directors’ reportgalfar.com/userfiles/financials english q3 2014.pdfdirectors’ report dear...

Directors’ Report

Dear Shareholders, On behalf of the Board of Directors, the report on the performance of the Company for the nine months ended 30th September, 2014 is presented below: Operations The parent company has made net profit of RO 3.0 m (2013: 5.6 m) on revenue of RO 271 m (2013: 289 m) and the consolidated net profit is RO 2.4 m (2013: RO 6.7 m) on revenue of RO 284 m (2013: RO 303 m). The Company has completed Hasik-Shuwaimiya road project, cutting across peak hills and virgin terrains, covering a total distance of approximately 85 KMs in Dhofar region. The road is now open to the public. Further, we have been awarded Mirbat-Taqa road project in the same alignment. During this year, to date the company has been awarded new projects of RO 148 million compared to previous year at RO 63 million. Meanwhile, the company continues to fulfil its commitments towards the projects and clients. Outlook The Directors have the pleasure to inform you that the parent company continues to maintain an order book position in the range of over RO 475 million. We are expecting award of certain projects, which are already tendered. On Record We are grateful to His Majesty Sultan Qaboos bin Said, for his visionary leadership and wish him good health, wellbeing and a long life. The company also extends its thanks to the Government and various Ministries for providing opportunities for the private sector, to participate in the development of Oman’s economy. The Board would like to thank our clients in Oman and abroad, Financial Institutions in Oman and abroad, Consultants, Suppliers and Service Providers for their generous cooperation and continued support. We would also like to thank our employees for their efforts and also our shareholders for their continued support. Salim bin Abdullah Said Badr Al Rawas Vice Chairman

Galfar Engineering & Contracting SAOG & Subsidiaries

Consolidated Statement of Financial Position As at 30th September, 2014 Amount in RO '000s

Notes Sep., 2014 Sep., 2013 Sep., 2014 Sep., 2013ASSETSNon-current AssetsProperty, plant and equipment 3 96,486 114,667 108,266 124,299 Intangible assets 4 1,229 1,572 15,306 1,572 Investment in subsidiaries 5 3,174 1,170 - - Investment in associates 6 8,706 8,706 4,714 7,476 Investment available for sale 125 125 145 145 Retentions receivables 9 26,779 24,600 26,779 24,600

136,499 150,840 155,210 158,092 Current AssetsInventories 7 26,910 35,898 27,658 36,200 Contract work in progress 8 86,234 52,826 87,279 53,627 Contract and trade receivables 9 200,834 204,953 210,064 208,502 Advances, prepayments and other receivables 10 25,151 19,871 21,652 18,907 Deposits with bank 11 2,267 11,466 2,299 11,508 Cash and bank balances 12 1,663 1,421 2,929 2,054

343,059 326,435 351,881 330,798 Total Assets 479,558 477,275 507,091 488,890 EQUITY AND LIABILITIES EquityShare capital 13 37,747 33,000 37,747 33,000 Share premium 14 23,370 16,503 23,370 16,503 Statutory reserve 15 12,582 11,000 12,773 11,119 Foreign currency translation reserve 16 - - (1,835) (2,256) Rretained earning 31,327 30,763 31,626 32,266 Non controlling inetrest - - 1,006 884 Total Equity 105,026 91,266 104,687 91,516 Non-current LiabilitiesTerm loans 18 70,227 29,825 73,804 30,589 Employees' end of service benefits 22 11,570 9,751 11,744 9,894 Advance payables 23 14,774 20,137 19,002 20,137 Deferred tax liability 24 6,359 6,933 6,863 7,115

102,930 66,646 111,413 67,735 Current LiabilitiesTerm loans -current portion 18 22,050 30,405 26,153 30,729 Short term loans 19 43,900 48,609 43,900 48,609 Bank borrowings 20 67,181 93,219 69,401 93,954 Trade payables 21 81,846 85,800 89,019 89,933 Other payables and provisions 23 55,549 60,450 62,115 65,184 Provision for taxation 24 1,076 880 403 1,230

271,602 319,363 290,991 329,639 Total Liabilities 374,532 386,009 402,404 397,374 Total Equity and Liabilities 479,558 477,275 507,091 488,890

Net Assets per share (RO) 32 0.278 0.277 0.275 0.275

The attached notes 1 to 34 form part of these consolidated financial statements.

