MASTER DRILLING GROUP LIMITED - Report to shareholders Unaudited interim report for the six months ended 30 June 2018

Release Date: 28/08/2018 07:05
Code(s): MDI
 
Wrap Text
Report to shareholders Unaudited interim report for the six months ended 30 June 2018


MASTER DRILLING GROUP LIMITED
Registration number: 2011/008265/06 
Incorporated in the Republic of South Africa
JSE share code: MDI
ISIN: ZAE000171948

REPORT TO SHAREHOLDERS
UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2018

SALIENT FEATURES FOR THE PERIOD

- USD Revenue was up by 11.3%
- USD Earnings per share decreased by 4.5% to 6.3 cents
- ZAR Earnings per share decreased by 10,9% to 77,5 cents
- USD Headline earnings per share decreased by 10.6% to 5.9 cents
- ZAR Headline earnings per share decreased by 16,6% to 72,6 cents
- Committed order book of USD114.4 million
- Pipeline of USD358.2 million
- Following dividend for 2017, dividend will be considered at year-end

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 for over 30 years. 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 results for the six months to end June 2018, Danie Pretorius, CEO of Master Drilling, said: 

"The challenging conditions experienced in 2017 partly persisted over the six months ending June 2018, as the optimism
generated by domestic political developments at the start of the year gave way to the realisation that the economy
remains weak and both political and economic prospects uncertain. Being able to maintain a stable business amid such
conditions is difficult, but not impossible and that is evident in our half-year results. 

As expected, the uptick in the global economy and commodity cycle is bearing fruit in our business as we receive new
contracts and a steady flow of new enquiries that feed into the pipeline. Our presence in Central and North America is
growing, while our recent acquisition, Bergteamet, is making progress in Europe beyond Scandinavia. Our diversification
strategy is well under way and, coupled with our continuous focus on delivering new technologies, bodes well for the
growth of the business.

Domestically, notwithstanding a difficult and uncertain environment, we continue to maintain our presence in the mining
sector where viable opportunities arise, while increasingly the value we can add across other exploration activities is
becoming evident, particularly in water exploration. This is a reflection of how our business is able to adapt to
evolving requirements and also the importance of technological development.

It is fitting therefore that we continue to work hard on this front and look forward to the launch of the newly
developed Mobile Tunnel Borer in September which will increase our horizontal service offerings. We will also continue
to focus our efforts on technology that enhances operations and, above all, improves safety."

FINANCIAL OVERVIEW

Revenue increased 11.3% to USD67.4 million and operating profit increased 6.0% to USD12.9 million. The increase in
revenue was due to the addition of one new machine and the acquisition of Bergteamet Raiseboring Europe AB, compared to
the same period last year.

The impact of foreign exchange movements on revenue was less than the impact thereof on cost, resulting in overall
stable profitability and profit after tax decreasing 3.3% to USD9.7 million.  

USD earnings per share (EPS) decreased 4.5% to 6.3 cents, and ZAR EPS decreased 10,9% to 77,5 cents due to the stronger
ZAR compared to the same period last year. USD headline earnings per share (HEPS) decreased 10.6% to 5.9 cents, and ZAR
HEPS decreased 16,6% to 72,6 cents compared to the same period last year. 

Net cash generation remained unchanged at USD11.7 million, following the initial investments in working capital to cater
for higher volumes of work coming on stream involving new projects across the Group. Debtor days increased due to longer
payment cycles as a result of weak economic conditions. Master Drilling will continue to manage debtors actively to
ensure good conversion to cash. Cash resources continue to be managed stringently to cater for emerging opportunities
that require specific design, planning and investment.

During the reporting period, 95.7% of the Master Drilling capital spend was on capacity expansion with the remaining
4.3% allocated towards maintenance capital. 

Debt increased slightly from USD 44.1 million to USD 45.9 million due to the acquisition of Bergteamet Raiseboring
Europe AB. Net of cash, the gearing ratio changed from 5.9% to 10.9% compared to the same reporting period in the prior
year.  

OPERATIONAL OVERVIEW

Commodity markets remained upbeat during the first half of 2018, while the ZAR strengthened on the back of political
optimism. However, domestic economic conditions remained subdued and pressure mounted on the local mining sector. In
contrast, increased capital expenditure in offshore commodity markets benefited Master Drilling's business, with a
noticeable increase in enquiries and new contracts being secured.

South America

There were encouraging developments in the region during the first half of the year. Master Drilling's innovative
technology is aimed at, amongst other things, ensuring safety of personnel on sites and as such any fatality is
regrettable and viewed in a serious light. However, we remain confident that our focus on safety is unwavering and
continue to work closely with mine management to prevent a re-occurrence of an unfortunate fatality at the beginning of
the year.

