Annual Report • Mar 27, 2019
Annual Report
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$\tilde{\mathcal{G}}$
31 December 2018
Sigurd Thorvildsen Henrik Fougner Daniel Gold John Simpson Synne Syrrist
Burness Paull LLP, 50 Lothian Road Festival Square Edinburgh EH3 9WJ
Ernst & Young LLP Blenheim House Fountainhall Road Aberdeen AB15 4DT
DNB Bank ASA 8th Floor The Walbrook Building 25 Walbrook London EC4N 8AF
$3rd$ Floor 11-12 St James's Square London SW1Y4LB
Awilco Drilling PLC ('the Company')'s strategy is to create shareholder value through the provision of a quality, reliable and customer focused service to the mobile drilling rig market. The management team shall safely, efficiently and effectively deliver a high quality service to customers, with a view to securing the most lucrative day rate contracts in conjunction with the highest achievable rig utilisation. The Company shall evaluate growth opportunities which best complement its financial and operational aspirations.
The Company owns and operates two semi-submersible drilling rigs, the WilPhoenix and WilHunter, both standardised rigs used in the drilling of oil and gas wells in the UK sector of the North Sea, although they can be used in other geographical locations.
The principal activity of the Company and its subsidiaries ('the Group') is to operate the drilling rigs as noted above. During the year, the WilPhoenix was in drilling operations for its clients. Apache North Sea Ltd and Shell UK Ltd. The WilHunter is cold stacked and moored in Invergordon.
The Company has also ordered two new build rigs of Moss CS60 ECO MW design, equipped for drilling in harsh environments, including the Barents Sea. The rigs are being built by Keppel FELS shipyard in Singapore.
In the UK reduced supply coupled with increased demand is expected to see the current marketed fleet soon sold out for the summer of 2019. This is expected to result in day rate pressure and reduced seasonality in the region with higher utilisation levels forecast in the winter of 2019 into 2020.
The Norwegian market for modern high end semi-submersibles has little availability now remaining in 2019 and only around 1/3 of available rig days in 2020 remaining clearly available. The most recent fixtures remain around USD 300,000 excluding potentially material bonus amounts.
The Group's financial performance during the year was as follows:
| 2018 | 2017. | |
|---|---|---|
| US\$000 | US\$000 | |
| Revenue | 56.522 | 131,731 |
| Operating (loss)/profit | (18,275) | 34,119 |
| (Loss)/Profit for the year attributable to equity shareholders | (22, 864) | 28,167 |
| Operating (loss)/profit % | (32%) | 26% |
| Number of employees and contractors at year end | 142 | 141 |
The total revenue for the year relates to contract income received from drilling operations. The decrease is due to lower contract rates and an idle period in the year for the WilPhoenix compared with a full year of operations in 2017. The Group had rig operating expenses of US\$27.3 million (2017: US\$27.8 million) relating to rig operating costs, and general and administration expenses of US\$8.8 million (2017; US\$8.8) million). There was an impairment expense of US\$25 million (2017: US\$45 million for both rigs), relating to the WilHunter, due to the continued cold stack status and lack of visibility of contracting opportunities in the near term.
The key performance indicators (KPIs) set out below are reviewed on a regular basis by management and performance against them subsequently reported to the Board of Directors. Targets for the KPIs are set and. if performance falls short, the appropriate corrective action is implemented by management.
The Company's main financial KPIs are:
Revenue efficiency is actual revenue for the period compared with the maximum contract revenue multiplied by the number of available days in the contracted period. For the year ended 31 December 2018, the revenue efficiency was 97.3% (2017: 93.7%).
Operating margin is total revenue less operating costs. For the year ended 31 December 2018, operating margin was a loss of 32.3%. (2017: 25.9% profit). The deterioration in margin is due to the decrease in revenue during the year and the impairment charge made in the year.
The Company also has a number of operational KPIs that are used to manage the business on a day to day basis, some of which are detailed below:
Quality, Health, Safety and Environment (OHSE)
| $\frac{1}{2}$ | ||||
|---|---|---|---|---|
| Total recordable incident rate (TRIR) |
Number of incidents (lost time incident, restricted work case, medical treatment only) $x 200,000$ / Total number of man hours in the review period. Measured on a rolling 12 month basis. |
|||
| Unplanned discharges | Items that have been discharged to sea not covered under PON 15 which relate to allowable items. Some examples are BOP control fluid and hydraulic oil that are reportable under PON 1. |
|||
| (PON - Petroleum Operations Notices) | ||||
| Operations | ||||
| Uptime | Total hours the rigs are working i.e. not on unplanned downtime / on contract time for the period. |
|||
| Human Resources (HR) | ||||
| Personnel turnover | Employee initiated leavers in the period as a percentage of total headcount (onshore and offshore) on a rolling 12 month basis. |
The Company's primary risks are those that impact utilisation rates for each of the rigs, QHSE issues associated with operations and exposure to liquidity and credit risk. Additionally, as a result of the Company having entered into construction contracts for two new build rigs in Singapore, there are a number of risks associated with projects of this magnitude. These include failure to deliver the rigs on time and on budget, failure to obtain commercially attractive financing for the project cost and failure to obtain commercially attractive contracts with operators once the rigs have been delivered.
The Company has a small fleet of only two rigs, one currently in operation and the other cold stacked, implying that downtime, failure or idle periods will have a relatively higher impact than if the Company had a larger and more diverse fleet. The risk to utilisation rates may arise through deferred commencement of drilling contracts either through delays incurred on shipyard project work or delays encountered by operators not able to commence drilling in accordance with plan. There is also the possibility of gaps and idle periods during the year due to the unpredictable nature of contract drilling operations and prevailing market conditions. Additionally there is a utilisation risk associated with the possibility of mechanical and weather down time. The Group mitigates this risk through its operating, marketing and pricing strategies.
To mitigate any risk with regards to QHSE the Group has in place a QHSE management plan which seeks to ensure that all operations are conducted within normal industry standards and procedures. The Company also seeks to ensure safe and efficient operations, with no accidents, injuries, environmental incidents or damage to assets.
As described in Note 26 to the financial statements, the Group's objective is to maintain sufficient liquidity in order to support the needs of the business and meet debt repayments and other liabilities as they fall due. The Group has met all debt repayment obligations and has an appropriate level of cash on hand.
Management assess the credit rating of new and existing clients and determines if any action is required to secure payment in respect of work to be performed.
The Company has subsidiaries in other countries. Tax laws and regulations are highly complex and subject to interpretation. Consequently, the Company is subject to changing tax laws, treaties and regulations in and between countries in which it operates. The Company's tax expense is based upon its interpretation of the tax laws in effect in these countries at the time that the expense was incurred. A change in these tax laws, treaties or regulations or in the interpretation thereof, which is beyond the Company's control, could result in a materially higher tax expense or a higher effective tax rate on the Company's earnings.
For 2018, the effective tax rate ("ETR") for the Company was negative 8% (2017: 2.23%). The current year is a negative figure due to the loss before tax figure. There was a tax charge in the year as a result of the current year movement in unrecognised deferred tax asset, reversal of a prior deferred tax asset and also in respect of a prior year adjustment. In future years, it is expected that the ETR may continue to diverge from the statutory UK rate of corporation tax due to significant unrecognised deferred tax assets.
The trading price of the Company's shares could fluctuate significantly in responses to quarterly variations in operating results, adverse business developments, interest rates, changes in financial estimates by securities analysts, matters announced in respect of major customers or competitors, changes to the regulatory environment in which the Company operates, or a variety of other factors outside the control of the Company.
The offshore contract drilling industry is cyclical and volatile. The Company's business depends on the level of activity of oil exploration, development and production in the North Sea and internationally. The availability of quality drilling prospects, exploration success, relative production costs, the stage of reservoir development, political concerns and regulatory requirements all affect customers' levels of activity and drilling campaigns. Demand for the Company's services may be adversely affected by declines in exploration, development and production activity associated with depressed oil prices. Additionally, the perceived risk of depressed oil prices and changes in the UK North Sea tax regime often causes exploration and production companies to reduce their spending.
The profitability and cash flow of the Company's operations will be dependent upon the market price of oil and gas, as the Company's customers are mainly oil companies. The price of oil and gas is known to fluctuate. Oil and gas prices are affected by numerous factors beyond the Company's control, including economic and political conditions, levels of supply and demand, the policies of the Organization of Petroleum Exporting Countries (OPEC), the level of production in non-OPEC countries, the cost of exploring for, developing, producing and delivering oil and gas, currency exchange rates and the availability of alternate energy sources and political and military conflicts in oil-producing and other countries. If the price of oil and gas products should drop significantly, this could have a material adverse effect on the Company.
Following the UK's decision to leave the EU and the continued uncertainty surrounding the way in which the UK will withdraw from the EU, the Company has considered what impact this could potentially have on the business. After careful consideration, the Company has concluded that any potential impact is low risk, however it will continue to monitor the situation closely.
The Company recognises its duty to stakeholders to operate the business in an ethical and responsible manner. It is committed to developing its Corporate Social Responsibility (CSR) agenda, recognising that it can play a major part in its operations. This report does not contain information about any policies of the Company in relation to social community and human rights issues since it is not considered necessary for an understanding of the development, performance or position of the Company's business activities.
Simple is Best - Our systems and procedures shall be clear, concise and effective, ensuring we deliver on our promises.
Engagement - We will be a company of choice, valuing our work force, listening and responding to employees, clients and partners.
Efficiency - We will consistently meet our clients' expectations by providing competent people, reliable equipment and smart systems.
Flexibility - We will encourage challenge and creativity in order to deliver optimised performance and continuous improvement.
Performance – We will get it right first time; consistently delivering success.
The Company requires its employees to observe the highest standards of business and personal ethics in the conduct of their duties and responsibilities. The Company has a specific Anti-Bribery and Corruption policy to ensure compliance with all applicable anti-bribery and corruption regulations and to ensure the Company's business is conducted in a socially responsible manner. A risk assessment is undertaken by the senior members of the Company as part of the quarterly review of the Company's risk register.
The Company's employment policies and procedures are described in detail in the Staff Handbook, which is available to all employees via the Business Management System (BMS). The Company's Code of Conduct – Values and Ethics document sets out the basic principles to guide all employees and officers of the Company on how they must conduct themselves to seek to avoid even the appearance of improper behaviour. To help ensure compliance, the Company requires that employees, officers and directors review the policy and acknowledge their understanding and adherence in writing on an annual basis.
The Company is committed to equal opportunities and treats all employees with respect and dignity and ensures that decisions are taken without reference to irrelevant or discriminatory criteria. The Company does not tolerate any form of unlawful discrimination and is committed to promoting equality of opportunity and diversity for all personnel, and will address any unlawful discrimination in every aspect of its operations.
As at 31 December 2018 the number of employees was as follows:
| Male | Female | |
|---|---|---|
| Directors | ||
| Senior Managers | $\overline{\phantom{a}}$ | |
| Other staff $-$ onshore | 11 | |
| Other staff $-$ offshore | 117 | $\equiv$ |
It is important to the Company that it supports its employees in their health and wellbeing. The Company operates a flexible benefit scheme that is available to all members of staff and includes benefits such as leisure club membership, private medical and dental insurance, a health screening service and an Employee Assistance Programme. The Company has also achieved the Silver Healthy Working Lives Award.
The Company recognises that it is has a corporate responsibility to carry out its operations whilst minimising its impact on the environment. The Company has maintained the relevant standards and retains its ISO14001 certification. ISO14001 is an internationally recognised environmental management system (EMS) standard, providing a model for companies to follow to create and achieve their policy. Focusing on the issues that really matter, it is designed to help companies achieve consistent environmental regulatory compliance whilst embedding the concept of continuous improvements in environmental performance. ISO14001 is a widespread benchmark for thousands of organisations around the world that want to communicate to the public and stakeholders that they are environmentally responsible. Additionally, the Company has been awarded BS OHSAS 18001 certification. This is an internationally applied British Standard for occupational health and safety management systems. It exists to help organisations put in place demonstrably sound best practices by providing a framework for procedures and controls needed by the Company to achieve the best possible working conditions and workplace health and safety.
By order of the Board of Directors
Sigurd Thorvildsen 27 March 2019
The Directors present their report and financial statements for the year ended 31 December 2018. These financial statements have been prepared under International Financial Reporting Standards as adopted by the European Union.
The loss after taxation for the year amounted to US\$ 22.9 million (2017: US\$ 28.2 million profit). There was a total dividend of US\$ 15.5 million (2017: US\$ 24.0 million) paid during the year representing US\$ 0.40 per share (2017: US\$ 0.80).
See Strategic Report pages 2-6.
The directors who served the Company during the year were as follows:
Sigurd Thorvildsen Henrik Fougner Daniel Gold John Simpson Synne Syrrist Jon Bryce (resigned 18 March 2019)
The Group's financial risk management objectives and policies are discussed further in Note 26 on pages 63-66 of the financial statements.
The Company insures its directors and officers against liability in respect of proceedings brought by third parties, subject to the conditions set out in the UK Companies Act 2006.
None of the directors listed above had any interest in the Company's shares, with the exception of Jon Bryce in connection with the Company's long term incentive plan. Details are given in the directors' remuneration report.
