Capital Regulatory News (CAPD)

H1 2018

H1 2017

Average Fleet Size (No. of drill rigs)

94

93

Fleet Utilisation (%)

46

56

ARPOR ($)

200,000

191,000

Capex ($ m)

4.7

4.2

Revenue ($ m)

54.5

62.3

EBITDA1 ($ m)

12.5

11.6

EBIT1 ($ m)

5.8

5.2

Net Profit After Tax ($ m)

2.8

2.6

Cash From Operations ($ m)

7.2

13.1

Earnings per Share

Basic (cents)

2.0

1.9

Diluted (cents)

2.0

1.9

Interim Dividend per Share (cents)

0.6

0.5

Net Asset Value per Share1 (cents)

52.2

50.3

Return on Capital Employed (%)**

17.7

5.1

Return on Total Assets (%)**

11.8

3.6

Net Cash1 ($ m)

3.4

3.3

Net Cash/Equity (%)

4.7

4.9

*All amounts are in USD unless otherwise stated

** Twelve months rolling average

CAPITAL DRILLING LIMITED

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2018

Six months ended

Notes

30 June 2018

30 June 2017

 $

 $

Revenue

54,476,675

62,332,410

Cost of sales

(33,687,558)

(44,898,001)

Gross profit

20,789,117

17,434,409

Administration costs

(8,281,941)

(5,808,075)

Depreciation

(6,714,923)

(6,392,131)

Profit from operations

5,792,253

5,234,203

Share of (loss) income from associate

(246,441)

5,213

Interest income

59,866

137,264

Finance charges

(533,081)

(543,557)

Realised loss on disposal of fair value through other comprehensive income shares

(49,225)

(183,495)

Fair value adjustment on financial assets through profit and loss - Share Options

(47,236)

(123,989)

Profit before taxation

4,976,136

4,525,639

Taxation

3

(2,208,150)

 (1,945,364)

Profit for the period

2,767,986

2,580,275

Other comprehensive (loss) income:

Other comprehensive (loss) income to be reclassified to profit or loss in subsequent periods:

Exchange differences on translation of foreign operations

18,510

38,454

Share of exchange differences on translation of foreign operations from associate

(22,559)

(25,932)

Fair value through other comprehensive income shares

(658,802)

(369,336)

Cumulative gain reclassified to profit and loss on sale of fair value through other comprehensive income shares

49,225

183,495

Total other comprehensive loss for the period

(613,626)

(173,319)

Total comprehensive income for the period

2,154,360

2,406,956

Earnings per share:

Basic (cents per share)

6

2.0

1.9

Diluted (cents per share)

6

2.0

1.9

CAPITAL DRILLING LIMITED

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 June 2018

Audited

Notes

30 June 2018

31 December 2017

 $

 $

ASSETS

Non-current assets

Property, plant and equipment

8

39,678,523

41,405,764

Investment in associate

9

2,499,805

2,750,295

Deferred taxation

26,843

7,297

Total non-current assets

42,205,171

44,163,356

Current assets

Inventory

20,817,422

21,691,569

Trade and other receivables

18,286,259

16,554,256

Prepaid expenses and other assets

4,518,709

2,863,167

Taxation

27,065

136,590

Investments

2,435,764

3,260,331

Cash and cash equivalents

15,380,570

16,911,383

Total current assets

61,465,789

61,417,296

Total assets

103,670,960

105,580,652

EQUITY AND LIABILITIES

Equity

Share capital

10

13,581

13,524

Share premium

10

22,231,662

21,933,772

Equity-settled employee benefits reserve

307,828

432,476

Foreign currency translation reserve

(22,559)

(18,510)

Investments revaluation reserve

(736,166)

(126,589)

