets under construction for future

productive use, which are included in the cost of those assets when they are regarded as an adjustment

to interest costs on those foreign currency borrowings;

exchange differences on transactions entered into to hedge certain foreign currency risks; and

exchange differences on monetary items receivable from or payable to a foreign operation for which

settlement is neither planned nor likely to occur (therefore forming part of the net investment in the

foreign operation), which are recognised initially in other comprehensive income and reclassifi ed from

equity to profi t or loss on repayment of the monetary items.

For the purpose of presenting consolidated fi nancial statements, the assets and liabilities of the Group’s

foreign operations are translated into United States Dollars at exchange rates prevailing on the reporting date.

Income and expense items are translated at the average exchange rates for the period, unless exchange rates

fl uctuate signifi cantly during that period, in which case the exchange rates at the date of transactions are used.

Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity

(attributed to non-controlling interests as appropriate).

Retirement benefi ts

The Group does not have a legal obligation to provide for retirement benefi ts, however each subsidiary makes

contributions for retirement benefi ts as per the country’s statutory obligations and charged to profi t and loss as

payment falls due.

Taxation

Income tax expense represents the sum of the tax paid and currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profi t for the year. Taxable profi t differs from profi t as reported

in the statement of comprehensive income because it excludes items of income or expense that are taxable

or deductible in other years and it further excludes items that are never taxable or tax deductible. The Group’s

liability for current tax is calculated using tax rates (and tax laws) that have been enacted or substantively

enacted in countries where the Company and subsidiaries operate at the reporting date.

Deferred tax

Deferred tax is recognised on temporary differences between carrying amounts of assets and liabilities in the

fi nancial statements and the corresponding tax bases used in the computation of taxable profi t. Deferred tax

liabilities are generally recognised for all taxable temporary differences and deferred tax assets are generally

recognised for all deductible temporary differences to the extent that it is probable that taxable profi ts will be

available against which those deductible temporary differences can be utilised. Such deferred tax assets and

liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other

than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable

profi t nor the accounting profi t.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in

subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the

reversal of the temporary difference and it is probable that the temporary difference will not reverse in the

foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such

investments and interests are only recognised to the extent that it is probable that there will be suffi cient

taxable profi ts against which to utilise the benefi ts of the temporary differences and are expected to reverse in

the foreseeable future.




Taxation (continued)

Deferred tax (continued)

The carrying amounts of deferred tax assets are reviewed at each reporting date and reduced to the extent

that it is no longer probable that suffi cient taxable profi ts will be available to allow all or part of the asset to be

recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in

which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or

substantively enacted at the reporting date. The measurement of deferred tax liabilities and assets refl ects

the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to

recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets

against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the

Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the year

Current and deferred tax are recognised in profi t or loss, except when they relate to items that are recognised

in other comprehensive income or directly in equity, in which case, the current and deferred tax are also

recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax

arises from the initial accounting for a business combination, the tax effect is included in the accounting for the

business combination.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted

average method. Redundant and slow moving stocks are identifi ed and written down to their estimated

economic or realisable values. Net realisable value represents the estimated selling price less all estimated

costs of completion and costs to be incurred in marketing, selling and distribution.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which

are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are

added to the cost of those assets, until such time as the assets are substantially ready for their intended use or

sale.

To the extent that variable rate borrowings are used to fi nance a qualifying asset and are hedged in an

effective cash fl ow hedge of interest rate risk, the effective portion of the derivative is recognised in the other

comprehensive income and released to profi t or loss when the qualifying asset impacts profi t or loss. To the

extent that fi xed rate borrowings are used to fi nance a qualifying asset and are hedged in an effective fair value

hedge of interest rate risk, the capitalised borrowing costs refl ect the hedged interest rate.

Investment income earned on the temporary investment of specifi c borrowings pending their expenditure on

qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profi t or loss in the period in which they are incurred.





Leasing

The Group as lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease terms, except

where another systematic basis is more representative of the time pattern in which economic benefi ts from the

leased assets are consumed. Contingent rentals arising under operating leases are recognised as an expense in

the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as

a liability. The aggregate benefi t of incentives is recognised as a reduction on rental expense on a straight-line

basis, except where another systematic basis is more representative of the time pattern in which economic

benefi ts from the leased asset are consumed.

Share-based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the

fair value of the equity instruments at the grant date.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a

straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will

eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments

expected to vest. The impact of the revision of the original estimates, if any, is recognised in profi t or loss over

the remaining vesting period, with a corresponding adjustment to the equity-settled employee benefi ts reserve.

Financial instruments

Financial assets and fi nancial liabilities are recognised when the Group becomes a party to the contractual

provisions of the instrument.

Financial assets and fi nancial liabilities are initially measured at fair value. Transaction costs that are directly

attributable to the acquisition or issue of fi nancial assets and fi nancial liabilities (other than fi nancial assets and

fi nancial liabilities at fair value through profi t or loss) are added to or deducted from the fair value of the fi nancial

assets or fi nancial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the

acquisition of fi nancial assets or fi nancial liabilities at fair value through profi t or loss are recognised immediately

in profi t or loss.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a fi nancial asset and of allocating

interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated

future cash receipts (including all fees on points paid or received that form an integral part of the effective

interest rate, transaction costs and other premiums or discounts) through the expected life of the fi nancial

asset, or, where appropriate, a shorter period. Income is recognised on an effective interest basis for debt

instruments.

Trade receivables

Trade receivables are stated at their nominal value as reduced by appropriate allowances for estimated

irrecoverable amounts.




Financial instruments (continued)

Derecognition of fi nancial assets

The Group derecognises a fi nancial asset only when the contractual rights to the cash fl ows from the asset

expire, or when it transfers the fi nancial asset and substantially all the risks and rewards of ownership of the

asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of

ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset

and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and

rewards of ownership of a transferred fi nancial asset, the Group continues to recognise the fi nancial asset and

also recognises a collateralised borrowing for the proceeds received.

On derecognition of a fi nancial asset in its entirety, the difference between the asset’s carrying amount and the

sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in

other comprehensive income and accumulated in equity is recognised in profi t or loss.

On derecognition of a fi nancial asset other than in its entirety (e.g. when the Group retains an option to

repurchase part of a transferred asset), the Group allocates the previous carrying amount of the fi nancial asset

between the part it continues to recognise under continuing involvement, and the part it no longer recognises

on the basis of the relative fair values of those parts on the date of the transfer. The difference between the

carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for

the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other

comprehensive income is recognised in profi t or loss. A cumulative gain or loss that had been recognised in

other comprehensive income is allocated between the part that continues to be recognised and the part that is

no longer recognised on the basis of the relative fair values of those parts.

Financial liabilities and equity

Financial liabilities and equity instruments issued by the Group are classifi ed according to the substance of the

contractual arrangements entered into and the defi nitions of a fi nancial liability and an equity instrument. An

equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all

of its liabilities. The accounting policies adopted for specifi c fi nancial liabilities and equity instruments are set

out below.

Other fi nancial liabilities

Other fi nancial liabilities, including borrowings and trade payables, are initially measured at fair value, net of

transaction costs. Other fi nancial liabilities are subsequently measured at amortised cost using the effective

interest method, with interest expense recognised on an effective yield basis.