The Company has been notified of the following interests representing 3% or more of the issued ordinary share capital of the Company as at 27 March 2019.
| No of shares | Percentage holding | |
|---|---|---|
| Awilhelmsen Offshore AS | 20,240,814 | 37.1% |
| UBS Securities LLC | 9,672,216 | 17.7% |
| Akastor AS | 3.049.673 | 5.6% |
| Euroclear Bank S.A | 2,251,191 | $4.1\%$ |
| Citibank N.A. | 1,873,377 | $3.4\%$ |
QVT Financial LP with affiliated and related parties owned 4,665,895 shares at 27 March 2019, a total of 8.55% of the Company's share capital.
FVP Master Fund LP with affiliated and related parties owned 10,817,537 shares at 27 March 2019 a total of 19.82% of the Company's share capital and has not notified the Company of any changes of ownership up to the date of signing the report and financial statements.
The information given in the corporate governance statement is set out on pages 11-17.
Management has prepared cash flow forecasts for a period of 12 months from the balance sheet date. These demonstrate the ability of the Group to pay its debts as they fall due for at least the next 12 months. The Group has access to sufficient working capital.
On this basis, the directors have concluded that the Group will remain a going concern for at least 12 months from the day of approval of the financial statements and have therefore prepared the financial statements on a going concern basis.
Management has performed an impairment test which resulted in an impairment of US\$ 25 million at year end for the WilHunter semi-submersible rig, due to the continued cold stack status of the rig and lack of visibility of contracting opportunities in the near term. The impairment test was based on management's best estimate of forecast future industry conditions and operations, future expected utilisation, contract rates,
operating expenses and capital requirements of the rigs. A post-tax discount rate of 10.6% has been applied.
Under the DEFRA guidance on Environmental Reporting Guidelines, Companies are required to report on greenhouse gas emissions under two categories: direct emissions (from rig power generation) and loss of refrigerants. The Company has no financial or operational control over the use of diesel as it is paid for by the client and operationally burned in accordance with the needs of the clients' drilling programme. As a result, the emission figures are reported to the regulator directly by the client.
So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of fellow directors and the Company's auditor, each director has taken all the steps that they are obliged to take as a director in order to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.
Each of the directors listed on page 1 confirms that to the best of their knowledge:
The financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group and the undertakings included in the consolidation taken as a whole; and
The strategic report includes a fair review of the development and performance of the business, together with a description of the principal risks and uncertainties faced.
In March 2019, the Company appointed a new Chief Executive Officer, Mr Jens Berge, to succeed Mr Jon Oliver Bryce. Mr Berge will assume his new position no later than 4th June 2019.
Also in March 2019, the Company declared its first option with Keppel FELS shipyard in Singapore for the building of one new CS60 ECO MW semi-submersible drilling rig. The rig will be similar to the rig contracted in March 2018. The cost for the rig delivered from the yard is approximately USD 425 million with delivery planned for March 2022. Two additional options remain, such options being independent of each other.
In connection with the rig option declaration, the Company successfully completed a Private Placement of 5,550,000 shares at a subscription price of NOK 31.80, raising gross proceeds of approximately USD 20 million. The Company also intends to carry out a subsequent offering of up to 800,000 new shares, for gross proceeds of up to approximately USD 3 million.
A resolution to reappoint Ernst & Young LLP as auditors will be put to the members at the Annual General Meeting.
By order of the Board of Directors
Sigurd Thorvildsen 27 March 2019
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom company law and those International Financial Reporting Standards (IFRSs) adopted by the European Union.
Under UK Company Law the directors must not approve the financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Group and Company for that period. In preparing those financial statements the directors are required to:
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with the UK Companies Act 2006 and Article 4 of the IAS Regulations. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Awilco Drilling PLC is committed to maintaining high standards of corporate governance.
The Company was previously listed on the Oslo Axess stock exchange, but transferred over to the Oslo Bors stock exchange on 4 September 2018. The Company has adopted the Norwegian Code of Practice for Corporate Governance of 17 October 2018 ('the Code'). A copy of the code can be found at www.nues.no
Adherence to the Code is based on a "comply or explain" principle, whereby companies are expected to comply with the recommendations or explain why they have chosen an alternative approach. Below is a summary of the departures from the Code with an explanation of how the Company's actual practices contribute to good corporate governance.
The Company is required to state how it has applied the principles set out in Section 1 of the Code and which relate to its directors, remuneration, accountability and audit and relations with shareholders.
As of the date of this report, the Company is in compliance with the Code, except in relation to the following matters:
The Company's principal business is to own offshore drilling rigs for use in offshore drilling operations, and to provide drilling services for oil and gas companies using these rigs. This is an intricate business which involves complex assets and high value equipment, and which requires specialised and trained personnel to operate them efficiently and safely.
The Company's vision is to be a partner of choice, consistently "delivering the difference" to its customers.
Further information about the Company's vision, mission and strategy statements is available in the Strategic Report.
Full details of the shares issued are detailed in Note 24. The Company considers its equity to be at a level appropriate to the Company's objectives, strategies, cash flow projections and risk profile.
The Company's intention is to pay dividends in support of its main objective to maximise returns to shareholders. All of the Company's free cash flow is intended to be distributed subject to maintaining a robust cash buffer to support operational working capital requirements and planned capital expenditure. Consideration is also given to future market prospects. With the ordering of two new-build high-end semisubmersible rigs, plus an agreement for a further two independent rig options, the Company is in a growth and investment phase. Dividend payments have been suspended and will resume when the Company again reaches an appropriate free cash flow situation.
All issued shares of the Company are vested with equal shareholder rights in all respects. There is only one class of shares. The Articles of Association place no restrictions on voting rights. Each share represents one vote at the Company's General Meetings.
The Company has entered into the agreements listed below with the following parties:
Awilhelmsen Offshore AS owns 37.1% of the ordinary shares in Awilco Drilling PLC.
The shares of the Company are freely negotiable.
The Board regularly review the Company's financial projections to ensure resources are available to meet operational requirements, and take appropriate action if judged necessary.
All shareholders of the Company are entitled to attend the general meetings of the Company. The Annual General Meeting (AGM) is to be held no later than 30 June each year. Notification for meetings are sent out at least 21 days in advance. The notice includes a reference to the Company's website where the notice for the General Meeting and other supporting documents required to allow shareholders to form a view on all matters to be considered at the meeting are made available. The deadline for registration is normally set three working days before the General Meeting, to ensure shareholders have as much time as possible to register. If a shareholder cannot attend a meeting in person it is possible to vote through proxy.
The minutes from the General Meetings are published on the Company's website www.awilcodrilling.com
The next AGM is scheduled for 5 June 2019.
The Board considers that it is vital to ensure that there is an appropriate range of skills, knowledge and experience among its members, and that the objectivity and integrity of members should be exemplary. The Board currently consists of five non-executive Directors including the Chairman. The Board believes that the structure and size of the Board is appropriate and that no single individual or group dominates the decision making process. The names, skills, experience and expertise of each Director are shown in the Board of Directors section of the Company's website at www.awilcodrilling.com
The main responsibilities of the Board include but are not limited to:
Management is delegated the task of the detailed planning and implementation of the Company's strategy.
Directors receive timely, regular and appropriate management information to enable them to fulfil their duties and have access to the advice of the Company Secretary. The Board has agreed guidelines for Directors to obtain independent professional advice, if they seek it, at the Company's expense.
The Company has in place directors' and officers' liability insurance.
The Board includes two independent non-executive directors (John Simpson and Synne Syrrist) and three non-independent non-executive directors (Sigurd Thorvildsen, Henrik Fougner and Daniel Gold). All the non-executive Board members are viewed as being free from any relationship with the executive management which could result in any conflict or affect their judgement. None of the non-executive directors participates in the share option schemes or long-term incentive plan operated by the Company and none are dependent on the fees received from the Company as their primary source of income.
The Board completes an annual process to evaluate the effectiveness of Board Committees and individual directors and has confirmed that it is satisfied that it and its Committees are operating effectively.
The performance of the Chief Executive Officer ("CEO") is reviewed annually by the Compensation Committee in conjunction with his annual pay review and the payment of bonuses.
Directors are elected by shareholders at the first annual general meeting after their appointment and, after that, offer themselves for re-election by a vote of shareholders at least once every two years.
Board meetings are scheduled to be held at least five times a year, linked to key events in the Company's corporate reporting calendar. Additional ad-hoc meetings may be held.
It is expected that all directors attend Board and relevant committee meetings, unless they are prevented from doing so by prior commitments. If directors are unable to attend meetings they are given the opportunity to be consulted and comment in advance of the meeting. The Chairman holds regular informal meetings with the non-executive directors without the executive director being present.
The Board has established an Audit Committee, Compensation Committee and a Nomination Committee. The Audit Committee and Nomination Committee have formal terms of reference governing their method of operation which reflect the provisions of the Code and which have been approved by the Board.
The Audit Committee was chaired during the year by John Simpson and the other member of the Committee is Henrik Fougner. Only John Simpson is considered to be independent by the Board, which is acknowledged in the terms of reference of the Audit Committee. The Board is satisfied that John Simpson has recent and relevant financial experience, as the former CEO of Den norske Bank (now DNB Bank) in London and Regional Director for DNB's Asia-Pacific operations. Mr Simpson is also classed as an approved person by the UK FCA and has chaired audit committees of UK listed companies and public bodies since 1996.
The role of the Audit Committee is to ensure the integrity of the financial statements of the Company, including its annual and quarterly reports, preliminary results' announcements and any other formal announcements relating to its financial performance. It is responsible for reviewing the Company's internal financial control and risk management systems, advising the Board on the appointment of external auditors, overseeing the relationship with external auditors, reviewing the Company's whistleblowing procedures and considering the need for an internal audit function.
The Audit Committee monitors the relationship with the Company's external auditors relating to the provision of non-audit services to ensure auditor objectivity and independence is safe-guarded. The Company will award non-audit work to the firm which provides the best commercial solution for the work in question taking into account the skills and experience of the firm involved and the fees payable for the work. In considering whether to award such work to the external auditors, attention is paid to the level of fees for non-audit services relative to the amounts of the audit fee and whether there are safeguards in place to mitigate to an acceptable level any threat to objectivity and independence in the conduct of the audit resulting from the provision of such services.
There is an opportunity at each meeting for the Audit Committee to discuss matters privately with the external auditors without any members of the executive management team present. In addition, the Chairman of the Committee is in regular contact with the external audit partner to discuss matters relevant to the Company.
The Compensation Committee was chaired during the year by Sigurd Thorvildsen and the other members of the Committee are Daniel Gold and Henrik Fougner.
The role of the Compensation Committee is to establish and develop the remuneration policy for the Company's executives and key management and to determine a specific remuneration package for the CEO. No director or employee is involved in deciding their own remuneration. The Committee also approves all employee pay review proposals.
Details of the Company's policy on remuneration, service contracts and compensation payments are set out in the Director's remuneration report.
The members of the Nomination Committee are Henrik Christensen and Tom Furulund.
The role of the Nomination Committee is to present a recommendation to the general meetings concerning directors to be elected by shareholders and the level of directors' fees. The Nomination Committee shall also present recommendations to the general meetings regarding nomination of members to the Nomination Committee and concerning fees for the members of the Nomination Committee.
The table below shows the frequency and attendance of directors and other members at Board and Committee meetings during 2018.
| Board Meetings |
Compensation Committee |
Audit Committee |
Nomination Committee |
|
|---|---|---|---|---|
| No of meetings in year | ||||
| Sigurd Thorvildsen | 8 | 4 | ||
| Henrik Fougner | 8 | 4 | 3 | |
| Daniel Gold | 4 | |||
| John Simpson | 8 | 3 | ||
| Synne Syrrist | 8 | |||
| Jon Bryce | 8 | ٠ | ||
| Henrik Christensen (1) | ÷. | |||
| Tom Furulund (1) |
$(1)$ Not members of the Board but members of the Nomination Committee only
The Board acknowledges its responsibility for establishing and maintaining adequate internal controls and risk management systems to safeguard shareholders' investments and the Company's assets and performs an annual review of these areas. Such systems can only be designed to manage, and not to eliminate, the risk of failure to achieve business objectives. They can provide reasonable, but not absolute, assurance that the Company's assets are safeguarded and that the financial information used within the business for external reporting is reliable.
The Company's operational and business activity risks are controlled and mitigated by the implementation and use of its Business Management System (BMS). The Company's offshore activity risk is further controlled by the implementation and use of its Safety and Environmental Management System which is incorporated in the BMS.
The Company's comprehensive planning and financial reporting procedures include annual detailed operational budgets which are reviewed and approved by the Board. Performance against budget is monitored throughout the year, through monthly reporting of management accounts and key performance indicators. The Board receives updated cash flow statements on a monthly basis and at each Board meeting and has close follow up discussions with the management between meetings as required.
With a centralised financial reporting system, transactions and balances are recognised and measured in accordance with prescribed accounting policies, and all relevant information is appropriately reviewed and reconciled as part of the reporting process.