Retained earnings

48,961,853

47,823,617

Total equity

70,756,199

70,058,290

Non-current liabilities

Long-term liabilities

11

12,000,000

12,000,000

Deferred taxation

21,952

-

Total non-current liabilities

12,021,952

12,000,000

Current liabilities

Trade and other payables

16,495,420

19,731,133

Taxation

4,365,026

3,749,644

Current portion of long-term liabilities

11

32,363

41,585

Total current liabilities

20,892,809

23,522,362

Total equity and liabilities

103,670,960

105,580,65

CAPITAL DRILLING LIMITED

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

30 June 2018

Reserves

Share capital

Share premium

Retained earnings

Equity-settled employee benefits reserve

Foreign currency translation reserve

Investments revaluation reserve

Total equity

 $

 $

 $

 $

 $

 $

 $

Balance at 31 December 2016 - Audited

13,490

21,697,470

44,639,236

441,883

(38,454)

(36,920)

66,790,545

Issue of shares

34

236,302

-

(236,336)

-

-

-

Recognition of share-based payments

-

-

-

118,314

-

-

118,314

Total comprehensive income (loss) profit for the period

-

-

2,580,275

-

12,522

(185,841)

2,406,956

-

Profit for the period

-

-

2,580,275

-

-

- 

2,580,275

-

Other comprehensive income (loss) for the period

 -

- 

- 

- 

12,522

(185,841)

(173,319)

Dividends paid (1.0 cents per share) - Note 7

-

-

(1,352,471)

-

-

-

(1,352,471)

Balance at 30 June 2017 - Audited

13,524

21,933,772

45,867,040

323,861

(25,932)

(148,921)

67,963,344

Balance at 31 December 2017

13,524

21,933,772

47,823,617

432,476

(18,510)

(126,589)

70,058,290

Issue of shares

57

297,890

-

(297,947)

-

-

-

Recognition of share-based payments

-

-

-

173,299

-

-

173,299

Total comprehensive income (loss) for the period

-

-

2,767,986

-

(4,049)

(609,577)

2,154,360

-

Profit for the period

-

-

2,767,986

-

-

-

2,767,986

-

Other comprehensive loss for the period

-

-

-

-

(4,049)

(609,577)

(613,626)

Dividends paid (1.2 cents per share) - Note 7

-

-

(1,629,750)

-

-

-

(1,629,750)

Balance at 30 June 2018

13,581

22,231,662

48,961,853

307,828

(22,559)

(736,166)

70,756,199

CAPITAL DRILLING LIMITED

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2018

Six months ended

Notes

30 June 2018

30 June 2017

 $

 $

Operating activities:

Cash from operations

12

7,210,838

13,130,720

Interest received

59,866

137,264

Finance charges paid

11

(542,303)

(514,202)

Taxation paid

(1,480,837)

(1,379,743)

Net cash generated from operating activities

5,247,564

11,374,039

Investing activities:

Purchase of property, plant and equipment

8

(5,390,068)

(4,207,845)

Proceeds from disposal of property, plant and equipment

128,505

374,938

Acquisition of FVTOCI investments

-

(1,752,387)

Proceeds on disposal of FVTOCI investments

311,451

370,878

Investment in associate

9

-

(1,912,023)

Net cash used in investing activities

(4,950,112)

(7,126,439)

Financing activities:

Long-term liabilities raised

11

-

6,500,000

Long-term liabilities repaid

11

-

(3,500,000)

Dividend paid

7

(1,629,750)

(1,352,471)

Net cash (used) generated in financing activities

(1,629,750)

1,647,529

Net (decrease) increase in cash and cash equivalents

(1,332,298)

5,895,129

Cash and cash equivalents at the beginning of the period

16,911,383

12,728,555

Translation of foreign currency cash and cash equivalent adjustment

(198,515)

(201,026)

Cash and cash equivalents at the end of the period

15,380,570

18,422,658

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

1.

