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2016 Abridged Annual Financial Results
MASTER DRILLING GROUP LIMITED
Registration number: 2011/008265/06
Incorporated in the Republic of South Africa
JSE share code: MDI
ISIN: ZAE000171948
2016 ABRIDGED ANNUAL FINANCIAL RESULTS
HIGHLIGHTS FOR THE PERIOD
- USD Revenue was down by 1.5%
- USD Earnings per share increased by 5.9% to 14.3 cents
- ZAR Earnings per share increased by 22,1% to 210,0 cents
- USD Headline earnings per share increased by 3.6% to 14.3 cents
- ZAR Headline earnings per share increased by 19,4% to 210,0 cents
- Stable order book of USD 196.6 million
- Solid pipeline of USD 320.8 million
- Maiden dividend of ZAR 30 cents per share declared
COMMENTARY
ABOUT MASTER DRILLING
Master Drilling was established in 1986 and listed on the Johannesburg Stock Exchange in 2012. The company delivers
innovative drilling technologies and has built trusted partner relationships with blue-chip major and mid-tier companies
in the mining, civil engineering and construction sectors across various commodities worldwide. The Master Drilling
business model of providing drilling solutions to clients through tailor-made designs coupled with a flexible support and
logistics chain makes it the preferred drilling partner throughout the lifecycle of projects from exploration to production
and capital stages.
Commenting on the 2016 results, Danie Pretorius, CEO of Master Drilling, said:
"We delivered a satisfactory performance in 2016 following a difficult first half marked by severe
operational and economic issues. As indicated at half year, the improvement in our operating environment,
including in the commodities sector, supported an uplift in overall performance for the year.
"A more stable environment is setting in and we are encouraged by the intensified market activity. This is
highlighted by a committed order book of USD196.6 million and our strong pipeline of USD320.8 million.
"The corrective measures implemented in key markets to support market position and performance are
bearing fruit and we will continue to balance investments in technology and people that support growth
with the need to drive efficiencies and productivity ratios across the Group.
"This approach coupled with our diversification strategy across regions, commodities, currencies and
industries will see our revenue and margins stabilise further."
FINANCIAL OVERVIEW
Revenue decreased 1.5% to USD118.1 million and operating profit decreased 12.8% to USD25.8 million. The decline in
revenue is due to the impact of unfavourable foreign exchange movements, market conditions, pricing pressures and
clients opting for shorter term projects that also impact cost efficiencies.
Costs related to the launch of new projects in a number of countries including the DRC, Sierra Leone and Tanzania
coupled with the decision to invest in people and capabilities to drive future growth resulted in profit before tax
decreasing 12.1% to USD25.3 million. Conservative provisions for taxation in some jurisdictions in previous years
as well as raising of deferred tax assets on historically loss-making entities that returned to profitability have led to a
decrease in taxation supporting a 5.7% increase in profit after taxation to USD22.3 million.
USD Earnings per share (EPS) increased 5.9% to 14.3 cents, and ZAR EPS increased 22,1% to 210,0 cents. USD Headline
earnings per share (HEPS) increased 3.6% to 14.3 cents, and ZAR HEPS increased 19,4% to 210,0 cents.
Net cash generation was lower at USD26.5 million due to significant investments in working capital. Debtor days
increased as a result of longer payment cycles. Master Drilling will continue to manage debtors actively as market
conditions improve. Working capital was also impacted by the Bergteamet Latin America SpA acquisition and
investment in property, plant and equipment. The manufacturing of cutters was also brought "in-house" during the
year via our plant in China. Inventory increased 24.5% to USD24.4 million as a result and in anticipation of higher
volumes of work coming on stream and capital outlays involved in new projects across the Group. Cash resources
continue to be managed stringently to cater for emerging opportunities that require specific design, planning
and investment.
88.9% of the Master Drilling capital spend was on expansion with 11.1% on maintenance.
Debt decreased from USD 33.4 million to USD 31.0 million and the gearing ratio decreased to 21.2% from 28.3% in
the prior year.
OPERATIONAL OVERVIEW
The second half of the year saw a marked increase in activities, higher utilisation rates and the initiation of new projects
that supported Group financial performance. The current operating environment has stabilised with a healthy level of
enquiries and improved operational base throughout.
Latin America
Decisive actions were taken installing new management and operational leadership to improve performance in
Chile, which represents over 15% of Group revenue. New management has also been put in place in Peru following
operational issues. Our restructuring in Brazil has been completed and is on track to make budget and return to
profitability during the current year. Master Drilling was awarded additional hydro-electric power related work in
Colombia with equipment being mobilised following the successful completion of an initial contract. In Mexico, silver
mining projects are performing well with utilisation rates showing marked improvements and further contracts in
the pipeline.
North America
The blind shaft boring system contract in the USA is progressing well, following initial delays in commissioning.
Enquiries from other North American operators are encouraging. Our European operations provide a platform to
increase our presence and capabilities in North America across new industries with specialised skills and equipment.
Africa
The profitability of African operations was impacted negatively by continuous pricing pressures. The new projects in
both Sierra Leone and Tanzania as well as an additional project in the DRC had a negative impact on performance due
to the high levels of upfront costs, including logistics required to support the clients in the initial phase. The stronger
ZAR had a significant forex impact as most costs were ZAR based whilst income was USD based.
In South Africa, Master Drilling will continue to support its loyal clients although growth will remain subdued.
We remain committed to expansion into appropriate African countries.