The outlook for operations in Brazil remains strong. This comes on the back of new operational records being achieved.
Chile delivered satisfactory operational performance and the outlook is equally positive, with capital expenditure at
our client, CODELCO (a state-owned entity), going ahead and resulting in a resumption of projects that were previously
won but put on hold due to the lower copper price environment.  

Meanwhile, projects in Peru are progressing at a slower pace than anticipated. One of the complications being
encountered is rigid labour laws, which place pressure on overhead costs and consequently competitiveness and margins. 

The hydroelectric project in Columbia was completed at the end of January 2018 and we will be looking to re-deploy the
equipment to another site in the region as the need arises. Our diversification strategy across other industries such as
hydroelectric power has been successful, with as much as 5% of our revenue now being derived from non-mining related
projects. 

Central and North America

Master Drilling is particularly bullish on the prospects for increased business in this region, following its success in
securing several contracts in Canada related to nickel and diamond mining. One of these projects is due to commence
during the second half of 2018, while another will commence in Q1 2019.

Master Drilling has deployed additional equipment to sites in Mexico, where it has also been awarded new contracts.
These customer projects will commence as soon as the logistical issues being encountered are resolved. It is encouraging
to note that with the improvement in the international commodity environment, the backlog in capital expenditure spend
is being addressed and customer projects previously considered non-viable are being revisited, resulting in new
opportunities for Master Drilling. These positive developments are reflected in the health of our pipeline and the leads
for the re-deployment of our technology on new projects.

Africa

Uncertainty continued to prevail in the domestic mining sector over the first half of the year, under-pinned by proposed
policies that are not business and investor friendly, among which the proposed expropriation of land without
compensation and the draft Mining Charter, now in its third draft. Such factors impact on the viability of mining
companies and their ability to meet payment commitments. Master Drilling continues to monitor these developments closely
and to manage working capital as deftly as possible. 

Amid difficult conditions, Master Drilling's work on the Kolomela project (slim drilling) has continued successfully for
six years, with the company recently being nominated for an excellence and safety award in relation to this project.
With Master Drilling having recently secured a project at Anglo American's Sishen mine, it would also seem that there
continue to be opportunities locally. In particular, more enquiries are being received for the drilling of bigger and
deeper holes. 

Enquiries are also being received from other sectors of the economy, particularly with regards to projects related to
water exploration, where Master Drilling has secured a R19 million contract with the City of Cape Town. Master Drilling
expects to receive more enquiries involving complex water exploration work that requires its innovative engineering
capabilities, as the country seeks to ensure a sustainable water supply.On the rest of the continent, with some projects
nearing completion, contributions from African operations to group results will gradually diminish. Nonetheless,
projects remain underway in Zambia, where additional equipment is being re-deployed from operations in the DRC that are
winding up, while a new project is due to start in Ghana at the end of the year.  

Scandinavia

Master Drilling has successfully merged Bergteamet's activities into the core business. The performance of Bergteamet
was pleasing over the past six months, particularly as the company was awarded projects in the rest of Europe, including
France, Spain and Turkey. This has in turn resulted in new enquiries and an improved pipeline for the business.

India

The project we undertook in India in support of Vedanta Limited, a London Stock Exchange listed, globally diversified
natural resources major with interests in Zinc, Lead, Silver, Copper, Iron Ore, Aluminium, Power and Oil & Gas, got off
to a very good start in 2018. The project is achieving high levels of operational efficiencies and we have already
deployed a second machine to the site, with further expansion opportunities being explored.

Technology 

Master Drilling is synonymous with innovative technology and development. Being able to provide clients with advanced
and effective drilling solutions and services across geographies and sectors sets us apart from competitors and ensures
that we remain ahead of our customers' evolving requirements. In September 2018, we will be launching the Mobile Tunnel
Borer. We are also making progress on the Blind Shaft Boring technology, which we expect to launch in Q1 2019.

Increasingly, the challenge we face in maintaining our technological advantage, is the sourcing and retention of
appropriate skills and of personnel that can be up-skilled over time as part of our on-going skills development
commitment. We continue to focus on this as a critical element of our growth strategy. 

Skills development 

Retaining expertise and skills development are key priorities for Master Drilling. We are investing in skills
development based on a skills gap analysis previously conducted. This investment will extend our capacity to support our
growth strategy. The rest of 2018 will focus on targeted technical training in general.

OUTLOOK AND PROSPECTS

The business remained stable and made good progress over the past six months, notwithstanding a number of headwinds,
including currency developments. Having continued to focus on expanding the pipeline and optimising operations
geographically, as some of these headwinds subside, we are cautiously optimistic that we will record some improvements
during the remainder of the financial year. In particular, the positive developments filtering through from the
improvement in the commodity cycle, coupled with weaker emerging market currencies should prove supportive of firmer
revenue and lower costs. 

Pipeline and committed orders

As at 30 June 2018 our pipeline totalled USD358 192 132 (2017: 226 085 095) while the committed order book totalled 
USD114 449 011 (2017: 155 337 358) for the remainder of 2018 and beyond.