Derecognition of fi nancial liabilities

The Group derecognises fi nancial liabilities when, and only when, the Company’s obligations are discharged,

cancelled or they expire.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting

all of its liabilities.

Equity instruments are recorded at the proceeds received, net of direct issue costs.

Investments in subsidiaries

Investments in subsidiaries are carried at cost less impairment in the stand-alone fi nancial statements of the

Company.





Critical accounting judgments and key sources of estimation and uncertainty

In the process of applying the Group’s accounting policies, management has made the following judgements,

apart from those involving estimations, which have the most signifi cant effect on the amounts recognised in the

fi nancial statements:

Impairment of assets

Determining whether assets are impaired requires an estimation of the value in use of the assets being tested

for impairment. The value in use calculation required the directors to estimate the future cash fl ows expected to

arise from the use of the assets and a suitable discount rate in order to calculate present value. In estimating

its value in use, the estimated future cash fl ows are discounted to their present value using a pretax discount

rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset (or

cash-generating unit). For an asset that does not generate cash infl ows largely independent of those from other

assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. The cash

generating unit is the smallest identifi able group of assets corresponding to operating units that generate cash

infl ows. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying

amount, an impairment loss is recognized. An impairment loss is recognised as an expense immediately as part

of operating income in the consolidated statements of operations.

Residual value and useful life

The Group depreciates its assets over its estimated useful lives taking into account residual values, which,

following the adoption of IAS16 Property, plant and equipment, are re-assessed on an annual basis. The actual

lives and residual values of these assets can vary depending on a variety of factors.

Technological innovation, product life cycles and maintenance programmes all impact the useful lives and

residual values of the assets. Residual value assessments consider issues such as future market conditions, the

remaining life of the asset and projected disposal values.

Income taxes

The Group recognises the net future tax benefi t related to deferred income tax assets to the extent that

it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the

recoverability of deferred income tax assets requires the Group to make signifi cant estimates related to

expectations of future taxable income. Estimates of future taxable income are based on forecast cash fl ows

from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash

fl ows and taxable income differ signifi cantly from estimates, the ability of the Group to realise the net deferred

tax assets recorded at the reporting date could be impacted. Additionally, future changes in tax laws in the

jurisdictions in which the Group operates could limit the ability of the Group to obtain tax deductions in future

periods.

New venture costs

The Group capitalises costs incurred in securing new contracts and in the initial set up phase of such contracts.

These costs are only capitalised if management adjudges the probability of successfully securing the contract

as probable. During such assessment management takes into account the fact patterns specifi c to the contract

involved.

Share-based payments

In calculating the charge for the year under IFRS 2 Share-based payments, certain assumptions have been

made surrounding the future performance of the Capital Drilling Limited share price and the number of

employees likely to remain employed during the duration of the option life period. In addition, in order to arrive

at a fair value for each of the grants, certain parameters have been assumed for the 2010 and 2011 grants and

these have been disclosed in note 19.




Contingent liabilities

Management applies its judgement to the fact patterns and advice it receives from its attorney, advocates

and other advisors in assessing if an obligation is probable, more likely than not, or remote. This judgement

application is used to determine if the obligation is recognised as a liability or disclosed as a contingent

liability.

4. Revenue

Group Company

2014 2013 2014 2013

$ $ $ $

Revenue from the rendering of

services comprises:

Drilling revenue 97,335,776 114,235,351 1,713,389 4,902,811

Equipment rental 1,125,430 1,481,939 5,929,488 7,577,827

Information technology revenue 366,584 548,463 – –

Total revenue 98,827,790 116,265,753 7,642,877 12,480,638

5. Profi t (loss) from operations

The following items have been recognised as (income) expenses in determining profi t (loss) from operations:

Depreciation:

- Drilling rigs 9,987,515 8,603,320 2,348,016 2,251,017

- Associated drilling equipment 2,983,953 4,826,843 319,551 667,529

- Vehicles and trucks 2,123,890 2,346,962 460,813 547,796

- Camp and associated equipment 1,388,237 1,417,119 216,282 225,081

Total depreciation 16,483,595 17,194,244 3,344,662 3,691,423

Operating lease expense 1,446,562 1,744,861 74,906 27,834

Foreign exchange loss (gain) 794,874 105,352 (10,718) (13,236)

Loss on disposal of property, plant

and equipment 229,099 1,205,671 54,680 330,658

Legal and professional fees 941,426 995,524 342,665 258,757

Staff costs 29,365,725 41,495,371 4,996,539 6,377,266

Share-based payment expense – 20,975 – 20,975

Other income - dividends from subsidiaries – – (2,736,483) (4,959,606)

Bad debts – 77,047 – 7,927

Provision for unrecoverable

affi liate receivables – – 3,200,706 –




6. Finance charges

Group Company

2014 2013 2014 2013

$ $ $ $

Finance creditors – 43,385 – 12,958

Interest on bank loans 1,410,401 1,619,633 – –

Total fi nance charges 1,410,401 1,663,018 – 12,958

7. Taxation

Current taxation:

- Normal tax - current year 361,954 551,962 – –

- Normal tax - prior year over provision (616,022) (138,839) – –

- Withholding tax 2,367,152 2,187,187 – 270,524

Deferred taxation 973,654 (2,631,000) – –

Total taxation 3,086,738 (30,690) – 270,524

Capital Drilling Limited is incorporated in Bermuda. No taxation is payable on the results of the Bermuda

business. Taxation for other jurisdictions is calculated in terms of the legislation and rates prevailing in the

respective jurisdictions.

The taxation charge for the year can be reconciled to the theoretical amount that would arise using the basic

tax rate on the profi t or loss per the statement of comprehensive income as follows:


Tax at domestic rates applicable to

profi ts and losses in the jurisdictions in

which the Group operates (2,585,828) (2,905,604) – (748)

Foreign withholding taxes paid 2,367,152 2,187,187 – 270,524

Tax effect of non-deductible items in

determining taxable profi t 294,107 383,506 – –

Prior year over provision (616,022) (138,839) – –

Change in unrecognised deferred tax

assets 3,627,329 443,060 – 748

Total taxation 3,086,738 (30,690) – 270,524

The Group’s consolidated income tax expense is affected by the varying tax laws and income tax rates in effect

in the various countries in which it operates, which are mainly in Africa and Latin America. The increase in the

average statutory rate in the reconciliation above refl ects changes in profi t mix between jurisdictions from year

to year.

Uncertain tax positions

The Group operates in multiple jurisdictions with complex legal and tax regulatory environments. In certain

of these jurisdictions, the Group has taken income tax positions that management believes are supportable

and are intended to withstand challenge by tax authorities. Some of these positions are inherently uncertain

and include those relating to transfer pricing matters and the interpretation of income tax laws. The Group

periodically reassesses its tax positions. Changes to the fi nancial statement recognition, measurement,

and disclosure of tax positions is based on management’s best judgment given any changes in the facts,

circumstances, information available and applicable tax laws. Considering all available information and the

history of resolving income tax uncertainties, the Company believes that the ultimate resolution of such matters

will not likely have a material effect on the Company’s fi nancial position, statements of operations or cash fl ows.