There are clearly defined evaluation and approval processes for acquisitions and disposals, capital items and major expenditure. These include escalating levels of authority and post-completion reviews of all major projects to compare the actual outcome with the original plan. Certain transactions are reserved for approval by the Board and limits of delegated responsibility and areas of authority have been identified for employees.
The Audit Committee reports to the Board on matters discussed with the auditors during the course of the statutory audit.
The Company has adopted guidelines in relation to take-over bids. The guiding principles of the Board in a take-over situation will be to seek the best value for and the equal treatment of all shareholders. The Board recognises that the decision whether to accept or reject an offer lies with the shareholders, and will refrain from any actions which may deny shareholders this choice. The Board will seek to provide shareholders with a recommendation as to whether shareholders should or should not accept an offer. This includes seeking external advice on valuation when appropriate. Any transaction that is in effect a disposal of the Company's activities will be submitted to a General Meeting for its approval. As the Company is incorporated in England and Wales, any take-over bid for the Company would be governed by aspects of both Norwegian Law and English law and regulations in accordance with the EU Takeover Directive.
The Company is committed to maintain the highest of standards of disclosure ensuring that all investors and potential investors have the same access to high quality, relevant information in an accessible and timely manner to assist them in making informed decisions. The Investor Relations Department manages the flow of information to all investors and potential investors and regular presentations take place at the time of the quarterly results as well as during the rest of the year.
Any concerns raised by a shareholder in relation to the Company and its affairs are communicated to the Board.
The Company maintains a website which provides up-to-date, detailed information on the Company's operations, which includes a dedicated investor relations section. All Company announcements are available on the website, as are copies of slides used for presentations to investment analysts.
Shareholders will have the opportunity at the forthcoming AGM to put questions to the Board, including the Chairmen of the various Committees.
The Company operates in a highly competitive market and must attract, motivate and retain high quality directors capable of achieving the Company's objectives and thereby enhancing shareholder value.
The non-executive Board members receive annual remuneration, based on the Board's responsibilities, expertise, time invested and the complexity of the business. Their remuneration is not linked to the Company's performance.
The remuneration of the Board is disclosed in the Director's Remuneration Report on pages 18-27 of this report. None of the Board members have had any additional assignments for the Company and none of the non-executives participate in any incentive or share option programme.
The Compensation Committee reviews and advises on proposals made by the CEO with regard to the remuneration payable to executive personnel, and presents them to the Board. The remuneration payable to executive personnel is determined on the basis of competence, experience and achieved results.
The Board decides the salary and other compensation for the CEO in a meeting. The remuneration and other compensation to the CEO and other executive employees are disclosed in the notes to the financial statements.
In line with standard practice for a UK company, the auditor is not present during the Board meeting that deals with the annual accounts.
The auditor attends all meetings of the Audit Committee and presents to the Committee reviews of the Company's accounting principles, risk areas, internal control procedures, including identified weaknesses and proposals for improvement.
The auditor has a private meeting with the Audit Committee at the end of each of its meetings at which neither the CEO nor any other member from the management team is present.
By order of the Board of Directors
Sigurd Thorvildsen 27 March 2019
Chairman of the Compensation Committee's Annual Statement
Dear Shareholders,
I am pleased to present the directors' remuneration report for the financial year ended 31 December 2018, prepared in accordance with the Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008.
This report explains the Company's remuneration policy and provides details of the remuneration paid to executive and non-executive directors for services to the Company during the year. There have been no significant changes to the remuneration policy this year.
In determining remuneration levels, the Committee has taken account of market conditions, the performance of the Company, responsibility to shareholders and good corporate governance.
Due to the fluctuation in the exchange rate between GBP and USD, for the purpose of comparison the directors' remuneration figures have been shown in GBP as this is the currency in which remuneration is paid.
A resolution to approve the Directors remuneration report will be proposed at the AGM which is scheduled to be held on 5 June 2019.
Sigurd Thorvildsen Chairman, Compensation Committee 27 March 2019
The Company operates in a highly competitive market and must attract, motivate and retain high quality directors and senior executives capable of achieving the Company's objectives and thereby enhancing shareholder value.
No director makes a decision relating to his own remuneration. Individual directors leave the meeting when their own remuneration is being discussed. A significant proportion of the potential remuneration of the CEO and senior executives is performance-related with appropriately stretching targets, thus aligning their interests with those of shareholders and encouraging performance at the highest levels.
The Committee has considered whether there are any aspects of the remuneration policy which could inadvertently encourage the executives to take inappropriate risk and has concluded that the policy remains appropriate in this regard.
The Company, in line with market practice, does not actively consult with employees on executive remuneration. The Committee is made aware of overall pay and employment conditions in the wider work force when it sets the executive remuneration policy.
The Committee takes into account the view of the shareholders through open and transparent communication with shareholders. If there are significant changes proposed to the remuneration policy, the Committee will consult with major shareholders.
The table below summarises the remuneration policy, by component for the CEO. Details of the remuneration policy for non-executive directors are included on page 22.
| Element | Purpose | Operation | Opportunity | Performance Measure |
|---|---|---|---|---|
| Annual Salary | To attract and retain key individuals and reflect their responsibilities, market value and expected performance level |
Reviewed annually or when a change in responsibility occurs |
There is no maximum salary opportunity |
Not applicable |
| Benefits | To provide a market competitive reward package to the employee |
The Company typically provides ⋗ Car allowance Private ↘ health care Private ⋗ dental care |
Car allowance is a fixed annual amount. There is no maximum for health/dental insurance as it will depend on the value of premiums paid in the year |
Not applicable |
| Performance related bonus |
To incentivise the employee |
Bonus payments are determined by the Compensation Committee and awarded where justified by performance |
The amount of bonus increases with the level of performance achieved, up to a maximum of 100% of salary |
Specified targets for the financial year - please see page 24 for full details |
| Element | Purpose | Operation | Opportunity | Performance Measure |
|---|---|---|---|---|
| Pension | To provide a market competitive long-term retirement benefit |
Eligibility to participate in a Defined Contribution scheme which has a maximum employer contribution of 9% |
Up to 9% of salary | Not applicable |
| Long term incentive plan |
To motivate and incentivise executives |
All awards are of synthetic shares which are cash settled. 2014 Plan: The plan "vests" after three years and the exercise period is five years subject to the employee remaining employed by the Company. 2015 Plan: Same vesting period as the 2014 plan. 2016 Plan: The plan "vests" after four years and the exercise period is five years subject to the employee remaining employed by the Company. |
Award of up to 100% of salary each calendar year |
No performance conditions are associated with the scheme; the awards are made at the discretion of the Board of Directors and are not guaranteed to be awarded each year. |
The remuneration package for a new CEO would be in accordance with the Company's approved remuneration policy as set out above. In addition, the Committee may offer additional benefits as necessary to secure an appointment and to take into account the elements of remuneration forfeited when leaving a previous employment. Relocation expenses or allowance may be paid as necessary. For an internal appointment, any existing contractual agreements in respect of prior employment may be honoured.
The service and employment contract of the CEO is not of a fixed duration and therefore has no unexpired terms, but continuation in office as a director is subject to re-election by shareholders.
The notice period of the CEO's contract of employment is three months with the same notice period for the Company. The contract may be terminated without notice for certain events such as gross misconduct. No payment or compensation beyond sums accrued up to the date of termination will be made if such an event occurs. In the event that notice was served by either party, the director can continue to receive basic salary, benefits and pension contributions for the duration of the notice period. The Company may pay salary, benefits and pension in lieu of notice and will observe the other contractual entitlements of a director. There is no entitlement to bonus paid following notice of termination and any outstanding awards under the LTIP scheme will be forfeited. In respect of any new appointments, the policy would be based on terms that are consistent with these provisions.
The non-executive directors do not have service contracts but instead have letters of appointment.
The graph below shows how the total pay opportunities for the CEO vary under three performance scenarios. These have been prepared on the assumptions detailed below.
Below target = fixed pay only (base salary, benefits and pension) On target = $50\%$ payable of annual bonus, $0\%$ LTIP award Maximum = 100% payable of annual bonus, 100% LTIP award
The chart illustrates the potential rewards available under the remuneration policy for the financial year 2018. The values assume a constant share price and do not take into account dividend adjustments that may be received on the share awards. The potential awards available for "on-target" performance under the annual bonus and LTIP are provided for illustration only and do not reflect formal policy decisions that these amounts will be received.
The salary level (on which the bonus and LTIP elements of the package are calculated) are based on current salary level of GBP 265,000.
The remuneration policy for non-executive directors is set out in the table below. No non-executive directors participate in the Company's incentive arrangements or pension plan.
| Component | Purpose | Operation |
|---|---|---|
| Fees | The basic fee is a fixed annual fee agreed after taking external advice and making market comparisons, and relate to the service of the directors in connection with the Company's business. The additional fees payable to the Chairman and members of the Board Committees reflects the additional time commitment in preparing and attending additional meetings. |
The fees for non-executive directors (including the Chairman) are reviewed annually and approved in aggregate at the annual general meeting. The current level of fees is detailed below. |
The same principles as described above will be applied in setting the remuneration of a new non-executive director. Remuneration will comprise fees only and be paid in accordance with the prevailing rate at the time of the appointment. No variable remuneration will be paid and there will be no compensation for any loss of remuneration in a previous employment.
The current level of fees paid for 2017 and those proposed for 2018 are as follows:
| 2018 | 2017 | |
|---|---|---|
| GRP | GBP | |
| Chairman | 46.375 | 46,375 |
| Basic Fee | 33,125 | 33,125 |
| Chair of Audit Committee | 5.000 | 5,000 |
| Member of Audit, Compensation or Nomination Committee | 3,000 | 3,000 |
Fees to be paid in respect of 2018 will be decided at the next AGM which is scheduled for 5 June 2019.
All directors are required, under the Articles of Association of the Company, to retire at the first AGM. At each subsequent AGM, any directors who have been appointed by ordinary resolution or by the directors since the last AGM or who were not appointed or reappointed at one of the preceding two AGMs must retire from office and may offer themselves for reappointment by the members. After recommendation by the Nomination Committee, all directors were re-appointed at the AGM on 7th June 2017.
Single total figure of remuneration table
| 2018 | Basic Salary and Fees |
Benefits $(1)$ | Performance Related Bonus |
Pension- related benefits(2) |
Other(3) | Total |
|---|---|---|---|---|---|---|
| GBP | GBP | GBP | GBP | GBP | GBP | |
| Executive Director: |
||||||
| JOS Bryce | 265,000 | 11,380 | 82,800 | 23,850 | $\blacksquare$ | 383,030 |
| Non-executive | ||||||
| Directors: | ||||||
| S E Thorvildsen | 49,375 | Ξ | ü, | 49,375 | ||
| H Fougner | 39,125 | $\overline{\phantom{a}}$ | om. | Ħ. | × | 39,125 |
| D A Gold | 36,125 | ¥ | ¥, | ¥, | 36,125 | |
| J N Simpson | 38,125 | Ξ | $\overline{\phantom{a}}$ | 38,125 | ||
| S Syrrist | 33,125 | ۰ | ٠ | ۰ | 33,125 | |
| 460,875 | 11.380 | 82,800 | 23,850 | 578,905 |
(1) Includes non-cash benefits comprising car allowance and private health and dental care
(2) Contributions made during the year to the defined contribution scheme
(3) Cash settled value of synthetic share options exercised during the year
| 2017 | Basic Salary and Fees |
Benefits (1) | Performance Related Bonus |
Pension- related benefits(2) |
Other(3) | Total |
|---|---|---|---|---|---|---|
| GBP | GBP | GBP | GBP | GBP | GBP | |
| Executive Director: |
||||||
| J O S Bryce | 265,000 | 11,212 | 50,000 | 23,850 | Ξ | 350,062 |
| Non-executive Directors: |
||||||
| S E Thorvildsen | 49,375 | æ. | ۰. | ۰ | 49,375 | |
| H Fougner | 39,125 | ÷. | ¥. | 39,125 | ||
| D A Gold | 36,125 | ÿ, | 70 | ٠ | ÷ | 36,125 |
| J N Simpson | 38,125 | ÷ | 38,125 | |||
| S Syrrist | 33,125 | $\blacksquare$ | 33,125 | |||
| 460,875 | 11,212 | 50,000 | 23,850 | $\qquad \qquad \blacksquare$ | 545,937 |
(1) Includes non-cash benefits comprising car allowance and private health and dental care
(2) Contributions made during the year to the defined contribution scheme
(3) Cash settled value of synthetic share options exercised during the year
The Chief Executive Officer ('the Executive Director') received the following taxable benefits:
| 2018 | 2017 | |
|---|---|---|
| GBP | GBP | |
| JOS Bryce | ||
| Car allowance | 10.000 | 10,000 |
| Private health insurance | 1,380 | 1.212 |
| Total | 11.380 | 11.212 |
For the year under review, the Executive Director's bonus was awarded subject to challenging strategic targets. The precise weightings are considered by the Company to be commercially sensitive so are not specified in detail. The areas that have been considered were company performance and also performance improvement from the prior year, measured against the Company's financial and operational KPIs whilst also taking into account the current market conditions.
The criteria for the 2019 bonus has yet to be finalised by the Compensation Committee but is expected to follow a similar format to the current year metrics.