Scandinavia
Our investment in Bergteamet Raiseboring Europe AB, made towards the end of 2015, realised an initial return of 12.95% in 2016.
Bergteamet Raiseboring Europe AB achieved a satisfactory performance given the economic and market conditions within which it operates.
We look forward to improved performances in the latter part of 2017.
Technology
The continuous improvement in our technology and services remains the cornerstone in providing our clients with
the one-stop solution that they require to stay ahead in their markets. Master Drilling is well positioned to respond
to the growing mechanisation trend within the mining industry thanks to our technological leadership and proven
services offering.
Master Drilling strengthened its internally developed technology service offering during the year and met several
development milestones on its world-first technologies that we expect to bring to market within the medium term, e.g.
our horizontal raise boring (HRB) technology completed a pilot milestone at Petra Diamonds Cullinan mine and is driving
strong levels of enquiries.
Plant and equipment
Seven raise bore machines were added, contributing 4.5% growth in revenue in 2016. The fleet now consists
of 105 raise bore and 33 slim drilling rigs. The rate of new rigs coming on stream will settle with a focus on larger units
which typically generate higher income. No new slim rigs are in the pipeline at this point.
Skills development
Retaining expertise and skills development is a key priority for Master Drilling. We are investing in skills development
based on a skills gap analysis concluded at the end of 2016. This investment will extend our capacity to support our
growth strategy. 2017 will focus on targeted interventions for management and technical training in general.
Maiden Dividend
Since listing in 2012, the Company has achieved compound annual growth in profit after taxation of 16.1% in USD terms and
delivered on the key strategic objectives set out in its listing prospectus. This, coupled with significant ongoing cash
generation, now enables the Company to strike a balance between continued investment in capital projects to
support the company's further growth and enhancing returns to shareholders through the payment of appropriate
dividends. Thus, the Board has declared a maiden dividend on 20 March 2017 of ZAR 30 cents per share payable to all
shareholders recorded in the Company's share register on 19 May 2017.
The dividend is payable from distributable reserves and is subject to dividend withholding tax of 20% which results in a net dividend
of 24 cents per share to shareholders subject to such dividend withholding tax. This dividend represents a seven times earnings cover.
As a maiden dividend this is somewhat more conservative than the level of cover at which our dividend policy is likely to settle over time.
The number of shares in issue at date of declaration amount to 148 265 491 (Treasury shares - 2 000 000) and the
company's tax reference number is 9797/433/15/9.
In order to comply with the requirements of Strate, the following details are relevant:
Last date to trade cum dividend: Tuesday 16 May 2017
Trading ex dividend commences: Wednesday 17 May 2017
Record date: Friday 19 May 2017
Payment date: Monday 22 May 2017
Shares may not be dematerialised or re-materialised between Wednesday 17 May and Friday 19 May 2017, both
dates inclusive.
OUTLOOK AND PROSPECTS
Diversification across regions, commodities, currencies and industries remains a key part of our long-term strategy. We
are experiencing strong demand with increased enquiries across the various regions and commodities and expect this
to continue.
Engagement with the Industrial Development Corporation of South Africa Limited (IDC) for the partial funding of the
blind shaft boring system development and roll-out in 2019 has commenced and is progressing well. Further
opportunities to develop home-grown technologies that support cheaper and simpler drilling systems are also being
explored with the IDC.
Various opportunities in first world countries such as Australia, Canada and USA are being investigated.
We will continue to focus on working capital management whilst decreasing project initiation costs, and the
consolidation of our raise boring fleet will release some pressure. New geographies, clients and technologies require
large initial outlays and Master Drilling's robust support approach enables optimal operations and maintenance support
that is essential to building trust with clients.
We expect the weaker utilisation rates of drilling rigs to continue in the first half of 2017 but start improving in the later
part of the year with an aim to drive rates to mid-70% and improve return on investments.
Master Drilling's technology and experience put the company in a strong position to continue to support its clients'
drive to improve productivity and efficiencies whilst reducing operational risk.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2016 2015
Note(s) USD USD
Assets
Non-current assets
Property, plant and equipment 3 105 316 594 89 532 466
Intangible assets 4 3 043 042 2 612 584
Financial assets 10 068 354 9 159 284
Deferred tax asset 1 733 825 1 124 233
Investment in associate 5 6 023 825 5 467 740
126 185 640 107 896 307
Current assets
Inventories 24 437 264 19 574 979
Related-party loans 70 486 35 755
Trade and other receivables 6 39 014 664 30 572 822
Cash and cash equivalents 21 690 039 22 496 770
85 212 453 72 680 326
Non-current assets held for sale 7 1 209 520 -
86 421 973 72 680 326
Total assets 212 607 613 180 576 633
Equity and liabilities
Equity
Share capital 146 607 965 146 607 965
Reserves (91 010 256) (97 883 624)
Retained income 74 427 478 53 231 728
130 025 187 101 956 069
Non-controlling interest 16 291 360 16 309 067
146 316 547 118 265 136
