CAPITAL DRILLING€¦ · quality drilling solution at various stages of the mining cycle. We have a...

Annual Report 2013

CAPITAL DRILLING

CONTENTS

Capital Drilling LimitedBermuda registered number 34477

Registered OfficeCannon’s Court22 Victoria StreetHamilton HM12Bermuda

Corporate Office61 Kim Yam RoadSingapore 239362Tel: +65-6227 9050Fax: +65-6227 9089

Company SecretaryUno Makotsvana

Websitewww.capdrill.com

RegistrarsComputshare Investor Services (Jersey) Limited31 Pier Road, St HelierJersey JE4 8PW

AuditorDeloitte & ToucheDeloitte Place Building 2, The Woodlands20 Woodlands Drive, Woodmead, 2052South Africa

BankersBank of America6 Front StreetHamilton HM11Bermuda

Standard Bank (Mauritius) LimitedLevel 9, Tower A, 1 CyberCity Ebene, Mauritius

Investor RelationsBuchanan107 CheapsideLondon EC2V 6DN

BrokersLiberum Capital LimitedRopemaker Place, Level 12,25 Ropemaker StreetLondon EC2Y 9LY

CORPORATE DIRECTORY

01 CoRPoRATE PRoFILE

02 BUSINESS MoDEL AND STRATEgY

04 oVERVIEW

05 FINANCIAL SUMMARY

06 CHAIRMAN / CHIEF ExECUTIVE oFFICER STATEMENT

08 CHIEF FINANCIAL oFFICER’S REPoRT

12 DIRECToRS’ PRoFILES

14 ExECUTIVE CoMMITTEE MEMBERS

15 FINANCIAL REPoRT

CAPITAL DRILLING LIMITED ANNUAL REPORT 2013 1

CORPORATE PROFILE

Capital Drilling is an emerging and developing markets focused drilling services company that provides exploration, development, grade control, blast hole and energy 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 over 95 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.

CAPITAL DRILLING LIMITED ANNUAL REPORT 20132

OTHER5%

DEVELOPMENT56%

PRODUCTION39%

DRILLING TYPES (2013)

BuSINESS MODEL AND 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 95 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.

OTHERS5%

PRODUCTION39%

DRILLING TYPES (2013)

CLIENT TYPES (2013)

DEVELOPMENT56%

CLIENT TYPES (2013)

MAJOR58%

MID-TIER39%

JUNIOR3%

FLEET PROFILE (2013)UNDERGROUND,

4

DIAMOND, 43

REVERSE CIRCULATION, 15

MULTI PURPOSE, 8

DEEP HOLE DIAMOND, 9

PRODUCTION,12

FLEET PROFILE (2013 AVERAGE)

PRODUCTION12

UNDERGROUND4

DIAMOND43

REVERSE CIRCULATION

15

MULTIPURPOSE

8

DEEP HOLEDIAMOND

9


BuSINESS MODEL AND STRATEgY

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 are selective on our choice of customer, choosing to concentrate on the major mining companies with strong balance sheets, robust operating projects with a strong profit potential;

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


OVERVIEW

All amounts are in USD unless otherwise stated

• Revenue down 27% to $116.3 million (2012: $158.9 million).

• EBITDA remained positive despite sharp contraction in revenue.

• Marginal EBIT loss of $0.2 million despite a sharp

revenue decline due to significantly weaker external

environment.

• Net (Loss)/Profit After Tax down 113% to -$1.9 million

(2012: $14.1 million).

• Net (loss) after tax includes restructuring costs of $3.5 million.

• Net Debt to equity ratio of 9.9% (2012: 21.4%), improved

by 54%.

• Strong cash generation with Net operating cash flows of

$15.0 million.

• Youngest “scale” fleet in the industry.

• Maintained utilisation levels above industry average at 55% for

2013, in the face of the most severe market contraction since

the company’s inception.

• Increased contribution from longer term production drilling

contracts.

• Exposure to major mining houses at 60% of 2013 revenue.

• Key structural changes to group’s cost structure, introducing

more variability in the cost base.

• Balance sheet strengthened with net debt to equity reduced

from 21.4% as at 31 December 2012 to 9.9% as at 31

December 2013.

2013$m

2012$m

Average Fleet Size 91 88Fleet Utilisation (%) 55 76ARPoR ($) 179,000 192,000

Revenue 116.3 158.9EBITDA 17.0 37.1EBIT (0.2) 20.9

Net (Loss) Profit After Tax (1.9) 14.1

(Loss) Earnings per share

Basic (cents) (1.4) 10.5Diluted (cents) (1.4) 10.5

Net Asset Value per share (cents) 68.0 69.2

Net Asset Value per share (cents) (0.2) 19.8Return on Total Assets (%) (0.2) 16.2Net Debt / (Cash) 9.0 20.0Net Debt to Equity (%) 9.9 21.4


Total Debt (US$m) Net Debt to Equity (%)

FINANCIAL SuMMARY

75.1

130.5

158.9

116.3

-

20

40

60

80

100

120

140

160

180

FY 10 FY 11 FY 12 FY 13

REVENUE

Revenue (in US$m)

ReveNue

NAv PeR shARe (us$)

11.1

17.6

14.1

-1.9-5

0

5

10

15

20

FY 10 FY 11 FY 12 FY 13

NPAT

NPAT US$m

NPAT

ebITDAGeARING

18.1 18.7 29.1 21.4

-0.3%

18.5%

21.4%

9.9%

0

5

10

15

20

25

30

35

-5%

0%

5%

10%

15%

20%

25%

FY 10 FY 11 FY 12 FY 13

GEARING

Total debt Net debt to Equity (%)

0.520.59

0.69 0.68

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

FY 10 FY 11 FY 12 FY 13

NAV PER SHARE

180

160

140

120

100

80

60

40

20

0

35

30

25

20

15

10

5

0

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0

40 353025201510

50

0.3

0.25

0.2

0.15

0.1

0.05

0

20

15

10

5

0

-5FY 10 FY 11 FY 12 FY 13

FY 10 FY 10 FY 11 FY 11FY 12 FY 12

Revenue (in US$m) NPAT US$m

EBITDA (in US$m) EBITDA (%)

FY 13 FY 13

FY 10 FY 11 FY 12 FY 13

FY 10 FY 11 FY 12 FY 13

75.1

130.5

158.9

116.3

-

20

40

60

80

100

120

140

160

180

FY 10 FY 11 FY 12 FY 13

REVENUE

Revenue (in US$m)

75.1

130.5

158.9

116.3

-

20

40

60

80

100

120

140

160

180

FY 10 FY 11 FY 12 FY 13

REVENUE

Revenue (in US$m)

25%

20%

15%

10%

5%

0%

-5%

19.9 34.0 37.1 17.0

26.5%

26.1%

23.4%

14.6%

0

0.05

0.1

0.15

0.2

0.25

0.3

0

5

10

15

20

25

30

35

40

FY 10 FY 11 FY 12 FY 13

EBITDA


19.9 34.0 37.1 17.0

26.5%

26.1%

23.4%

14.6%

0

0.05

0.1

0.15

0.2

0.25

0.3

0

5

10

15

20

25

30

35

40

FY 10 FY 11 FY 12 FY 13

EBITDA


19.9 34.0 37.1 17.0

26.5%

26.1%

23.4%

14.6%

0

0.05

0.1

0.15

0.2

0.25

0.3

0

5

10

15

20

25

30

35

40

FY 10 FY 11 FY 12 FY 13

EBITDA


19.9 34.0 37.1 17.0

26.5%

26.1%

23.4%

14.6%

0

0.05

0.1

0.15

0.2

0.25

0.3

0

5

10

15

20

25

30

35

40

FY 10 FY 11 FY 12 FY 13

EBITDA


19.9 34.0 37.1 17.0

26.5%

26.1%

23.4%

14.6%

0

0.05

0.1

0.15

0.2

0.25

0.3

0

5

10

15

20

25

30

35

40

FY 10 FY 11 FY 12 FY 13

EBITDA



Dear shareholders

2013 proved to be an extremely challenging year for Capital Drilling, reflecting the significantly weaker conditions in the mining industry and the resulting impact on the mining services industry. Weaker commodity prices coupled with new management teams across many mining companies, with their focus on cost reduction and increased discipline around capital allocation, led to a material reduction in drilling activity, particularly across exploration and development drilling. Industry utilisation was hit particularly hard and Capital Drilling was impacted accordingly. The second half of the year recorded the lowest rig utilisation in the group’s history, albeit we continued to operate at above industry levels for the period.