A long term incentive plan for the Executive Director and other key management personnel, with a total limit of up to 4% of the Company's issued share capital was approved at the Annual General Meeting on 26 June 2013. The awards for the years 2010 and 2012 are now fully exercised. There are still outstanding amounts under the 2014, 2015 and 2016 plans.
The plan "vests" after three years and the exercise period is five years subject to the employee remaining employed by the Company with the exception of the 2016 plan which "vests" after four years.
| Market | ||||||||
|---|---|---|---|---|---|---|---|---|
| Shares | Shares | Shares | Shares | price | Market | |||
| At 1 | Granted | Exercised | At 31 | on | Interest | price on | ||
| January | in the | in the | December | date of | vested | vesting | ||
| 2018 | year | vear | 2018 | Expiry date | award | in 2018 | date | |
| No. | No. | No. | No. | NOK | No. | NOK | ||
| J Bryce (2014) |
68,691 | 6.166 | ٠ | 74.857 | 11 Nov 2019 | 98.50 | ۰ | ×. |
| J Bryce (2015) |
79,422 | 7,129 | ٠ | 86,551 | 18 Nov 2020 | 36.70 | 86,551 | 37.50 |
| J Bryce (2016) |
63,748 | 5,722 | ٠ | 69,470 | 16 Nov 2021 | 28.20 | ٠ |
There are no specific performance conditions associated with the award of synthetic shares.
There are no other directors who have any interests in shares.
The graph below shows the relative importance of the spend on pay (for all employees) compared with the returns distributed to shareholders:
The graph below shows the total shareholder return in terms of change in value of an initial investment of £100 on 10 June 2011 (and assuming dividends are re-invested) in a holding of the Company's shares against the corresponding total shareholder return in a hypothetical holding of shares in the OBX (an index on the Oslo Bors stock exchange). This was selected as it represents a broad equity market index in which the Company is a constituent member. The graph is a reporting requirement; however the LTIP awards that are made to the Executive Director are not based on share performance.
Five year comparison
The table below summarises the Chief Executive Officer (the Executive Director)'s single total figure of remuneration, annual and long-term variable performance-related remuneration (and the percentage of the maximum opportunity that these represent) in relation to the past five years.
| Year | Chief Executive Officer |
Single total figure of remuneration |
Annual variable element (actual award versus opportunity) |
|
|---|---|---|---|---|
| GBP | GBP | % | ||
| 2018 | J O S Bryce | 383,030 | 82,800 | 31% |
| 2017 | J O S Bryce | 350,062 | 50,000 | 19% |
| 2016 | JOS Bryce | 647,750 | 78,440 | 30% |
| 2015 | J O S Bryce | 370,022 | 69,960 | 26% |
| 2014 | JOS Bryce | 2,196,775 | 159,000 | 60% |
| 2018 | 2017 | Change % |
Employee remuneration change |
|
|---|---|---|---|---|
| GBP | GBP | |||
| Salary and fees | 265,000 | 265,000 | 0% | $0\%$ |
| Taxable benefits | 11.380 | 11,212 | $2\%$ | $2\%$ |
| Annual variable performance related remuneration |
82,800 | 50,000 | 66% | (5%) |
| Total | 359,180 | 326,212 | 10% | |
| Single total figure of remuneration | 383,030 | 350,062 | 9% | |
The above table shows the movement in remuneration for the Chief Executive Officer between the current and previous financial year compared with movement of the average remuneration (per head) for all Company employees.
The CEO's base salary will continue to be reviewed annually by the Compensation Committee, based on performance and current market conditions. The Compensation Committee will then make a recommendation to the Board of Directors.
The CEO participates in a defined contribution arrangement which the Company contributes a maximum of 9% of base salary. Additional benefits include private medical and dental insurance and company car allowance.
Annual performance related remuneration
The maximum bonus opportunity for the CEO will remain unchanged at 100% of base salary. The bonus opportunity will be set by the Committee with targets aligned with creating shareholder value.
The table below sets out the voting by the Company's shareholders on the resolution to approve the Directors' remuneration report at the AGM held on 6 June 2018.
| Total number of votes | % of votes cast | |
|---|---|---|
| For | 31.587.682 | $100.0\%$ |
| Total votes cast | 31,587,682 | 100.0% |
The Compensation Committee is pleased to note that 100% of shareholders approved the 2017 Directors' remuneration report.
By order of the Board of Directors
Sigurd Thorvildsen 27 March 2019
In our opinion:
| Group | Parent company |
|---|---|
| Consolidated balance sheet as at 31 December 2018 | Balance sheet as at 31 December 2018 |
| Consolidated income statement for the year then ended 31 December 2018 |
Statement of changes in equity for the year then ended 31 December 2018 |
| Consolidated statement of comprehensive income for the year then ended 31 December 2018 |
Statement of cash flows for the year then ended 31 December 2018 |
| Consolidated statement of changes in equity for the year then ended 31 December 2018 |
Related notes 1 to 29 to the financial statements including a summary of significant accounting policies |
| Consolidated statement of cash flows for the year then ended 31 December 2018 |
We have audited the financial statements of Awilco Drilling plc which comprise:
Related notes 1 to 29 to the financial statements, including a
summary of significant accounting policies
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and; as regards to the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report below. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
| Key audit matters |
• Impairment of the drilling rigs |
|---|---|
| Audit scope | • We performed an audit of the complete financial information of two components and audit procedures on specific balances for a further three components. |
| • The components where we performed full or specific audit procedures accounted for 100% of Profit before tax, 100% of Revenue and 100% of Total assets. |
|
| Materiality | • Overall group materiality of \$2.6m which represents 1% of Total Assets. |
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
to the members of Awilco Drilling PLC
| Risk | Our response to the risk | Key observations communicated to the Audit Committee |
|---|---|---|
| Impairment of drilling rigs (2018: \$134m – WilPhoenix \$96m and WilHunter \$38m, 2017: \$167m) Refer to Accounting policies (page 46); and Note 15 of the Consolidated Financial Statements (page 54) Under IAS 36, the group is required to assess annually whether any impairment indicators exist at the year-end and if such conditions exist, an impairment assessment is required. The speed of recovery within the oil and gas sector, coupled with the fact that one semi submersible drilling rig (WilHunter) remains un-utilised (no change to the rig's cold stacked status) are considered indicators of a likely impairment Given the estimates and judgements involved in the impairment assessment, there is a risk of improper valuation of the semi-submersible drilling rigs. |
We evaluated management's impairment assessment by verifying the methodology and assumptions, along with the value in use and suitability of sensitivities considered by management within, specifically: • Future contract day rates - we have reviewed historic day rates and industry trends, and noted that the day rates assumed are reflective of the current market outlook; • Rig Utilisation – we have reviewed historic rig utilisation and current market trends to confirm reasonableness • Long term growth rate – we compared the rates applied by management to available external rates; • Discount rates – we involved our valuations specialists in our evaluation of the discount rate to consider the appropriateness of the rates used; • Operating costs –the forecast operating costs are in line with audited current and prior year expenditure; and • We have confirmed that the appropriate disclosures have been made in the consolidated financial statements. In addition to the above, we also confirmed the mathematical |
The assessment is impacted by several factors and is sensitive to both future operating activities and discount rates. In our view the day rates and discount rate assumptions used by management are within reasonable ranges. Following the \$25m impairment charge (to WilHunter), we consider the carrying value of the semi-submersible drilling rigs to be reasonable and that appropriate disclosures are made in the financial statements. |
| accuracy of the impairment model. |
No change to Key Audit Matters from prior year.
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business environment and other factors when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, of the six reporting components of the Group, we selected five components covering entities within Singapore and the United Kingdom, which represent the principal business units within the Group.
Of the five components selected, we performed an audit of the complete financial information of two components ("full scope components") which were selected based on their size or risk characteristics. For the remaining three components ("specific scope components"), we performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 100% (2017: 100%) of the Group's Profit before tax, 100% (2017: 100%) of the Group's Revenue and 100% (2017: 100%) of the Group's Total assets.
| Full scope components | Specific scope components | |||
|---|---|---|---|---|
| Financial year | 2018 | 2017 | 2018 | 2017 |
| % of Group's profit before tax | 84% | 107% | 16% | -7% |
| % of Group's Revenue | 100% | 100% | 0% | 0% |
| % of Group's Total Assets | 83% | 79% | 17% | 21% |
The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant tested for the Group.
All audit work performed for the purposes of the audit was undertaken by the Group audit team.
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be \$2.6m (2017: \$3.6m), which is 1% of Total Assets (2017: 5% of adjusted profit before tax). During 2018 there was a significant reduction in profitability due to reduced activity levels, resulting in a loss for the year. Total Assets was considered a more appropriate materiality basis given the significant carrying value of assets held.
We determined materiality for the Parent Company to be \$3.8m (2017: \$2.8m), which is 2% of Equity (2017: 2%).
During the course of the audit, we reassessed initial materiality and there has been no significant change in the final materiality from our original assessment at planning.
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group's overall control environment, our judgement was that performance materiality was 75% (2017: 75%) of our planning materiality, namely \$1.9m (2017: \$2.7m). We have set performance materiality at this percentage based on the history of past misstatements and lack thereof, our ability to access the likelihood of misstatements and the effectiveness of the internal control environment.
The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was \$905k to \$1.4m (2017: \$540k to \$2.7m).
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of \$130k (2017: \$180k), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.
The other information comprises the information included in the annual report set out on pages 2 to 27, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other
information, if, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
In our opinion, the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
As explained more fully in the directors' responsibilities statement [set out on page 10], the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group and parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
to the members of Awilco Drilling PLC
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.
Our approach was as follows:
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
We were appointed by the company in 2010 to audit the financial statements for the period ending 31 December 2010 and subsequent financial periods. We were appointed as auditors by the directors and signed an engagement letter on 3 November 2010.
The period of total uninterrupted engagement including previous renewals and reappointments is nine years, covering the years ending 31 December 2010 to 31 December 2018.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Jamie Dixon (Senior Statutory Auditor) For and on behalf of Ernst & Young LLP (Statutory Auditor) Aberdeen 27 March 2019
Notes:
for the year ended 31 December 2018
| 2018 | 2017 | ||
|---|---|---|---|
| Notes | US\$000 | US\$000 | |
| Revenue | 5 | 56,522 | 131,731 |
| Cost of sales | (41, 031) | (43, 794) | |
| Impairment | 16 | (25,000) | (45,000) |
| Gross (Loss)/Profit | (9,509) | 42,937 | |
| General and administrative expenses | (8,766) | (8, 818) | |
| Operating (Loss)/Profit | 6 | (18, 275) | 34,119 |
| Finance income | 9 | 1,943 | 792 |
| Finance expense | 10 | (4,671) | (6,919) |
| Foreign exchange gain, net | 11 | 5 | 941 |
| Loss on forward contracts at fair value through profit and loss | 28 | (172) | (123) |
| (Loss)/Profit before taxation | (21, 170) | 28,810 | |
| Income tax expense | 12 | (1,694) | (643) |
| (Loss)/Profit for the year attributable to equity shareholders | (22, 864) | 28,167 | |
| There is no comprehensive income other than the results for the year. | |||
| Basic and diluted earnings per share (US\$ per share) | 13 | (0.52) | 0.94 |
Total comprehensive income for the year is attributable to the owners of the Company, as there is no minority interest.
as at 31 December 2018
| 2018 | 2017 | ||
|---|---|---|---|
| Notes | US\$000 | US\$000 | |
| Non-current assets | |||
| Property, plant and equipment | 15 | 186,761 | 178,808 |
| Deferred tax | 12 | 461 | 1,372 |
| 187,222 | 180,180 | ||
| Current assets | |||
| Inventory | 4,808 | 4,808 | |
| Trade and other receivables | 18 | 11,938 | 24,073 |
| Current tax | 340 | 3,551 | |
| Cash and cash equivalents | 19 | 63,865 | 119,286 |
| 80,951 | 151,718 | ||
| Total assets | 268,173 | 331,898 | |
| Current liabilities | |||
| Trade and other payables | 20 | 6,284 | 10,441 |
| Current tax payable | 66 | ||
| Borrowing | 21 | 10,000 | |
| 6,350 | 20,441 | ||
| Non-current liabilities | |||
| Borrowing Other liabilities |
21 | 80,000 | |
| 20 | 433 | 248 | |
| 433 | 80,248 | ||
| Total liabilities | 6,783 | 100,689 | |
| Net Assets | 261,390 | 231,209 | |
| Equity Called up share capital |
24 | 477 | 304 |
| Share premium account | 24 | 198,242 | |
| Retained earnings | 62,671 | 129,837 | |
| 101,068 | |||
| Total Shareholders' funds | 261,390 | 231,209 | |
Signed on behalf of the Board of Directors
Sigurd Thorvildsen
Director
as at 31 December 2018
| 2018 | 2017 | ||
|---|---|---|---|
| Notes | US\$000 | US\$000 | |
| Non-current assets | |||
| Property, plant and equipment | 15 | 504 | 534 |
| Investment in subsidiaries | 17 | 277 | 204 |
| Amount due from subsidiary undertakings | 25 | 123,920 | 106,417 |
| Deferred tax | 461 | 504 | |
| 125,162 | 107,659 | ||
| Current assets | |||
| Trade and other receivables | 18 | 9,533 | 17,949 |
| Tax receivable | 340 | ||
| Cash and cash equivalents | 19 | 63,307 | 118,990 |
| 73,180 | 136,939 | ||
| Total assets | 198,342 | 244,598 | |
| Current liabilities | |||
| Trade and other payables | 20 | 4,635 | 6,988 |
| Borrowing | 21 | 10,000 | |
| 4,635 | 16,988 | ||
| Non-current liabilities | |||
| Other liabilities | 20 | 433 | 248 |
| Borrowing | 21 | 80,000 | |
| 433 | 80,248 | ||
| Total liabilities | 5,068 | 97,236 | |
| Net assets | 193,274 | 147,362 | |
| Equity | |||
| Called up share capital | 24 | 477 | 304 |
| Share premium account | 24 | 198,242 | 129,837 |
| Retained earnings | (5, 445) | 17,221 | |
| Total Shareholders' funds | 193,274 | 147,362 | |
The loss recorded by the Company for the year was US\$7.1 million (2017: US\$16.2 million profit).