Consolidated Parent Company


Consolidated Statement of Comprehensive IncomeFor the period ended 30th September, 2014 Amount in RO '000s

Notes Q3, 2014 Q3, 2013 Q3, 2014 Q3, 2013

Contract income 268,344 287,557 273,942 296,545

Sales and services income 25 2,170 1,575 10,401 6,065

Total revenue 270,514 289,132 284,343 302,610

Other income 26 1,841 1,034 2,235 1,098

Cost of contracts and sales 27 (253,338) (268,466) (264,343) (278,242)

Gross Profit 19,017 21,700 22,235 25,466

General and administrative expenses 28 (7,881) (8,810) (9,516) (9,804)

Profit / (loss) from operations 11,136 12,890 12,719 15,662

Financing costs, net 30 (7,706) (6,560) (8,065) (6,827)

Share in loss of associates 6 - - (1,289) (570)

Profit / (loss) before tax 3,430 6,330 3,365 8,265

Income tax expense 24 (408) (756) (996) (1,596)

3,022 5,574 2,369 6,669

Profit attributable to:

Equity shareholders of parent company 3,022 5,574 2,349 6,634

Non-controlling interests 20 35

3,022 5,574 2,369 6,669

Basic earnings per share 31 0.008 0.017 0.006 0.020


Consolidated

Profit / (loss) for the period

Parent Company


Consolidated Statement of Cash FlowsFor the period ended 30th September, 2014 Amount in RO '000s

Q3, 2014 Q3, 2013 Q3, 2014 Q3, 2013

Operating Activities

11,136 12,890 12,719 15,662 Non-cash adjustments:

Depreciation on property, plant and equipments 16,466 16,887 17,745 17,909 Amortisation of intangible assets 299 222 305 222 Gain on disposal of plant and equipments (1,074) (209) (1,070) (214)

Working capital movements:Inventories 8,659 (3,305) 8,830 (3,372) Trade and other receivables (37,320) (21,756) (40,168) (21,554) Trade and other payables (9,616) 3,085 (4,356) 4,192

Retention receivables 5,467 (2,351) 5,467 (2,351) Advance payables 5,324 (12,690) 9,552 (12,690) Employees' end of service benefits 651 1,093 677 1,106

Income tax paid (1,050) (1,546) (1,793) (3,383)

Net cash flows from operating activities (1,058) (7,680) 7,908 (4,473) Investing ActivitiesPurchases of property, plant and equipments (3,975) (26,914) (7,145) (28,713) Purchases of intangible assets (2) (60) (14,037) (60) Disposal of property, plant and equipments 2,490 1,369 2,519 1,786 Investment in associates and subsidiaries (1,234) (52) 394 446 Bank deposits 9,284 1,165 9,292 1,166 Interest income 64 154 69 160

Net cash flows for investing activities 6,627 (24,338) (8,908) (25,215) Financing ActivitiesShare capital raised - - - - Term loans 15,502 (3,892) 22,127 (3,974) Short term loans 8,500 12,959 8,500 12,959 Bank borrowings (20,532) 35,125 (20,847) 32,051 Interest expenses (7,770) (6,714) (8,134) (6,987) Dividend paid (3,775) (5,775) (3,809) (5,775)

Net cash flows for financing activities (8,075) 31,703 (2,163) 28,274

Net increase/(decrease) in cash and bank balances (2,506) (315) (3,163) (1,414)

Cash and bank balances at beginning of the year 4,169 1,736 6,092 3,468 Cash and bank balances at end of the period 1,663 1,421 2,929 2,054


Parent Company Consolidated

Operating profit

Non-current operating assets/liabilities changes:


Statement of Changes in Equity -Parent CompanyFor the period ended 30th September, 2014 Amount in RO '000s

Share Capital Share Premium Statutory Reserve

Foreign Currency

Translation

Retained Earnings Total Grand

Total

Balance as at 1st January, 2014 37,747 23,370 12,582 32,080 105,779

Net comprehensive income for the period - - - 3,022 3,022

Transfer to statutory reserve - - - - -

Dividend proposed - - - (3,775) (3,775)

Balance as at 30th September, 2014 37,747 23,370 12,582 31,327 105,026

Statement of Changes in Equity -Consolidated For the period ended 30th September, 2014Balance as at 1st January, 2014 37,747 23,370 12,888 (1,788) 32,978 105,195 986 106,181

Net comprehensive income for the period - - - - 2,349 2,349 20 2,369

Adjustment of earlier year in subsidiary companies - - (115) - 108 (7) - (7)

Foreign currency translation reserve - - - (47) - (47) - (47)

Dividend paid - - - - (3,809) (3,809) - (3,809)

Balance as at 30th September, 2014 37,747 23,370 12,773 (1,835) 31,626 103,681 1,006 104,687

Attributable to equity holders of the parent companyNon

controlling interest


Notes to Consolidated Financial StatementsAs at 30th September, 2014

1. Activities

Galfar Engineering and Contracting SAOG (“the parent company”) is an Omani joint stock company registered under the Commercial Companies Law ofthe Sultanate of Oman and listed in Muscat Security Exchange. The registered address of the parent company is P O Box 533, Muscat, Postal Code100, Sultanate of Oman.

The principal activities of Galfar Engineering and Contracting SAOG and its subsidiaries (“the group”) are road, bridge and airport construction, oil andgas including EPC works, civil and mechanical construction, public health engineering, electrical, plumbing and maintenance contracts.

2. Significant Accounting Policies

Basis of preparationThese consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), and applicablerequirements of the Commercial Companies Law and the Capital Market Authority of the Sultanate of Oman.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management toexercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, orareas where assumptions and estimates are significant to the financial statements are disclosed in notes.

These consolidated financial statements have been presented in Rial Omani which is the functional and reporting currency for these consolidatedfinancial statements and all values are rounded to nearest thousand (RO '000) except when otherwise indicated.

Accounting ConventionThese financial statements have been prepared on the historical cost basis except for available-for-sale financial assets that have been measured at fairvalue.

Change in accounting policy and disclosuresThe accounting policies are consistent with those used in the previous financial year.

Accounting PoliciesThe significant accounting policies adopted by the group are as follows:

Basis of consolidationThe consolidated financial statements comprise those of Galfar Engineering and Contracting SAOG, its subsidiaries and its associates as at closing ofeach period. A subsidiary is a company in which the parent company owns, directly or indirectly more than half of the voting power.

The subsidiary is consolidated from the date on which control is transferred to the group and ceases to be consolidated from the date on which control istransferred out of the group.

The financial statements of the subsidiary are prepared for the same reporting period as the parent company using consistent accounting policies.Adjustments are made to bring into line any dissimilar accounting policies which may exist.

All intercompany balances, income and expenses, unrealised gains and losses and dividends resulting from intra-group transactions are eliminated.

A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction.

Losses are attributed to the non-controlling interest even if that results in a deficit balance.



Investments in associatesThe group’s investments in its associates are accounted for under the equity method of accounting. In the parent company's separate financialstatements, the investment in an associate is carried at cost less impairment. An associate is an entity in which the group has significant influence andwhich is neither a subsidiary nor a joint venture.

Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post- acquisition changes in thegroup’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment. After application ofthe equity method, the group determines whether it is necessary to recognise any additional impairment loss with respect to the group’s net investmentin the associate. The statement of comprehensive income reflects the share of the results of operations of the associate. Where there has been achange recognised directly in the equity of the associate, the group recognises its share of any changes and discloses this, when applicable, in thestatement of changes in equity. Profits and losses resulting from transactions between the group and the associate are eliminated to the extent of theinterest in the associate.