8. Loss per share

Basic loss per share

The losses or earnings and weighted average number of ordinary shares used in the calculation of basic

earnings per share are as follows:

Group

2014 2013

Loss for the year, used in the calculation of basic loss per share ($555,501) ($1,876,355)

Weighted average number of ordinary shares for the purposes of basic

earnings per share 134,592,800 134,592,800

Basic loss per share (cents) (0.4) (1.4)

Diluted loss per share

The losses or earnings used in the calculations of all diluted loss per share measures are the same as those

used in the equivalent basic loss per share measures, as outlined above.

Weighted average number of ordinary shares used in the calculation

of basic earnings per share 134,592,800 134,592,800

Shares deemed to be issued for no consideration in respect of:

- Dilutive share options # – –

Weighted average number of ordinary shares used in the calculation

of diluted loss per share 134,592,800 134,592,800

Diluted loss per share (cents) (0.4) (1.4)

# For the purposes of calculating earnings per share, diluted weighted average shares outstanding excludes 2.34 million

(2013: 2.34 million) potential ordinary shares from share options, because such share options are anti-dilutive.

9. Dividends

In respect of the current year, the directors propose that a dividend of 1.9 cents per share be paid to

shareholders on 8 May 2015. This dividend is subject to approval by shareholders at the Annual General

Meeting and has not been included as a liability in these consolidated fi nancial statements. The proposed

dividend is payable to all shareholders on the Register of Members on 1 May 2015. The total estimated

dividend to be paid is $2.6 million (2013: Nil). The payment of this dividend will not have any tax consequences

for the group.




10. Property, plant and equipment

Drilling rigs

Associated drilling

equipmentVehicles and

trucks

Camp and associated equipment Total

$ $ $ $ $

Group - 2014

Cost

Balance at 1 January 2014 68,234,799 12,883,326 14,189,488 8,183,130 103,490,743

Additions 10,850,326 1,007,928 695,892 1,176,985 13,731,131

Disposals (2,127,773) (2,235,012) (292,235) (295,048) (4,950,068)

Balance at 31 December 2014 76,957,352 11,656,242 14,593,145 9,065,067 112,271,806

Accumulated depreciation

Balance at 1 January 2014 (25,973,912) (7,849,618) (6,141,847) (3,563,023) (43,528,400)

Depreciation for the year (9,987,515) (2,983,953) (2,123,890) (1,388,237) (16,483,595)

Disposals 1,800,574 2,254,741 98,441 292,957 4,446,713

Balance at 31 December 2014 (34,160,853) (8,578,830) (8,167,296) (4,658,303) (55,565,282)

Carrying amount at 31 December 2014 42,796,499 3,077,412 6,425,849 4,406,764 56,706,524

At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to determine

whether there is any indication that those assets may be impaired. Due to the poor performance of the Group’s

share price in 2014, the net asset value of the Group exceeded its market capitalisation as at 31 December

2014. The Group identifi ed this circumstance as an indicator of potential impairment for the current period.

As a result property, plant and equipment was tested for impairment at the reporting date. As at this date

management concluded that the carrying amount of property, plant and equipment did not exceed the value in

use and therefore, no impairment loss was recognised on that basis.

For purposes of determining the recoverable value of tangible assets, management estimates discount rates

using pre-tax rates that refl ect current market rates for investments of similar risk. The rate was estimated from

the weighted average cost of capital of companies, which operate a portfolio of assets similar to those of the

Group’s assets.

In validating the value in use, key assumptions used in the discounted cash-fl ow model (such as the

determination that there is a single cash-generating unit, discount rates, average revenue rates, drilling volumes

and terminal growth rate) management performed a sensitivity analysis to test the resilience of the assumptions

used in determining the value in use for the impairment test. Management believe that reasonable movements

in key assumptions would not result in an impairment loss to be recognised.



10. Property, plant and equipment (continued)

Drilling rigs

Associated drilling


trucks


$ $ $ $ $

Group - 2013

Cost


Additions 2,045,351 1,506,479 966,891 1,162,059 5,680,780

Disposals (2,676,546) (7,112,918) (1,316,608) (331,287) (11,437,359)

Translation of foreign

operations – – – (14,023) (14,023)



Balance at 1 January 2013 (18,192,507) (9,978,959) (4,642,734) (2,403,390) (35,217,590)

Depreciation for the year (8,603,320) (4,826,843) (2,346,962) (1,417,119) (17,194,244)

Disposals 821,915 6,956,184 847,849 246,729 8,872,677

Translation of foreign

operations – – – 10,757 10,757

Balance at 31 December 2013 (25,973,912) (7,849,618) (6,141,847) (3,563,023) (43,528,400)

Carrying amount at 31 December 2013 42,260,887 5,033,708 8,047,641 4,620,107 59,962,343

Drilling rigs

Associated drilling


trucks


$ $ $ $ $

Company - 2014

Cost


Additions 467,575 51,389 76,244 155,429 750,637

Net transfers from (to)

subsidiaries 717,591 (213,951) (163,826) (64,410) 275,404

Disposals (44,292) (319,893) (174,712) (77,987) (616,884)



Balance at 1 January 2014 (7,291,431) (1,877,997) (1,309,623) (630,240) (11,109,291)

Depreciation for the year (2,348,016) (319,551) (460,813) (216,282) (3,344,662)

Net transfers to subsidiaries 103,286 213,951 107,811 46,145 471,193

Disposals 6,377 305,101 62,468 79,543 453,489

Balance at 31 December 2014 (9,529,784) (1,678,496) (1,600,157) (720,834) (13,529,271)

Carrying amount at 31 December 2014 12,876,832 811,724 1,514,220 358,441 15,561,217




10. Property, plant and equipment (continued)

Drilling rigs

Associated drilling


trucks


$ $ $ $ $

Company - 2013

Cost

Balance at 1 January 2013 21,268,987 3,480,880 4,175,772 960,196 29,885,835

Additions 876,383 40,410 53,550 85,320 1,055,663

Net transfers from (to)

subsidiaries 557,828 (79,885) (172,750) 118,929 424,122

Disposals (1,437,456) (468,730) (679,901) (98,202) (2,684,289)



Balance at 1 January 2013 (4,360,066) (1,701,754) (1,254,314) (456,239) (7,772,373)

Depreciation for the year (2,251,017) (667,529) (547,796) (225,081) (3,691,423)

Net transfers (from) to

subsidiaries (819,211) 37,883 12,740 (25,449) (794,037)

Disposals 138,863 453,403 479,747 76,529 1,148,542

Balance at 31 December 2013 (7,291,431) (1,877,997) (1,309,623) (630,240) (11,109,291)

Carrying amount at 31 December 2013 13,974,311 1,094,678 2,067,048 436,003 17,572,040



11. Investment in subsidiaries

Details of the company’s subsidiaries at 31 December 2014 are as follows:

Unlisted subsidiariesCountry of

incorporation

Issued share capital

Percentage held by group

Percentage held by

company

Carrying value in the Company fi nancial

statements

2014 2013

$ % % $ $

Capital Drilling (Botswana)

(Proprietary) Limited Botswana 100 100 – – –

Capital Drilling Egypt

(Limited Liability Company) Egypt 200,000 100 100 591,826 591,826

Capital Drilling (Ghana) Limited Ghana 50,000 100 – – –

Capital Drilling Guinea - SA Guinea 15,000 100 – – –

Capital Drilling Mali - SARL Mali 2,020 100 – – –

Capital Drilling (Solomon Islands)

Pty Ltd

Solomon

Islands 13,910 100 – – –

Capital Drilling Moçambique

Limitada Mozambique 2,055 100 1 20 20

Capital Drilling (Malaysia) Sdn. Bhd. Malaysia 1,000 100 – – –

Capital Drilling Mauritania SARL Mauritania 3,530 100 – – –

Capital Drilling (Mauritius) Limited Mauritius – 100 100 – –

Capital Drilling Namibia

(Proprietary) Limited Namibia 14 100 – – –

Capital Drilling Netherlands

Coöperatief U.A.