Against this weaker demand environment the management team at Capital Drilling delivered substantial cost reductions and implemented a number of structural changes to the businesses. over the year we reduced our workforce by approximately 500 people, finishing 2013 with 834 employees. Actions were taken to reduce our infrastructure in a number of countries and the decision was taken by management to withdraw from the energy business, allowing us to focus on our core mineral drilling business and expand our presence in production drilling. While these initiatives came at a cost of approximately $3.5 million, they have positioned the group well for the future and assisted in the delivery of robust cash flows during a very challenging period.

Capital Drilling delivered revenue of $116.3 million, a decrease of 27% on 2012. The revenue decrease was particularly significant in the second half of the year. First half revenue was down 8% on the previous corresponding period while second half revenue was down 45% on the previous corresponding period. Full year EBITDA decreased by 54% to $17.0 million, while the impact of depreciation on the enlarged asset base lead to a loss of $1.9 million for 2013.

The group did however benefit from the substantial capital investment in preceding years which allowed for a significantly reduced capital expenditure program in 2013, while maintaining a fleet age of approximately 4 years. The reduced capital spend and the early benefits of the group’s continuing cost reduction programmes have delivered positive operating cash flows for the Company and high levels of cash conversion, with period end net debt to equity of 9.9% against 21.4% for the period end 2012; an

outstanding result considering the substantial headwinds faced over the year. The group also continued to generate strong operational cash flows in the most challenging market conditions in recent times, with net cash from operating activities of $15.0 million compared to $24.3 million for the prior year, despite the reduction in revenue.

Significantly, the group was pleased to announce the award of a comprehensive 5 year contract with the geita gold Mine in Tanzania, operated by Anglogold Ashanti, where Capital Drilling has been active since 2007. The award represented a strong endorsement of our performance at this operation and continues the group’s strategic focus of securing more long term mining contracts to underpin the platform for future growth. Five new blast hole rigs were added to the fleet to service the contract, with full drilling commencing in January 2014. The Company has also successfully renewed the production drilling contract at Sukari gold Mine with Centamin running to 2018, covering the existing fleet of blast hole and grade control rigs. As a result of these contract wins, the Company commenced 2014 with a fleet of 95 rigs.

While the average fleet size increased 3% on 2012, the group purchased only 2 rigs in 2013, for existing underground and blast hole contracts. We continue to operate and own a fleet of rigs averaging approximately 4 years of age remaining one of the youngest in the Industry, with sufficient available capacity for future work in exploration and development drilling when market conditions improve.

Figure 1: Annual Fleet growth

CHAIRMAN / CHIEF ExECuTIVE OFFICER STATEMENT

0

20

40

60

80

100

JAN 06 JAN 07 JAN 08 JAN 09 JAN 10 JAN 11 JAN 12 JAN 13 JAN 14


40

60

80

100

57%

66%

60%

64% 65%

79% 79%

84%

74%

80%

84% 83% 83%

75% 76%

66%

46%

46%

62%

59%

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

Figure 2: Rig Utilitisation

Figure 3: ARPoR

Utilisation

Rig utilisation for the group softened in 2013, reducing from 76% for 2012 to 55% for the year. The weakness was particularly pronounced in the second half with utilisation of 46%, the lowest levels recorded in the Company’s history. While the environment remains challenging it was an encouraging sign that utilisation was steady into the fourth quarter of the year.

The group’s final revenue KPI, Average Revenue per operating Rig, performed well when put in perspective against other metrics, averaging $179,000 for 2013 (2012: $192,000). The weaker performance was impacted by lower drilling rates and more significantly inconsistent drilling activity from a number of clients.

heALTh AND sAfeTy

The group continues with its strong focus on a safety culture, supported by our Training and Development programs. We recorded an outstanding safety performance in 2013, with our key measure, the All Injury Frequency (days free) Rate (AIFR), reducing from 1.82 to 0.70 injury related incidents per 200,000 man hours. Project milestones in 2013 for Lost Time Injuries (LTI’s) include:

• Solomon Islands – gold Ridge 500 days (February 2013)• ghana - Chirano 500 days (February 2013)• Zambia - Lumwana 2,000 days (May 2013)• Tanzania – North Mara 500 days (November 2013)• Mauritania – Kinross Tasiast 1,000 days (November 2013)

ouTLook

Although we are seeing some signs of improved sentiment and increased tender enquiries, the operating environment remains volatile. We have however entered 2014 in a strong financial position with solid cash being generated from operating activities, a reduced fixed operating cost base, a conservatively geared balance sheet and importantly two long term production based contracts which provide greater revenue stability and visibility to the group. Production drilling contracts are now expected to generate over 50% of total revenue for the group in 2014, consistent with the group’s strategy.

We announced the award of a comprehensive 5 year production drilling contract at the geita gold Mine in Tanzania in october 2013 and we are pleased to report that the contract has begun well, with all rigs commencing in January 2014 and production steadily increasing since drilling commenced. We have also had recent success with existing clients, namely the contract renewal for diamond and reverse circulation drilling with MMg Limited in Tanzania and the award of a further 5 year production drilling contract with Centamin in Egypt.

our capital investment programme which was implemented before the downturn has set the Company up with an impressive young fleet and although headwinds remain in the industry we are confident that we are well placed to benefit as the conditions in the market improve.

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.

JAMIE BOYTONExecutive Chairman and Chief Executive officer

CHAIRMAN / CHIEF ExECuTIVE OFFICER STATEMENT

100

150

200

250

156

139133

119

123

134

138

148 160164

186

188

184 198 186

165

163

209

160

137

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

Q312

Q412

Q113

Q213

Q313

Q413

ARPoR (US$ K/pm)


The 2013 financial year was distinctly a year of two halves. The first half of the year saw the group deliver a robust performance under some very difficult market conditions, while the second half of the year saw a material deterioration in our revenue base as clients further reduced activity levels. Total revenues for the year were $116.3 million, a 27% fall year-on-year. The group continued to generate strong operational cash flows in the face of this sharp revenue decline, which confirmed the effectiveness of the cost reduction measures that had been implemented by management to cope with the sharp deterioration in market conditions.

The third quarter experienced the sharpest decline in revenue with conditions moderating and recovering slightly in the fourth quarter. The group has maintained a high focus on cost management for the year, reducing the fixed cost element of the group’s cost base. The major highlights of the cost reduction exercises include:

• A significant reduction in headcount to match the activity levels. As at 31 December 2013, the group had a total headcount of 834 which represents a reduction of c.500 employees during the period;

• Restructuring of employment contracts to align their duration to the contracted duration of drilling programmes and converting a proportion of the labour force from fixed salaries to day rate based remuneration. This allows the employment cost to vary in line with activity;

• Introduction of outsourced facilities with contracts aligned to the duration of drilling contracts, therefore increasing the variability of the cost of accommodating the labour force at sites;

• Closure of non-core offices and sites; and

• A thorough review of all cost policies across the group including communications, travel and equipment rental.