Property, plant and equipment All items of property, plant and equipment held for the use of group’s activities are recorded at cost less accumulated depreciation and any identifiedimpairment loss. Land is not depreciated. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs forlong-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced atintervals, the group recognises such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a majorinspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied.All other repair and maintenance costs are recognised in the statement of comprehensive income as incurred.

Depreciation is charged so as to write off the cost of property, plant and equipment over their estimated useful lives, using the straight line method, onthe following bases:

Buildings and camps over 15 & 4 yearsPlant and machinery over 7 & 10 years Motor vehicles and heavy equipment over 7 & 10 yearsFurniture and equipment over 6 yearsComputers and software over 5 yearsProject equipment and tools over 6 years

Items costing less than RO 100 are expensed out in the year of purchase.

The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end. Where the carrying value of an asset isgreater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefitsare expected from its use or disposal. Any gain or loss arising on derecognition of the asset, calculated as the difference between the net disposalproceeds and the carrying amount of the asset is recognised in the statement of comprehensive income when the asset is derecognised.

Capital work in progress Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, lessany recognised impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready fortheir intended use.



Available-for-sale investments Available-for-sale investments are initially recognised at cost, which includes transaction costs, and are, in general, subsequently carried atfair value. Available-for-sale equity investments that do not have a quoted market price in an active market, and for which other methods of reasonablyestimating fair value are inappropriate, are measured at cost, as reduced by allowances for estimated impairment. Changes in fair value arereported as other comprehensive income.

An assessment is made at each reporting date to determine whether there is objective evidence that an investment may be impaired. If such evidenceexists, any impairment loss (being the difference between cost and fair value, less any impairment loss previously recognised) is removed from othercomprehensive income and recognised in the income statement.

Inventories Inventories are stated at the lower of cost and net realisable value. Cost comprises purchase price and all direct costs incurred in bringing theinventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs to be incurred in marketing, selling and distribution.

Contract work in progressWork in progress on long term contracts is calculated at cost plus attributable profit, to the extent that this is reasonably certain after making provision forcontingencies, less any losses foreseen in bringing contracts to completion and less amounts received and receivable as progress payments. Cost forthis purpose includes direct labour, direct expenses and an appropriate allocation of overheads. For any contracts where receipts plus receivablesexceed the book value of work done, the excess is included in accounts payable and accruals.

Impairment of non-financial assetsAt each reporting date, the group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have sufferedan impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairmentloss, if any. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and isdetermined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups ofassets.

The loss arising on an impairment of an asset is determined as the difference between the recoverable amount and carrying amount of the asset and isrecognised immediately in the statement of comprehensive income.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist ormay have decreased. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of itsrecoverable amount and the increase is recognised as income immediately, provided that the increased carrying amount does not exceed thecarrying amount that would have been determined, had no impairment loss been recognised earlier.

At the time of assessing the impairment on its investments in associates, the group determines, after application of the equity method, whether it isnecessary to recognise an additional impairment loss of the group’s investment in its associates. The group determines at each reporting date whetherthere is any objective evidence that the investment in associate is impaired. If this is the case the group calculates the amount of impairment as beingthe difference between the fair value of the associate and the acquisition cost and recognises the amount in the statement of comprehensive income.

Financial instruments Financial assets and financial liabilities are recognised on the group’s statement of financial position when the group becomes a party to the contractualprovisions of the instrument.

The principal financial assets are trade and other receivables, term deposits, available for sale investments and cash and bank balances. The principal financial liabilities are trade payables, liabilities against finance leases, term loans, bank borrowings and overdrafts.

Trade and other receivablesTrade and other receivables are stated at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts ismade when collection of the full amount is no longer probable. Bad debts are written off as incurred.



Term depositsTerm deposits are carried on the statement of financial position at their principal amount.