The

Netherlands – 100 100 – –

Capital Drilling Perforaciones

Chile Limitada Chile 1,000 100 – – –

Capital Drilling Service Plc Ethiopia 111,000 100 1 1,110 1,110

Capital Drilling (Singapore) Pte. Ltd. Singapore 1 100 100 1 1

Capital Drilling South Africa

(Proprietary) Limited

South

Africa 13 100 – – –

Capital Drilling Sondagens

do Brasil Ltda. Brazil 56,980 100 – – –

Capital Drilling (T) Limited Tanzania 50,000 100 100 443,826 443,826

Capital Drilling Zambia Limited Zambia 1,587 100 – – –

Cap-Sat Technologies Limited Bermuda 18,600 100 100 18,600 18,600

Supply Force International Ltd Bermuda 16,000 100 100 16,000 16,000

Well Force International Ltd Bermuda 100 100 100 100 100

Supply Force International Pte Ltd Singapore 1 100 – – –

Supply Force International

(Aust) Pty Ltd Australia 1 100 – – –

1,071,483 1,071,483

All of the above subsidiaries principal activity is that of providing drilling services or support services. There

have been no changes in the percentage ownership held by the Group or Company in any of its subsidiaries.

The Group manages its cash fl ow from a central treasury. Thus the Group provides fi nancial support to its

subsidiaries when necessary and the Group settles liabilities as they fall due from the Group’s treasury reserves.

The fi nancial support is provided by way of affi liate company receivables as disclosed in note 15.




12. Deferred tax

The following are the major deferred tax assets and liabilities recognised by the Group and their movements:

Group

2014 2013

$ $

Movements

Balance at beginning of the year 1,111,738 (1,519,262)

Excess of capital allowances over depreciation 1,026,818 70,266

Prepayments – 2,388

Provisions – (31,140)

Net unrealised exchange losses – (16,975)

Tax loss carried forward (2,000,472) 2,606,462

Balance at end of the year 138,084 1,111,738

Balance at end of the year

Excess of capital allowances over depreciation (660,297) (1,687,114)

Tax loss carried forward 798,381 2,798,853

Balance at end of the year 138,084 1,111,738

Disclosed as follows:

Deferred tax assets 160,361 1,111,738

Deferred tax liabilities 22,277 –

At the reporting date, the Group has estimated tax losses carried forward of $30.0 million (2013: $20.5 million)

with a tax value of $7.5 million (2013: $5.9 million) available for offset against future profi ts. A deferred tax asset

has been recognised to the value of $0.8 million (2013: $2.8 million) in respect of such losses. No deferred

tax asset has been recognised in respect of the remaining tax losses amounting to $22.9 million (2013: $10.7

million) with a tax value of $6.7 million (2013: $3.1 million) as there is uncertainty whether there will be suffi cient

future taxable profi ts available to offset these losses. These losses may be carried forward up to fi ve years or

indefi nitely depending on the jurisdiction.

At the reporting date, the aggregate amount of temporary differences associated with unremitted earnings of

overseas subsidiaries for which deferred tax liabilities have not been recognised, amounted to $138.1 million

(2013: $119.8 million). No liability has been recognised in respect of these differences because the Group is

in a position to control the timing of declaration of dividends from the subsidiaries and it is expected that such

differences will not reverse in the foreseeable future.



13. Inventory

Group Company

2014 2013 2014 2013

$ $ $ $

Drilling consumables 22,386,042 23,067,684 – –

Goods-in-transit 284,467 630,547 – –

22,670,509 23,698,231 – –

Inventory cost recognised as an expense during the year was $17.8 million (2013: $21.2 million).

14. Trade and other receivables

Group Company

2014 2013 2014 2013

$ $ $ $

Trade receivables 10,047,273 15,743,316 12,726 5,228

VAT receivables 284,947 2,273,971 – –

Other receivables 429,429 414,431 54,233 69,594

10,761,649 18,431,718 66,959 74,822

Trade receivables have a 15 or 30 day credit period. The aging of trade receivables is detailed below:

Current 7,646,418 10,501,753 – –

Past due 0 - 30 days# 1,507,419 3,184,535 – –

Past due 31 - 45 days# 552,558 352,887 – –

Past due 46 - 60 days# 8,201 350,735 – –

Past due 60 days# 332,677 1,353,406 12,726 5,228

10,047,273 15,743,316 12,726 5,228

# - Not impaired

Before accepting any new customer, the Group assesses the potential customer’s credit quality and

defi nes credit limits by customer. Limits attributed to customers are reviewed annually. The Group’s credit

risk is concentrated as the Group currently provides drilling services to a limited number of major and junior

exploration and mining companies operating in the countries the Group operates in.

Included in trade receivables are amounts of $6,906,293 (2013: $5,543,309) receivable from customers that

represents more than 10% of the Group’s trade receivables.

No allowance is made for doubtful debts, as the directors anticipate 100% recoverability of the trade

receivables.

The directors consider that the carrying amount of trade and other receivables approximate their fair values.




15. Affi liate accounts receivable

Company

2014 2013

$ $

Capital Drilling Netherlands Coöperatief U.A. 17,599,164 16,454,623

Capital Drilling Egypt (Limited Liability Company) 12,565,195 10,809,530

Capital Drilling Perforaciones Chile Limitada 3,987,603 3,678,989

Capital Drilling (Zambia) Limited 2,179,039 2,316,192

Capital Drilling Moçambique Limitada – 1,953,912

Capital Drilling Service Plc – 1,088,838

Capital Drilling (Solomon Islands) Pty Ltd. – 604,480

Supply Force International Limited – 437,842

Well Force International Limited 68,089 280,450

Capital Drilling (Malaysia) Sdn. Bhd. 192,079 118,841

Cap-Sat Technologies Limited – 114,809

Capital Drilling Namibia (Proprietary) Limited – 11,934

Capital Drilling (Botswana) (Proprietary) Limited 6,657 5,697

Capital Drilling Sondagens do Brasil Ltda. – 1,164

36,597,826 37,877,301

These receivables are interest free, unsecured and have no fi xed terms of repayment. These amounts are

denominated in United States Dollars.

A provision for potentially unrecoverable amounts has been disclosed in note 5.

16. Investments

Group Company

2014 2013 2014 2013

$ $ $ $

Available for Sale Financial Assets 189,440 – – –

189,440 – – –

17 Cash and cash equivalents

Group Company

2014 2013 2014 2013

$ $ $ $

Cash and cash equivalents comprise:

Bank balances 14,704,410 12,230,692 1,035,420 247,568

Petty cash 39,566 97,456 165 44,577

Net cash and cash equivalents 14,743,976 12,328,148 1,035,585 292,145

The directors consider that the carrying amounts of cash and cash equivalents approximate their fair values.