Liabilities
Non-current liabilities
Interest bearing borrowings 17 806 057 19 096 633
Finance lease obligations 1 950 891 2 957 153
Share-based payment liability - 706 681
Deferred tax liability 9 266 022 7 387 853
29 022 970 30 148 320
Current liabilities
Interest bearing borrowings 8 650 837 8 417 589
Finance lease obligations 2 579 699 2 941 002
Related party loans 160 622 41 317
Current tax payable 1 561 045 5 195 800
Trade and other payables 8 22 998 427 15 567 469
Cash and cash equivalents 1 317 466 -
37 268 096 32 163 177
Total liabilities 66 291 066 62 311 497
Total equity and liabilities 212 607 613 180 576 633
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
2016 2015
Note(s) USD USD
Revenue 118 102 983 119 867 646
Cost of sales (75 159 529) (71 989 042)
Gross profit 42 943 454 47 878 604
Other operating income 4 645 115 1 037 888
Other operating expenses (21 743 714) (19 336 260)
Operating profit 25 844 855 29 580 232
Investment revenue 808 845 806 556
Finance costs (1 940 479) (1 710 539)
Share of profit from equity accounted investment 556 085 134 575
Profit before taxation 25 269 306 28 810 824
Taxation 9 (2 949 412) (7 695 925)
Profit for the year 22 319 894 21 114 899
Other comprehensive income that will subsequently be
classifiable to profit and loss:
Exchange differences on translating foreign operations 6 618 019 (18 378 247)
Other comprehensive income/(loss) for the year net of taxation 6 618 019 (18 378 247)
Total comprehensive income 28 937 913 2 736 652
Profit attributable to: 22 319 894 21 114 899
Owners of the parent 21 195 750 19 966 151
Non-controlling interest 1 124 144 1 148 748
Total comprehensive income attributable to: 28 937 913 2 736 652
Owners of the parent 27 813 769 1 587 904
Non-controlling interest 1 124 144 1 148 748
Earnings per share (USD) 10
Basic earnings per share (cents) 14.3 13.5
Diluted earnings per share (USD) 10
Diluted basic earnings per share (cents) 14.0 13.3
Earnings per share (ZAR)
Basic earnings per share (cents) 210,0 172,0
Diluted earnings per share (ZAR)
Diluted basic earnings per share (cents) 205,6 169,3
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity due Foreign
to change currency
Share in control of translation
USD capital interests reserve
Balance as at 31 December 2014 146 607 965 (58 264 013) (21 613 831)
Share-based payments - - -
Dividends declared by subsidiaries - - -
Total comprehensive income for the year - - (18 378 247)
Total changes - - (18 378 247)
Balance as at 31 December 2015 146 607 965 (58 264 013) (39 992 078)
Share-based payments - - -
Dividends declared by subsidiaries - - -
Total comprehensive income for the year 6 618 019
Total changes - - 6 618 019
Balance as at 31 December 2016 146 607 965 (58 264 013) (33 374 059)
Share-based Attributable Non- Total
payments Total Retained to owners of controlling Shareholders'
reserve reserves income the parent interest equity
207 864 (79 669 980) 33 265 577 100 203 562 15 474 542 115 678 104
164 603 164 603 - 164 603 - 164 603
- - - - (314 223) (314 223)
- (18 378 247) 19 966 151 1 587 904 1 148 748 2 736 652
164 603 (18 213 644) 19 966 151 1 752 507 834 525 2 587 032
372 467 (97 883 624) 53 231 728 101 956 069 16 309 067 118 265 136
255 349 255 349 - 255 349 - 255 349
- - - - (1 141 851) (1 141 851)
6 618 019 21 195 750 27 813 769 1 124 144 28 937 913
255 349 6 873 368 21 195 750 28 069 118 (17 707) 28 051 411
627 816 (91 010 256) 74 427 478 130 025 187 16 291 360 146 316 547
CONSOLIDATED STATEMENT OF CASH FLOWS
2016 2015
Note(s) USD USD
Cash flows from operating activities
Cash generated from operations 11.1 26 551 147 35 327 891
Interest income 808 845 806 556
Finance costs (1 940 479) (1 710 539)
Tax paid (5 840 274) (6 128 552)
Net cash from operating activities 19 579 239 28 295 356
Cash flows from investing activities
Purchase of property, plant and equipment (16 364 467) (18 396 693)
Sale of property, plant and equipment 1 060 693 228 070
Financial assets movement 303 556 (511 762)
Acquisition of subsidiary 11.2 (3 894 451) -
Acquisition of associate - (5 333 165)
Net cash from investing activities (18 894 669) (24 013 550)
Cash flows from financing activities
Proceeds of financial liabilities 8 678 685 21 434 218
Repayment of financial liabilities (9 736 013) (5 891 468)
Proceeds from financial leases 1 524 268 429 245
Repayment of financial leases (2 891 833) (5 166 064)
Related party loan movement 84 574 (1 007 132)
Dividends paid to BEE partners (1 141 851) (314 223)
Net cash from financing activities (3 482 170) 9 484 576
Total cash movement for the period (2 797 600) 13 766 383
Cash at the beginning of the period 22 496 770 12 477 082
Effect of exchange rate movement on cash balances 673 403 (3 746 695)
Total cash at end of the period 20 372 573 22 496 770
ABRIDGED AUDITED FINANCIAL RESULTS
NATURE OF BUSINESS
Master Drilling Group Limited is an investment holding company, whose subsidiary companies provide specialised
drilling services to blue chip major and mid-tier companies in the mining, civil engineering, construction and
hydro-electric power sectors, across a number of commodities and geographies.
ACCOUNTING POLICIES
1. BASIS OF PRESENTATION
The abridged audited consolidated annual financial statements have been prepared in accordance with
IAS 34: Interim Financial Reporting, International Financial Reporting Standards, the SAICA reporting guides
as issued by the Accounting Standards Board and the requirements of the South African Companies Act,
(Act No 71 of 2008), as amended and the Listings Requirements of the JSE Limited. The abridged audited
consolidated annual financial statements have been prepared on the historical cost basis, except certain
financial instruments at fair value, and incorporate the principal accounting policies set out below. They are
presented in United States Dollar ("USD").