Signed on behalf of the Board of Directors
Sigurd Thorvildsen Director
| Share | Share | Retained | Total | |
|---|---|---|---|---|
| Capital | premium | earnings | equity | |
| US\$000 | US\$000 | US\$000 | US\$000 | |
| At 1 January 2017 | 304 | 129,837 | 96,926 | 227,067 |
| Total comprehensive profit for the year | 28,167 | 28,167 | ||
| Dividends paid | (24, 025) | (24, 025) | ||
| At 31 December 2017 | 304 | 129,837 | 101,068 | 231,209 |
| Equity issue as at 27 March 2018 | 161 | 64,776 | 64,937 | |
| Equity issue costs as at 27 March 2018 | $\overline{\mathcal{O}}$ | (1,017) | ۰ | (1,017) |
| Equity issue as at 22 June 2018 | 12 | 4,646 | 4,658 | |
| Total comprehensive loss for the year | ۲ | $\blacksquare$ | (22, 864) | (22, 864) |
| Dividends paid | (15, 533) | (15, 533) | ||
| At 31 December 2018 | 477 | 198.242 | 62,671 | 261,390 |
| Share | Share | Retained | Total | |
|---|---|---|---|---|
| capital | premium | Earnings | equity | |
| US\$000 | US\$000 | US\$000 | US\$000 | |
| At 1 January 2017 | 304 | 129,837 | 25,042 | 155,183 |
| Total comprehensive profit for the year | 16,204 | 16,204 | ||
| Dividends paid | ۰ | (24, 025) | (24, 025) | |
| At 31 December 2017 | 304 | 129,837 | 17,221 | 147,362 |
| Equity issue as at 27 March 2018 | 161 | 64,776 | 64,937 | |
| Equity issue costs as at 27 March 2018 | ۰ | (1,017) | ۰ | (1,017) |
| Equity issue as at 22 June 2018 | 12 | 4,646 | 4,658 | |
| Total comprehensive loss for the year | ÷ | ÷ | (7, 133) | (7, 133) |
| Dividends paid | $\blacksquare$ | $\blacksquare$ | (15, 533) | (15, 533) |
| At 31 December 2018 | 477 | 198,242 | (5, 445) | 193,274 |
| 2018 | 2017 | ||
|---|---|---|---|
| Notes | US\$000 | US\$000 | |
| Operating activities | |||
| (Loss)/Profit before tax | (21, 170) | 28,810 | |
| Adjustments to reconcile profit before tax to net cash flows: | |||
| Depreciation | 13,425 | 15,686 | |
| Impairment | 25,000 | 45,000 | |
| Net interest | 2,728 | 6,126 | |
| Share based payment | (260) | 301 | |
| Working capital adjustments: | |||
| Decrease in trade and other receivables | 8,092 | 101 | |
| Decrease in inventory | 36 | ||
| Decrease in prepayments and accrued revenue | 4,043 | 307 | |
| (Decrease) in trade and other payables | (3, 712) | (714) | |
| Interest paid | (4,671) | (7,097) | |
| Interest received | 1,943 | 792 | |
| Taxation refunded/(paid) | 2,494 | (5,481) | |
| Net cash flow from operating activities | 27,912 | 83,867 | |
| Investing activities | |||
| Purchase of property, plant and equipment | (46,378) | (626) | |
| Net cash flow used in investing activities | (46,378) | (626) | |
| Financing activities | |||
| Proceeds from issue of share capital | 69,595 | ||
| Equity issue costs | (1,017) | ||
| Payment of dividends | (15, 533) | (24, 025) | |
| Repayment of loans and bonds | 22 | (90,000) | (10,000) |
| Net cash flow used in financing activities | (36, 955) | (34, 025) | |
| Net increase/(decrease) in cash and cash equivalents | (55, 421) | 49,216 | |
| Cash and cash equivalents at beginning of year | 119,286 | 70,070 | |
| Cash and cash equivalents at end of year | 19 | 63,865 | 119,286 |
| 2018 | 2017 | ||
|---|---|---|---|
| Notes | US\$000 | US\$000 | |
| Operating activities | |||
| Loss before tax | (5,367) | (5,676) | |
| Adjustments to reconcile loss before tax to net cash flows: | |||
| Depreciation | 52 | 67 | |
| Net interest | 2,728 | 6,126 | |
| Share based payment | (260) | 301 | |
| Working capital adjustments: | |||
| Decrease/(increase) in prepayments | 324 | 205 | |
| Decrease/(increase) in trade receivables | (11, 547) | 87,890 | |
| Increase/(decrease) in trade and other payables | (1,908) | 757 | |
| Interest paid | (4,671) | (7,098) | |
| Interest received | 1,943 | 792 | |
| Net cash flows (used in)/from/ in operating activities | (18, 706) | 83,364 | |
| Investing activities | |||
| Purchase of property, plant and equipment | (22) | ||
| Net cash flows used in investing activities | (22) | ||
| Financing activities | |||
| Proceeds from issue of share capital | 69,595 | ||
| Equity issue costs | (1,017) | ||
| Dividends paid | (15, 533) | (24, 025) | |
| Repayment of bonds | 22 | (90,000) | (10,000) |
| Net cash flows used in financing activities | (36, 955) | (34, 025) | |
| Net increase/(decrease) in cash and cash equivalents | (55, 683) | 49,339 | |
| Cash and cash equivalents at beginning of year | 118,990 | 69,651 | |
| Cash and cash equivalents at end of year | 19 | 63,307 | 118,990 |
At 31 December 2018
The Group and Company financial statements of Awilco Drilling PLC for the year ended 31 December 2018 were authorised for issue by the Board of Directors on 27 March 2019. The Company is incorporated in the United Kingdom under the Companies Act 2006 and listed on the Oslo Bors stock exchange. The address of the registered office is given on page 1. The nature of the Group's operations and its principal activities are set out in the Strategic report.
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union as they apply to the financial statements of the Group for the year ended 31 December 2018 and applied in accordance with the provisions of the Companies Act 2006.
The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies.
Management has prepared cash flow forecasts for a period of 12 months from the balance sheet date. This demonstrates the ability of the Group to pay its debts as they fall due for at least the next 12 months. The Group has positive net assets in the Group statement of financial position.
On this basis, management has concluded that the Group will remain a going concern for at least 12 months from the day of approval of the financial statements and have therefore prepared the financial statements on a going concern basis.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of the assets and liabilities within the next financial year, are discussed below.
The Group's drilling rigs are being depreciated over their estimated useful lives of 20 years which commenced July 2011 on a straight line basis and assuming a US\$15 million residual value each. These estimates and associated assumptions have been assessed as reasonable by management against industry standards following the refurbishment work performed on the drilling rigs.
The carrying amount of the Group's rigs are reviewed at each balance sheet date to determine whether there is any indication of impairment, or more frequently if events or changes in circumstances indicate they might be impaired. The impairment test is based on management's best estimate of forecast future industry conditions and operations, future expected utilisation, contract rates, operating expenses and capital requirements of the rigs.
At 31 December 2018
The Group applied IFRS 15 and IFRS 9 for the first time. The nature and effect of the changes as a result of adoption of these new accounting standards are described below.
Several other amendments and interpretations apply for the first time in 2018, but do not have an impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued, but are not yet effective.
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.
The Group applied IFRS prospectively, with an initial application date of 1 January 2018. The Group has not restated the comparative information, which continues to be reported under IAS 39.
Under IFRS 9, debt instruments are subsequently measured at fair value through profit or loss, amortised cost, or fair value through OCI. The classification is based on two criteria: the Group's business model for managing the assets; and whether the instruments contractual cash flows represent 'solely payments of principal and interest' on the principal amounts outstanding.
The assessment of the Group's business model was made as of the date of initial application, 1 January 2018. The assessment of whether contractual cash flow on debt instruments are solely comprised of principal and interest based on the facts and circumstances as at the initial recognition of the assets.
The classification and measurement requirements of IFRS 9 did not have a significant impact to the Group. The Group continues measuring at fair value all financial assets previously held at fair value under IAS 39. The following are the changes in the classification of the Group's financial assets:
Trade receivables and other non-current financial assets classified as loans and receivables as at 31 December 2017 are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest. These are classified and measured as Debt instruments at amortised cost beginning 1 January 2018.
The Group has not designated any financial liabilities as at fair value through profit or loss. There are no changes in classification and measurement for the Group's financial liabilities.
In summary, upon the adoption of IFRS 9, the Group had the following required or elected reclassifications as at 1 January 2018.
| IFRS 9 measurement category | |||||
|---|---|---|---|---|---|
| Fair value through profit or loss |
Amortised cost |
Fair value through OCI |
|||
| IAS 39 measurement category | US\$000 | US\$000 | US\$000 | US\$000 | |
| Loans and receivables: | |||||
| Trade receivables | 9,075 | s | 9.075 | in 1999. |
The adoption of IFRS 9 has fundamentally changed the Group's accounting for impairment losses for financial assets by replacing IAS 39's incurred loss approach with a forward-looking expected credit loss (ECL) approach. IFRS 9 required the Group to recognise an allowance for ECL's for all debt instruments not held at fair value through profit or loss and contract assets.
At 31 December 2018
IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations and it applies, with limited exceptions, to all revenue arising from contracts with customers. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and required that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitles in exchange for transferring goods or services to a customer.
The Group adopted IFRS 15 using the modified retrospective method of adoption with the date of initial application of 1 January 2018. Under this method, the standard can be applied either to all contracts at the date of initial application or only to contracts that are not completed as this date. The Group elected to apply the standard to all contracts as at 1 January 2018.
There was no effect to the Group in applying IFRS 15 at 1 January 2018.
The following standards and amendments and interpretations to existing standards have been published and are mandatory for the Group's accounting period beginning on or after 1 January 2019 or later periods, but the Group has not early adopted them:
It is not anticipated that the application of these standards and amendments will have any material impact on the Group's financial statements with the exception of IFRS 16.
IFRS 16 requires lessees to account for all leases under a single on-balance sheet model in a similar way to finance leases under IAS 17. A right-of use asset and a corresponding lease liability will be recognised for all leases by the lessee except for short-term leases and leases of low value assets.
The Group has commitments under an operating lease in respect of land and buildings which meets the definition of a lease under IFRS 16.
Lessor accounting will not significantly change under the new standard. However, some differences may arise as a result of new guidance on the definition of a lease. Under IFRS 16 a contract is, or contains a lease if the contract conveys control of the use of an identified asset for a period of time in exchange for some form of consideration. The Group has concluded that there will be no impact on the treatment of the drilling rigs under long term contracts.
Additional disclosures will also be required under IFRS 16.
The Group plans to apply IFRS 16 initially on 1 January 2019 using the modified retrospective approach whereby the cumulative impact of adopting the standard will be recognised in retained earnings as of 1 January 2019 and the comparative periods will not be restated. The Group is still assessing the financial impact.
At 31 December 2018
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purpose of the cash flow statement, cash and cash equivalents are as defined above and net of outstanding bank overdrafts.
Rigs and equipment are stated at cost less depreciation and impairment losses. The cost of an asset comprises its purchase price and directly attributable cost of bringing the asset to its working condition. When it can be clearly demonstrated that subsequent expenditures have resulted in an increase in future economic benefits expected to be obtained from the use of the assets beyond their originally assessed standard of performance, the expenditure is capitalised as an additional cost of the asset. A component of an asset with a cost that is significant in relation to the total cost of the asset is depreciated separately. Components with a similar depreciation method and useful life are grouped together.
Depreciation is calculated using the straight-line method for each asset, after taking into account the estimated residual value, over its expected useful lives as follows:
| Semi-submersible rigs | 20 years | |
|---|---|---|
| Special periodical surveys | $\overline{\phantom{0}}$ | 5 years |
| Other fixtures and equipment | $\overline{\phantom{m}}$ | $3-5$ years |
Special periodical surveys are a five yearly thorough inspection and recertification of the hull and main machinery components of the rig, which also include class and flag state renewal and verification. The carrying values of plant and equipment are reviewed for impairment if carrying value may not be recoverable, and are written down immediately to their recoverable amount. Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset is included in the income statement in the period of derecognition.