Cash and cash equivalentsFor the purpose of the cash flows statement, the group considers cash on hand and bank balances with a maturity of less than three months from thedate of placement as cash and cash equivalents.

Trade and other payables Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

Interest-bearing loans and borrowingsInterest-bearing loans and borrowings are recorded at the proceeds received, net of direct issue costs. After initial recognition, interest bearing loansand borrowings are subsequently measured at amortised cost using the effective interest method.

Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to getready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period theyoccur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date: whetherfulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitionalrequirements of IFRIC 4.

Group as a lesseeFinance leases, which transfer to the group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at thecommencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease paymentsare apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of theliability. Finance charges are recognised in the statement of comprehensive income.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the group will obtain ownership by theend of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Derecognition of financial assets and liabilitiesA financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:The rights to receive cash flows from the asset have expired; orThe group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full withoutmaterial delay to a third party under a ‘pass-through’ arrangement; and either:The group has transferred substantially all the risks and rewards of the asset, or The group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability isreplaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such anexchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respectivecarrying amounts is recognised in the statement of comprehensive income.



Impairment of financial assetsThe group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Afinancial asset or a group of financial assets is impaired and an impairment loss is incurred if, and only if, there is objective evidence of impairment as aresult of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on theestimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Impairment is determined as follows:For assets carried at fair value, impairment is the difference between cost and fair value;For assets carried at cost, impairment is the difference between cost and the present value of future cash flows discounted at the current market rate ofreturn for a similar financial asset.For assets carried at amortised cost, impairment is the difference between carrying amount and the present value of future cash flows discounted at theoriginal effective interest rate.

OffsettingFinancial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legallyenforceable right to set off the recognised amounts and the group intends to either settle on a net basis, or to realise the asset and settle the liabilitysimultaneously.

ProvisionsProvisions are recognised when the group has a present obligation as a result of a past event which it is probable will result in an outflow of economicbenefits that can be reasonably estimated.

Provision for employees’ benefits Termination benefits for Omani employees are contributed in accordance with the terms of the Social Securities Law of 1991.

Provision for non-Omani employees has been made for termination gratuities, leave pay and passage in accordance with the terms of the Labour Law ofthe Sultanate of Oman.

Dividend on ordinary sharesDividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the company’s shareholders.

Taxation Current income taxTaxation is provided based on relevant laws of the respective countries in which the group operates. Current income tax assets and liabilities for thecurrent and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred taxationDeferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and theircarrying amounts for financial reporting purposes. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply tothe period when the asset is realised or the liability is settled, based on laws that have been enacted at the reporting date.

Deferred income tax assets are recognised for all deductible temporary differences and carry-forward of unused tax assets and unused tax losses to theextent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused taxassets and unused tax losses can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficienttaxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at eachreporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to theunderlying transaction either in other comprehensive income or directly in equity.



Contract revenue and profit recognition Contract revenue is recognised by reference to the stage of completion of the construction activity at the reporting date, as measured by completion ofestimated costs method. In the case of unprofitable contracts, provision is made for foreseeable losses in full. Contract revenue corresponds to theinitial amount of revenue agreed in the contract and any variations in contract work, claims and incentive payments to the extent that it is probable thatthey will result in revenue, and they can be reliably measured.

A variation is included in contract revenue when it is probable that the customer will approve the variation and the amount of revenue arising from thevariation and the amounts of revenue can be reliably measured.

Claims are included in contract revenue only when negotiations have reached an advanced stage such that it is probable that the customer will acceptthe claim and the amount that it is probable will be accepted by the customer can be measured reliably.

Incentive payments are included in contract revenue when the contract is sufficiently advanced that it is probable that the specified performancestandards will be met or exceeded and the amount of the incentive payment can be measured reliably.

Sales and service incomeRevenue from sales of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amountof revenue can be measured reliably.