The significant accounting policies are consistent in all material respects with those applied in the previous
year, except for the adoption of new standards and amendments which became effective in the current year.
The abridged audited consolidated financial statements for Master Drilling Group Limited for the
period ended 31 December 2016 have been audited by Grant Thornton, who expressed an unmodified
audit opinion thereon. A copy of the auditor's report on the audited consolidated financial statements are
available on www.masterdrilling.com. These abridged audited consolidated financial statements were derived
from the consolidated annual financial statements.
The consolidated annual financial statements for Master Drilling Group Limited (Registration
number 2011/008265/06), for the period ended 31 December 2016, have been audited by Grant
Thornton, the Company's independent external auditors, whose unqualified audit report can be
found on pages 8 to 11 of the consolidated annual financial statements 2016, which are available
on: www.masterdrilling.com.
The abridged audited consolidated financial statements presented have been prepared by the corporate
reporting staff of Master Drilling, headed by Willem Ligthelm CA(SA), the Group's management accountant.
This process was supervised by André Jean van Deventer CA(SA), the Group's chief financial officer.
The auditor's report does not necessarily report on all of the information contained in this abridged audited
consolidated set of financial results. Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditor's engagement they should obtain a copy of the auditor's report
together with the accompanying financial information from the issuer's registered office.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The Group annual financial statements incorporate all entities which are controlled by the Group.
At inception the Group annual financial statements had been accounted for under the pooling of interest
method as acquisition of entities under common control is excluded from IFRS 3. The entities had been
accounted for at historical carrying values for the period presented.
Adjustments are made when necessary to the financial statements of subsidiaries to bring their accounting
policies in line with those of the Group.
All inter-company transactions, balances, income and expenses are eliminated in full
on consolidation/combination.
Non-controlling interests in the net assets of combined subsidiaries are identified and recognised separately
from the Group's interest therein, and are recognised within equity. Losses of subsidiaries attributable to
non-controlling interests are allocated to the non-controlling interest even if this results in a debit balance
being recognised for non-controlling interest.
Control is considered to exist if all of the factors below are satisfied.
(a) The investor has power over the investee, i.e. the investor has existing rights that give it the ability to direct
the relevant activities;
(b)The investor has exposure, or rights to variable returns from its involvement with the investee; and
(c) The investor has the ability to use its power over the investee to affect the amount of the investors returns.
The Group assesses its control of an investee at the time of its initial investment and again if changes in facts
and circumstances affect one or more of the control factors listed above. In assessing whether the Group has
control over an investee, consideration is given to many factors including shareholding, voting rights and their
impact on the Group's ability to direct the management, operations and returns of the investee; contractual
obligations; minority shareholder rights and whether these are protective or substantive in nature; and the
financial position of the investee.
Property, plant and equipment
The cost of an item of property, plant and equipment is recognised as an asset when:
(a) it is probable that future economic benefits associated with the item will flow to the Group; and
(b)the cost of the item can be measured reliably.
Property, plant and equipment are initially measured at cost and subsequently at cost less any accumulated
depreciation and accumulated impairment losses.
Patents are acquired by the Group and have an infinite useful live. Patents are carried at cost less accumulated
impairment losses. Amortisation methods, useful lives and residual values are reviewed at each reporting date
and adjusted if appropriate.
Costs include costs incurred initially to acquire or construct an item of property, plant and equipment. Cost
associated with equipment upgrades that result in increased capabilities or performance enhancements of
property and equipment are capitalised. If a replacement part is recognised in the carrying amount of an item
of property, plant and equipment, the carrying amount of the replaced part is derecognised.
An asset under construction will be reclassified to the relevant asset category as soon as it is available for use.
The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is
located is also included in the cost of property, plant and equipment, where the Group is obligated to incur
such expenditure, and where the obligation arises as a result of acquiring the asset or using it for purposes
other than the production of inventories.
Investment in associate
An associate is an entity over which the Group has significant influence.
The results, assets and liabilities are incorporated in these consolidated annual financial statements using the
equity method of accounting. An investment in associate is initially recognised in the consolidated statement
of financial position at cost and adjusted for thereafter to recognise the Group's share of the profit or loss in
associate and other comprehensive income of the associate.
When a Group entity transacts with an associate of the Group, profits and losses resulting from the
transactions with the associate are recognised in the Group's consolidated annual financial statements only to
the extent of interest in the associate that is not related to the Group.
Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency
of the primary environment in which the entity operates, i.e. "functional currency". The consolidated annual
financial statements are presented in USD (the "presentation currency"). Management believes that USD
is more useful to the users of the consolidated financial statements, as this currency most reliably reflects
the global business performance of the Group as a whole.
Going concern
Based on the information available to it, the Board of Directors believes that the Group remains
a going concern.
Issued capital
There has been no change to the issued capital since 31 December 2016.
Operating segments
There are no changes to the operating segments from those disclosed at 31 December 2015. See note 12.
Changes to the board
The following changes to the Board and the dates thereof are detailed in the table below:
Name Position Change Date
Christopher Gerald O' Neill Alternate Director Resignation 1 November 2016
Annual general meeting
The annual general meeting of Master Drilling Group Limited will be held at Grant Thornton, Wanderers
Office Park, 52 Corlett Drive, Johannesburg, on Thursday, 20 July 2017 at 09:00.