Assets under construction are costs directly associated with constructing an asset. While the asset is being constructed, no depreciation is applied. Once an asset is ready for use, all associated costs are transferred to the relevant asset category and depreciated accordingly.
Revenue derived from charter-hire contracts or other service contracts is recognised in the period that services are rendered at rates established in the relevant contracts. Certain contracts include mobilisation fees payable at the start of the contract. In cases where the fee covers a general upgrade of a rig or equipment which increases the value of the rig or equipment beyond the contract period, the fee is recognised as revenue over the firm contract period whereas the investment is depreciated over the remaining lifetime of the asset. In cases where the fee covers specific upgrades or equipment specific to the contract, the mobilisation fees are recognized as revenue over the firm contract period.
Cost of sales includes rig operating costs and the depreciation cost for the two rigs.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.
Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise income tax is recognised in the income statement.
At 31 December 2018
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exception:
Deferred income tax assets are recognised only to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Items included in the financial statements of each of the Group's entities are measured using United States Dollars (US\$) "the functional currency". The Group financial statements are presented in US\$, which is the Company's functional currency and presentation currency and all values are rounded to the nearest thousand dollars (US\$000) except when otherwise indicated.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currency are recognized in the income statement. The principal foreign currencies used by the Group are Pounds Sterling (£ or GBP), Euro ( $\epsilon$ ) and Norwegian Kroner (NOK).
Basic earnings per share amounts are calculated by dividing net profit for the period attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.
Leases, where the lessor retains a significant portion of the risks and benefits of ownership of the asset are classified as operating leases and rentals payable are charged in the income statement on a straight-line basis over the lease term.
Financial assets are recognised when the Company becomes party to the contracts that give rise to them and are classified as financial assets at fair value through profit or loss or amortised cost, as appropriate. The Company determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end. When financial assets are recognised initially, they are measured at fair value, being the transaction price plus, in the case of financial asset not at fair value through profit or loss, directly attributable transaction costs.
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:
At 31 December 2018
When the Company has transferred its rights to receive cash flows from an asset or has entered into a passthrough arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred of the asset, the asset is recognised to the extent of the Company's continuing involvement in the asset. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Further disclosures relating to impairment of financial assets are also provided in Note 18.
The Group recognised an allowance for expected credit loss (ECL) for all debt instruments not held at fair value through profit or loss. ECL's are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. For trade receivables and contract assets, the Group applies a simplified approach in calculating ECL's. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECL's at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
Inventories of drilling equipment and spares for future integrated drilling service wells are stated at the lower of cost incurred and net realisable value. These inventory items include spare parts and supplies relating to the operation of the semi-submersible drilling rigs.
Trade receivables, which generally have 60 day terms, are recognised and carried at the lower of their original invoiced value and recoverable amount. Where the time value of money is material, receivables are carried at amortised cost.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Loans are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. Loans are subsequently measured at their amortised cost applying the effective interest rate method.
Finance charges on the loans are recognised as finance costs in the income statement.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.
At 31 December 2018
The Group uses derivative financial instruments, such as forward currency contracts, to hedge certain foreign currency risks. The derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. The Group does not designate any derivative financial instruments as hedges nor apply hedge accounting. Any gains or losses arising from changes in the fair value of derivatives are taken to the income statement.
The cost of cash settled transactions is measured initially at fair value at the grant date using a Black-Scholes model; further details are given in Note 27. This fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to and including the settlement date, with changes in fair value recognised in profit or loss for the period.
The pension plan in place is a defined contribution plan. Pension contributions are charged to the income statement as an expense in the period to which the contributions relate. Once the contributions have been paid, there are no further payment obligations.
Revenue represents the invoiced amount of services provided after the deduction of rebates and retrospective discounts. All items are stated net of value added tax.
The Group only has one segment - providing drilling services in the UK. As a result no further segmental information has been provided.
Annual revenue from two major customers amounted to US\$ 43 million and US\$ 13 million arising from the provision of drilling services (2017: US\$ 80 million and US\$ 52 million).
This is stated after charging
| 2018 | 2017 | |
|---|---|---|
| US\$000 | US\$000 | |
| Depreciation (Note 15) | 13.425 | 15,686 |
| Operating lease expense on land and buildings | 341 | 321 |
| Inventory used | 704 | 846 |
At 31 December 2018
The Group paid the following amounts to its auditors in respect of the audit of the financial statements and for other services provided to the Group.
| 2018 | 2017 | |
|---|---|---|
| US\$000 | US\$000 | |
| Audit of the financial statements | 94 | 98 |
| Local statutory audits of subsidiaries | 48 | 53 |
| Tax services - compliance | 31 | 36 |
| Tax services - advisory | 107 | 35 |
| 280 | 222 |
9.
| 2018 | 2018 | 2017 | 2017 | |
|---|---|---|---|---|
| Group US\$000 |
Company US\$000 |
Group US\$000 |
Company US\$000 |
|
| Wages and salaries | 15,122 | 3,497 | 14,893 | 3,195 |
| Pension costs | 780 | 136 | 788 | 115 |
| Social security costs | 2,126 | 594 | 2,177 | 646 |
| Long term incentive plan | 489 | 354 | 1,140 | 1,237 |
| 18.517 | 4,581 | 18,998 | 5,193 |
The above excludes directors' remuneration. The Company makes contributions to a defined contribution scheme for all eligible employees up to a maximum of 9% of salary. Contributions are charged to the income statement as incurred.
The average monthly number of employees during the year was made up as follows:
| 2018 | 2017 | |
|---|---|---|
| No. | No. | |
| Onshore, including management (Company) | 26 | 24 |
| Offshore | 116 | 117 |
| 142 | 141 | |
| Finance income | ||
| 2018 | 2017 | |
| US\$000 | US\$000 | |
| Bank interest | 1,943 | 792 |
At 31 December 2018
| US\$000 US\$000 Interest on loans and bonds 4,671 6,919 11. Foreign exchange 2018 2017 US\$000 US\$000 Gain on foreign exchange transactions 135 1,116 (Loss) on foreign exchange transactions (130) (175) Net (loss)/gain on foreign exchange transactions 5 941 12. Income tax (a) Income tax on profit on ordinary activities 2018 2017 US\$000 US\$000 UK corporation tax on the profit for the year Foreign tax on the profit for the year 66 80 Total current income tax 66 80 Amounts under/(over) provided in previous years 829 6 Tax credit available to the UK (113) Total current income tax 782 86 Deferred income tax: Origination and reversal of temporary differences 917 3,371 Amounts under/(over) provided in previous years (2, 417) Impact of changes in tax rates (5) (397) Total deferred income tax 912 557 Income tax charge in the Group statement of comprehensive income 1,694 643 (b) Reconciliation of the total income tax charge 2018 2017 US\$000 US\$000 (Loss)/Profit from continuing operations (21, 170) 28,810 Tax calculated at UK standard rate of corporation tax 19% (2017:19.25%) (4,022) 5,546 Expenses not deductible for tax purposes 38 48 Foreign tax suffered 66 80 Movement in unrecognised deferred tax asset 4,033 (2,217) Brought forward deferred tax assets unrecognised 868 Prior year adjustments 829 (2, 417) Changes in tax laws and rate (397) (5) Tax credit available to the UK (113) |
2018 | 2017 | |
|---|---|---|---|
| Income tax charge in the Group statement of comprehensive income | 1,694 | 643 |
At 31 December 2018
The income tax expense above is computed at profit before taxation multiplied by the effective rate of corporation tax in the UK of 19% (2017: 19.25%)
The deferred income tax included in the statement of financial position is as follows:
| 2018 | 2017 | |
|---|---|---|
| US\$000 | US\$000 | |
| Deferred tax liability | ||
| As at 1 January | (1,129) | |
| Temporary differences relating to property plant and equipment | ٠ | 1,129 |
| As at 31 December | ||
| Deferred tax asset | ||
| As at 1 January | 1,372 | 3,058 |
| Temporary differences relating to property plant and equipment | (868) | (1,714) |
| Postponement of capital allowances | ||
| Share-based payment | (43) | 28 |
| As at 31 December | 461 | 1,372 |
| Net deferred tax asset | 461 | 1,372 |
The main categories of deferred tax assets and liabilities recognised in the statement of financial position are as follows:
| Deferred tax asset US\$000 |
Deferred tax US\$000 |
Net recognised deferred tax liability asset/(liability) US\$000 |
|
|---|---|---|---|
| Share based payments | 461 | $\sim$ | 461 |
The Group has tax losses of US\$ 14.4 million which arose in the UK (2017: US\$ 14.3 million) that are available for offset against future taxable profits that are not part of the bareboat charter ring-fence arrangements. There are further taxable temporary differences relating to fixed assets of US\$ 26.9 million and US\$ 34 million of unutilised capital allowances. Deferred tax assets have not been recognised in respect of these losses or differences due to the uncertainty of future profits to this level.
At 31 December 2018
The following reflects the income and share data used in the basic and diluted earnings per share computations:
| 2018 | 2017 | |
|---|---|---|
| US\$000 | US\$000 | |
| (Loss)/Profit for the year attributable to equity share holders | (22, 864) | 28,167 |
| 2018 | 2017 | |
| No.000 | No.000 | |
| Weighted average number of ordinary shares for basic earnings per share | 44,221 | 30,032 |
Total earnings and weighted average number of shares outstanding during the year is the same as for diluted earnings per share.
| 2018 | 2017 | |
|---|---|---|
| US\$000 | US\$000 | |
| Declared and paid during the year: | ||
| Equity dividends on ordinary shares: | ||
| Total dividends per share for 2018 : US\$ 0.40 (2017: US\$ 0.80) | 15.533 | 24,025 |
| Dividends paid | 15.533 | 24.025 |
At 31 December 2018
| Semi Assets under | Special | Other | |||
|---|---|---|---|---|---|
| Group | submersible construction | purpose | fixtures and | ||
| drilling rigs | surveys | equipment | Total | ||
| US\$000 | US\$000 | US\$000 | US\$000 | US\$000 | |
| Cost: | |||||
| At 1 January 2017 | 333,972 | 16,114 | 1,899 | 351,985 | |
| Additions | 578 | 49 | 627 | ||
| At 31 December 2017 | 334,550 | 16,163 | 1,899 | 352,612 | |
| Additions | 1,976 | 44,384 | 22 | 46,382 | |
| Disposals | (4) | (12) | (16) | ||
| At 31 December 2018 | 336,526 | 44,384 | 16,159 | 1,909 | 398,978 |
| Depreciation: | |||||
| At 1 January 2017 | (110,261) | (1, 558) | (1,298) | (113, 117) | |
| Provided | (12, 502) | (3, 117) | (67) | (15,686) | |
| Impairment | (45,000) | (45,000) | |||
| At 31 December 2017 | (167, 763) | ÷. | (4, 675) | (1, 365) | (173, 803) |
| Provided | (9,679) | (3,694) | (52) | (13, 425) | |
| Impairment | (25,000) | (25,000) | |||
| Disposals | (1) | 12 | 11 | ||
| At 31 December 2018 | (202, 442) | ۰ | (8,370) | (1, 405) | (212, 217) |
| Net book value: | |||||
| At 31 December 2018 | 134,084 | 44,384 | 7,789 | 504 | 186,761 |
| At 31 December 2017 | 166,787 | 11,488 | 534 | 178,808 | |
At 31 December 2018
| Company | Office Equipment US\$000 |
Other fixtures and equipment US\$000 |
Total US\$000 |
|---|---|---|---|
| Cost: | |||
| At 1 January 2017 | 1,207 | 691 | 1,898 |
| Additions | |||
| Transfer | (64) | 52 | (12) |
| At 31 December 2017 | 1,143 | 743 | 1,886 |
| Additions | 22 | 22 | |
| At 31 December 2018 | 1,143 | 765 | 1,908 |
| Depreciation: | |||
| At 1 January 2017 | (610) | (687) | (1, 297) |
| Provided | (44) | (23) | (67) |
| Transfer | 33 | (21) | 12 |
| At 31 December 2017 | (621) | (731) | (1, 352) |
| Provided | (44) | (8) | (52) |
| At 31 December 2018 | (665) | (739) | (1, 404) |
| Net book value: | |||
| At 31 December 2018 | 478 | 26 | 504 |
| At 31 December 2017 | 523 | 11 | 534 |
The Group has recognised US\$ 25 million (2017: US\$ 45 million) as an impairment loss.
A value in use assessment has been performed which resulted in a combined recoverable amount of US\$ 153.9 million being US\$ 94.6 million for WilPhoenix and US\$ 59.3 million for WilHunter. Due to the erosion of the contract backlog and the continued weakness of the UK and global drilling market an impairment adjustment was required. This calculation was based on management's best estimate of forecast future industry conditions and operations, future expected utilisation, contract rates, opex and capital requirements of the rigs.
The analysis has been prepared on both rigs separately, as due to the cold stack status of the WilHunter, the cash inflows are forecast as being generated independently of each other. The post-tax discount rate used is 10.6%.