The group incurred approximately $3.5 million in restructuring costs over the year, in order to achieve some of the cost savings coming from the structural changes mentioned above. Some of these measures started delivering benefits in the second half as demonstrated by the strong operational cash flow generated in the second half of the year, despite the significantly weaker revenue profile. This contributed to the strength of the balance sheet and the improving debt profile for the group. The group moves into 2014 with a strong balance sheet and conservative debt levels with a net gearing ratio (net debt/equity) of 9.9% (2012: 21.4%) and significant unutilised debt facilities providing flexibility. Net equity decreased marginally to $91.5 million.

sTATemeNT of ComPReheNsIve INCome

The group achieved revenues of $116.3 million which is a 27% fall year-on-year, due to the abrupt conclusions of some drilling programmes. The average utilisation was 55% of the fleet (2012: 76%) with an ARPoR of $179,000 (2012: $192,000). It is important to note that despite utilisation

dropping to below 50% in some months of the second half the overall ARPoR held up quite well due to better control and rig management. We start 2014 working on two long term production based contracts which provide a stable base for future growth of the group.

The result of the lower revenue was a deterioration in all the major profitability ratios, the gross profit margin for the year decreased to 26% (2012: 33%), this translated to an EBIT loss of $0.2 million (2012: $20.9 million EBIT profit). The loss for the year was $1.9 million.

The loss per share for the year was 1.4c compared to earnings per share of 10.5c in the comparative period. The weighted average number of shares remained unchanged at 134,592,800.

statement of Comprehensive Income (summary)

sTATemeNT of fINANCIAL PosITIoN

As at 31 December 2013, the Statement of Financial Position showed continued strength and improvement with a $2.7 million release of working capital as shown in the reduction of current assets for the group. This is largely due to improved accounts receivable collections and normal working capital release.

In addition to the working capital release the group also reduced its overall liability position mainly through the repayment of the group’s debt facilities, particularly in the first half.

statement of financial Position (summary)

CHIEF FINANCIAL OFFICER’S REPORT

Reported 2013 2012

Revenue $m 116.3 158.9

EBITDA $m 17.0 37.1

EBITDA % 14.6% 23.4%

EBIT $m -0.2 20.9

PBT $m -1.9 18.9

NPAT $m -1.9 14.1

Basic EPS (cents) -1.4 10.5

Diluted EPS (cents) -1.4 10.5

Reported2013$m

2012$m

Non-current assets 61.1 74.1

Current assets 62.2 66.7

Total Assets 123.3 140.9

Current liabilities 10.8 17.9

Non-current liabilities 21.0 29.8

Total Liabilities 31.8 47.6

Total Shareholder’s Equity 91.5 93.2


In line with the significantly reduced investment in capital expenditure in the year and a modest change in the size of the drilling fleet to 91 rigs (increase YoY of 3%), the net property, plant and equipment of the business decreased by 19% to $60.0 million.

Net debt decreased by $10.9 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 which was confirmation of the effectiveness of the cost reduction programmes carried out during the course of the year. This is evident in that second half operational cash flows were equal to first half operational cash flows despite the second half revenues being 40% lower.

gross cash used in investing activities was $5.7 million (net $4.3 million) on the back of a modest growth in the drilling fleet, with the only rigs additions being made to replace contracted for revenue generating rigs early in the year. operating capital expenditure was lower on account of the lower rig utilisation.

Cash used in financing activities was $7.7 million, being repayment of debt.

The group’s cash position at year end was $12.3 million and total debt decreased to $21.4 million (2012: $29.1 million)

The net debt position of the business was $9 million (2012: $20 million) and, as a result, net gearing (net debt/equity) was 9.9% (2012: 21.4%).

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

TReAsuRy AND RIsk mANAGemeNT

The group operates under standard finance procedures with a centralised treasury function. As a result, the majority of receivables are centrally received to mitigate any in country cash risk and therefore cash and cash flow is managed by 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.

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 USD, 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. group has tax losses carried forward of $20.5 million (2012: $10.3 million) with a tax value of $5.9 million (2012: $2.9 million) available for offset against future profits. A deferred tax asset has been recognised to the value of $2.8 million (2012: $0.2 million) in respect of such losses. No deferred tax asset has been recognised in respect of the remaining tax losses amounting to $10.7 million (2012: $8.8 million) with a tax value of $3.1 million (2012: $2.7 million) 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 2013 financial year.

statement of Cashflow (summary)

Reconciliation of Cash Position


2013$m

2012$m

Net Cash from operating Activities 15.0 24.3Net Cash used in Investing Activities (4.3) (29.4)Net Cash (used in) from Financing Activities (7.7) 10.1Net Increase in Cash and Cash Equivalents 3.1 5.0Cash Balance at Beginning of Period 9.1 4.0Translation of Foreign Currency Cash 0.1 0.0Cash Balance at End of Period 12.3 9.1

2013$m

2012$m

Net Debt at Beginning of Year (20.0) (14.6)Increase in Cash and Cash Equivalent 3.1 5.0Decrease (Increase) in Loans 7.9 (10.4)

Net Debt at End of Year (9.0) (20.0)


PRImARy RIsks

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

fLuCTuATIoN IN LeveLs ofmINeRAL exPLoRATIoN

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 2013 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 into 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.

busINess INTeRRuPTIoNs ANDWeATheR 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 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 pages 8 to 9 of the annual report.

As highlighted in note 19 to the annual 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; (b) exchange rate fluctuations against the US Dollar and the consequent effect on the group’s direct costs; and (c) the availability of bank financing in the foreseeable future.

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 2014, 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 and give a true and accurate reflection of the operating result, cash position and Statement of Financial Position at31 December 2013.

The Directors further confirm that to the best of their knowledge that the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides 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

18 March 2014



DIRECTORS’ PROFILES

jAmIe PhILLIP boyToNExecutive Chairman and Chief Executive Officer

Jamie Boyton is Executive Chairman and Chief Executive officer of the Company and was appointed as a director on 1 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, where he was responsible for a full range of capital raisings for both private and listed companies across the Asia Pacific region. Prior to this, Jamie was a division director of Macquarie Securities Limited in Hong Kong and a director of ABN AMRo Asia (Hong Kong), where he headed the Hedge Funds Sales for Asia, managing the distribution of a range of Asian financial products into the banks’ global hedge fund client base. Jamie has a Bachelor of Commerce (Accounting and Finance) degree from the University of Western Australia.

bRIAN RuDDExecutive Director

Brian Rudd is one of the founders of the Company and had been the Chief Executive officer of the group until 31 December 2011 when he relinquished the CEo appointment and remained as an Executive Director to focus on business development, client relations and corporate strategy. He was appointed as a director on 31 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. During his time as CEo, the group has grown into a substantial business with operations in 10 countries across three continents. 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.

CRAIG IAN buRToNNon-Executive Director

Craig Burton is a Non-Executive Director of the Company and was appointed on 1 January 2009. He is an experienced and active investor in emerging businesses, both publicly listed and private. over the last 25 years, he has co-founded numerous new projects, with a focus on the resources, oil and gas, and mining services sectors.

Mr Burton is currently Chairman of Cradle Resources Limited and Transerv Energy Limited and a Director of Hutton Energy Limited. He has a Bachelor of Laws and Jurisprudence degree from the University of Western Australia and a Diploma in Financial Markets. He is currently a member of the Australian Institute of Company Directors.


DIRECTORS’ PROFILES

TImoThy PhILIP ReADSenior IndependentNon-Executive Director

Tim Read is the Senior Independent Non-Executive Director and was appointed on 28 May 2010. He has over 40 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, where he focused on the strategic direction and operational management of this African junior mining company. Prior to this, Tim was global co-head of mining investment banking at Merrill Lynch where he acted for a number of clients including Anglo American, Placer Dome, Billiton, CVRD, Jiang xi Copper and Energy Africa. 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). Prior to this, Tim had many years experience in mining investment analysis for several leading firms of stockbrokers. Tim is now a non-executive director for two other listed minerals companies including Faroe Petroleum plc (AIM) and Metminco Limited (ASx and AIM). He had previously served on the boards of Cumerio SA and Kopane Diamond Developments plc (as Chairman) and Nevoro Inc (as Chairman). Tim also acts as a consultant to a number of minerals companies. He has a BA (Honours) in Economics, is a Fellow of the Chartered Institute of Securities and Investment and a member of the Audit Committee Institute.