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, infrastructure and hydroelectric
energy sectors, across a number of commodities and geographies. Master Drilling is the leader in the raise bore drilling
services industry

ACCOUNTING POLICIES 

1. BASIS OF PRESENTATION

The condensed unaudited consolidated interim 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 condensed unaudited consolidated interim 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 audited
consolidated annual financial statements for the year ended 31 December 2017 except for the adoption both IFRS 9 and
IFRS 15 which had no impact on the unaudited interim financial results for the six months ended 30 June 2018.

The condensed unaudited consolidated interim 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 Andr� Jean van Deventer CA(SA), the Group's chief financial officer. 

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

The Group financial statements incorporate all entities which are controlled by the Group.

At inception, the Group 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 measures 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. 

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 condensed unaudited consolidated
interim 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 were no movement in share capital since 31 December 2017.

OPERATING SEGMENTS

There were no changes made to the operating segments from those disclosed at 31 December 2017.

SUBSEQUENT TO REPORTING PERIOD

There have been no significant events subsequent to 30 June 2018 which require adjustment or additional disclosure to
interim results. 

DIVIDENDS

The Board resolved not to declare an interim dividend but rather to consider an appropriate dividend at year-end.

CHANGES TO THE BOARD

The following changes were made to the Board since 31 December 2017.   

Name                    Position                                                                                         Event                            Date of Event
Jacques Pierre de Wet   Independent non-executive chairman of the Audit Committee. Member of the: Risk; Social, Ethics   Retire at MDGL AGM 2018          7 June 2018             
                        and Sustainability; Remuneration and Nominations Committees
Johan Louis Botha       Independent non-executive chairman of the: Risk; Social, Ethics and Sustainability Committees.   Retire at MDGL AGM 2018          7 June 2018
                        Member of the Audit Committee
Andries Willem Brink    Independent non-executive chairman of Audit; Risk; Social, Ethics and Sustainability             Elected by shareholders at the   7 June 2018
                        Committees. Member of Nominations and Remuneration Committees                                    MDGL AGM 2018
Octavia Matshidiso      Independent non-executive member of Audit; Risk; Social Ethics and Sustainability Committees     Elected by shareholders at the   7 June 2018
Matloa                                                                                                                   MDGL AGM 2018

CONSOLIDATED STATEMENT OF FINANCIAL POSITION  

                                                                                                Unaudited six               Audited year
                                                                                                 months ended                      ended
                                                                                                     Jun 2018                   Dec 2017
                                                                                        Note(s)           USD                        USD
Assets
Non-current assets
Property, plant and equipment                                                                 3    134 494 962               119 075 667
Intangible assets                                                                             4      3 185 008                 3 083 427
Financial assets                                                                                     2 905 073                 3 098 512
Deferred tax asset                                                                                   3 276 389                 2 010 263
Investment in associate                                                                                      -                 6 022 115
                                                                                                   143 861 432               133 289 984
Current assets
Inventories                                                                                         24 527 307                23 894 609
Related-party loans                                                                                    109 408                   102 641
Trade and other receivables                                                                   5     43 226 377                38 191 737
Cash and cash equivalents                                                                           28 397 399                40 211 629
                                                                                                    96 260 491               102 400 616
Non-current assets held for sale                                                              6              -                 1 255 128
                                                                                                    96 260 491               103 655 744
Total assets                                                                                       240 121 923               236 945 728
Equity and liabilities
Equity
Share capital                                                                                      148 703 721               148 703 721
Reserves                                                                                          (91 202 031)              (83 855 527)
Retained income                                                                                     94 558 590                88 221 320
                                                                                                   152 060 280               153 069 514
Non-controlling interest                                                                             8 530 512                 8 255 315
                                                                                                   160 590 792               161 324 829
Liabilities
Non-current liabilities
Interest bearing borrowings                                                                         34 587 039                36 263 625
Finance lease obligations                                                                            2 964 382                 1 682 765
Deferred tax liability                                                                               8 330 206                 9 189 125
                                                                                                    45 881 627                47 135 515
Current liabilities
Interest bearing borrowings                                                                          6 806 085                 4 659 387
Finance lease obligations                                                                            1 573 431                 1 444 820
Related party loans                                                                                    582 834                   195 483
Current tax payable                                                                                  4 477 350                 2 098 947
Trade and other payables                                                                      7     20 209 804                20 086 747
                                                                                                    33 649 504                28 485 384
Total liabilities                                                                                   79 531 131                75 620 899
Total equity and liabilities                                                                       240 121 923               236 945 728   