The assumptions used are subject to significant judgement and there is a certain amount of uncertainty to the outcome of these assumptions. Due to this uncertainty, the Group has performed a sensitivity analysis of the main assumptions for the rigs as follows:
At 31 December 2018
| WilPhoenix | WilHunter | ||
|---|---|---|---|
| Category | Sensitivity | US\$000 | US\$000 |
| Post tax discount: | Increase by 1% | (5,210) | (3,402) |
| Decrease by 1% | 5,645 | 3,742 | |
| Revenue: | Increase by 5% | 9,468 | 11,418 |
| Decrease by 5% | (9, 468) | (11, 418) | |
| Utilisation: | Increase by 2% | 3,787 | 4,933 |
| Decrease by 2% | (3,787) | (4,933) | |
| Opex costs: | Increase by 6% | (8, 568) | (7,074) |
| Decrease by 10% | 14,280 | 11,790 | |
| 17. Investments | |||
| Company | Company | ||
| 2018 | 2017 | ||
| US\$000 | US\$000 | ||
| Company shares in subsidiary undertakings | |||
| At 1 January | 204 | 204 | |
| Investment in year | 75 | ||
| Disposal in year | (2) |
At incorporation, the Company acquired WilPhoenix (UK) Ltd and WilHunter (UK) Ltd as newly incorporated companies. During 2011 the Company acquired WilPhoenix (Malta) Limited, WilHunter (Malta) Limited, both incorporated in Malta. Their registered address is 3 Macerata Street, Malta. During the year, the Company disposed of the holding in WilPhoenix (Malta) Ltd as the company was liquidated.
The Company also acquired Awilco Drilling Pte. Ltd. incorporated in Singapore. Its registered address is 8 Wilkie Road, Singapore. During the year, the Company also increased its holding in Awilco Drilling Pte. Ltd.
At 31 December
| Group | Company | Group | Company | |
|---|---|---|---|---|
| 2018 | 2018 | 2017 | 2017 | |
| US\$000 | US\$000 | US\$000 | US\$000 | |
| Trade receivables | 9,075 | 9.075 | 17,168 | 17,168 |
| Prepayments and other receivables | 1.311 | 261 | 1,570 | 637 |
| Accrued revenue | 1.355 | $\mathcal{D}$ | 5,191 | $\blacksquare$ |
| VAT receivable | 197 | 197 | 144 | 144 |
| 11,938 | 9.533 | 24,073 | 17.949 |
277
204
At 31 December 2018
As at 31 December, the analysis of ageing of trade receivables is as follows: Group
| Neither past due nor impaired |
Past due but not impaired | |||
|---|---|---|---|---|
| Total | $<$ 60 days | $60 - 90$ days | $90 + days$ | |
| US\$000 | US\$000 | US\$000 | US\$000 | |
| 2018 | 9,075 | 9,067 | ÷ | 8 |
| Neither past due nor impaired |
Past due but not impaired | |||
| Total | $<$ 30 days | $30-60$ days | $60-90$ days | |
| US\$000 | US\$000 | US\$000 | US\$000 | |
| 2017 | 17,168 | 6,531 | 10,638 | (1) |
During 2018, the contract payment terms have increased to 60 days from 30 days in the previous year.
Company
| Neither past due nor impaired |
Past due but not impaired | |||
|---|---|---|---|---|
| Total | $<60$ days | $60-90$ days | $90 + days$ | |
| US\$000 | US\$000 | US\$000 | US\$000 | |
| 2018 | 9,075 | 9,067 | ٠ | 8 |
| Neither past due nor impaired |
Past due but not impaired | |||
| Total | $<$ 30 days | $30-60$ days | $60-90$ days | |
| US\$000 | US\$000 | US\$000 | US\$000 | |
| 2017 | 17,168 | 6,531 | 10,638 | (1) |
At 31 December 2018
| Group | Company | Group | Company | |
|---|---|---|---|---|
| 2018 | 2018 | 2017 | 2017 | |
| US\$000 | US\$000 | US\$000 | US\$000 | |
| Cash at bank and in hand | 63,865 | 63,307 | 119,286 | 118,990 |
Cash at bank earns interest at floating rates based on daily bank deposit rates. The Company has restricted cash of US\$1.3 million (2017: US\$ 1.0 million) in relation to margin security for foreign exchange forward contracts (see Note 26).
| Group | Company | Group | Company | |
|---|---|---|---|---|
| 2018 | 2018 | 2017 | 2017 | |
| US\$000 | US\$000 | US\$000 | US\$000 | |
| Trade and other payables: | ||||
| Current | 6,284 | 4,635 | 9,006 | 5,553 |
| Interest payable | G. | 1,435 | 1,435 | |
| 6,284 | 4,635 | 10,441 | 6,988 | |
| Non-current | 433 | 433 | 248 | 248 |
| Group & | $Group \&$ | |
|---|---|---|
| Company | Company | |
| 2018 | 2017 | |
| US\$000 | US\$000 | |
| Current borrowings: | ||
| Bond (see below) | 10,000 | |
| Total current borrowings | 10,000 | |
| Non-current borrowings: | ||
| Bond (see below) | 80,000 | |
| Total non-current borrowings | 80,000 | |
| Total borrowings | 90,000 |
During April 2014, the Company successfully issued a US\$125 million secured bond in the Norwegian bond market with maturity in April 2019. The purpose of the bond was to refinance the existing Transocean seller's credit debt and for general corporate purposes. Settlement date of the bond was 9 April 2014 and it was issued with an interest rate of 7%. Repayment terms were US\$5 million bi-annually with a final bullet repayment of US\$80 million in April 2019. The bond was settled in full on 28 June 2018.
At 31 December 2018
| Group & | Group & | |
|---|---|---|
| Company | Company | |
| 2018 | 2017 | |
| US\$000 | US\$000 | |
| Bond and loans repayment: | ||
| Within one year | ÷. | 10,000 |
| In two to five years | n. | 80,000 |
| 90,000 |
The table below sets out an analysis of the changes in liabilities from financing activities:
| 1 January 2018 |
Cash flows |
Non Cash Changes | 31 December 2018 |
|||
|---|---|---|---|---|---|---|
| US\$000 | US\$000 | Acquisition | FX movement |
Fair Value Changes |
US\$000 | |
| Short Term Borrowings |
10,000 | (10,000) | $\mathcal{H}_{\mathcal{A}}$ | ۰ | ||
| Long Term Borrowings |
80,000 | (80,000) | $\blacksquare$ | × | ۰ | |
| Total | 90,000 | (90,000) | ÷. | × | ÷. |
At 31 December 2018 the Group had future minimum lease payments under non-cancellable operating leases as set out below:
| Group | Company | Group | Company | |
|---|---|---|---|---|
| 2018 | 2018 | 2017 | 2017 | |
| US\$000 | US\$000 | US\$000 | US\$000 | |
| Payments due under operating lease for land and buildings: |
||||
| Within one year | 318 | 318 | 338 | 338 |
| After one year but not more than five years | 1.271 | 1,271 | 1.351 | 1,351 |
| Over five years | 229 | 229 | 581 | 581 |
| 1,818 | 1,818 | 2,270 | 2,270 |
There were capital commitments of US\$ 386.6 million at 31 December 2018 (2017: US\$1.8 million) which includes US\$384.9 million in respect of the new build rig.
At 31 December 2018
| Group and Company | ||||
|---|---|---|---|---|
| 2018 | 2017 | |||
| Authorised | No.000 | No.000 | ||
| Ordinary shares of £0.0065 each | 49,032 | 30,032 | ||
| Group and Company | ||||
| 2018 | 2018 | 2017 | 2017 | |
| Allotted called up and fully paid | No.000 | US\$000 | No.000 | US\$000 |
| At 1 January | 30,032 | 304 | 30,032 | 304 |
| Issued on 27 March 2018 | 17,600 | 161 | ۰ | |
| Issued on 22 June 2018 | 1,400 | 12 | ||
| At 31 December | 49,032 | 477 | 30,032 | 304 |
Group and Company
| 2018 | 2017 | |
|---|---|---|
| Share | Share | |
| premium | premium | |
| account | account | |
| US\$000 | US\$000 | |
| At 1 January | 129,837 | 129,837 |
| Share premium on shares issued on 27 March 2018 | 63,759 | |
| Share premium on shares issued on 22 June 2018 | 4,646 | |
| At 31 December | 198,242 | 129.837 |
The financial statements include the financial statements of the Group and the subsidiaries listed below:
| Country of | ||
|---|---|---|
| Name | Incorporation | % Interest |
| WilPhoenix (UK) Ltd | United Kingdom | 100 |
| WilHunter (UK) Ltd | United Kingdom | 100 |
| WilPhoenix (Malta) Ltd (liquidated) | Malta | 100 |
| WilHunter (Malta) Ltd | Malta | 100 |
| Awilco Drilling Pte. Ltd. | Singapore | 100 |
| Awilco Rig 1 Pte. Ltd | Singapore | 100 |
| Awilco Rig 2 Pte. Ltd | Singapore | 100 |
| Awilco Rig 3 Pte. Ltd | Singapore | 100 |
| Awilco Rig 4 Pte. Ltd | Singapore | 100 |
During the year the Group entered into transactions, in the ordinary course of business, with Awilhelmsen Offshore AS, which is a major shareholder through its subsidiaries.
At 31 December 2018
Transactions entered into and trading balances outstanding at 31 December 2018 with Awilhelmsen AS and its subsidiaries are as follows:
| 2018 | 2017 | |
|---|---|---|
| US\$000 | US\$000 | |
| Purchase of management services | 2.941 | 1.908 |
| Share based payment | (22) | (64) |
| Amounts owed to Awilhelmsen AS and its subsidiaries | (226) | (208) |
Sales and purchases between related parties are made at normal market prices. Outstanding balances are unsecured, interest free and cash settlement terms vary between 30 and 90 days. The Company has not provided or benefitted from any guarantees for any related party receivables or payables. The Company has not made any provision for doubtful debts relating to amounts owed by related parties.
The remuneration of directors and other key management personnel of the Group is as follows
| 2018 | 2017 | |
|---|---|---|
| US\$000 | US\$000 | |
| Short-term employee benefits | 1.792 | 1.697 |
| Share-based payment | 390 | 1,261 |
| Other long-term benefits | 104 | 107 |
Included in the short-term employee benefits are director's emoluments of GBP 460,000 (2017: GBP 460,000). Six directors received remuneration in respect of their services to the Company during the year (2017: six). The highest paid director was Jon Bryce – please refer to the Directors' remuneration report on page 23 for further details.
Company
The Company entered into the following transactions and had the following balances with its wholly owned subsidiaries
At 31 December 2018
| 2018 | 2017 | |
|---|---|---|
| Transactions: | US\$000 | US\$000 |
| Amounts invoiced to WilPhoenix (UK) Ltd in respect of services provided to | ||
| the company | 34,369 | 37,195 |
| Amounts invoiced on behalf of WilPhoenix (UK) Ltd | (60, 498) | (132,717) |
| Amounts invoiced to WilHunter (UK) Ltd in respect of services provided to | ||
| the company | 1,687 | |
| Settlement of balance with WilPhoenix (UK) Ltd | 417,653 | |
| Settlement of balance with WilHunter (UK) Ltd | 179,145 | |
| Settlement of balance with Awilco Drilling Pte. Ltd | (9,632) | |
| Settlement of balance with WilPhoenix (Malta) Ltd | (308, 623) | |
| Settlement of balance with WilHunter (Malta) Ltd | (278, 541) | |
| Amounts invoiced to WilPhoenix (Malta) Ltd in respect of services provided | ||
| to the company | (20) | |
| Amounts invoiced to WilHunter (Malta) Ltd in respect of services provided | ||
| to the company | (19) | |
| Invoiced to Awilco Drilling Pte. Ltd. | 180 | 195 |
| Transfer of funds to/(from) Awilco Drilling Pte. Ltd. | 1,457 | (328) |
| Amounts invoiced to Awilco Rig 1 Pte. Ltd. in respect of services provided | ||
| to the company Taxation paid on behalf of subsidiaries |
43,256 | |
| Dividends received from WilPhoenix (Malta) Ltd | 91 | 27,333 |
| Dividends received from WilHunter (Malta) Ltd | 236 | |
| 501 | ||
| Increase Share Capital with Awilco Drilling Pte. Ltd | (75) | |
| 18,782 | (65, 937) | |
| Balance: | ||
| Amounts receivable from/(payable to) WilPhoenix (UK) Ltd | 84,941 | (306, 583) |
| Amounts payable to WilHunter (UK) Ltd | (100) | (179, 245) |
| Amounts receivable from WilPhoenix (Malta) Ltd | ÷. | 278,541 |
| Amounts (payable to)/receivable from WilHunter (Malta) Ltd | (2) | 308,621 |
| Amounts (payable to)/receivable from Awilco Drilling Pte. Ltd. | (2,896) | 5,083 |
| Amounts receivable from Awilco Rig 1 Pte. Ltd | 43,256 | |
| 125,199 | 106,417 | |
| Allowance for expected credit loss | (1, 279) | |
| 123,920 | 106,417 | |
| Set out below is the movement in the allowance for expected credit losses of intercompany receivables: | ||
| 2018 | 2017 | |
| US\$000 | US\$000 | |
| As at 1 January | ||
| Provision for expected credit loss | (1,279) | |
| As at 31 December | (1,279) |
Expected credit loss triggered due to lower contract rates and an idle period in the year for the WilPhoenix
At 31 December 2018
Awilhelmsen Offshore AS, owns 37.1% of the ordinary shares in Awilco Drilling PLC.