ALexANDeR johN DAvIDsoNIndependent Non-Executive Director

Alex Davidson is an Independent Non-Executive Director and was appointed on 28 May 2010. He has over 30 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.


ExECuTIVE COMMITTEE MEMBERS

COuNTRIES OF OPERATIONS

Current OperationsRegional OfficesRegistered Offices/Previous Operations

16 Corporate Governance Statement

22 Directors’ Remuneration Report

25 Directors’ Responsibilities

26 Report of the Independent Auditors

28 Statement of Comprehensive Income

29 Statements of Financial Position

30 Statements of Changes in Equity

31 Statements of Cash Flows

32 Notes to the Annual Financial Statements

FINANCIAL

CONTENTS

ARPOR Average Revenue Per Operating Rig

EBIT Earnings Before Interest and Taxes

EBITDA Earnings Before Interest, Taxes, Depreciation and Amortisation

HSSE Health, Safety, Social and Environment

KPI Key Performance Indicator

LTI Lost Time Injury

NPAT Net Profi t After Tax

YOY Year On Year

GLOSSARY

CORPORATE GOVERNANCE STATEMENT


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 2013. 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 2013, 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 of 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 a 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 Chief Executive Offi cer (acting as interim Chief Executive until a permanent Chief

Executive has been found)

Brian Rudd – Executive Director

Non-Executive Directors:Tim Read – Senior Independent Director

Alex Davidson – Independent Director

Craig Burton – Non-Independent Director

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.

(Pages 12 and 13 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 Annual General Meeting (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 2013 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 5 5 1 2 1

Jamie Boyton 5 – – – –

Brian Rudd 5 – – – 1

Tim Read 5 5 1 2 –

Alex Davidson 5 5 1 2 1

Craig Burton 4 5 1 2 –

* - include meetings held until 18 March 2014.

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

Board by senior management and external advisers.

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. The 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 fi ve meetings (including the Board meeting held in February 2014) were held in 2013. 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 pages 12 and 13 and are considered to have recent and

relevant fi nancial experience. The Committee met four times in 2013 and one time 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 (if any) and management’s response to the internal audit;

(vi) receiving reports from the internal audit (if any) 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 2013, the Audit and Risk Committee:

(i) reviewed the 2013 half-year report and the 2013 annual report and 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 2013 interim fi nancial

statements and their audit of the 2013 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 2013 half-year report

and 2013 annual report;

(v) agreed the fees to be paid to the external auditors for the review of the 2013 interim fi nancial statements and for the

audit of the 2013 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. Deloitte & Touche have been the Group’s external auditors

since 2006. 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 22 to 24.

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 is committed

to diversity while securing the best talent available. 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.



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

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

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, 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 (formerly known as 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.

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 CEO 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 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 the 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 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 2013, the fi nancial performance targets were not met and

accordingly no bonuses are payable. 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 directors was as follows:

Salary2013

US$’000

Salary2012

US$’000

Executive chairman and CEO Jamie Boyton 483 412

Executive directorBrian Rudd 406 420



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 6 June 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 2013, the share options that had been awarded to each director were as follows:

At 1 January

2013 Granted Lapsed Exercised

At 31 December

2013Exercise price £

Date from which exercisable Expiry date

Executive Chairman and 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

150,000 – – – 150,000 0.80 1 January 2014 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’ service contracts have no specifi ed term but are required to submit themselves for re-election at the

AGM at intervals not exceeding three years. 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 and Cannon Investment Management. Mr

Brian Rudd holds directorship of Sahar Minerals Ltd.




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 2012, 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:

Fees2013

US$’000

Fees2012

US$’000

Total 2013

US$’000

Total2012

US$’000


Alex Davidson 78 80 78 80

Timothy Read 88 90 88 90

Craig Burton 78 80 78 80

Approval

This report was approved by the Board of Directors on 18 March 2014 and signed on its behalf by:

Craig BurtonRemuneration Committee Chairman

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 consider that this Annual Report, directors’ remuneration

report and fi nancial statements taken as a whole, are fair, balanced and understandable, and provide the information

necessary for shareholders to assess and provide the Group’s performance, business model and strategy.

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 1 “Presentation of 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;

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 Chief Executive Review 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 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.

By order of the Board

Executive Chairman and CEO Executive Director

Jamie Boyton Brian Rudd

18 March 2014

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 28 to 63,

which comprise the statements of fi nancial position as at 31 December 2013, 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 2013, 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 in

the Chief Financial Offi cer’s Report 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 AUDITORS

To the Shareholders of Capital Drilling Limited


Other Information

As part of our audit of the 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 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 nine provisions of the UK Corporate Governance

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

Deloitte & ToucheRegistered Auditors

Per: Allan W BrownPartner18 March 2014

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 CR Beukman Finance M Jordan Strategy S Gwala Special Projects TJ Brown

Chairman of the Board MJ Comber Deputy Chairman of the Board

A full list of partners and directors is available on request

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

Member of Deloitte Touche Tohmatsu Limited

STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2013


Group Company

Note 2013 2012 2013 2012

$ $ $ $

Revenue 4 116,265,753 158,886,956 12,480,638 18,489,245

Cost of sales (85,706,170) (105,930,444) (4,906,002) (7,637,889)

Gross profi t 30,559,583 52,956,512 7,574,636 10,851,356

Other income – 1,101 4,959,606 –

Administration expenses (13,609,366) (15,852,599) (19,260,143) (20,522,544)

Depreciation (17,194,244) (16,155,444) (3,691,423) (4,090,165)

(Loss) profi t from operations 5 (244,027) 20,949,570 (10,417,324) (13,761,353)

Finance charges 6 (1,663,018) (2,023,986) (12,958) (12,977)

(Loss) profi t before tax (1,907,045) 18,925,584 (10,430,282) (13,774,330)

Taxation 7 30,690 (4,814,713) (270,524) (885,594)

(Loss) profi t for the year (1,876,355) 14,110,871 (10,700,806) (14,659,924)

Other comprehensive income:

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

Exchange differences on translation of

foreign operations 84,139 (11,719) – –

Total comprehensive (loss) income for

the year (1,792,216) 14,099,152 (10,700,806) (14,659,924)

(Loss) earnings per share:

Basic (cents per share) 8 (1.4) 10.5

Diluted (cents per share) 8 (1.4) 10.5

STATEMENT OF FINANCIAL POSITION



Group Company

Note 2013 2012 2013 2012

$ $ $ $

ASSETS

Non-current assets

Property, plant and equipment 10 59,962,343 74,043,755 17,572,040 22,113,462

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

Deferred taxation 12 1,111,738 79,867 – –

Total non-current assets 61,074,081 74,123,622 18,643,523 23,184,945

Current assets

Inventory 13 23,698,231 22,605,119 – 394,193

Trade and other receivables 14 18,431,718 25,970,607 74,822 1,068,752

Prepaid expenses and other assets 5,805,770 8,090,422 1,124,299 2,077,116

Taxation 1,931,608 1,010,650 – –

Affi liate accounts receivable 15 – – 37,877,301 21,808,793

Cash and cash equivalents 16 12,328,148 9,063,606 292,145 1,407,248

Total current assets 62,195,475 66,740,404 39,368,567 26,756,102

Total assets 123,269,556 140,864,026 58,012,090 49,941,047

EQUITY AND LIABILITIES

Equity

Share capital 17 13,459 13,459 13,459 13,459

Share premium 17 21,561,190 21,561,190 21,561,190 21,561,190

Equity-settled employee benefi ts reserve 18 205,146 184,171 205,146 184,171

Foreign currency translation reserve 47,391 (36,748) – –

Retained earnings (Accumulated loss) 69,644,800 71,521,155 (36,485,710) (25,784,904)

Total equity 91,471,986 93,243,227 (14,705,915) (4,026,084)