18. Share capital

Group Company

2014 2013 2014 2013

Authorised:

2 000 000 000 (2013: 2 000 000 000) ordinary

shares of 0.01 cents (2013: 0.01 cents) each 200,000 200,000 200,000 200,000

Issued and fully paid:

134 592 800 (2013: 134 592 800) ordinary

shares of 0.01 cents (2013: 0.01 cents) each 13,459 13,459 13,459 13,459

Share premium:

Balance at the beginning and end of the year 21,561,190 21,561,190 21,561,190 21,561,190

On 15 January 2015, the Company issued 10,881 new common shares pursuant to the company’s employee

incentive scheme. The shares rank pari passu with the existing common shares.

19. Equity-settled employee benefi ts

2010 Discretionary share option plan:

On 28 May 2010, shareholders approved the 2010 Discretionary share option plan which was adopted by the

board of directors on the same date. All previous share option plans were terminated on that date.

All employees of the Group are eligible to participate in the scheme. Employees to whom options are offered

are required to accept the offer prior to issuance of the option certifi cate. Options are exercisable at a price

equal to the average quoted market price of the Group’s shares on the date of grant. The vesting period is

three years or shorter or longer period as determined by the Remuneration Committee on the date of grant. If

the options remain unexercised after a period of ten years from the date of grant the options expire. Options

are forfeited if the employee leaves the Group before the options vest. Details of the share options outstanding

during the year are as follows:

Acceptance date by employee Number Vesting date Expiry date

Weighted average

exercise price

Weighted average grant date fair value

per option

£ $

2010 Series

19/11/2010 to 15/12/2010 2,340,000 ⅓ on 1/1/2011

⅓ on 1/1/2012

⅓ on 1/1/2013

31/12/2020 0.800 0.078

Options were priced using a binomial option pricing model. Where relevant, the expected life used in the model

was adjusted based on management’s best estimate for the effects of non-transferability, exercise restrictions,

and behavioural considerations. Expected volatility is based on management’s expectation of the future

volatility in the Company’s share price. In 2014 the Group recognised total expenses of $Nil (2013: $20,975)

related to the 2010 discretionary share option plan.




19. Equity-settled employee benefi ts reserve (continued)

Group and company

2010 Series

Inputs into the model

Grant date share price £0.770 - £0.815

Grant date exchange rate (1 GBP = USD) 1.555 - 1.599

Exercise price £0.80

Expected volatility 5.0%

Option life 1132 days

Dividend yield 0.0%

Risk-free interest rate 0.5%

The following reconciles the number of outstanding share options granted under the 2010 Discretionary share

option plan at the beginning and end of the year:

Group and company

2014 2013

Balance at beginning of the year 2,340,000 2,360,000

Forfeited during the year – (20,000)

Balance at end of the year 2,340,000 2,340,000

Exercisable at the end of the year 2,340,000 2,340,000

Share options issued under the 2011 series were forfeited. There is currently no outstanding share options

granted under the 2011 series.

20. Long-term liabilities

Group

2014 2013

$ $

Atlas Copco Customer Finance AB

Balance at the beginning of the year 164,340 821,704

Principal repayments during the year (164,340) (657,364)

– 164,340

Less: Current portion included under current liabilities – (164,340)

Due after more than one year – –



20. Long-term liabilities (continued) The Atlas Copco loan was denominated in United States Dollars at a fi xed interest rate of 8.9% per annum. The

loan was repaid in full in 2014, releasing the security on the rigs

Group

2014 2013

$ $

Standard Bank (Mauritius) Limited

Balance at the beginning of the year 21,189,632 28,229,156

Amount received during the year 13,000,000 –

Accrued interest paid (90,406) (39,524)

Principal repayments during the year (19,000,000) (7,000,000)

15,099,226 21,189,632

Less: Current portion included under current liabilities (99,226) (189,632)

Due after more than one year 15,000,000 21,000,000

In January 2012, the Group (through Capital Drilling (Mauritius) Limited) entered into a new debt facility with

Standard Bank (Mauritius) Limited. The facility comprises (i) a $17 million Term Loan Facility (“TLF”), (ii) a $30

million Revolving Facility (“RF”) and (iii) a $15 million Treasury Facility (“TF”). The maximum aggregate limit

amounts to $47 million. The TLF was fully drawn down during 2012 and had been paid in full in December 2014

ahead of its maturity date, on 1 February 2015. The TLF facility had an annual interest rate of 3.75% above

the prevailing three month US$ LIBOR (payable in arrears). The TF may be used for the purpose of concluding

transactions in respect of foreign exchange and other related derivatives between the Group and the lender.

The TF remains undrawn as at the reporting date.

As at 31 December 2014, $15 million of the RF was drawn down and is repayable in full 48 months after the

initial utilisation of 31 January 2012. The RF has an annual interest rate of 4.15% above the prevailing three

month US$ LIBOR (payable in arrears). Standard Bank (Mauritius) Limited has charged an annual commitment

fee of 0.75% of the undrawn balances of the RF. As at 31 December 2013, $15 million of the RF remains

available for utilisation up to maturity date, 1 February 2016.

In December 2014 the group successfully negotiated the refi nancing of the above facilities. The new negotiated

facility comprises (i) a $25 million Revolving Credit Facility (“RCF”) and (ii) a $5 million Working Capital Facility

(“WCF”). The Finance Documents for this new facility were executed on 23 December 2014, with a set of

conditions to be fulfi lled before achieving an effective date of the loan. The facility was structured that on

achievement of effective date the existing Revolving Facility will be rolled into the new RCF. Effective date

of the new facility was achieved on 3 February 2015. The RCF facility has an annual interest rate of 5.25%

above the prevailing three month US$ LIBOR (payable in arrears), and has an annual commitment fee of 1%

of undrawn balance and is available for utilisation up to 2 February 2018 minus an annual amortisation of $5

million.

Security for the Standard Bank (Mauritius) Limited facilities comprises:

Upward corporate guarantees from Capital Drilling Egypt (Limited Liability Company), Capital Drilling

(Tanzania) Limited and Capital Drilling Zambia Limited.

A negative pledge over the assets of Capital Drilling Ltd and Capital Drilling Egypt (Limited Liability

Company).

As at the reporting date the Group has complied with all covenants that attaches to the loan facilities.

In addition, there are dividend and transaction restrictions and a requirement for an all risks insurance policy on

all inventory and property, plant and equipment.




20. Long-term liabilities (continued)

Group Company

2014 2013 2014 2013

$ $ $ $

Total long-term liabilities 15,099,226 21,353,972 – –

Less: Current portion included under

current liabilities (99,226) (353,972) – –

Total due after more than one year 15,000,000 21,000,000 – –

The table has been drawn up based on the undiscounted cash fl ows of fi nancial liabilities based on the earliest

date on which the Group can be required to pay. The table includes both interest and principal cash fl ows. To

the extent that interest fl ows are based on fl oating rates, the undiscounted amount is derived from interest rate

curves at the end of the reporting period.