Basis of presentation and accounting policies

Preparation of the condensed consolidated interim financial statements

The condensed consolidated interim financial statements of Capital Drilling Limited and Subsidiaries ("Capital Drilling" or the "Group") as at and for the six months ended 30 June 2018 (the "Interim Financial Statements") have been prepared in accordance with International Accounting Standard ("IAS") No. 34, "Interim Financial Reporting". They should be read in conjunction with the annual consolidated financial statements and the notes thereto in the Group's Annual Report for the year ended 31 December 2017 which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). The Interim Financial Statements have been reviewed in terms of International Standard on Review Engagements (ISRE) 2410.

Accounting policies

The condensed consolidated interim financial statements have been prepared on the going concern basis under the historical cost convention, except for certain financial instruments which are measured at fair value. The Group has adopted a number of new standards and interpretations effective on or before 1 January 2018, which were described in note 2 of the consolidated financial statements for the year ended 31 December 2017. The adoption of these standards and interpretations did not have a material impact on the condensed consolidated interim financial statements. The same accounting policies, presentation and methods of computation have been followed in these condensed consolidated financial statements as were applied in the preparation of the Group's financial statements for the year ended 31 December 2017 except for new accounting policies adopted during the year described in Note 4 and Note 5.

The preparation of financial statements in conformity with IFRS recognition and measurement principles requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management reviews its estimates on an on-going basis using current available information. Changes in facts and circumstances may result in revised estimates and actual results could differ from those estimates.

2.

Operations in the interim period

Capital Drilling Limited is incorporated in Bermuda. The Group provides drilling services including but not limited to exploration, development, grade control and blast hole drilling services to mineral exploration and mining companies located in emerging and developing markets. The Group also provides some equipment rental and information technology services to mining and mining related companies.

During the six months ended 30 June 2018, the Group provided drilling services in Egypt, Mauritania, Mali, Tanzania and Kenya.

The seasonality of the Group's operations has no significant impact on the condensed consolidated interim financial statements.

3.

Taxation

Capital Drilling Limited is incorporated in Bermuda. No taxation is payable on the results of the Bermuda business. Taxation for other jurisdictions is calculated in terms of the legislation and rates prevailing in the respective jurisdictions.

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

3.

Taxation (continued)

The Group operates in multiple jurisdictions with complex legal and tax regulatory environments. In certain of these jurisdictions, the Group has taken income tax positions that management believes are supportable and are intended to withstand challenge by tax authorities. Some of these positions are inherently uncertain and include those relating to transfer pricing matters and the interpretation of income tax laws. The Group periodically reassesses its tax positions. Changes to the financial statement recognition, measurement, and disclosure of tax positions is based on management's best judgment given any changes in the facts, circumstances, information available and applicable tax laws. Considering all available information and the history of resolving income tax uncertainties, the Group believes that the ultimate resolution of such matters will not likely have a material effect on the Group's financial position, statements of operations or cash flows.

Due to the tax charge calculations in certain countries in which the Group operates being based on revenues instead of profits, the consolidated taxation expense for the period is not directly linked to profits and losses.

4.

IFRS 15 'Revenue from Contracts with Customers'

In the current financial year Capital Drilling has adopted IFRS 15 'Revenue from Contracts with Customers'.

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

"IFRS 15, Revenue from Contracts with Customers", effective from 1 January 2018 identifies performance obligations in contracts with customers, allocates the transaction price to the performance obligations and recognises revenue as performance obligations are satisfied. The standard requires revenue recognition either "over time" or at a "point in time" and additionally requires more detailed disclosures.

A detailed review of all material contracts confirmed that IFRS 15 will not result in a material change to the timing

of revenue or profit recognition on drilling contracts or long-term drilling contracts. This assessment reflects that Capital Drilling's contracting arrangements, which are predominantly long-term drilling contracts, result in the continual transfer of benefits and corresponding revenue recognition of the Group's performance to customers over time.

When first applying IFRS 15, entities should apply the standard in full for the current period, including retrospective application to all contracts that were not yet complete at the beginning of that period. In respect of prior periods, the transition guidance allows entities an option to either: [IFRS 15:C3].