Subsequent Events
The Board approved a maiden dividend of ZAR 30 cents per ordinary share on 20 March 2017 payable to all
shareholders recorded in the register on 19 May 2017. The dividend declared is not reflected in the financial
statements for the year ended 31 December 2016.
3. PROPERTY, PLANT AND EQUIPMENT
Accumulated
depreciation
and
2016 impairment Carrying
USD Cost losses value
Land and buildings 4 003 516 (80 517) 3 922 999
Plant and machinery 108 189 065 (31 481 087) 76 707 978
Assets under construction 2 398 153 (2 566) 2 395 587
Furniture and fittings 1 403 341 (339 278) 1 064 063
Motor vehicles 3 158 777 (1 354 858) 1 803 919
IT equipment 887 221 (376 563) 510 658
Finance lease: Plant and equipment 22 349 043 (4 909 530) 17 439 513
Computer software 2 187 833 (945 456) 1 242 377
Patents 229 500 - 229 500
Total 144 806 449 (39 489 855) 105 316 594
Accumulated
depreciation
and
2015 impairment Carrying
USD Cost losses value
Land and buildings 3 611 305 (38 641) 3 572 664
Plant and machinery 84 071 033 (25 120 600) 58 950 433
Assets under construction 5 505 621 - 5 505 621
Furniture and fittings 1 201 367 (404 331) 797 036
Motor vehicles 2 669 126 (985 579) 1 683 547
IT equipment 564 286 (314 746) 249 540
Finance lease: Plant and equipment 21 737 224 (4 256 153) 17 481 071
Computer software 1 877 368 (814 314) 1 063 054
Patents 229 500 - 229 500
Total 121 466 830 (31 934 364) 89 532 466
Borrowing cost
Included in the cost of land and buildings are capitalised borrowing cost related to the acquisition of land to
the amount of USD138 978 (2015: USD172 888) calculated at a capitalisation rate of 5,9%.
3.1 Reconciliation of property, plant and equipment
Exchange
difference on
consolidation
2016 Opening of foreign
USD balance Additions subsidiaries
Land and buildings 3 572 664 297 042 90 182
Plant and machinery 58 950 433 12 271 956 2 743 043
Assets under construction 5 505 621 695 298 9 148
Furniture and fittings 797 036 291 614 106 480
Motor vehicles 1 683 547 509 263 (24 152)
IT equipment 249 540 187 740 10 805
Finance lease: Plant and equipment 17 481 071 1 524 268 856 607
Computer software 1 063 054 587 286 76 512
Patents 229 500 - -
89 532 466 16 364 467 3 868 625
Exchange
difference on
consolidation
2015 Opening of foreign
USD balance Additions subsidiaries
Land and buildings 3 894 241 261 581 (536 993)
Plant and machinery 55 996 007 15 893 937 (7 364 009)
Assets under construction 7 943 681 609 798 (27 296)
Furniture and fittings 842 826 73 848 (61 397)
Motor vehicles 1 993 290 471 266 (270 120)
IT equipment 277 218 102 035 (32 662)
Finance lease: Plant and equipment 21 996 857 429 247 (3 567 469)
Computer software 1 437 735 325 481 (211 809)
Patents - 229 500 -
94 381 855 18 396 693 (12 071 755)
Security
Moveable assets to the value of ZAR500 million of the South African subsidiaries have been bonded
to ABSA Capital as security for an interest bearing loan.
Impairment
During 2016, the Exploration segment in our South Africa segment recognised an impairment
loss of USD268 388. The main elements were a write-down of the idle slim drilling drill rigs to
their value in use. The calculation of value in use is most sensitive to the mining commodity cycles.
The future cash flows of the particular drill rigs was negatively affected by the current declining
commodity prices of our customers, which mainly comprise of mining operations. As a result of the
declining prices, our customers reduced and deferred exploration slim drilling activities.
Assets acquired
through
business Reclassifications Impairment of
combination and transfers Disposals Depreciation fixed assets Total
- - - (36 889) - 3 922 999
4 840 001 3 417 381 (711 201) (4 535 247) (268 388) 76 707 978
- (3 814 480) - - - 2 395 587
8 046 - (68 967) (70 146) - 1 064 063
72 350 152 798 (47 477) (542 410) - 1 803 919
2 694 172 983 (2 887) (110 217) - 510 658
42 925 (1 317 090) - (1 148 268) - 17 439 513
- - - (484 475) - 1 242 377
- - - - - 229 500
4 966 016 (1 388 408) (830 532) (6 927 652) (268 388) 105 316 594
Assets
acquired through
business Reclassifications Impairment of
combination and transfers Disposals Depreciation fixed assets Total
- - (26 545) (19 620) - 3 572 664
- 435 994 (529 625) (5 481 871) - 58 950 433
- (3 020 562) - - - 5 505 621
- - (8 999) (49 242) - 797 036
- 116 537 (323 726) (303 700) - 1 683 547
- (138) (5 024) (91 889) - 249 540
- (116 537) (12 049) (1 248 978) - 17 481 071
- - - (488 353) - 1 063 054
- - - - - 229 500
- (2 584 706) (905 968) (7 683 653) - 89 532 466
4. INTANGIBLE ASSETS
2016 2015
USD USD
Goodwill recognised from value chain business combinations 2 612 584 2 612 584
Goodwill recognised from raisebore business combinations 430 458 -
Goodwill recognised from business combinations 3 043 042 2 612 584
Goodwill recognised
The increase of USD430 458 in goodwill during the current year arose with the Bergteamet Latin America
SpA acquisition transaction. Refer to note 11.2 for more detail.