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

                                                                                                Unaudited six Unaudited six Audited year
                                                                                                 months ended  months ended        ended
                                                                                                     Jun 2018      Jun 2017     Dec 2017
                                                                                        Note(s)           USD           USD          USD
Revenue                                                                                            67 379 315    60 517 224  121 424 109
Cost of sales                                                                                    (43 462 398)  (37 721 857) (76 794 271)
Gross profit                                                                                       23 916 917    22 795 367   44 629 838
Other operating income                                                                              1 978 649     1 199 133    3 674 987
Other operating expenses                                                                         (13 039 357)  (11 864 464) (23 378 396)
Operating profit                                                                                   12 856 209    12 130 036   24 926 429
Investment revenue                                                                                    573 256       430 194      510 325
Finance costs                                                                                     (1 486 240)   (1 017 267)  (2 850 878)
Share of profit from equity accounted investment                                                    ( 17 929)     ( 22 156)     ( 1 710)
Profit before taxation                                                                             11 925 296    11 520 807   22 584 166
Taxation                                                                                          (2 234 699)   (1 504 260)  (5 134 100)
Profit for the year                                                                                 9 690 597    10 016 547   17 450 066
Other comprehensive income that will subsequently be classifiable to profit and loss:
Exchange differences on translating foreign operations                                            (7 506 025)     3 632 631    7 403 109
Other comprehensive income/(loss) for the year net of taxation                                    (7 506 025)     3 632 631    7 403 109
Total comprehensive income                                                                          2 184 572    13 649 178   24 853 175

Profit attributable to:                                                                             9 690 597    10 016 547   17 450 066
Owners of the parent                                                                                9 415 400     9 822 231   17 202 923
Non-controlling interest                                                                              275 197       194 316      247 143
Total comprehensive income attributable to:                                                         2 184 572    13 649 178   24 853 175
Owners of the parent                                                                                1 909 375    13 454 862   24 606 032
Non-controlling interest                                                                              275 197       194 316      247 143
Earnings per share (USD)                                                                     8
Basic earnings per share (cents)                                                                         6.3            6.6         11.5
Diluted earnings per share (USD)                                                             8
Diluted basic earnings per share (cents)                                                                 6.2            6.5         11.4
Earnings per share (ZAR)
Basic earnings per share (cents)                                                                         77,5          87,0        153,1
Diluted earnings per share (ZAR)
Diluted basic earnings per share (cents)                                                                 76,3          85,7        151,7
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                                                            Equity due       Foreign   
                                                             to change      currency  Share-based                                Attributable          Non-             Total           
                                                 Share   in control of   translation     payments        Total       Retained    to owners of   controlling     Shareholders' 
USD                                             capital      interests       reserve      reserve     reserves         income      the parent      interest            equity 
Balance as at 30 June 2017                  148 374 435   (58 264 013)  (29 741 428)      238 365 (87 767 076)     80 840 628     141 447 987    16 485 676       157 933 663 
Share-based payments                                  -              -             -      141 071      141 071              -         141 071             -           141 071
Issue of ordinary shares                        329 286              -             -            -            -              -         329 286             -           329 286
Derecognition of Non-Controlling Interest             -              -             -            -            -              -               -   (7 977 048)       (7 977 048)
Dividends declared by subsidiaries                    -              -             -            -            -              -               -     (306 140)         (306 140)
Total comprehensive income for the year               -              -     3 770 478            -    3 770 478      7 380 692      11 151 170        52 827        11 203 997
Total changes                                         -              -     3 770 478      141 071    3 911 549      7 380 692      11 292 241   (8 230 361)         3 391 166
Balance as at 31 December 2017              148 703 721   (58 264 013)  (25 970 950)      379 436 (83 855 527)     88 221 320     153 069 514     8 255 315       161 324 829
Share-based payments                                  -              -             -      159 521      159 521              -         159 521             -           159 521
Total comprehensive income for the year               -              -   (7 506 025)            -  (7 506 025)      9 415 400       1 909 375       275 197         2 184 572
Dividends to shareholders                             -              -             -            -            -    (3 078 130)     (3 078 130)             -       (3 078 130)
Total changes                                         -              -   (7 506 025)      159 521  (7 346 504)      6 137 270     (1 009 234)      275 197         (734 037)
Balance as at 30 June 2018                  148 703 721    (58 264 013) (33 476 975)      538 957 (91 202 031)     94 558 590     152 060 280     8 530 512       160 590 792 
                                                      
CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                                       Unaudited six                Unaudited six
                                                                                        months ended                 months ended
                                                                                            Jun 2018                     Jun 2017
                                                                               Note(s)           USD                          USD
Cash flows from operating activities
Cash generated from operations                                                       9    11 650 683                   11 689 257
Interest income                                                                              573 256                      430 194
Finance costs                                                                            (1 486 240)                  (1 017 267)
Tax paid                                                                                 (2 049 554)                  (1 871 942)
Net cash from operating activities                                                         8 688 145                    9 230 242
Cash flows from investing activities
Purchase of property, plant and equipment                                                (7 103 330)                  (5 953 419)
Sale of property, plant and equipment                                                      1 964 230                      176 828
Financial assets movement                                                                    193 439                    (478 925)
Acquisition of subsidiary                                                           10   (9 335 904)                            -
Net cash from investing activities                                                      (14 281 565)                  (6 255 516)
Cash flows from financing activities
Proceeds of financial liabilities                                                                  -                   19 000 000
Repayment of financial liabilities                                                       (1 795 530)                  (2 675 737)
Proceeds from financial leases                                                               328 842                      482 885
Repayment of financial leases                                                              (100 151)                    (808 524)
Related party loan movement                                                                  380 584                      (4 416)
Proceeds on issue of share capital                                                                 -                    1 311 164
Dividends paid                                                                           (3 078 130)                  (3 409 081)
Net cash from financing activities                                                       (4 264 385)                   13 896 291
Total cash movement for the period                                                       (9 857 805)                   16 871 017
Cash at the beginning of the period                                                       40 211 629                   20 372 573
Effect of exchange rate movement on cash balances                                        (1 956 425)                      413 967
Total cash at end of the period                                                           28 397 399                   37 657 557

PROPERTY, PLANT AND EQUIPMENT

                                                                                                           Accumulated
                                                                                                          depreciation
                                                                                                                   and
Jun 2018                                                                                                    impairment    Carrying
USD                                                                                                Cost         losses       value
Land and buildings                                                                            4 312 022      (137 433)   4 174 589
Plant and machinery                                                                         150 372 324   (40 677 461) 109 694 863
Assets under construction                                                                     9 370 626    (3 380 566)   5 990 060
Furniture and fittings                                                                        1 446 162      (389 298)   1 056 864
Motor vehicles                                                                                3 316 199    (1 674 992)   1 641 207
IT equipment                                                                                    723 450      (451 764)     271 686
Finance lease: Plant and equipment                                                           17 120 717    (6 722 879)  10 397 838
Computer software                                                                             2 438 449    (1 386 764)   1 051 685
Patents                                                                                         216 170              -     216 170
Total                                                                                       189 316 119   (54 821 161) 134 494 962 

                                                                                                           Accumulated
                                                                                                          depreciation
Dec 2017                                                                                                           and    Carrying
USD                                                                                                Cost     impairment       value
Land and buildings                                                                            4 267 124      (124 152)   4 142 972
Plant and machinery                                                                         140 270 031   (39 146 361) 101 123 670
Assets under construction                                                                       392 338        (2 567)     389 771
Furniture and fittings                                                                        1 461 158      (382 136)   1 079 022
Motor vehicles                                                                                3 434 946    (1 699 685)   1 735 261
IT equipment                                                                                    743 646      (444 396)     299 250
Finance lease: Plant and equipment                                                           13 414 269    (4 560 949)   8 853 320
Computer software                                                                             2 591 229    (1 378 429)   1 212 800
Patents                                                                                         239 601              -     239 601
Total                                                                                       166 814 342   (47 738 575) 119 075 667

3.1 Reconciliation of property, plant and equipment

                                                                    Exchange
                                                               difference on   Assets acquired
                                                               consolidation           through                                          Impairment
Jun 2018                                 Opening                  of foreign          business Reclassifications                          of fixed
USD                                      balance   Additions    subsidiaries       combination     and transfers Disposals Depreciation     assets       Total
Land and buildings                     4 142 972       7 388       (106 206)                 -           150 950         -     (20 515)          -   4 174 589
Plant and machinery                  101 123 670   1 271 374     (5 918 175)        14 404 336         1 419 437  (97 880)  (2 507 899)          - 109 694 863
Assets under construction                389 771   5 615 356        (15 067)                 -                 -         -            -          -   5 990 060
Furniture and fittings                 1 079 022       8 109        (10 103)               587                 -     (928)     (19 823)          -   1 056 864
Motor vehicles                         1 735 261     144 084        (53 489)            12 519                 -  (10 634)    (186 534)          -   1 641 207
IT equipment                             299 250      50 360        (14 559)                 -           (4 103)     (190)     (59 072)          -     271 686
Finance lease: Plant and equipment     8 853 320           -       (405 906)         2 667 952                 -         -    (717 528)          -  10 397 838
Computer software                      1 212 800       6 659        (54 413)            13 870                 -         -    (127 231)          -   1 051 685
Patents                                  239 601           -        (23 431)                 -                 -         -            -          -     216 170
                                     119 075 667   7 103 330     (6 601 349)        17 099 264         1 566 284 (109 632)  (3 638 602)          - 134 494 962