· Option 1 - apply IFRS 15 in full to prior periods (with certain limited practical expedients being available); or

· Option 2- retain prior period figures as reported under the previous standards, recognising the cumulative effect of applying IFRS 15 as an adjustment to the opening balance of equity as at the date of initial application (beginning of current reporting period).

As part of the transition guidance, management have opted for option 2, where prior period figures are reported under the previous standards and an adjustment to be made to the opening balance of equity as at the date of initial application. In view that there is no material change to the timing of revenue or profit recognition, there is no adjustment required to the opening balance of equity.

Capital Drilling has always adopted a prudent approach to contract accounting. Transparent financial control processes ensure that recognition of profits and cash flow are aligned closely with the delivery of our services.

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

Six months ended

30 June 2018

30 June 2017

$

$

4.

IFRS 15 'Revenue from Contracts with Customers' (continued)

Revenue from the rendering of services comprises:

Drilling revenue

53,416,151

59,939,628

Equipment rental

839,718

291,800

Information technology revenue

220,805

2,100,982

54,476,675

62,332,410

5.

IFRS 9 Financial Instruments

In the current year Capital Drilling has adopted IFRS 9 Financial Instruments effective since 1 January 2018.

The standard comprises guidance on Classification and Measurement, Impairment Hedge Accounting and Derecognition:

· IFRS 9 introduces a new approach to the classification of financial assets, which is driven by the business model in which the asset is held and their cash flow characteristics. A new business model was introduced which does allow certain financial assets to be categorised as 'fair value through other comprehensive income' (FVTOCI) in certain circumstances. The requirements for financial liabilities are mostly carried forward unchanged from IAS 39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk.

· The new model introduces a single impairment model being applied to all financial instruments, as well as an 'expected credit loss' model for the measurement of financial assets.

· IFRS 9 contains a new model for hedge accounting that aligns the accounting treatment with the risk management activities of an entity, in addition, enhanced disclosures will provide better information about risk management and the effect of hedge accounting on the financial statements.

· IFRS 9 carries forward the derecognition requirements of financial assets and liabilities from IAS 39.

· Prepayment Features with Negative Compensation. The narrow-scope amendment allows companies to measure particular prepayable financial assets with negative compensation at amortised cost or at fair value through other comprehensive income if a specified condition is met.

Capital Drilling has assessed the impact of this amendment and found no material impact on specific or general provisions for credit losses on its separate and consolidated financial statements other than the additional disclosure requirements. Capital Drilling does not have complex financial Instruments. The accounting treatment for financial instruments under IFRS 9 and the historical accounting treatment of Capital Drilling financial instruments does not differ materially due to this absence of complex financial instruments. Based on the historical loss ratios we are of the view that the impairment of trade receivables due to the change of the impairment model is not material. IFRS 9 did not significantly impact the accounting treatment of inter-company loans. The company and group does not have any hedged exposures and hedge accounting is therefore not applicable.

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

Six months ended

30 June 2018

30 June 2017

$

$

6.

Earnings per share

Basic Earnings per share:

The profit and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:

Profit for the period used in the calculation of basic earnings per share

2,767,986

2,580,275

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

135,525,192

135,076,227

Basic earnings per share (cents)

2.0

1.9

Diluted earnings per share:

The profit used in the calculations of all diluted earnings per share measures are the same as those used in the equivalent basic earnings per share measures, as outlined above.

Weighted average number of ordinary shares used in the calculation of basic earnings per share

135,525,192

135,076,227

 - Dilutive share options #

252,006

362,813

Weighted average number of ordinary shares used in the calculation of diluted earnings per share

135,777,198

135,439,040

Diluted earnings per share (cents)

2.0

1.9

# For the purposes of calculating diluted earnings per share, the share options of 2.34 million [2017: 2.34 million] were excluded as they are anti-dilutive as the exercise price is higher than the current share price.