Revenue from rendering of services is recognised when the outcome of the transaction can be estimated reliably, by reference to the stage ofcompletion of the transaction at the reporting date.Contract costsContract costs include costs that relate directly to the specific contract and costs that are attributable to contract activity in general and can be allocatedto the contract. Costs that relate directly to a specific contract comprise: site labour costs (including site supervision); costs of materials used inconstruction; depreciation of equipment used on the contract; costs of design, and technical assistance that is directly related to the contract.

The Group’s contracts are typically negotiated for the construction of a single asset or a group of assets which are closely interrelated or interdependentin terms of their design, technology and function. In certain circumstances, the percentage of completion method is applied to the separately identifiablecomponents of a single contract or to a group of contracts together in order to reflect the substance of a contract or a group of contracts.

Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

Interest incomeInterest revenue is recognised as the interest accrues.

Dividend incomeDividend income is recognised when the right to receive the dividend is established.

Directors’ remuneration The Parent Company follows the Commercial Companies Law 1974 (as amended), and other latest relevant directives issued by CMA, in regard todetermination of the amount to be paid as Directors’ remuneration. Directors’ remuneration is charged to the statement of comprehensive income in thesucceding year to which they relate after its approval in AGM.


3. Property, plant and equipment - Parent Company Amount in RO '000s

Particulars Land Building & Camps

Plant & Machinery

Motor Vehicles & Equipment

Furniture & Equipments

Project Equipment

& Tools

Capital Work-in- Progress Total

Costs

At 1st January 2014 1,278 33,404 127,694 74,999 14,584 15,055 - 267,014 Additions 374 1,715 1,327 289 177 93 3,975 Disposals - (1,817) (7,011) (4,788) (5,615) (6,874) - (26,105) Transfers - 212 315 - (1,197) 670 - - At 30th September, 2014 1,278 32,173 122,713 71,538 8,061 9,028 93 244,884

Depreciation

At 1st January 2014 - 19,641 68,943 43,851 12,688 11,487 - 156,610 Charge for the year - 1,178 8,664 5,207 512 905 - 16,466 Disposals - (1,809) (6,081) (4,332) (5,583) (6,873) - (24,678) Transfers - 184 298 - (1,149) 667 - At 30th September, 2014 - 19,194 71,824 44,726 6,468 6,186 - 148,398

Net book valueAt 30th September, 2014 1,278 12,979 50,889 26,812 1,593 2,842 93 96,486

At 30th September, 2013 1,278 6,475 60,926 32,690 1,985 3,874 7,439 114,667


3. Property, plant and equipment - Consolidated Amount in RO '000s

Description Land Building & Camps

Plant & Machinery

Motor Vehicles & Equipment

Furniture & Equipments

Project Equipment

& Tools

Capital Work-in- Progress Total

Costs

At 1st January 2014 1,278 33,571 138,990 80,162 15,028 15,188 225 284,442

Additions - 374 3,599 2,444 296 238 194 7,145

Disposals - (1,817) (7,011) (4,913) (5,637) (6,874) - (26,252)

Transfers - 212 315 - (1,197) 670 - -

At 30th September, 2014 1,278 32,340 135,893 77,693 8,490 9,222 419 265,335

DepreciationAt 1st January 2014 - 19,689 74,071 45,974 12,859 11,502 - 164,095

Charge for the period - 1,186 9,524 5,583 538 914 - 17,745

Disposals - (1,808) (6,081) (4,424) (5,588) (6,870) - (24,771)

Transfers - 184 298 - (1,149) 667 - -

At 30th September, 2014 - 19,251 77,812 47,133 6,660 6,213 - 157,069

Net book value

At 30th September, 2014 1,278 13,089 58,081 30,560 1,830 3,009 419 108,266

At 30th September, 2013 1,278 6,598 66,979 35,280 2,161 4,013 7,990 124,299


Notes to Consolidated Financial StatementsAs at 30th September, 2014 Amount in RO '000s

Sep., 2014 Sep., 2013 Sep., 2014 Sep., 2013

3. Property, plant and equipment (continued)Depreciation of property, plant and equipment is allocated as follows:Contract costs (note 27) 15,421 16,423 16,680 17,432