                                                                   Exchange
                                                              difference on   Assets acquired
                                                              consolidation           through                                          Impairment
Dec 2017                                 Opening                 of foreign          business Reclassifications                          of fixed
USD                                      balance  Additions    subsidiaries       combination     and transfers Disposals Depreciation     assets       Total
Land and buildings                     3 922 999     71 550         186 510                 -                 -         -     (38 087)          -   4 142 972
Plant and machinery                   76 707 978 13 364 454       4 194 304                 -        11 384 687 (150 381)  (4 191 694)  (185 678) 101 123 670
Assets under construction              2 395 587  1 719 392           5 548                 -       (3 730 756)         -            -          -     389 771
Furniture and fittings                 1 064 063     41 214           7 049                 -             3 316   (2 089)     (34 531)          -   1 079 022
Motor vehicles                         1 803 919    358 472          25 915                 -          (14 971)  (75 197)    (362 877)          -   1 735 261
IT equipment                             510 658    101 639          11 017                 -         (175 477)   (9 895)    (138 692)          -     299 250
Finance lease: Plant and equipment    17 439 513    147 415         977 162                 -       (8 692 643)         -  (1 018 127)          -   8 853 320
Computer software                      1 242 377     18 889          48 265                 -           175 793     (180)    (272 344)          -   1 212 800
Patents                                  229 500     10 101               -                 -                 -         -            -          -     239 601
                                     105 316 594 15 833 126       5 455 770                 -       (1 050 051) (237 742)  (6 056 352)  (185 678) 119 075 667

Security

Moveable assets to the value of ZAR1.2 billion of the South African subsidiaries have been bonded to Absa Capital as
security for an interest-bearing loan.

Impairment

During 2017, the Exploration department in our African segment recognised an impairment loss of USD185 678. The main
elements were a write-down of the idle slim drilling rigs to their value in use. The calculation of value in use is most
sensitive to mining commodity cycles. The future cash flows of the particular drill rigs were negatively affected by the
current declining commodity prices of our customers, which mainly comprise of mining operations. As a result our
customers reduced and deferred exploration slim drilling activities.

Intangible assets

                                                                                                                            Jun 2018  Dec 2017
                                                                                                                                 USD       USD
Goodwill recognised from value chain business combinations                                                                 2 612 584 2 612 584
Goodwill recognised from raisebore business combinations                                                                     572 424   470 843
Goodwill recognised from business combinations                                                                             3 185 008 3 083 427

Goodwill recognised 

The increase in goodwill during the period arose with the acquisition of Bergteamet Raiseboring Europe AB. Refer to note 
9.2 for more details.

Trade and other receivables

                                                                                                                           Jun 2018   Dec 2017
                                                                                                                                USD        USD
Trade receivables - Normal                                                                                               31 567 468 27 333 869
Trade receivables - Retention                                                                                             4 195 756  5 021 356
Loans to employees                                                                                                          137 994     40 636
Pre-payments                                                                                                              1 208 401  1 054 572
Deposits                                                                                                                    105 387     82 219
Indirect taxes                                                                                                            3 316 882  1 691 851
Sundry                                                                                                                    2 694 489  2 967 234
                                                                                                                         43 226 377 38 191 737
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                                                                                        19 309 568 18 330 132
One month past due                                                                                                        9 109 506  6 029 069
Two months past due                                                                                                       3 824 421  3 084 459
Three months and over past due                                                                                            4 389 388  5 413 060
Allowance for doubtful debts                                                                                              (869 659)  (501 495)
                                                                                                                         35 763 224 32 355 225
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                                                                                                          501 495     136 119
Exchange differences on translation of foreign operations                                                                  (9 773)       6 698
Amounts written off                                                                                                              -           -
Allowance for doubtful debts (reversed)/provided for                                                                       377 937     358 678
                                                                                                                           869 659     501 495

The carrying amount in USD of trade and other receivables are denominated in the following currencies:

                                                                                                                                USD        USD
United States Dollar (USD)                                                                                               20 349 347 18 223 187
South African Rands (ZAR)                                                                                                 6 647 959  6 162 910
Brazilian Reals (BRL)                                                                                                     2 898 709  2 943 824
Mexican Peso (MXN)                                                                                                           59 287    594 427
Chilean Peso (CLP)                                                                                                        6 102 513  7 558 388
Peruvian Nuevo Sol (PEN)                                                                                                    685 978    630 645
CFA Franc BCEAO (XOF)                                                                                                       292 252    712 913
Chinese Yuan Renminbi (CNY)                                                                                                 251 944    339 833
Guatemalan Quetzal (GTQ)                                                                                                      6 608      3 175
Zambian Kwacha (ZMW)                                                                                                              -    351 527
Colombian Peso (COP)                                                                                                        330 778    594 787
Indian Rupee (INR)                                                                                                        2 754 264     43 673
Swedish Krona (SEK)                                                                                                       1 478 817          -
Australian Dollars (AUD)                                                                                                     36 384     32 448
Euro (EUR)                                                                                                                1 331 537          -
                                                                                                                         43 226 377 38 191 737

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. The sale of the land and building realised during May 2018 and proceeds to the
value of USD2.08 million was received from a external buyer.