7.

Dividends

During the six months ended 30 June 2018, a dividend of 1.2 cents per ordinary share, totalling $1,629,750 (six months ended 30 June 2017: 1.0 cents per ordinary share, totalling $1,352,471) was declared and paid.

8.

Property, plant and equipment

During the six months ended 30 June 2018, the Group acquired $5.4 million (2017: $4.2 million) of drilling rigs and other assets to expand its operations and for the replacement of existing assets.

The Group disposed of property, plant and equipment with a net carrying amount of $0.4 million (2017: $0.5 million) during the period. A loss of $0.3 million (2017: $0.1 million) was incurred on the disposal of property, plant and equipment.

At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets may be impaired. As at 30 June 2018, there were no indication of impairment.

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

9.

Investment in associate

During the six months ended 30 June 2018, the Group maintained its 50% interest in MSA Mineral Services Analytical (Canada) Inc. ("MSA") (formerly known as A2 Global Ventures Inc.). MSA is headquartered in Vancouver, Canada, where it operates a central hub laboratory, supported by feeder laboratories in Guyana, Myanmar and Sweden, providing laboratory testing services to the mining and exploration industries, particularly in emerging markets. The consideration for the acquisition was $1.9 million including transaction costs. The investment in MSA, is accounted using the equity method.

The Group maintained the 23.75% shareholding of investment in Stealth Global Holdings Ltd [formerly known as SAAC International Pte. Ltd] which was initially acquired in 2015 as at 30 June 2018.

Six months ended

30 June 2018

31 December 2017

$

$

10.

Issued capital and share premium

Authorised capital

2,000,000,000 (2017: 2,000,000,000) ordinary shares of 0.01 cents (2017: 0.01 cents) each

200,000

200,000

Issued and fully paid:

135,812,596 (31 December 2017: 135,247,159) ordinary shares of 0.01 cents (31 December 2017: 0.01 cents) each

13,581

13,524

Share premium:

Balance at the beginning of the period

21,933,772

21,697,470

Issue of shares

297,890

236,302

Balance at the end of the period

22,231,662

21,933,772

On 1 April 2018, the Company issued 565,437 new common shares pursuant to the Company's employee incentive scheme. The shares rank pari passu with the existing ordinary shares. Fully paid ordinary shares which have a par value of 0.01 cents, carry one vote per share and carry rights to dividends.

11.

Long term liabilities

Long term liabilities consist of a $12 million revolving credit facility ("RCF") provided by Standard Bank (Mauritius) Limited following a renewal of the Facilities Agreement on 30 October 2017. The interest rate on the RCF is the prevailing three-month US LIBOR (payable in arrears) plus a margin of 5.75%, and an annual commitment fee of 1.5% of the undrawn balance.

Security for the Standard Bank (Mauritius) Limited facility comprise:

- Upward corporate guarantees from Capital Drilling (T) Limited, Capital Drilling (Botswana) Proprietary Limited and Capital Drilling Ltd.

- A negative pledge over the assets of Capital Drilling (T) Limited and Capital Drilling Ltd.

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

11.

Long term liabilities (continued)

As at the reporting date and during the year under review, the Group has complied with all covenants attaches to the loan facility.

Six months ended

30 June 2018

30 June 2017

$

$

Standard Bank (Mauritius) Limited

Balance at 1 January

12,041,585

12,095,125

Amounts received during the 6-month period

-

6,500,000

Interest accrued during the 6-month period

460,508

543,557

Interest paid during the 6-month period

(469,730)

(514,202)

Principal repayments during the 6-month period

-

(3,500,000)

12,032,363

15,124,480

Less: Current portion included under current liabilities

(32,363)

(15,124,480)

Due after more than one year

12,000,000

-

Six months ended

30 June 2018

30 June 2017

$

$

12.