The Group's and the Company's principal financial liabilities comprise loans, trade and other payables. The main purpose of these financial liabilities is to finance the Group's operations. The Group has trade and other receivables, and cash and short-term deposits that arrive directly from its operations.
Management has assessed the fair values of the financial instruments are generally approximate to the carrying values except foreign exchange contracts which are carried at fair value.
The Group and the Company are exposed to market risk, credit risk and liquidity risk.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises foreign currency risk. Financial instruments affected by market risk are trade payables and accruals.
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group's and Company's exposure to the risk of changes in foreign exchange rates relates primarily to the Group's and Company's operating activities (when expenses are denominated in a different currency from the Company's functional currency).
The Group manages its foreign currency risk by holding cash in the foreign currency required to settle foreign current liabilities, unless the Group has insufficient cash resources available, in which case, it enters into hedging transactions for significant foreign currency commitments.
At the balance sheet date, the Group held GBP1.0 million in trade and other payables (2017: GBP1.7) million). A 5% strengthening or weakening of US\$ to GBP would have an effect of US\$ 0.1 million on the Group 2018 result (2017: US\$0.1 million). The Group has no other material currency exposures.
Credit risk is the risk that a counter party will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables). The Company has credit risk due to its receivables from subsidiary undertakings and from external clients.
Management assess the credit rating of new and existing clients and determine if any action is required to secure the financial security in respect of work performed.
The Group's objective is to maintain sufficient liquidity in order to support the needs of the business and meet the repayments of the debt and commitments as they fall due. In order to achieve this, the Group also has the prospect of issuing new equity or entering into new borrowing arrangements.
At 31 December 2018
The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments.
| Group | Less than 3 months |
3 to 12 months |
1-5 years |
Total |
|---|---|---|---|---|
| Interest bearing loans | $\overline{\phantom{a}}$ | 11.715 | 85,775 | 97,490 |
| Trade and other payables | 7,884 | 2,557 | 248 | 10,689 |
| At 31 December 2017 | 7,884 | 14,272 | 86,023 | 108,179 |
| Trade and other payables | 4.318 | 1,966 | 433 | 6,717 |
| At 31 December 2018 | 4.318 | 1.966 | 433 | 6,717 |
The table below summarises the maturity profile of the Company's financial liabilities based on contractual undiscounted payments.
| Company | Less than 3 months |
3 to 12 months |
$1 - 5$ years |
Total |
|---|---|---|---|---|
| Interest bearing loans | 11,715 | 85,775 | 97,490 | |
| Trade and other payables | 4,850 | 703 | 248 | 5,801 |
| At 31 December 2017 | 4,850 | 12,418 | 86,023 | 103,291 |
| Trade and other payables | 3.580 | 1.055 | 433 | 5,068 |
| At 31 December 2018 | 3,580 | 1,055 | 433 | 5,068 |
The table below summaries the carrying amounts and fair values of the Group's financial assets and liabilities.
| Group | 2018 US\$000 |
2017 US\$000 |
2018 US\$000 |
2017 US\$000 |
|---|---|---|---|---|
| Book Value | Book Value | Fair Value | Fair Value | |
| Financial assets | ||||
| Amortised Cost | ||||
| Trade receivables | 9.075 | 17,168 | 9,075 | 17,168 |
| Prepayment and other receivables | 1,311 | 1,570 | 1,311 | 1,570 |
| Accrued revenue | 1,355 | 5,191 | 1,355 | 5,191 |
| VAT receivable | 197 | 144 | 197 | 144 |
| Current tax receivable | 340 | 227 | 340 | 227 |
| Cash and cash equivalents | 63,865 | 119,286 | 63,865 | 119,286 |
| Total financial assets | 76,143 | 143,586 | 76,143 | 143,586 |
At 31 December 2018
Fair value of financial assets and financial liabilities (continued)
| 2018 US\$000 Book Value |
2017 US\$000 Book Value |
2018 US\$000 Fair Value |
2017 US\$000 Fair Value |
|
|---|---|---|---|---|
| Financial liabilities | ||||
| Interest bearing debt | ||||
| Non-current portion | 80,000 | 늘 | 80,828 | |
| Current portion | w. | 10,000 | ÷ | 10.104 |
| Trade and other payables | 6,717 | 9,254 | 6,717 | 9,254 |
| Interest payable | ۳ | 1,435 | ۳ | 1,435 |
| Current tax payable | 66 | 4,170 | 66 | 4,170 |
| Fair value through profit and loss | ||||
| Foreign exchange contracts | 172 | 123 | 172 | 123 |
| Total financial liabilities | 6.955 | 104.982 | 6.955 | 105.914 |
The table below summaries the carrying amounts and fair values of the Company's financial assets and liabilities.
| Company | 2018 | 2017 | 2018 | 2017 |
|---|---|---|---|---|
| US\$000 | US\$000 | US\$000 | US\$000 | |
| Book Value | Book Value | Fair Value | Fair Value | |
| Financial assets | ||||
| Amortised Cost | ||||
| Trade receivables | 9,075 | 17,168 | 9,075 | 17,168 |
| Prepayment and other receivables | 261 | 637 | 261 | 637 |
| VAT receivable | 197 | 144 | 197 | 144 |
| Cash and cash equivalents | 63,307 | 118,990 | 63,307 | 118,990 |
| Total financial assets | 72,840 | 136.939 | 72,840 | 136,939 |
An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The calculation reflects the probability weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.
At 31 December 2018
Fair value of financial assets and financial liabilities (continued)
| 2018 US\$000 Book Value |
2017 US\$000 Book Value |
2018 US\$000 Fair Value |
2017 US\$000 Fair Value |
|
|---|---|---|---|---|
| Financial liabilities | ||||
| Trade and other payables Interest payable Interest bearing debt |
5,068 | 5,801 1,435 |
5,068 ۰ |
5,801 1,435 |
| Non-current portion | a, | 80,000 | W. | 80,828 |
| Current portion Fair value through profit and loss |
10.000 | ۰ | 10,104 | |
| Foreign exchange contracts | 172 | 123 | 172 | 123 |
| Total financial liabilities | 5.240 | 97.359 | 5,240 | 98.291 |
Capital includes called up share capital, share premium and retained earnings.
The Company's intention is to pay dividends in support of its main objective to maximise returns to shareholders. All of the Company's free cash flow is intended to be distributed subject to maintaining a robust cash buffer to support operational working capital requirements and planned capital expenditure. Consideration is also given to future market prospects. With the ordering of two new-build high-end semisubmersible rigs, plus an agreement for a further two independent rig options, the Company is in growth and investment phase. Dividend payments have been suspended and will resume when the Company again reaches an appropriate free cash flow situation.
The Company's capital is monitored at a Group level. The Group monitors capital using a gearing ratio, which is net debt divided by total shareholders' funds plus net debt. The Group includes within net debt, bonds and loans less cash and cash equivalents.
| 2017 |
|---|
| US\$000 |
| 90,000 |
| (119, 286) |
| (29, 286) |
| 231,209 |
| 201,923 n/a |
At 31 December 2018
A long term incentive plan for the Executive Director and other key management personnel, with a total limit of up to 4% of the Company's issued share capital was approved at the Annual General Meeting on 26 June 2013. The awards for the years 2010 and 2012 are now fully exercised. There are still outstanding amounts under the 2014, 2015 and 2016 plans.
The plan "vests" after three years and the exercise period is five years subject to the employee remaining employed by the Company with the exception of the 2016 plan which "vests" after four years.
All share options and awards are cash settled.
The following table list the inputs to the model used for these valuations (share prices are in NOK).
| Group and Company |
2018 | 2017 | ||||||
|---|---|---|---|---|---|---|---|---|
| 2013 Plans |
2014 Plans |
2015 Plans |
2016 Plans |
2013 Plans |
2014 Plans |
2015 Plans |
2016 Plans |
|
| Exercise price | ÷ | ÷, | ۰ | ٠ | ۰ | |||
| Share price | 28.0 | 28.0 | 28.0 | 28.0 | 32.30 | 32.30 | 32.30 | 32.30 |
| Expected life | ä, | a. | $\overline{\phantom{a}}$ | 1.88 years |
u, | У. | 0.88 years |
2.88 years |
| Volatility | ×. | 96) | $\overline{\phantom{a}}$ | 47% | ¥ | ä. | 44% | 49% |
| Risk free interest rate |
÷. | з, | ÷. | 1.07% | ψ | ÷. | 0.46% | $0.77\%$ |
| Model used | Black-Scholes |
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, share options and awards during the year.
| Group | 2018 | 2018 | 2017 | 2017 |
|---|---|---|---|---|
| No. | WAEP (NOK) | No. | WAEP (NOK) | |
| Outstanding as at 1 January | 940,031 | × | 632,827 | 1.86 |
| Granted during the year | 83,026 | $\overline{\phantom{a}}$ | 601,172 | $\overline{\overline{z}}$ |
| Exercised during the year | (144, 040) | $\overline{\phantom{a}}$ | (290, 321) | ÷ |
| Forfeited during the year | $\overline{\phantom{a}}$ | $\overline{\phantom{a}}$ | (3,647) | ā. |
| Adjusted during the year | ÷. | $\sim$ | э. | Ξ. |
| Outstanding at 31 December | 879,017 | 940.031 | ۳. | |
| Exercisable at 31 December | 637,263 | $\blacksquare$ | 462,450 | W. |
All shares with a strike price have been exercised.
At 31 December 2018
Long Term Incentive Plan
| Company | 2018 | 2018 | 2017 | 2017 |
|---|---|---|---|---|
| No. | WAEP (NOK) | No. | WAEP (NOK) | |
| Outstanding as at 1 January | 775,649 | $\overline{\phantom{a}}$ | 397,329 | 2.96 |
| Granted during the year | 68,930 | $\ddot{}$ | 554,816 | |
| Exercised during the year | (19, 273) | $\frac{1}{2}$ | (172, 849) | |
| Forfeited during the year | ÷. | $\frac{1}{2}$ | (3,647) | |
| Adjusted during the year | $\cdot$ | $\rightarrow$ | ٠ | |
| Outstanding at 31 December | 825,306 | $\sim$ | 775,649 | |
| Exercisable at 31 December | 583,552 | ۰ | 388,492 | ۰. |
The estimated fair value of the granted share options and awards are reached on the basis of the "Black-Scholes option pricing model". The model is applied utilising a risk free discount rate and also taking into account the terms and conditions upon which the options and awards are granted as well as the performance conditions that are required to be satisfied before vesting. The weighted average remaining contractual life at 31 December 2018 is 1.88 years. The Group total share option and award credit amounted to US\$0.3 million (2017: US\$ 0.3 million charge). The carrying amount of the liability relating to the cash-settled options at 31 December 2018 is US\$ 2.8 million (2017: US\$3.0 million).
The Company only total share option and award charge amounted to US\$0.3 million (2017: US\$0.8 million). The carrying amount of the liability relating to the cash-settled options at 31 December 2018 is US\$ 2.6 million (2017: \$2.2 million).
The table below summaries the carrying amount of the liability
| Group | Less than 3 months |
3 to 12 months | $1 - 5$ years | Total |
|---|---|---|---|---|
| Share options and awards | 1,266 | 1,061 | 433 | 2,760 |
| At 31 December 2018 | 1.266 | 1,061 | 433 | 2,760 |
| Company | Less than 3 months |
3 to 12 months | $1 - 5$ years | Total |
| Share options and awards | 1,076 | 1,055 | 433 | 2,564 |
| At 31 December 2018 | 1,076 | 1.055 | 433 | 2,564 |
At 31 December 2018
| 2018 | 2017 | |
|---|---|---|
| US\$000 | US\$000 | |
| Foreign exchange contracts | (172) | (123) |
The foreign currency forwards were entered into in order to minimise the Company's exposure to losses resulting from fluctuations in foreign currency exchange rates. The fair value of the forward exchange contracts, as shown above, is recorded as other income in the statement of comprehensive income and classified as other receivables in the statement of financial position. Forward currency exchange contracts fair value was determined using quoted forward exchange rates matching the maturities of the contracts.
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
In March 2019, the Company appointed a new Chief Executive Officer, Mr Jens Berge, to succeed Mr Jon Oliver Bryce. Mr Berge will assume his new position no later than 4th June 2019.
Also in March 2019, the Company declared its first option with Keppel FELS shipyard in Singapore for the building of one new CS60 ECO MW semi-submersible drilling rig. The rig will be similar to the rig contracted in March 2018. The cost for the rig delivered from the yard is approximately USD 425 million with delivery planned for March 2022. Two additional options remain, such options being independent of each other.
In connection with the rig option declaration, the Company successfully completed a Private Placement of 5,550,000 shares at a subscription price of NOK 31.80, raising gross proceeds of approximately USD 20 million. The Company also intends to carry out a subsequent offering of up to 800,000 new shares, for gross proceeds of up to approximately USD 3 million.
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