Non-current liabilities

Long-term liabilities 19 21,000,000 28,164,341 – –

Deferred taxation 12 – 1,599,129 – –

Total non-current liabilities 21,000,000 29,763,470 – –

Current liabilities

Trade and other payables 20 10,249,060 16,246,045 873,922 959,376

Taxation 21 194,538 724,765 – –

Affi liate accounts payable 22 – – 71,844,083 53,007,755

Current portion of long-term liabilities 19 353,972 886,519 – –

Total current liabilities 10,797,570 17,857,329 72,718,005 53,967,131

Total equity and liabilities 123,269,556 140,864,026 58,012,090 49,941,047

STATEMENT 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 2011 13,459 21,561,190 132,225 (25,029) 57,410,284 79,092,129

Recognition of share-based

payments – – 51,946 – – 51,946

Total comprehensive income for

the year – – – (11,719) 14,110,871 14,099,152

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)

Balance at 31 December 2013 13,459 21,561,190 205,146 47,391 69,644,800 91,471,986

Share capital

Share premium

Equity-settled

employee benefi ts reserve

Accumulated loss Total

$ $ $ $ $

COMPANY

Balance at 31 December 2011 13,459 21,561,190 132,225 (11,124,980) 10,581,894

Recognition of share-based payments – – 51,946 – 51,946

Total comprehensive loss for the year – – – (14,659,924) (14,659,924)

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)

Balance at 31 December 2013 13,459 21,561,190 205,146 (36,485,710) (14,705,915)

STATEMENT OF CASH FLOWS



Group Company

Note 2013 2012 2013 2012

$ $ $ $

Operating activities:

Cash from (used in) operations 23 20,802,260 31,510,112 (981,538) 7,122,878

Finance charges paid (1,702,542) (1,794,830) (12,958) (12,977)

Taxation paid 24 (4,051,495) (5,369,886) (270,524) (873,239)

Net cash generated from (used in) operating

activities 15,048,223 24,345,396 (1,265,020) 6,236,662

Investing activities:

Purchase of property, plant and equipment (5,680,780) (29,992,492) (1,055,663) (6,288,488)

Proceeds from disposal of property, plant and

equipment 1,359,011 561,748 1,205,089 371,236

Net cash (used in) generated from investing

activities (4,321,769) (29,430,744) 149,425 (5,917,253)

Financing activities:

Long-term liabilities raised – 29,200,000 – –

Long-term liabilities repaid (7,657,364) (19,067,223) – –

Net cash (used in) generated from fi nancing

activities (7,657,364) 10,132,777 – –

Net increase (decrease) in cash and cash equivalents 3,069,089 5,047,429 (1,115,595) 319,409

Cash and cash equivalents at the beginning

of the year 9,063,606 4,044,813 1,407,249 1,111,811

Translation of foreign currency cash and cash

equivalent adjustment 195,453 (28,636) 491 (23,972)

Cash and cash equivalents at the end of

the year 16 12,328,148 9,063,606 292,145 1,407,249

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 2013, the Group provided drilling services in Chile, Egypt, Ethiopia, Ghana,

Mauritania, Papua New Guinea, Solomon Islands, Tanzania, and Zambia. The Group’s administrative and operations

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 1 (Revised 2008) First-time Adoption of International Financial Reporting Standards

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

• IFRS 10 Consolidated Financial Statements

• IFRS 11 Joint Arrangements

• IFRS 12 Disclosure of Interests in Other Entities

• IFRS 13 Fair Value Measurement

• IAS 1 (Revised 2007) Presentation of Financial Statements

• IAS 16 (Revised 2012) Property, Plant and Equipment

• IAS 19 (Revised 2011) Employee Benefi ts

• IAS 27 (Revised 2011) Separate Financial Statements

• IAS 28 Investments in Associates and Joint Ventures

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 7 (as amended by IFRS 9) Financial Instruments: Disclosures 2

• IFRS 9 Financial Instruments 3

• IFRS 10 Amendments Consolidated Financial Statements 1

• IFRS 12 Amendments Disclosure of Interests in Other Entities 1

• IAS 19 (Revised 2013) Employee Benefi ts 4

• IAS 27 (Revised 2011) Separate Financial Statements 1

• IAS 32 (Revised 2012) Financial Instruments: Presentation 1

• IAS 36 (Revised 2013) Impairment of Assets 1

• IAS 39 (Revised 2013) Financial Instruments: Recognition and Measurement 1

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

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

3 Effective date delayed indefi nitely

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

The directors anticipate that all the above interpretations will be adopted in the Group’s fi nancial statements in

the future fi nancial periods as it becomes effective. The adoption of these standards and interpretations is not

expected to have a material impact on the fi nancial statements of the Group in the period of initial application.




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.

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 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




3. Summary of signifi cant accounting policies (continued)

Property, plant and equipment (continued)

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 reviews 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.





Revenue recognition (continued)

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.

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.

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.





Financial instruments (continued)

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.

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.





Financial instruments (continued)

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.

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.

Critical accounting judgments and key sources of estimation and uncertainty

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.





Critical accounting judgments and key sources of estimation and uncertainty (continued)

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

18.

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 Company2013 2012 2013 2012

$ $ $ $

Revenue from the rendering of services

comprises:

Drilling revenue 114,235,351 156,325,288 4,902,811 10,848,799

Equipment rental 1,481,939 1,909,195 7,577,827 7,640,446

Information technology revenue 548,463 652,473 – –

Total revenue 116,265,753 158,886,956 12,480,638 18,489,245

5. (Loss) profi t from operations

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

Depreciation:

- Drilling rigs 8,603,320 7,355,361 2,251,017 2,318,789

- Associated drilling equipment 4,826,843 5,948,567 667,529 942,760

- Vehicles and trucks 2,346,962 1,818,585 547,796 640,963

- Camp and associated equipment 1,417,119 1,032,931 225,081 187,653

Total depreciation 17,194,244 16,155,444 3,691,423 4,090,165

Operating lease expense 1,744,861 1,929,026 27,834 22,829

Foreign exchange loss (gain) 105,352 384,813 (13,236) 1,466

Loss on disposal of property, plant and

equipment 1,205,671 729,994 330,658 288,204

Legal and professional fees 995,524 955,792 258,757 417,947

Staff costs 41,495,371 49,777,471 6,377,266 7,763,412

Share-based payment expense 20,975 51,946 20,975 51,946

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

Bad debt 77,047 124,441 7,927 –




6. Finance charges

Group Company2013 2012 2013 2012

$ $ $ $

Finance creditors 43,385 144,745 12,958 12,977

Interest on bank loans 1,619,633 1,879,241 – –

Total fi nance charges 1,663,018 2,023,986 12,958 12,977

7. Taxation

Current taxation:

- Normal tax - current year 551,962 1,571,157 – –

- Normal tax - prior year over provision (138,839) (96,073) – –

- Withholding tax 2,187,187 2,797,703 270,524 885,594

Deferred taxation (2,631,000) 541,926 – –

Total taxation (30,690) 4,814,713 270,524 885,594

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 (2,905,604) 1,139,050 (748) (31,797)

Foreign withholding taxes paid 2,187,187 2,767,703 270,524 885,594

Tax effect of permanent differences in

determining taxable profi t 383,506 (129,295) – 5,656

Prior year over (under) provision (138,839) (96,073) – –

Change in unrecognised deferred tax assets 443,060 1,133,328 748 26,141

Total taxation (30,690) 4,814,713 270,524 885,594

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.




8. (Loss) earnings per share

Basic (loss) earnings 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

2013 2012

(Loss) profi t for the year, used in the calculation of basic (loss) earnings per share ($1,876,355) $14,110,871

Weighted average number of ordinary shares for the purposes of basic earnings

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

Basic (loss) earnings per share (cents) (1.4) 10.5

Diluted (loss) earnings per share

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

used in the equivalent basic (loss) earnings 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) earnings per share 134,592,800 134,592,800

Diluted (loss) earnings per share (cents) (1.4) 10.5

# For the purposes of calculating earnings per share, diluted weighted average shares outstanding excludes 2.34 million (2012:

2.36 million) potential ordinary shares from share options, because such share options are anti-dilutive.