As at 31 December 2014 the contractual scheduled maturities of long-term liabilities, including short-term

portions were as follows:

$

2015 249,226

2016 15,750,000

Total scheduled contractual obligation 15,999,226

21. Trade and other payables

Group Company

2014 2013 2014 2013

$ $ $ $

Trade payables 4,152,757 6,072,592 373,921 432,654

Other payables

- Accrued expenses 1,850,011 2,389,511 151,870 171,283

- Value Added Tax 302,724 463,571 – –

- Employee related liabilities 1,007,943 1,319,036 408,417 269,985

- Unearned revenue – 4,350 – –

7,313,435 10,249,060 934,208 873,922

Total trade payables comprise liabilities for the purchase of goods and services. Trade payables have terms

ranging from payment on delivery up to 60 days. The Group has fi nancial risk management policies in place to

ensure that all payables are paid within the appropriate credit time frame.

The directors consider that the carrying amount of trade and other payables approximate their fair values.

22. Taxation

Withholding tax payable 170,807 185,054 – –

Income tax payable 17,918 9,484 – –

188,725 194,538 – –



23. Affi liate accounts payable

Company

2014 2013

$ $

Capital Drilling (Mauritius) Limited 36,373,677 37,362,487

Capital Drilling Mauritania SARL 32,259,588 27,924,733

Capital Drilling (Tanzania) Limited 825,933 2,260,798

Capital Drilling (Singapore) Pte. Ltd. 5,921,146 3,285,779

Capital Drilling (Ghana) Limited 711,071 662,781

Capital Drilling South Africa (Proprietary) Limited 276,107 257,637

Cap-Sat Technologies Limited 169,118 –

Well Force International Ltd 973,022 –

Capital Drilling Service Plc 17,833 –

Supply Force International Ltd 471,527 –

Capital Drilling (Solomon Islands) Pty Ltd 247,583 –

Capital Drilling Papua New Guinea (foreign contractor branch) 1,150,099 89,868

79,396,704 71,844,083

These payables are interest free, unsecured and have no fi xed terms of repayment. These amounts are

denominated in United States Dollars.

24. Cash from (used in) operations

Group Company

2014 2013 2014 2013

$ $ $ $


Adjusted for:

- Depreciation 16,483,595 17,194,244 3,344,662 3,691,423

- Loss on disposal of property, plant

and equipment 229,099 1,205,671 54,682 330,658

- Share-based payment expense – 20,975 – 20,975

- Exchange differences on translating

foreign operations 91,357 87,405 – –

- Finance charges 1,410,401 1,663,018 – 12,958

- Unrealised foreign exchange loss

(gain) on foreign exchange held 464,627 (195,453) 1,807 (491)

Operating cash fl ows before working

capital movements 21,210,316 18,068,816 (6,233,300) (6,374,759)

Adjustments for working capital changes:

- Decrease (increase) in inventory 1,027,722 (1,093,112) – 394,193

- Decrease in trade and other receivables 7,670,069 7,538,889 7,863 993,930

- (Increase) decrease prepaid expenses

and other assets (1,195,645) 2,284,652 (533,177) 952,817

- Decrease (increase) in affi liate accounts

receivables – – 1,279,475 (16,068,508)

- (Decrease) increase in trade and other

payables (2,935,625) (5,996,985) 60,286 (85,454)

- Increase in affi liate accounts payable – – 6,806,025 19,206,243

Cash from (used in) operations 25,776,837 20,802,260 1,387,172 (981,538)




25. Taxation paid

Group Company

2014 2013 2014 2013

$ $ $ $

Net amount receivable at beginning of

the year (1,737,070) (285,885) – –

Amounts charged to the statement of

comprehensive income (excluding

deferred taxation) 2,113,084 2,600,310 – 270,524

Net amount receivable at the end of

the year 1,208,907 1,737,070 – –

1,584,921 4,051,495 – 270,524

26. Auditor’s remuneration

The Group auditors are Deloitte & Touche (South Africa) (“Deloitte”). The Group has engaged Deloitte and other

audit fi rms to provide both audit and non-audit services to its various subsidiaries.

Group Company

2014 2013 2014 2013

$ $ $ $

Fees payable to the Group’s auditor for

the audit of the group’s annual fi nancial

statements 164,449 157,392 31,245 30,513

Fees payable to the Group’s auditor for

other services 30,162 27,310 – –

Fees paid to associates of the Group’s

auditor

The audit of the Group’s subsidiaries 70,035 95,052 – –

Non-audit services – subsidiaries 24,000 48,091 – –

Fees paid to other auditors

The audit of the Group’s subsidiaries 56,229 71,070 – 2,200

Non-audit services – subsidiaries 45,597 45,935 – –

Tax services – subsidiaries – – – –

390,472 444,850 31,245 32,713

27. Lease commitments

Leasing arrangements

The Group has entered into several operating leases for premises, with a maximum period of up to fi ve years.

The Group does not have an option to purchase the leased asset at the expiry of the lease period.

Non-cancellable operating lease commitments:

Not longer than 1 year 1,203,103 1,403,607 – –

Between 1 and 5 years 471,250 762,722 – –

1,674,353 2,166,329 – –



28. Segmental analysis

Operating segments are identifi ed on the basis of internal management reports about components of the Group

that are regularly reviewed by the Chief Executive in order to allocate resources to the segments and to assess

their performance. Information reported to the Group’s Chief Executive Offi cer for the purposes of resource

allocation and assessment of segment performance is focused on the region of operation. For the purposes

of the segmental report, the information on the operating segments have been aggregated into the principal

regions of operations of the Group. The Group’s reportable segments under IFRS 8 are therefore:

- Africa: Derives revenue from the provision of drilling services.

- Rest of world: Derives revenue from the provision of drilling services and related logistic, equipment

rental and IT support services.

Information regarding the Group’s operating segments is reported below. At 31 December 2014, management

reviewed the composition of the Group’s operating segments and the allocations of operations to the reportable

segments.

Segment revenue and results:

The following is an analysis of the Group’s revenue and results by reportable segment:

Africa Rest of world Consolidated

$ $ $

2014

External revenue 89,861,385 8,966,405 98,827,790

Segment gross profi t 33,377,372 (414,159) 32,963,213

Administration costs and depreciation (23,002,685) (5,383,674) (28,386,359)

Segment profi t (loss) 10,374,687 (5,797,833) 4,576,854

Central administration costs and depreciation (635,359)

Profi t from operations 3,941,495

Finance charges (1,410,401)

Profi t before tax 2,531,094

2013

External revenue 95,516,955 20,748,798 116,265,753

Segment gross profi t 29,095,911 1,463,672 30,559,583

Administration costs and depreciation (27,046,130) (3,684,167) (30,730,297)

Segment profi t (loss) 2,049,781 (2,220,495) (170,714)

Central administration costs and depreciation (73,313)

Loss from operations (244,027)

Finance charges (1,663,018)

Loss before tax (1,907,045)

The accounting policies of the reportable segments are the same as the Group’s accounting policies

described in note 3. Segment profi t represents the profi t earned by each segment without allocation of central

administration costs including, depreciation, other income, fi nance charges, and income tax. This is the

measure reported to the Group’s Chief Executive Offi cer for the purpose of resource allocation and assessment

of segment performance.