Cash from operations

Profit before taxation

4,976,136

4,525,639

Adjusted for:

- Depreciation

6,714,923

6,392,131

- Loss on disposal of property, plant and equipment

273,881

142,257

- Realised (gain)/loss on FVTOCI shares

(49,225)

183,495

- Fair value adjustment on financial assets through profit and loss

(47,236)

123,989

- Share based payment expense

173,299

118,314

- Interest income

(59,866)

(137,264)

- Finance charges

533,081

543,557

- Share of loss/(income) from associate

246,441

(5,213)

- Unrealised foreign exchange loss on foreign exchange held

198,515

201,026

Operating profit before working capital changes

12,959,949

12,087,931

Adjustments for working capital changes:

- Decrease (Increase) in inventory

874,147

(504,404)

- (Increase) decrease in trade and other receivables

(1,732,003)

1,946,900

- (Increase) decrease in prepaid expenses and other assets

(1,655,542)

1,729,149

- Decrease in trade and other payables

(3,235,713)

(2,128,856)

7,210,838

13,130,720

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

13.

Segmental analysis

Operating segments are identified on the basis of internal management reports regarding components of the Group. These are regularly reviewed by the Chairman in order to allocate resources to the segments and to assess their performance. Operating segments are identified based on the regions of operations. For the purposes of the segmental report, the information on the operating segments have been aggregated into the principal regions of operations of the Group. The Group's reportable segments under IFRS 8 are therefore:

- Africa:

Derives revenue from the provision of drilling services, equipment rental and IT support services.

- Rest of world:

Derives revenue from the provision of drilling services, equipment rental and IT support services.

Information regarding the Group's operating segments is reported below. At 30 June 2018, management reviewed the composition of the Group's operating segments and the allocations of operations to the reportable segments.

Segment revenue and results:

The following is an analysis of the Group's revenue and results by reportable segment:

For the six months ended 30 June 2018

Africa

Rest of World

Consolidated

$

$

$

External revenue

53,710,022

766,653

54,476,675

Segment profit (loss)

13,667,309

(5,502,934)

8,164,375

Central administration costs and depreciation, net of other income

(2,372,122)

Profit from operations

5,792,253

Realised (loss) on disposal of FVTOCI shares

(49,225)

Fair value adjustment on financial assets through profit and loss - Share Options

(47,236)

Interest income

59,866

Share of losses from associate

(246,441)

Finance charges

(533,081)

Profit before tax

4,976,136

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

13.

Segmental analysis (continued)

For the six months ended 30 June 2017

Africa

Rest of World

Consolidated

$

$

$

External revenue

55,188,168

7,144,242

62,332,410

Segment profit (loss)

9,470,045

(2,627,305)

6,842,470

Central administration costs and depreciation, net of other income

(1,608,537)

Profit from operations

5,234,203

Realised (loss) on disposal of FVTOCI shares

(183,495)

Fair value adjustment on financial assets through profit and loss - Share Options

(123,989)

Interest income

137,264

Share of income from associate

5,213

Finance charges

(543,557)

Profit before tax

4,525,639

The accounting policies of the reportable segments are the same as the Group's accounting policies described in note 1. Segment profit (loss) represents the profit (loss) earned by each segment without allocation of central administration costs, depreciation, interest income, share of losses from associate, finance charges and income tax. This is the measure reported to the Chairman for the purpose of resource allocation and assessment of segment performance.

Six months ended

30 June 2018

30 June 2017

$

$

Segment assets:

Africa

170,241,123

138,185,655

Rest of world

14,982,961

29,162,399

Total segment assets

185,224,084

167,348,054

Head office companies

45,510,958

39,709,123

230,735,042

207,057,177

Eliminations *

(127,064,082)

(103,959,649)

Total assets

103,670,960

103,097,528

Segment liabilities:

Africa

45,658,320

31,694,352

Rest of world

7,370,827

17,712,149

Total segment liabilities

53,029,147

49,406,501

Head office companies

105,378,810

88,215,910

158,407,957

137,622,411

Eliminations *

(125,493,196)

(102,488,227)

Total liabilities

32,914,761

35,134,184

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

13.