5. INVESTMENT IN ASSOCIATE
On 1 December 2015, the Group purchased a 40% equity interest in Bergteamet Raiseboring Europe AB
("Bergteamet") for USD5 333 165 (SEK46 555 000). Bergteamet's operations located within Sweden, Norway,
Finland and Ireland are very similar to that of the Group and will provide the Group with a strategic footprint
into the European market.
The Group does not have control of Bergteamet via the call option it has for the remainder of the shares
in Bergteamet. The call option does not give rise to the substantive control of Bergteamet until such
time as the Group exercises the call option which expires 31 March 2019 or the put option which expires
on 31 May 2017. The put option gives the option to put the current 40% owned by the Group back to the
sellers at the original purchase price thus effectively cancelling the transaction. Management considered the
valuation of the call and put option. At year-end the mark to market valuation did not present a material
impact on the initial value of the call and put option.
Associates are accounted for using the equity method in the Group's consolidated financial statements.
The financial year-end of Bergteamet is 31 August. This was the reporting date established when that
company was incorporated, and a change of reporting date is not permitted. For the purpose of applying
the equity method of accounting, the financial information of Bergteamet have been used. Appropriate
adjustments were made for fair value adjustments at acquisition, 1 December 2015, differences in accounting
policies and effects of significant transactions up to 31 December 2016.
The table summarises and also reconciles the statement of comprehensive income's financial information as
at 31 December.
2016 2015
USD USD
Revenue 16 011 794 1 878 984
Profit from continuing operations 1 390 213 336 438
Total comprehensive income 1 390 213 336 438
Group's share of total comprehensive income 556 085 134 575
Dividends received from associate - -
The table summarises and also reconciles the statement of financial position's financial information as
at 31 December to the carrying amount of the Group's interest in Bergteamet.
2016 2015
USD USD
Non-current assets 8 765 242 5 207 473
Current assets 7 986 687 5 421 292
Non-current liabilities (5 134 029) (5 768 094)
Current liabilities (3 246 175) (3 387 054)
Net assets 8 371 725 1 473 617
Group's share of net assets 3 348 690 589 447
Goodwill 2 119 050 4 743 718
Share of profit from equity accounted investment 556 085 134 575
Investment in Bergteamet 6 023 825 5 467 740
6. TRADE AND OTHER RECEIVABLES
2016 2015
USD USD
Trade receivables - Normal 26 789 516 21 437 001
Trade receivables - Retention 3 098 167 2 720 868
Loans to employees 81 097 89 298
Pre-payments 1 372 357 2 534 712
Deposits 46 890 106 733
Indirect taxes 1 426 352 521 086
Sundry 6 200 285 3 163 124
39 014 664 30 572 822
Trade and other receivables past due but not impaired
The ageing of amounts past due but not impaired is as follows:
Outstanding on normal cycle terms 10 981 269 16 947 349
1 month past due 6 702 871 3 109 214
2 months past due 5 591 572 1 719 700
3 months and over past due 6 748 090 3 018 405
Allowance for doubtful debts (136 119) (636 799)
29 887 683 24 157 869
Trade receivables of South African subsidiaries have been ceded to ABSA Capital as security for interest
bearing loan.
The movement in allowance for doubtful debts is presented below
Balance 1 January 636 799 1 590 191
Exchange differences on translation of foreign operations 58 431 (440 887)
Amounts written off - (578 880)
Allowance for doubtful debts (reversed)/provided for (559 111) 66 375
136 119 636 799
The carrying amount in USD of trade and other receivables are denominated in the
following currencies:
2016 2015
USD USD
United States Dollar (USD) 17 591 574 16 520 399
South African Rands (ZAR) 7 119 116 3 563 917
Brazilian Reals (BRL) 4 455 101 3 794 977
Mexican Peso (MXN) 373 151 37 902
Chilean Peso (CLP) 7 360 884 3 643 250
Peruvian Nuevo Sol (PEN) 1 289 943 1 271 413
Chinese Yuan Renminbi (CNY) 440 543 148 753
Guatemalan Quetzal (GTQ) - 476 351
Colombian Peso (CLP) 217 247 946 076
Euro (EUR) 167 105 169 784
39 014 664 30 572 822
7. NON-CURRENT ASSETS HELD FOR SALE
In September 2016, management committed to a plan to sell the land and building owned in Peru. Master
Drilling Peru uses the land and building to house its administrative and workshop facilities. Management's
plan is to develop land owned into offices and workshop facilities. Negotiations to sell the land and buildings
are at an advanced stage. The sale is expected to be finalised by May 2017.
No impairment losses were recognised in profit and loss as the fair value less costs to sell exceeds the carrying
amount.
As at 31 December 2016, the assets held for sale were comprised of the following:
Land and buildings 1 209 520 -
Assets held for sale 1 209 520 -
8. TRADE AND OTHER PAYABLES
2016 2015
USD USD
Trade payables 9 931 942 7 839 195
Income received in advance 391 683 517 570
Indirect taxes 5 914 578 2 850 274
Leave pay accruals 1 821 971 1 306 196
Other accruals 4 938 253 3 054 234
22 998 427 15 567 469
9. TAXATION
2016 2015
USD USD
Current
Normal taxation 2 293 305 5 311 822
Current taxation 3 936 680 6 703 819
Prior year tax over provided (1 643 375) (1 391 997)
Deferred taxation: Temporary differences 656 107 2 384 103
2 949 412 7 695 925
Reconciliation of the tax expense
Accounting profit 25 269 306 28 810 824
Tax at the applicable tax rate 4 592 417 7 363 529
Prior year tax over provided (1 643 375) (1 391 997)
Exempt income (2 336 512) (668 115)
Non-deductible expenses 571 321 1 936 907
Deferred taxation: Change in tax rate 187 408 (192 062)
Assessed loss not recognised 1 729 360 647 663
Assessed loss from prior year (151 207) -
Taxation per statement of comprehensive income 2 949 412 7 695 925
The total unrecognised assessed loss at 31 December 2016 is
USD4 029 099 (2015: USD647 663).