No impairment losses were recognised in profit and loss as the carrying amount of the assets held for sale exceed the
fair value less cost to sell. A profit of USD0.8 million was realised on the transaction which was accounted for through
profit and loss.

As at the end of the reporting period, the assets held for sale comprised of the following: 

                                                                                                                            Jun 2018  Dec 2017
                                                                                                                                 USD       USD
Land and buildings                                                                                                                 - 1 255 128
Assets held for sale                                                                                                               - 1 255 128

Trade and other payables

                                                                                                                           Jun 2018   Dec 2017
                                                                                                                                USD        USD
Trade payables                                                                                                            8 695 143  7 956 216
Income received in advance                                                                                                1 227 500          -
Indirect taxes                                                                                                            4 430 038  6 654 506
Leave pay accruals                                                                                                        2 880 701  2 070 242
Other accruals                                                                                                            2 976 422  3 405 783
                                                                                                                         20 209 804 20 086 747

Earnings per Share

                                                                                                                               Jun 2018     Jun 2017    Dec 2017
                                                                                                                                    USD          USD         USD
Reconciliation between earnings and headline earnings
Basic earnings for the year                                                                                                   9 690 597   10 016 548  17 450 066
Deduct:
Non-controlling interest                                                                                                       (275 197)   (194 316)   (247 143)
Attributable to owners of the parent                                                                                           9 415 400   9 822 231  17 202 923
(Gain)/Loss on disposal of fixed assets                                                                                        (845 952)     (2 327)      67 183
Impairment of plant and equipment                                                                                                      -           -     185 678
Tax effect on loss on disposal of fixed assets and impairments                                                                   249 555         558    (70 801)
Headline earnings for the year                                                                                                 8 819 003   9 820 463  17 384 983
Earnings per share (USD cents)                                                                                                       6.3         6.6        11.5
Diluted earnings per share (USD cents)                                                                                               6.2         6.5        11.4
Headline earnings per share (USD cents)                                                                                              5.9         6.6        11.6
Diluted headline earnings per share (USD cents)                                                                                      5.8         6.5        11.5
Net asset value per share (USD cents)                                                                                              106.6       106.2       107.6
Tangible net asset value per share (USD cents)                                                                                     104.5       104.2       105.6
Dividends per share (ZAR cents)                                                                                                     26.0        30.0        30.0
Weighted average number of ordinary shares at the end of the year for the purpose of basic earnings per share and headline   150 592 777 148 694 258 149 894 366
earnings per share
Effect of dilutive potential ordinary shares - employee share options                                                          1 530 000   2 593 519   1 603 877
Weighted average number of ordinary shares at the end of the year for the purpose of diluted basic earnings per share and    152 122 777 151 287 777 151 498 243
diluted headline earnings per share

CASH GENERATED FROM OPERATIONS

                                                                          Jun 2018            Jun 2017
                                                                               USD                 USD
Profit before taxation                                                  11 925 296          11 520 807
Adjustments for:
Depreciation and amortisation                                            3 638 602           3 768 516
Impairment                                                                       -                   -
Share of profit from equity accounted investment                            17 929              22 156
Translation effect of foreign operations                                 (450 445)             907 958
Share-based payment - equity settled                                       159 521              65 855
(Profit)/Loss on sale of assets                                          (845 952)               2 327
Interest received                                                        (573 256)           (430 194)
Finance costs                                                            1 486 240           1 017 267
Changes in working capital:
Inventories                                                              2 975 979         (2 406 057)
Trade and other receivables                                            (1 800 770)           2 154 104
Trade and other payables                                               (4 882 461)         (4 933 482)
                                                                        11 650 683          11 689 257

Net cash flow on business combinations

On 1 March 2018, the Group exercised its option to acquire the remainder of the 60% shares in Bergteament Raiseboring
Europe AB to increase its shareholding to 100%. The purchase of the remainder of the shares amounted to SEK69 825 000
(USD8 509 222).

The Group previously accounted for Bergteamet Raiseboring Europe AB as an investment in associate with
equity accounting when only 40% of the shareholding was held.

The goodwill amount represents a provisional calculation
on the acquisition. A detailed purchase price allocation is being performed and the directors currently anticipate that
there will be a fair value revaluation of drilling equipment.