General and administrative expenses (note 28) 1,045 464 1,065 477

16,466 16,887 17,745 17,909

4. Intangible assetsCostsBalance at beginning of the year 2,684 2,558 2,738 2,558Addition for the year 2 60 14,037 60Balance at end of the period 2,686 2,618 16,775 2,618

AmortisationBalance at beginning of the year 1,158 824 1,163 824Charge for the year 299 222 305 222Balance at end of the period 1,457 1,046 1,468 1,046

Net book value at end of the period 1,229 1,572 15,307 1,572

5. Investment in subsidiariesAl Khalij Heavy Equipment & Engineering LLC 600 600 - - Galfar Training Institute LLC 149 149 - - Galfar Engineering & Contracting India Pvt. Ltd. 658 8 - - Aspire Projects & Services LLC 200 200 - - Galfar Aspire Readymix LLC 148 148 - - Kashipur Sitarganj Highways Pvt. Ltd. (i) 307 3 - - Salasar Highways Pvt. Ltd. (i) 891 4 - - Galfar Mott MacDonald LLC (ii) 163 - - - Galfar Wasen Contracting Company (iii) 58 58 - -

3,174 1,170 - -

Information of subsidiary companies is summarised below:Shares acquired Principal activity Place and year of incorporation

Al Khalij Heavy Equipment & Engineering LLC 52% Hiring Equipments Oman 2006Galfar Training Intitute LLC 100% Training Oman 2009Galfar Engineering & Contracting India Pvt. Ltd. 100% Construction India 2009Aspire Projects & Services LLC 100% Construction Oman 2011Galfar Aspire Readymix LLC 100% Manufacturing Oman 2012Salasar Highways Pvt. Ltd. (i) 100% Concessionaire India 2013Kashipur Sitarganj Highways Pvt. Ltd. (i) 100% Concessionaire India 2013Galfar Mott MacDonald LLC (ii) 65% EPC consultancy Oman 2013Galfar Wasen Contracting Company (iii) 65% Construction Libya 2010

Consolidated Parent Company



Sep., 2014 Sep., 2013 Sep., 2014 Sep., 2013 Consolidated Parent Company

6. Investment in associatesGalfar Engineering & Contracting Kuwait KSC (GEC) (i) 5,323 5,323 2,608 4,186 Mahakaleswar Tollways Pvt. Ltd. (MTPL) (ii) 2,255 2,255 (643) (297) Shree Jagannath Expressway Pvt. Ltd. (SJEPL) (ii) 739 739 1,495 1,638 Ghaziabad Aligarh Expressway Pvt. Ltd. (GAEPL) (ii) 344 344 1,711 2,091 International Water Treatment LLC (IWT) (iii) 45 45 (457) (142)

8,706 8,706 4,714 7,476

Information of associate companies is summarised below:Shares acquired Principal activity Place and year of acquisition

Galfar Engineering & Contracting Kuwait KSC (i) 26% Construction Kuwait 2010Mahakaleswar Tollways Pvt. Ltd. (MTPL) (ii) 26% Concessionaire India 2010Shree Jagannath Expressway Pvt. Ltd. (SJEPL) (ii) 26% Concessionaire India 2011Ghaziabad Aligarh Expressway Pvt. Ltd. (GAEPL) (ii) 26% Concessionaire India 2011International Water Treatment LLC (iii) 30% Construction Oman 2013

The following table illustrates summarised information of the group’s investment in its associates:

Share of associate’s statement of financial position:Current assets 10,305 12,855 Non-current assets 44,544 40,760 Current liabilities (10,142) (14,285)

Non-current liabilities (39,993) (31,854) Net assets and carrying amount of the investment 4,714 7,476

Share of associate’s statement of income:Revenue 13,674 5,248 Costs of revenue 14,963 5,818 Loss for the period (1,289) (570)

7. InventoriesMaterials and consumables 27,361 36,223 28,135 36,551 Allowance for non-moving inventories (451) (325) (477) (351)

26,910 35,898 27,658 36,200

8. Contract work in progress

86,234 52,826 87,279 53,627

2,260 7,016 6,261 10,455

Loss for the period comprises of loss from GEC, Kuwait RO 169 (Year 2013: RO 198) thousands and MTPL, India RO 132 (Year2013: RO 147) thousands net of profit from IWT, Oman RO 84 (Year 2013: RO nil) thousands.