Normal taxation charge/(refund) per entity within the Group
Master Drilling Group Limited - 82 990
Master Drilling Exploration (Pty) Ltd 609 730 642 848
Master Drilling Chile SA 318 739 212 754
Master Drilling Peru SAC - -
Master Drilling do Brasil Ltda - -
Master Drilling Mexico SA - 1 358 677
Master Drilling Malta Limited 1 894 395 1 540 033
Master Drilling Guatemala SA 195 253 106 815
Master Drilling South Africa (Pty) Ltd - 293 055
Jiangsu Master Mining Engineering Technology Company Limited 30 126 -
Master Drilling DRC sprl (677 929) 1 338 874
Master Drilling Colombia SAS 503 304 -
Master Drilling Zambia Limited (256 579) 402 844
Master Drilling International Ltd (655 736) (1 328 464)
Master Drilling Changzhou Co Ltd 213 921 178 250
Drilling Technical Services (Pty) Ltd - 239 767
Master Drilling Group Shared Services (Pty) Ltd - 62 332
Master Drilling Ecuador SA 103 670 181 047
Master Drilling USA LLC 14 411 -
MD Drilling Services Tanzania SARL - -
2 293 305 5 311 822
A conservative provisions for taxation in some jurisdictions in previous years as well as raising of deferred
tax assets on historically loss making entities returning to profitability have led to a decrease in taxation
expense. The impact on taxation as a result potential future dividends is impractical to calculate as
at 31 December 2016.
The change in tax rate relates to Chile where the tax rate changed from 22,50% to 24,00%.
10. EARNINGS PER SHARE
2016 2015
USD USD
Reconciliation between earnings and headline earnings
Basic earnings for the year 22 319 894 21 114 899
Deduct:
Non-controlling interest (1 124 144) (1 148 748)
Attributable to owners of the parent 21 195 750 19 966 151
(Gain)/Loss on disposal of fixed assets (230 161) 677 898
Impairment of plant and equipment 268 388 -
Tax effect on loss on disposal of fixed assets and impairments (48 284) (217 524)
Headline earnings for the year 21 185 693 20 426 525
Earnings per share (cents) 14.3 13.5
Diluted earnings per share (cents) 14.0 13.3
Headline earnings per share (cents) 14.3 13.8
Diluted headline earnings per share (cents) 14.0 13.6
Net asset value per share (cents) 98.7 79.8
Tangible net asset value per share (cents) 96.6 78.0
Dividends per share (cents) - -
Weighted average number of ordinary shares at the end of the
year for the purpose of basic earnings per share and headline
earnings per share 148 265 491 148 265 491
Effect of dilutive potential ordinary shares - employee share options 3 003 793 2 379 656
Weighted average number of ordinary shares at the end of the
year for the purpose of diluted basic earnings per share and
diluted headline earnings per share 151 269 284 150 645 147
11 CASH GENERATED FROM OPERATIONS
11.1 Cash generated from operations
2016 2015
USD USD
Profit before taxation 25 269 306 28 810 824
Adjustments for:
Depreciation and amortisation 6 927 652 7 683 653
Impairment 268 388 -
Share of profit from equity accounted investment (556 085) (134 575)
Translation effect of foreign operations 1 134 652 605 318
Share-based payment - equity settled 255 349 164 603
Share-based payment - liability (706 681) (47 922)
(Gain)/Loss on sale of assets (230 161) 677 898
Interest received (808 845) (806 556)
Finance costs 1 940 479 1 710 539
Changes in working capital:
Inventories (3 529 733) 2 247 694
Trade and other receivables (7 479 267) (1 741 907)
Trade and other payables 4 066 093 (3 841 678)
26 551 147 35 327 891
11.2 Net cash flow on business combinations
In January 2016, the Group acquired 100% of the equity instruments of Bergteamet Latin America
SpA, a Chilean based business, thereby obtaining control. The acquisition was made to further
expand the Group's presence within Chile.
The acquisition of Bergteamet Latin America SpA was settled in cash amounting to USD4 000 000.
The purchase agreement included an amount of USD432 285 still payable. As part of the
acquisition, the Group acquired the liability of employee termination costs. The employees were
terminated as part of the previous shareholder requiring the re-assigning of these employees to
other operations within its Group. Upon settling the termination costs, the remainder of the
consideration payable will be settled.
The assets and liabilities of Bergteamet Latin America were considered to be stated at fair
value after a proper analysis was performed. This acquisition transaction resulted in goodwill of
USD430 548 which is primarily related to the expected future profitability.