28. Segmental analysis (continued)

Group

2014 2013

$ $

Segment assets:

Africa 177,900,467 200,432,984

Rest of world 76,702,168 82,566,549

Total segment assets 254,602,635 282,999,533

Head offi ce companies 58,050,077 40,593,732

312,652,712 323,593,265

Eliminations (199,021,206) (200,323,709)

113,631,506 123,269,556

Segment liabilities:

Africa 52,629,057 56,578,884

Rest of world 51,482,005 51,408,547

Total segment liabilities 104,111,062 107,987,431

Head offi ce companies 118,259,662 123,045,565

222,370,724 231,032,996

Eliminations (199,747,061) (199,235,426)

22,623,663 31,797,570

For the purposes of monitoring segment performance and allocating resources between segments the Group’s

Chief Executive monitors the tangible, intangible and fi nancial assets attributable to each segment. All assets

are allocated to reportable segments with the exception of property, plant and equipment used by the head

offi ce companies, certain amounts included in other receivables, and cash and cash equivalents held by the

head offi ce companies.

Other segment information:

Depreciation

Africa 14,067,442 15,139,927

Rest of world 2,092,974 1,889,597

Total depreciation segment assets 16,160,416 17,029,524

Head offi ce companies 323,179 164,720

16,483,595 17,194,244

Additions to property, plant and equipment

Africa 12,035,239 3,939,014

Rest of world 945,102 1,653,716

Total additions segment assets 12,980,341 5,592,730

Head offi ce companies 750,790 88,050

13,731,131 5,680,780

Information about major customers

Included in revenues arising from the Africa segment are revenues of approximately $63.7 million (2013: $67.5

million) which arose from sales to the customers that represent more than 10% of the Group’s revenue.



29. Financial instruments

Financial instruments that are measured in the consolidated statement of fi nancial position or disclosed at fair

value require disclosure of fair value measurements by level based on the following fair value measurement

hierarchy:

level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;

level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or

liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and

level 3 – inputs for the asset or liability that are not based on observable market data (that is,

unobservable inputs).

The fair values of fi nancial instruments that are not traded in an active market are determined using standard

valuation techniques. These valuation techniques maximise the use of observable market data where available

and rely as little as possible on Group specifi c estimates.

The directors consider that the carrying value amounts of fi nancial assets and fi nancial liabilities recorded at

amortised cost in the consolidated fi nancial statements are approximately equal to their fair values. The fair

values disclosed for the fi nancial assets and fi nancial liabilities are classifi ed in level 3 of the fi nancial instrument

hierarchy and have been assessed to approximate their carrying amounts based on a discounted cash fl ow

assessment.

Capital risk management

The Group and Company manage their capital to ensure that entities in the Group will be able to continue as

a going concern while maximising the return to stakeholders through the optimisation of the debt and equity

balance. The Group’s overall strategy remains unchanged from 2013.

The capital structure of the Group consists of debt, which includes the borrowings disclosed in notes 20 and

23, cash and cash equivalents disclosed in note 17 and equity attributable to equity holders of the parent,

comprising issued capital, reserves and retained earnings as disclosed in note 18 and the statement of changes

in equity.

The capital structure of the Company consists of debt which includes the borrowing disclosed in note 23, cash

and cash equivalents disclosed in note 17 and equity attributable to the holders of the Company, comprising

issued capital and reserves as disclosed in note 18 and the statement of changes in equity. The Company’s

capital structure and going concern are dependent on the company’s ability to obtain cash resources from its

subsidiaries. There is currently no severe long term restrictions in place which impairs the Company’s ability

to repatriate funds from its subsidiaries.

Risk management is conducted within a framework of policies and guidelines that are continuously monitored

by management and the board of directors, the objective being to minimise exposure to market risks (interest

rate risk, foreign currency risk and price risk), credit risk, and liquidity risk.




29. Financial instruments (continued)

Group Company

2014 2013 2014 2013

$ $ $ $

Categories of fi nancial instruments

Financial assets

Cash and cash equivalents 14,743,976 12,328,148 1,035,585 292,145

Trade receivables 10,047,273 15,743,316 12,726 5,228

Other receivables 429,429 414,431 54,233 69,594

Available for Sale Financial Assets 189,440 – – –

Affi liate accounts receivable – – 36,547,826 37,877,301

25,410,118 28,485,895 37,650,370 38,244,268

Financial liabilities

Trade and other payables 7,010,711 9,785,489 934,208 873,922

Long-term liabilities 15,099,226 21,353,972 – –

Affi liate accounts payable – – 79,396,704 71,844,083

22,109,937 31,139,461 80,330,912 72,718,005

Foreign currency risk management

The Group undertakes transactions in foreign currencies which give rise to exchange rate fl uctuation. To

manage the Group’s risk to foreign currency fl uctuations and foreign exchange rate risk, the Group tries to

match the currency of operating costs with the currency of revenue as well as the currency of fi nancial assets

with currency of fi nancial liabilities. Financial assets and liabilities denominated in foreign currencies are

reviewed regularly by management to ensure that the Group is not unduly exposed to foreign currencies.

The carrying amounts of the Group’s foreign currency denominated monetary assets, consisting of cash and

other receivables, and monetary liabilities, consisting of trade and other payables, at 31 December 2014 are as

follows:

Group Company

2014 2013 2014 2013

$ $ $ $

Foreign currency risk management

Assets:

Australian Dollar 261,889 446,006 2,200 86,902

Chilean Peso 1,266,662 1,700,537 – –

Egyptian Pound 347,216 324,147 – –

Mauritanian Ouguiya 2,185,396 1,040,371 – –

South African Rand 4,033 31,188 – 13,953

Tanzanian Shillings 216,404 1,509,543 – –

Zambian Kwacha 98,310 4,719,213 – –

All other currencies 410,707 1,278,865 4,096 188,016

4,790,617 11,049,870 6,296 288,871




Foreign currency risk management (continued)

Group Company

2014 2013 2014 2013

$ $ $ $

Liabilities

Australian Dollar 327,344 890,876 – 13,597

Chilean Peso – 466,074 – –

Egyptian Pound 326,630 685,488 – –

Mauritanian Ouguiya 107,374 466,283 – –

South African Rand 71,545 302,038 – –

Tanzanian Shillings 404,355 413,213 – –

Zambian Kwacha 6,583 430,309 – –

All other currencies 163,055 1,144,317 8,864 (42,431)

1,406,886 4,798,598 8,864 (28,834)

Foreign Currency sensitivity analysis:

The Group is exposed to a number of currencies, which are listed below.

The following table details the Group’s sensitivity to a 10% change in the United States Dollar against the

relevant foreign currencies. The sensitivity analysis includes the outstanding foreign currency denominated

monetary items year end together with the income and expense items during the year and adjusts their

translation for a 10% change in foreign currency rates.

The positive number below indicates an increase in profi t where the United States Dollar strengthens by 10%

against the relevant currency. For a 10% weakening of the United States Dollar against the relevant currency,

there would be an equal and opposite impact on the profi t.

Group Company

2014 2013 2014 2013

$ $ $ $

Australian Dollar profi t (loss)* 15,269 40,443 – (6,664)

Chilean Peso profi t (loss)* (162,396) (112,224) – –

Egyptian Pound profi t (loss)* 200,493 32,849 – –

Mauritanian Ouguiya profi t (loss)* 48,322 (52,190) –

South African Rand profi t (loss)* – 24,623 – (1,268)

Tanzanian Shillings profi t (loss)* 225,171 (99,666) – –

Zambian Kwacha profi t (loss)* (192,680) (389,900) – –

All other currencies profi t (loss)* 114,714 7,230 (8,440) (12,555)

* Before taxation

A 10% strengthening of the United States Dollar against the basket of currencies in which the Group trade

would result in a decrease in the Group’s net equity of $54,402 (2013: increase of $540,003) and a decrease in

the company’s net equity of $8,440 (2013: increase of $20,487).