Segmental analysis (continued)

For the purposes of monitoring segment performance and allocating resources between segments the Chairman monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments with the exception of property, plant and equipment used by the head office companies, certain amounts included in other receivables, and cash and cash equivalents held by the head office companies.

* Eliminations include inter-group accounts receivable, inter-group accounts payable and inter-group investments.

Other segment information:

Six months ended

30 June 2018

30 June 2017

Non-Cash items included in profit or loss:

$

$

Depreciation

Africa

6,498,614

5,610,218

Rest of world

216,309

616,229

Total segment depreciation

6,714,923

6,226,447

Head office companies

-

165,684

6,714,923

6,392,131

Loss on disposal of property, plant and equipment

Africa

328,799

115,692

Rest of world

5,082

26,565

Total segment loss on disposal

333,881

142,257

Head office companies

(60,000)

-

273,881

142,257

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

Six months ended

30 June 2018

30 June 2017

$

$

13.

Segmental analysis (continued)

Impairment on Inventory

Africa

Stock Provision

541,983

169,410

Stock Write Offs

186,330

68,477

728,313

237,887

Rest of world

Stock Provision

61,150

(1,069)

Stock Write Offs

11,418

7,971

72,568

6,902

Total segment impairment

800,881

244,789

Head office companies

374,974

-

1,175,855

244,789

Additions to property, plant and equipment

Africa

4,732,032

3,610,324

Transfer to Africa from Rest of the world

319,725

-

Rest of world

-

162,315

Transfer from Rest of the world to Africa

(319,725)

-

Total segment additions

4,732,032

3,772,639

Head office companies

658,036

435,206

5,390,068

4,207,845

Information about major customers

Included in revenues arising from the Africa segment are revenues of approximately $40.8 million (2017: $35.7 million) which arose from sales to customers that represent more than 10% of the Group's revenue.

14.

Commitments

The Group has the following capital commitments at 30 June 2018:

Committed capital expenditure

2,931,891

1,898,404

The Group has outstanding purchase orders amounting to $5.7 million at 30 June 2018 (30 June 2017: $6.5 million).

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

15.

Contingencies

Zambia Tax:

As disclosed in the annual consolidated financial statements for the year ended 31 December 2017, Capital Drilling (Zambia) Limited is a party to various tax claims made by the Zambian Revenue Authority for the tax years 2007 to 2013. On 30 April 2015, the Company received a tax assessment from the Zambian Revenue Authority totalling ZMW 144.1 million (USD equivalent: $13.1 million), inclusive of penalties and interest. The claims relate to various taxes, including income tax, value added tax, payroll tax and withholding tax. Since the assessment date, Management have responded in detail to these claims, providing the Zambian Revenue Authority with detailed analysis and arguments justifying the Company's tax position. No amount has yet been paid in this regard and no additional communication or actions were received from the Zambian Revenue Authority to date. Capital Drilling (Zambia) is currently dormant with no drilling revenue since November 2014. An amount of $1.6 million has been raised relating to certain areas of the claim, however the directors are of the opinion that a significant portion of the tax claim by the Zambia Revenue Authority is without merit.