2016 2015
USD USD
The fair value of assets and liabilities assumed at date of
acquisition was:
Assets
Property, plant and equipment 4 966 016 -
Net Working capital (964 189) -
Trade and other receivables 962 575 -
Cash and cash equivalents 105 549 -
Inventory 1 332 552 -
Trade and other payables (3 364 865) -
Total assets and liabilities acquired 4 001 827 -
Group's share of total assets and liabilities acquired 4 001 827 -
Goodwill at acquisition 430 458 -
Total consideration 4 432 285 -
Cash and cash equivalents on hand at acquisition (105 549) -
Consideration still payable (432 285) -
Net cash outflow on acquisition of subsidiaries 3 894 451 -
Profit after tax since acquistion date included in the
consolidated results for the year 1 769 112 -
Turnover since acquisition date included in the consolidated
results for the year 3 750 069 -
Group profit after tax since acquistion date included in the
results for the year 22 319 894 -
Group turnover since acquisition date included in the results
for the year 118 102 983 -
12. CAPITAL COMMITMENTS
2016 2015
USD USD
Capital expenditure authorised by the directors and contracted for
within 12 months. Capital expenditure will be funded through cash
generated from operations. 4 276 175 6 974 023
13. SEGMENT REPORTING
13.1 Mining activity
The following table shows the distribution of the Group's combined sales by mining activity,
regardless of where the goods were produced:
2016 2015
USD USD
Sales revenue by stage of mining activity
Exploration 695 690 1 664 074
Capital 22 792 887 11 804 595
Production 94 614 406 106 398 977
118 102 983 119 867 646
Gross profit by stage of mining activity
Exploration 297 369 779 248
Capital 9 350 969 4 984 392
Production 33 295 116 42 114 964
42 943 454 47 878 604
The chief decision maker of the Group is the chief executive officer. The chief executive officer,
under the direct supervision of the resident board, manages the activities of the Group concomitant
to the inherent risks facing these activities. It is for this reason that the activities are separated
between exploration, capital and production stage drilling. The equipment and related liabilities of
the Group can be used at multiple stages and therefore cannot be presented per activity.
13.2 Geographical segments
Although the Group's major operating divisions are managed on a worldwide basis, they operate in
four principal geographical areas of the world.
2016 2015
USD USD
Sales revenue by geographical market
Africa 21 110 578 27 087 779
Latin America 68 169 160 61 844 572
Other countries 927 223 207 734
South Africa 27 896 022 30 727 561
118 102 983 119 867 646
Gross profit by geographical market
Africa 11 399 711 14 232 105
Latin America 19 121 158 16 594 674
Other countries 2 354 396 1 010 347
South Africa 10 068 189 16 041 478
42 943 454 47 878 604
The gross profit percentages vary based on drilling ground conditions, competition in the markets
and the mix of in-country and foreign cost.
A customer in the African region, operating in the capital and production segments, accounts
for 9% (2015: African region 17%) of the Group's revenue.
2016 2015
USD USD
Total assets by geographical market
Africa 25 401 844 17 637 933
Latin America * 105 685 089 85 986 072
Other countries ** 18 465 134 9 173 293
South Africa 63 055 546 67 779 335
Total assets as per statement of financial position 212 607 613 180 576 633
Total liabilities by geographical market
Africa 13 182 291 16 447 717
Latin America 27 210 338 26 672 086
Other countries 2 048 053 3 628 066
South Africa 23 850 384 15 563 628
Total liabilities as per statement of financial position 66 291 066 62 311 497
* Assets in Latin America includes the non-current asset held for sale.
** Assets in other countries includes the investment in associate.
CORPORATE INFORMATION
REGISTERED AND CORPORATE OFFICE
4 Bosman Street
PO Box 902
Fochville, 2515
South Africa
DIRECTORS
Executive
Daniël (Danie) Coenraad Pretorius Chief executive officer and founder
André Jean van Deventer Financial director and chief financial officer
Barend Jacobus (Koos) Jordaan Technical director
Gareth (Gary) Robert Sheppard(#) Chief operating officer
Non-executive
Hendrik Roux van der Merwe Chairman and independent non-executive
Akhter Alli Deshmukh Independent non-executive
Jacques Pierre de Wet Independent non-executive
Johan Louis Botha Independent non-executive
Shane Trevor Ferguson Non-executive
Fred George Dixon Alternate director
(#)Resident in Peru
COMPANY SECRETARY
Andrew Colin Beaven
6 Dwars Street
Krugersdorp
1739
South Africa
PO Box 158, Krugersdorp, 1740
South Africa
JSE SPONSOR
Investec Bank Limited
(Registration number: 1969/004763/06)
100 Grayston Drive, Sandown
Sandton, 2196
South Africa
INDEPENDENT AUDITORS
Grant Thornton Johannesburg Partnership
South African member of Grant Thornton International Limited
52 Corlett Drive
Illovo
2196
South Africa
SHARE TRANSFER SECRETARIES
Computershare Investor Services Proprietary Limited
(Registration number: 2004/003647/07)
Rosebank Towers, 15 Biermann Avenue,
Rosebank, 2196
(PO Box 61051, Marshalltown, 2107)
South Africa
INVESTOR RELATIONS CONTACTS
Pietman Roos
Instinctif Partners
Telephone: +27 11 050 7506
Mobile: +27 82 659 9226
E-mail: pietman.roos@instinctif.com
GENERAL E-MAIL QUERIES
info@masterdrilling.com
MASTER DRILLING WEBSITE
www.masterdrilling.com
COMPANY SECRETARIAL E-MAIL
Companysecretary@masterdrilling.com
Master Drilling posts information that is important to investors on the main page of its website at
www.masterdrilling.com and under the "investors" tab on the main page. The information is updated regularly and
investors should visit the website to obtain important information about Master Drilling.
www.masterdrilling.com
Date: 22/03/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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