                                                                                                       Jun 2018 Jun 2017
                                                                                                            USD      USD
The fair value of assets and liabilities assumed at date of acquisition was:
Assets
Property, plant and equipment                                                                        17 099 264        -
Current tax receivable                                                                                  165 517
Non-current interest-bearing loans and borrowings                                                   (3 447 179)
Deferred taxation liability                                                                           (407 032)
Net working capital                                                                                   1 010 347        -
Trade and other receivables                                                                           3 233 870        -
Cash and cash equivalents                                                                             (826 682)        -
Inventory                                                                                             3 608 677        -
Trade and other payables                                                                            (5 005 518)        -
Total assets and liabilities acquired                                                                14 420 917        -
Group's share of total assets and liabilities acquired                                               14 420 917        -
Fair value of 40% interest held prior to acquisition                                                (6 004 184)
Consideration paid                                                                                  (8 509 222)
Goodwill at acquisition                                                                                  92 489        -
Total consideration                                                                                  14 513 406        -
Cash and cash equivalents on hand at acquisition                                                        826 682        -
Non-cash consideration for the 40% interest held prior to acquisition                               (6 004 184)        -
Net cash outflow on acquisition of subsidiaries                                                       9 335 904        -

Turnover since acquisition date included in the consolidated results for the period                   5 505 204        -
Profit after tax since acquisition date included in the consolidated results for the period           1 036 856        -
Group turnover since acquisition date included in the consolidated results for the period            67 379 315        -
Group profit after tax since acquisition date included in the consolidated results for the period     9 690 597        -

Capital Commitments

                                                                                                                                                  Jun 2018  Dec 2017
                                                                                                                                                       USD       USD

Capital expenditure authorised by the directors and contracted for within 12 months. Capital expenditure will be funded through cash generated   2 098 947 4 579 527
from operations.

Segment Reporting

12.1 Mining activity

The following table shows the distribution of the Group's combined sales by mining activity, regardless of where the
goods were produced:

                                             Jun 2018    Jun 2017     Dec 2017
                                                  USD         USD          USD
Sales revenue by stage of mining activity
Exploration                                    602 942    269 563      973 412
Capital                                      3 115 163 10 496 193    4 339 904
Production                                  63 661 210 49 751 468  116 110 793
                                            67 379 315 60 517 224  121 424 109
Gross profit by stage of mining activity
Exploration                                    144 385    106 645      383 107
Capital                                      1 619 518  4 197 059      830 043
Production                                  22 153 014 18 491 663   43 416 688
                                            23 916 917 22 795 367   44 629 838

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. 

12.2 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.

                                        Jun 2018    Jun 2017    Dec 2017
                                             USD         USD         USD
Sales revenue by geographical market
Africa                                 22 702 248 27 382 245  54 737 735
Central and North America               7 086 045  6 370 055  14 619 849
Other countries (*)                     8 875 339          -           -
South America                          28 715 683 26 764 924  52 066 525
                                       67 379 315 60 517 224 121 424 109
Gross profit by geographical market
Africa                                 10 667 105 13 002 342   24 880 016
Central and North America                (67 774)  1 207 002    4 547 869
Other countries (*)                     3 033 523          -            -
South America                          10 284 063  8 586 023   15 201 953
                                       23 916 917 22 795 367   44 629 838

The gross profit percentages vary based on drilling ground conditions, competition in the markets and the mix of
in-country and foreign cost.

                                         Jun 2018   Jun 2017   Dec 2017
                                              USD        USD        USD
Depreciation by geographical market
Africa                                  1 647 830  1 757 021  2 813 563
Central and North America                 184 624    123 522    465 299
Other countries (*)                       599 418    356 838     42 009
South America                           1 206 730  1 531 135  2 735 481
                                        3 638 602  3 768 516  6 056 352

                                           Jun 2018  Jun 2017  Dec 2017
                                                USD       USD       USD
Investment revenue by geographical market
Africa                                      164 236   242 445   261 559
Central and North America                        73       300       749
Other countries (*)                         247 139   134 154   168 101
South America                               161 808    53 295    79 916
                                            573 255   430 194   510 325

                                          Jun 2018  Jun 2017   Dec 2017
                                               USD       USD        USD
Finance cost by geographical market
Africa                                     705 240   615 667  1 834 711
Central and North America                  214 505    91 369    209 404
Other countries (*)                        270 460    90 764    204 635
South America                              296 035   219 467    602 128
                                         1 486 240 1 017 267  2 850 878

                                           Jun 2018  Jun 2017  Dec 2017
                                                USD       USD       USD
Taxation by geographical market
Africa                                    1 258 060 1 071 828 1 334 731
Central and North America                     5 559    19 746   312 205
Other countries (*)                         585 209     5 698 2 203 622
South America                               385 871   406 988 1 283 542
                                          2 234 699 1 504 260 5 134 100

(*) Other countries include new operations in Scandinavia and India.

Corporate information

REGISTERED AND CORPORATE OFFICE

4 Bosman Street
PO Box 902
Fochville, 2515
South Africa

DIRECTORS

Executive

Daniel (Danie) Coenraad Pretorius   Chief executive officer and founder
Andre 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
Andries Willem Brink         Independent non-executive
Octavia Matshidiso Matloa    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

Monica Ambrosi
Instinctif Partners
Telephone: +27 11 050 7506
Mobile: +27 83 307 8286
E-mail: MasterDrilling@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. 

28 August 2018

Date: 28/08/2018 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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