9. Dividends

No dividends were declared during the year under review (2012: $nil).




10. Property, plant and equipment

Drillingrigs

Associated drilling

equipmentVehicles and

trucks

Camp and associated equipment Total

$ $ $ $ $

Group - 2013

Cost

Balance at 1 January 2013 68,865,994 18,489,765 14,539,205 7,366,381 109,261,345

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 31 December 2013 68,234,799 12,883,326 14,189,488 8,183,130 103,490,743

Accumulated depreciation

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, with a total net book value of $1,345,785 (2012: $2,049,010) are encumbered as disclosed in note 19 to

the annual fi nancial statements.

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 2013, the net asset value of the Group exceeded its market capitalisation as at 31 December 2013. The

Group identifi ed this circumstance as an indicator of 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 identifi cation of

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)

Drillingrigs

Associated drilling


trucks


$ $ $ $ $

Group - 2012

Cost

Balance at 1 January 2012 54,934,498 16,125,870 11,149,502 4,360,530 86,570,400

Additions 16,783,686 5,509,418 4,461,502 3,237,886 29,992,492

Disposals (2,852,190) (3,145,523) (1,071,799) (233,855) (7,303,367)

Translation of foreign operations – – – 1,820 1,820



Balance at 1 January 2012 (12,756,777) (7,113,646) (3,620,041) (1,582,238) (25,072,702)

Depreciation for the year (7,355,361) (5,948,567) (1,818,585) (1,032,931) (16,155,444)

Disposals 1,919,631 3,083,254 795,892 212,848 6,011,625

Translation of foreign operations – – – (1,069) (1,069)

Balance at 31 December 2012 (18,192,507) (9,978,959) (4,642,734) (2,403,390) (35,217,590)


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





10. Property, plant and equipment (continued)

Drillingrigs

Associated drilling


trucks


$ $ $ $ $

Company - 2012

Cost

Balance at 1 January 2012 26,848,547 4,213,571 4,500,087 749,075 36,311,280

Additions 4,843,528 36,764 1,072,377 335,819 6,288,488

Net transfers to subsidiaries (9,820,397) (684,228) (676,058) (48,112) (11,228,795)

Disposals (602,691) (85,227) (720,634) (76,586) (1,485,138)

Balance at 31 December 2012 21,268,987 3,480,880 4,175,772 960,196 29,885,835


Balance at 1 January 2012 (5,596,785) (1,274,308) (1,536,061) (362,712) (8,769,866)

Depreciation for the year (2,318,789) (942,760) (640,963) (187,653) (4,090,165)

Net transfers to subsidiaries 3,388,057 453,827 395,982 24,093 4,261,959

Disposals 167,451 61,487 526,728 70,033 825,699

Balance at 31 December 2012 (4,360,066) (1,701,754) (1,254,314) (456,239) (7,772,373)





11. Investment in subsidiaries

Details of the company’s subsidiaries at 31 December 2013 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

2013 2012

$ % % $ $

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

Moçambique 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


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


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 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

2013 2012

$ $

Movements

Balance at beginning of the year (1,519,262) (977,336)

Excess of capital allowances over depreciation 70,266 (295,014)

Prepayments 2,388 420

Provisions (31,140) 11,417

Net unrealised exchange losses (16,975) 19,845

Tax loss carried forward 2,606,462 (278,594)

Balance at end of the year 1,111,738 (1,519,262)

Balance at end of the year

Excess of capital allowances over depreciation (1,687,114) (1,757,380)

Net unrealised exchange losses – 16,975

Prepayments – (2,388)

Provisions – 31,140

Tax loss carried forward 2,798,853 192,391

Balance at end of the year 1,111,738 (1,519,262)

Disclosed as follows:

Deferred tax assets 1,111,738 79,867

Deferred tax liabilities – 1,599,129

At the reporting date, the Group has tax losses carried forward of $20.5 million (2012: $10.3 million) with a tax value

of $5.9 million (2012: $2.9 million) available for offset against future profi ts. A deferred tax asset has been recognised

to the value of $2.8 million (2012: $0.2 million) in respect of such losses. No deferred tax asset has been recognised

in respect of the remaining tax losses amounting to $10.7 million (2012: $8.8 million) with a tax value of $3.1 million

(2012: $2.7 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 $119.8 million (2012: $108.3

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

2013 2012 2013 2012

$ $ $ $

Drilling consumables 23,067,684 21,633,853 – 384,874

Goods-in-transit 630,547 971,266 – 9,319

23,698,231 22,605,119 – 394,193

Inventory cost recognised as an expense during the year was $21.2 million (2012: $23.8 million).

14. Trade and other receivables

Trade receivables 15,743,316 22,798,850 5,228 1,032,323

VAT receivables 2,273,971 2,787,593 – –

Other receivables 414,431 384,164 69,594 36,429

18,431,718 25,970,607 74,822 1,068,752

Trade receivables have a 15 or 30 day credit period. The aging of trade receivables is detailed below:

Current 10,501,753 15,404,356 – 936,147

Past due 0 - 30 days 3,184,535 6,614,573 – 86,688

Past due 31 - 45 days 352,887 87,037 – –

Past due 46 - 60 days 350,735 150,978 – –

Past due 60 days 1,353,406 541,906 5,228 9,488

15,743,316 22,798,850 5,228 1,032,323

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 $5,543,309 (2012: $9,555,374) 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

Group Company

2013 2012 2013 2012

$ $ $ $

Capital Drilling Netherlands Coöperatief U.A. 16,454,623 10,779,283

Capital Drilling Egypt (Limited Liability Company) 10,809,530 332,725

Capital Drilling Perforaciones Chile Limitada 3,678,989 4,630,729

Capital Drilling (Zambia) Limited 2,316,192 2,294,985

Capital Drilling Moçambique Limitada 1,953,912 1,903,285

Capital Drilling Service Plc 1,088,838 1,081,116

Capital Drilling (Solomon Islands) Pty Ltd. 604,480 –

Supply Force International Limited 437,842 410,364

Well Force International Limited 280,450 99,103

Capital Drilling (Malaysia) Sdn. Bhd. 118,841 –

Cap-Sat Technologies Limited 114,809 104,694

Capital Drilling Namibia (Proprietary) Limited 11,934 11,934

Capital Drilling (Botswana) (Proprietary) Limited 5,697 4,757

Capital Drilling (Ghana) Limited – 154,882

Capital Drilling Sondagens do Brasil Ltda. 1,164 936

37,877,301 21,808,793

These receivables are interest free, unsecured and have no fi xed terms of repayment. These amounts are denominated

in United States Dollars.

16. Cash and cash equivalents

Cash and cash equivalents comprise:

Bank balances 12,230,692 9,001,426 247,568 1,401,731

Petty cash 97,456 62,180 44,577 5,517

Net cash and cash equivalents 12,328,148 9,063,606 292,145 1,407,248

The directors consider that the carrying amounts of cash and cash equivalents approximate their fair values.

17. Share capital

Authorised:

2 000 000 000 (2012: 2 000 000 000) ordinary

shares of 0.01 cents (2012: 0.01 cents) each 200,000 200,000 200,000 200,000

Issued and fully paid:

134 592 800 (2012: 134 592 800) ordinary

shares of 0.01 cents (2012: 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




18. 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 2013 the Group recognised total expenses of $20,975 (2012: $51,946) related to the 2010

discretionary share option plan.

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

2013 2012

Balance at beginning of the year 2,360,000 2,600,000

Forfeited during the year (20,000) (240,000)

Balance at end of the year 2,340,000 2,360,000

Exercisable at the end of the year 2,340,000 1,560,000

Share options issued under the 2011 series were forfeited. There is currently no outstanding share options granted

under the 2011 series.