Monetary regulation changes in some jurisdiction has imposed the usage of local currency for transactions

which triggered foreign currency rate fl uctuation exposure. The Group manages this exposure by converting

excess local currency cash in to functional currency.





Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in fi nancial

loss to the Group. Credit risk relates to potential exposure on trade and other receivables and bank balances.

Before accepting any new customer, the Group assesses the potential customer’s credit quality and defi nes

credit limits by customer. Limits attributed to customers are reviewed annually. Amounts owing from the

Group’s customers are continuously monitored. The Group currently provides drilling services to a limited

number of major and junior exploration and mining companies operating in the countries the Group operates in.

The credit risk on bank balances is limited because the counterparties are banks with high credit-ratings

assigned by international credit-rating agencies.

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors. The Group manages

liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by

continuously monitoring forecast and actual cash fl ows, and by matching the maturity profi les of fi nancial

assets and liabilities.

Liquidity risk tables:

The following table details the Group’s remaining contractual maturity for its fi nancial assets and liabilities. The

tables for assets have been drawn up based on the undiscounted contractual maturities of the fi nancial assets

including interest that will be earned on those assets. The tables for liabilities represent undiscounted cash

fl ows of fi nancial liabilities based on the earliest date on which the Group can be required to pay based on

the interest rates at the reporting date:

2014

Weighted average

interest rate 1 month 1 - 3 months3 months -

1 year 1 - 5 years

$ $ $ $

Financial assets

Non-interest bearing loans

and receivables 0.00% 7,646,418 2,068,178 332,438 –


Non-interest bearing 0.00% 3,509,658 3,269,054 535,428 –

Variable interest rate instruments 4.37% 99,226 – – 15,000,000

Total 3,608,884 3,269,054 535,428 15,000,000

2013

Financial assets

Non-interest bearing loans

and receivables 0.00% 10,501,753 3,537,422 1,704,141 –


Non-interest bearing 0.00% 5,288,212 4,157,696 803,152 –

Variable interest rate instruments 4.36% 189,632 – – 21,000,000

Fixed interest rate instruments 8.90% 125,662 38,679 – –

Total 5,603,506 4,196,375 803,152 21,000,000




Interest rate risk

The Group is exposed to interest rate risk as entities in the Group borrow funds at variable interest rates. The

risk is managed by the Group by maintaining a conservative gearing ratio. The Group’s exposures to interest

rates on fi nancial liabilities are detailed below.

Interest rate sensitivity analysis:

The sensitivity analyses below have been determined based on the exposure to interest rates at the balance

sheet date. For fl oating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at

the balance sheet date was outstanding for the whole year. A 50 basis point increase or decrease is used when

reporting interest rate risk internally to key management personnel and represents management’s assessment

of the reasonably possible change in interest rates.

If interest rates had been 50 basis points higher and all other variables were held constant, the Group’s profi t

before taxation for the year ended 31 December 2014 would decrease by $88,042 (2013: $105,948). If interest

rates had been 50 basis points higher and all other variables were held constant, the Group’s net equity would

decrease by $88,042 (2013: $104,253). This is mainly attributable to the Group’s exposure to interest rates on

its variable rate borrowings. The decrease in the Group’s sensitivity to interest rates, is directly attributable to

the variable interest rate long term debt facilities, offset by the settlements that occurred during the year, as

disclosed in note 20.

30. Related parties

During the year, the Company and its subsidiaries, in the ordinary course of business, entered into various

sale and purchase transactions with related parties of the Group. All transactions are entered into at amounts

negotiated between the parties.

Group Company

2014 2013 2014 2013

$ $ $ $

Management fees received from

subsidiaries – – – –

Rental income received from subsidiaries – – 5,929,488 7,640,446

Service charges paid to Capital Drilling

(Singapore) Pte. Ltd. – – 2,108,614 2,399,419

Information technology charges paid to

Cap-Sat Technologies Limited – – – –

Directors’ emoluments 1,303,000 1,133,892 1,110,059 887,450

As at 31 December 2014 and 31 December 2013 there were loans payable to and receivable from the

Company’s subsidiaries. Details of these loans are disclosed in note 15 and note 23.




31. Capital commitments

The Group has the following commitments:

Group

2014 2013

$ $

Committed capital expenditure 142,780 2,892,395

The Group had outstanding purchase orders amounting to $2.0 million (2013: $1.6 million) at the reporting

date.

32. Events post the reporting date

The following events have arisen post the reporting date:

Proposal of dividend

The directors have proposed a dividend of 1.9 cents per share as disclosed in note 9. The dividend is subject

to the approval of shareholders at the Annual General Meeting.

Issue of Shares to Employee

On 15 January 2015, the Company issued 10,881 new common shares pursuant to the company’s employee

incentive scheme. The shares rank pari passu with the existing common shares.

Share Option scheme for New Chief Executive Offi cer

In March 2015, 3,000,000 share options convertible into ordinary shares have been issued to the newly

appointed Chief Executive Offi cer Mark Parsons. The share options issued by the Company have an exercise

price of $0.66 each and depending on the fulfi lment of certain conditions, are exercisable up to 9 August 2019.

Apart from the matters disclosed above, in the opinion of the Directors, there has not arisen in the interval

between the end of the fi nancial year and the date of the report any matter or circumstance that has

signifi cantly affected or may affect, the Group’s operations, results or state of affairs in future fi nancial years.

33. Contingent liability

Capital Drilling Mauritania SARL is a party to various tax claims by the Director General of Taxation (Direction

Générale de Impôts) of Mauritania totalling $1,336,701 for the tax years 2011 to 2013. On 16 May 2012, the

Company received a tax assessment from the Mauritanian Director General of Taxation relating to the 2011 tax

year. The tax authorities made certain assumptions based on incorrect information obtained from third parties

and assessed the company for taxation based on these assumptions resulting in an additional tax of $785,804

being assessed as due to the Director General of Taxation. Payment was made to the Mauritanian Director

General of Taxation on behalf of Capital Drilling Mauritania SARL by a third party. Subsequent assessments

totalling an additional $550,897 for the tax years 2012 and 2013 were issued by the Director General of

Taxation under the same circumstances as described for the 2011 tax year again using incorrect information.

The revised assesed amounts were again collected from third parties by the tax authorities. Capital Drilling

Mauritania SARL appealed against the assessments and continues to do so. The erroneous recalculations by

the tax authorities could result in the funds owed to Capital Drilling Mauritania not being recoverable from the

Mauritanian Director General of Taxation. These claims are subject to substantial uncertainties and, therefore,

the probability of loss and an estimation of damages are diffi cult to ascertain. Consequently, the Group is

unable to make a reasonable estimate of the expected fi nancial effect that will result from the ultimate resolution

of the proceeding. As of 31 December 2014, the Group did not record any provision for the likelihood of not

recovering these funds.



34. Approval of the consolidated annual fi nancial statements

The annual fi nancial statements set out on pages 27 to 64 were approved by the board of directors on

17 March 2015 in Singapore.

Capital Drilling limiteDCanon’s Court 22 Victoria Street

Hamiliton, HM 12 Bermuda

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