Tanzania tax:

Capital Drilling (T) Ltd is party to a payroll tax claim made by the Tanzanian Revenue Authority (TRA) for the tax years 2009-2015. During the financial year ended 31 December 2016, the company received an immediate demand notice from the (TRA) for Tanzanian Shillings of 18,598,361,197 (US$ 8,374,660), inclusive of penalties and interest. Management objected to the assessment raised by the TRA and requested the calculations of the notice. In order to object, according to Tanzanian Tax Law Sections 51(1) and (5) of the TAA 2015, a taxpayer is required to pay the tax amount not in dispute or one third of the assessed tax whichever is greater. It is prudent to note that the Finance Act in 2016 added a further subsection (9) in Section 51 regarding tax objections and assessments. The said amendment provides: "Where the taxpayer fails to pay the amount stated under subsection (5) within the time provided therein, the assessed tax decision shall be confirmed as final tax assessment in terms of section 15(1)(a) of the Tax Revenue Appeals Act." In accordance with the above-mentioned legislation, management reached an agreement with the TRA to pay Tanzanian Shillings of 1,500,000,000 ($0.7 million) in lieu of the one third of the assessed value. This amount was fully provided for in the 2016 Annual Financial Statements. In June 2017 the TRA provided their workings to Capital Drilling (T) Ltd. Capital Drilling (T) Ltd identified differences with the TRA on both the specific merits and methodology used to determine the value. Capital Drilling engaged PWC Tanzania and on 30 April 2018 provided updated calculations for review. Feedback from the TRA is pending. Capital Drilling (T) Ltd has maintained an engaging relationship with the TRA to find closure and resolution to this matter. In order to continue the discussions and negotiations with the TRA, Capital Drilling (T) Ltd has, at the request of the TRA, paid an additional amount of Tanzanian Shillings of 2,600,000,000 ($1.14 million) as at 30 June 2018. This is in line with the aforementioned Tanzanian Tax Law.

The TRA also raised a Withholding Tax liability of TZS 2,244,907,829 (US$ 1,024,268) inclusive of interest and penalties. The TRA considered assets purchased by Capital Drilling (T) Ltd as leased. The TRA interpreted these assets as a rental agreement rather than permanent acquisition of these assets, which results in no Withholding Tax liability. Management lodged an objection on 14 November 2016 and paid an upfront payment of TZS 170,000,000 (US$ 77,564) in order to have the objection validated and acknowledged, as is required per subsection (9) in Section 51 of the Income Tax Act of Tanzania. Based on the above, management assessed no further liability with regards to this assessment. As at 31 December 2017, this objection is still pending with the TRA and no resolution has been reached as yet.

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

16.

Events post the reporting date

Interim dividend declared:

The directors proposed that an interim dividend of 0.6 cent per share be paid to shareholders on 5 October 2018. This dividend has not been included as a liability in these condensed consolidated interim financial statements. The proposed dividend is payable to all shareholders on the Register of Members on 7 September 2018. The total estimated interim dividend to be paid is $0.8 million (2017: $0.7 million). The payment of this dividend will have no tax consequences for the Group.

17.

Going concern

The Group has set specific objectives and also has policies and processes in place to manage its capital and its financial, credit risk and liquidity risks.

The Group has borrowings and debt facilities which, together with its clients' receipts, fund its day to day working capital requirements. Volatile economic conditions may create uncertainty particularly over (a) the level of demand for the Group's services; (b) exchange rate fluctuations against the US Dollar and thus the consequence for the cost of the Group's direct costs; and (c) the availability of bank financing in the foreseeable future.

The Group's forecasts and projections, taking into account potential changes in its performance, show that the Group should be able to operate within the level of its capital structure. The Group continuously discusses its future borrowing and / or refinancing needs with its bankers and no matters have been drawn to its attention to suggest that these needs may not be met on acceptable terms.

The directors confirm that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group continues to adopt the going concern basis of accounting in preparing the interim financial statements.

18.

Financial instruments

Financial instruments that are measured in the consolidated statement of financial position or disclosed at fair value require disclosure of fair value measurements by level based on the following fair value measurement hierarchy:

•

Level 1:

quoted prices (unadjusted) in active markets for identical assets or liabilities;

•

Level 2:

inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and

•

Level 3:

inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

CAPITAL DRILLING LIMITED

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the six months ended 30 June 2018

18.

Financial instruments (continued)