19. Long-term liabilities

Group

2013 2012

$ $

Stanbic Bank Zambia Limited

Balance at the beginning of the year – 2,543,193

Principal repayments during the year – (2,543,193)

Due after more than one year – –

In January 2012, the Group concluded a comprehensive debt refi nancing package to consolidate existing debt, reduce

borrowing costs and support the Group’s growth plans. As a result, the term loan facility with Stanbic Bank Zambia

Limited was fully repaid as at 31 December 2012.

Atlas Copco Customer Finance AB

Balance at the beginning of the year 821,704 1,479,067

Principal repayments during the year (657,364) (657,363)

164,340 821,704

Less: Current portion included under current liabilities (164,340) (657,363)

Due after more than one year – 164,341

The Atlas Copco loan is denominated in United States Dollars and incurs interest at a fi xed interest rate of 8.9% per

annum. The loan is repayable in quarterly instalments of $164,341 in arrears over a period of four years. The loan is

secured against drilling rigs with a net book value of $1,345,785 (2012: $2,049,010). Also refer note 10.

Standard Bank (Mauritius) Limited

Balance at the beginning of the year 28,229,156 14,666,667

Amount received during the year – 29,200,000

Accrued interest paid (39,524) –

Principal repayments during the year (7,000,000) (15,637,511)

21,189,632 28,229,156

Less: Current portion included under current liabilities (189,632) (229,156)

Due after more than one year 21,000,000 28,000,000

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 is repayable in full, 36 months after the utilisation date of 31 January 2012,

which is on 1 Feburary 2015. The TLF facility has an annual interest rate of 3.75% above the prevailing three month

US$ LIBOR (payable in arrears).

As at 31 December 2013, $4 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, $26 million of the RF remains available for utilisation up to

maturity date, 1 February 2016.




19. Long-term liabilities (continued)

The TF maybe utilised 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.

Security for the Standard Bank (Mauritius) Limited facilities comprises:

Upward corporate guarantees from Capital Drilling Egypt (Limited Liability Company), Capital Drilling (Tanzania)

Limited, Capital Drilling Perforaciones Chile Limitada and Capital Drilling Zambia Limited.

A negative pledge over the assets of Capital Drilling Ltd and Capital Drilling Egypt (Limited Liability Company).

The Group’s principal credit facilities with Standard Bank (Mauritius) Limited include the following fi nancial covenants:

Interest Cover, the ratio of EBITDA to Interest in respect of the relevant period, shall not be less than 8.0;

Debt Service Ratio, fi nancial indebtedness to EBITDA, shall not be greater than 2.0;

Debt Equity Ratio, fi nancial indebtedness to the sum of ordinary share capital, all consolidated reserves and

retained earnings less intangibles, shall not exceed 0.5;

Total Tangible Net Worth, the sum of ordinary share capital, all consolidated reserves and retained earnings less

intangibles, shall not be less than $60 million.

EBITDA for the purpose of ascertaining the loan covenant compliance means profi t for the year before taking account

of the following items:

Net interest payable

Tax charged per the statement of comprehensive income

Depreciation per the statement of comprehensive income

Other non-cash items.

In addition, there are dividend and transaction restrictions and a requirement for an all risks insurance policy on the

assets.

Group Company

2013 2012 2013 2012

$ $ $ $

Total long-term liabilities 21,353,972 29,050,860 – –

Less: Current portion included under

current liabilities (353,972) (886,519) – –

Total due after more than one year 21,000,000 28,164,341 – –

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 cash fl ows. To the extent

that interest fl ows are fl oating rate, the undiscounted amount is derived from interest rate curves at the end of the

reporting period.

As at 31 December 2013 the contractual scheduled maturities of long-term liabilities, including short-term portions

were as follows:

$

2014 1,406,041

2015 17,427,033

2016 4,030,879

Total scheduled contractual obligation 22,863,953




20. Trade and other payables

Group Company

2013 2012 2013 2012

$ $ $ $

Trade payables 6,072,592 11,192,901 432,654 704,044

Other payables

- Accrued expenses 2,389,511 3,275,932 171,283 212,582

- Value Added Tax 463,571 587,024 – –

- Employee related liabilities 1,319,036 1,178,348 269,985 42,750

- Unearned revenue 4,350 11,840 – –

10,249,060 16,246,045 873,922 959,376

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.

21. Taxation

Withholding tax payable 185,054 390,421 – –

Income tax payable 9,484 334,344 – –

194,538 724,765 – –

22. Affi liate accounts payable

Capital Drilling (Mauritius) Limited 37,362,487 26,394,028

Capital Drilling Mauritania SARL 27,924,733 18,818,506

Capital Drilling (Tanzania) Limited 2,260,798 5,565,210

Capital Drilling (Singapore) Pte. Ltd. 3,285,779 1,896,926

Capital Drilling (Ghana) Limited 662,781 –

Capital Drilling South Africa (Proprietary) Limited 257,637 263,347

Capital Drilling Papua New Guinea

(foreign contractor branch) 89,868 69,738

71,844,083 53,007,755

These payables are interest free, unsecured and have no fi xed terms of repayment. These amounts are denominated in

United States Dollars.




23. Cash from (used in) operations

Group Company

2013 2012 2013 2012

$ $ $ $


Adjusted for:

- Depreciation 17,194,244 16,155,444 3,691,423 4,090,165

- Loss on disposal of property, plant

and equipment 1,205,671 729,994 330,658 288,204

- Share-based payment expense 20,975 51,946 20,975 51,946

- Exchange differences on translating foreign

operations 87,405 (12,470) – –

- Finance charges 1,663,018 2,023,986 12,958 12,977

- Unrealised foreign exchange (loss) gain

on foreign exchange held (195,453) 28,636 (491) 23,972

Operating cash fl ows before working capital

movements 18,068,816 37,903,120 (6,374,759) (9,307,066)

Adjustments for working capital changes:

- (Increase) decrease in inventory (1,093,112) (2,187,698) 394,193 1,109,931

- Decrease (increase) in trade and other

receivables 7,538,889 (5,764,610) 993,930 (422,012)

- Decrease (increase) prepaid expenses

and other assets 2,284,652 (188,385) 952,817 1,283,219

- Increase in affi liate accounts receivable – – (16,068,508) (6,131,078)

- (Decrease) increase in trade and other

payables (5,996,985) 1,747,685 (85,454) (162,070)

- Increase in affi liate accounts payable – – 19,206,243 20,751,954

Cash from (used in) operations 20,802,260 31,510,112 (981,538) 7,122,878

24. Taxation paid

Amount (receivable) payable at beginning of

the year (285,885) 811,214 – (12,355)

Amounts charged to the statement of

comprehensive income (excluding deferred

taxation) 2,600,310 4,272,787 270,524 885,594

Net amount receivable at the end of the year 1,737,070 285,885 – –

4,051,495 5,369,886 270,524 873,239




25. 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

2013 2012 2013 2012

$ $ $ $

Fees payable to the Group’s auditor for the

audit of the Group’s annual fi nancial

statements 157,392 167,291 30,513 32,360

Fees payable to the Group’s auditor for other

services 27,310 30,494 – –

Fees paid to associates of the Group’s auditor

The audit of the Group’s subsidiaries 95,052 91,778 – –

Non-audit services – subsidiaries 48,091 38,393 – –

Fees paid to other auditors

The audit of the Group’s subsidiaries 71,070 82,683 2,200 2,000

Non-audit services – subsidiaries 45,935 56,880 – –

444,850 467,519 32,713 34,360

26. 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 1,403,607 1,283,703 –

Between 1 and 5 years 762,722 338,444 –

2,166,329 1,622,147 – –




27. 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 2013, 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

$ $ $

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)

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)

2012

External revenue 134,287,686 24,599,270 158,886,956

Segment gross profi t 46,237,055 6,719,457 52,956,512

Administration costs and depreciation (28,652,945) (2,943,390) (31,596,335)

17,584,110 3,776,067 21,360,177

Central administration costs and depreciation (411,708)

Other income 1,101

Profi t from operations 20,949,570

Finance charges (2,023,986)

Profi t before tax 18,925,584

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.




27. Segmental analysis (continued)

Group

2013 2012

$ $

Segment assets:

Africa 200,432,984 193,327,371

Rest of world 82,566,549 72,956,446

Total segment assets 282,999,533 266,283,817

Head offi ce companies 40,593,732 27,260,154

323,593,265 293,543,971

Eliminations (200,323,709) (152,679,945)

123,269,556 140,864,026

Segment liabilities:

Africa 56,578,884 49,629,302

Rest of world 51,408,547 40,919,989

Total segment liabilities 107,987,431 90,549,291

Head offi ce companies 123,045,565 108,663,170

231,032,996 199,212,461

Eliminations (199,235,426) (151,591,662)

31,797,570 47,620,799

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 15,139,927 14,069,835

Rest of world 1,889,597 1,955,725


Head offi ce companies 164,720 129,884

17,194,244 16,155,444

Additions to property, plant and equipment

Africa 3,939,014 24,794,465

Rest of world 1,653,716 5,020,007


Head offi ce companies 88,050 178,020

5,680,780 29,992,492

Information about major customers

Included in revenues arising from the Africa segment are revenues of approximately $67.5 million (2012: $77.1 million)

which arose from sales to the customers that represent more than 10% of the Group’s revenue.




28. 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 have been

assessed to approximate their carrying amounts based on a discounted cash fl ow assessment.

Capital risk management

The Group manages its 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 19 and 22, cash

and cash equivalents disclosed in note 16 and equity attributable to equity holders of the parent, comprising issued

capital, reserves and retained earnings as disclosed in notes 17 and the statement of changes in equity.

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.

Group Company

2013 2012 2013 2012

$ $ $ $

Categories of fi nancial instruments

Financial assets

Cash and cash equivalents 12,328,148 9,063,606 292,145 1,407,248

Trade receivables 15,743,316 22,798,850 5,228 1,032,323

Other receivables 414,431 384,164 69,594 36,429

Affi liate accounts receivable – – 37,877,301 21,808,793

28,485,895 32,246,620 38,244,268 24,284,793

Financial liabilities

Trade and other payables 10,249,060 16,246,045 873,922 959,376

Long-term liabilities 21,353,972 29,050,860 – –

31,603,032 45,296,905 873,922 959,376




28. Financial instruments (continued)

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 2013 are as follows:

Group Company

2013 2012 2013 2012

$ $ $ $

Foreign currency risk management

Assets

Australian Dollar 446,006 331,312 86,902 225,695

Chilean Peso 1,700,537 1,149,749 – –

Egyptian Pound 324,147 396,763 – –

Mauritanian Ouguiya 1,040,371 555,915 –

South African Rand 31,188 231,796 13,953 9,809

Tanzanian Shillings 1,509,543 1,938,278 – –

Zambian Kwacha 4,719,213 3,639,080 – –

All other currencies 1,278,865 1,572,428 188,016 125,987

11,049,870 9,815,321 288,871 361,491

Liabilities

Australian Dollar 890,876 1,726,242 13,597 3,392

Chilean Peso 466,074 1,907,973 – –

Egyptian Pound 685,488 1,531,415 – –

Mauritanian Ouguiya 466,283 561,917 –

South African Rand 302,038 1,317,888 – 237,620

Tanzanian Shillings 413,213 584,173 – –

Zambian Kwacha 430,309 2,401,324 – –

All other currencies 1,144,317 1,024,367 (42,431) 13,506

4,798,598 11,055,299 (28,834) 254,518

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

2013 2012 2013 2012

$ $ $ $

Australian Dollar profi t (loss)* 40,443 126,812 (6,664) (20,209)

Chilean Peso profi t (loss)* (112,224) 68,400 – –

Egyptian Pound profi t (loss)* 32,849 103,150 – –

Mauritanian Ouguiya profi t (loss)* (52,190) 546 –

South African Rand profi t (loss)* 24,623 98,736 (1,268) 20,710

Tanzanian Shillings profi t (loss)* (99,666) (123,100) – –

Zambian Kwacha profi t (loss)* (389,900) (112,523) – –

All other currencies profi t (loss)* 7,230 (49,261) (12,555) 9,224

* 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 $540,003 (2012: increase of $84,074) and a decrease in the company’s net

equity of $20,487 (2012: increase of $9,725).

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.

At year-end, the Group did not consider there to be any signifi cant concentration of credit risk. Also refer notes 14 and

16.

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:

.





Weighted average

interest rate 1 month 1 – 3 months3 months –

1 year 1 – 5 years

$ $ $ $

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 4.06% 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

2012

Financial assets

Non-interest bearing loans and

receivables 0.00% 15,404,356 6,701,607 692,887 –


Non-interest bearing 0.00% 8,912,474 5,813,100 1,520,471 –

Variable interest rate instruments 4.36% 229,156 – – 28,000,000

Fixed interest rate instruments 8.90% 125,662 38,679 493,022 164,341

Total 9,267,292 5,851,779 2,013,493 28,164,341

Interest rate risk

The Group is exposed to interest rate risk as entities in the Group borrow funds at both fi xed and variable interest

rates. The risk is managed by the Group by maintaining an appropriate mix between fi xed and fl oating rate

borrowings. 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 2013 would decrease by $105,948 (2012: $141,146). If interest rates had

been 50 basis points higher and all other variables were held constant, the Group’s net equity would decrease by

$104,253 (2012: $105,295). This is mainly attributable to the Group’s exposure to interest rates on its variable rate

borrowings. The increase in the Group’s sensitivity to interest rates, is directly attributable to the new variable interest

rate long term debt facilities, offset by the settlements that occurred during the year, as disclosed in note 19.




29. 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

2013 2012 2013 2012

$ $ $ $

Management fees received from subsidiaries – – – 364,707

Rental income received from subsidiaries – – 7,640,446 7,275,739

Service charges paid to Capital Drilling

(Singapore) Pte. Ltd. – – 2,399,419 2,583,560

Information technology charges paid to

Cap-Sat Technologies Limited – – – 52,736

Directors’ emoluments 1,133,892 1,830,700 887,450 1,541,100

As at 31 December 2013 and 31 December 2012 there were loans payable to and receivable from the Company’s

subsidiaries. Details of these loans are disclosed in note 15 and note 22.

30. Capital commitments

The Group has the following commitments:

Group

2013 2012

$ $

Committed capital expenditure 2,892,395 1,086,560

The Group had outstanding purchase orders amounting to $1.6 million (2012: $3.7 million) at the reporting date.

31. Historical Summary

Operating summary

Revenue 116,265,753 158,886,956

Gross Profi t 30,559,583 52,956,512

Gross Profi t % 26.3% 33.3%

Profi t from operations (244,027) 20,949,570

Profi t from operations % (0.2%) 13.2%

Depreciation 17,194,244 16,155,444

EBITDA* 16,950,217 37,105,014

EBITDA % 14.6% 23.4%

* Non-GAAP measure (unaudited): Earnings before interest, taxation and depreciation.




32. Subsequent event

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 signifi cantly 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 $785,000. On 16 May 2012, the Company received a tax assessment from the

Mauritanian Director General of Taxation. The tax authorities made certain assumptions based on incorrect information

obtained from third parties and assessed the company for taxation based on these assumptions. Payment was made

to the Mauritanian Director General of Taxation on behalf of Capital Drilling Mauritania SARL by a third party. Capital

Drilling Mauritania SARL appealed against the assessments. 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 2013, the Group did

not record any provision for the likelihood of not recovering these funds.

Tel

: 632

7839

8

Capital Drilling Limited

Canon’s Court22 Victoria StreetHamiliton, HM12Bermuda

CAPITAL DRILLING€¦ · quality drilling solution at various stages of the mining cycle. We have a...

Documents

Transcript of CAPITAL DRILLING€¦ · quality drilling solution at various stages of the mining cycle. We have a...