To customers under construction contracts recorded as billings in excess of work done (note 23)

Work-in-progress on long term contracts at cost plus attributable profit considered as receivables




9. Contract and trade receivablesContract billed receivables 166,063 169,057 170,954 169,905 Trade receivables 1,519 942 5,776 3,181 Retention receivables - current 33,252 34,954 33,373 35,416 Provision for impaired debts - - (39) -

200,834 204,953 210,064 208,502 Retentions receivables

Non-current portion 26,779 24,600 26,779 24,600

10. Advances, prepayment and other receivablesAdvance on sub-contracts and supplies 7,563 3,099 7,905 3,395 Advances to employees 495 1,334 499 1,348 Prepaid expenses 4,696 4,619 4,861 4,750 Due from related parties (note 33) 11,268 8,782 8,018 7,340 Insurance claims receivable 545 901 546 902 Deposits 491 691 524 718 Other receivables 93 445 129 454 Provision for impaired advances - - (830) -

25,151 19,871 21,652 18,907

11. Deposits with bankTerm deposits 2,267 11,466 2,267 11,466 Margin deposits - - 32 42

2,267 11,466 2,299 11,508

12. Cash and bank balancesCash in hand 205 474 238 519 Bank balances with current accounts 1,458 947 2,691 1,535

1,663 1,421 2,929 2,054

13. Share capitalAuthorised:

50,000 50,000 50,000 50,000 Issued and fully paid:Balance at end of the period 37,747 33,000 37,747 33,000

14. Share premium

The term deposit carry interest rates of 1.0% to 2.0% (2013 - 1% to 2%) per annum and are kept for a period more than three monthsfrom date of placement.

500,000,000 (2013: 500,000,000) ordinary shares of parvalue RO 0.100 (2013: RO 0.100) each

During the year the company has issued 47,468,761 right shares to shareholders at RO 0.280 with a nominal value of RO 0.100 and a share premium of RO 0.180. An amount of RO 13,196 thousands were collected comprising nominal value RO 4,747 million andshare premium of RO 8,449 thousands. An amount of RO 1,582 thousands during the year were transferred to statutory reserveaccount from Share premium.




15. Statutory reserve

16. Foreign currency translation reserve

17. Dividend

18. Term loansTerm loans: - from banks 82,343 50,570 88,463 50,570 - finance companies 9,934 9,660 11,494 10,748

92,277 60,230 99,957 61,318 Current portion - from banks 18,137 26,551 21,797 26,551 - finance companies 3,913 3,854 4,356 4,178

22,050 30,405 26,153 30,729 Non-current portion - from banks 64,206 24,019 66,666 24,019 - finance companies 6,021 5,806 7,138 6,570

70,227 29,825 73,804 30,589

The interest rates on term loans were as follows:

Floating rate loans LIBOR + 2.0% LIBOR + 2.0%Fixed interest rate loans 4.25% to 7.0% 4.5% to 7.0%

19. Short term loans - from banks 43,900 48,609 43,900 48,609

The long term loans are stated at the proceeds received net of repayments and amounts repayable within next twelve months havebeen shown as a current liability. The term loans from banks are secured against the contract assignments and/or joint registration ofvehicle/equipment. The term loans from finance companies are secured against the jointly registered vehicle/equipment.

Current period Previous period

Bank short term loans are repayable in one year and are secured against the contract assignments and/or joint registration ofvehicle/equipment. The interest rates on these loans vary between 4.0% to 4.75% (2013: 4.0% to 5.0%) per annum.

As required by the Commercial Companies Law of Oman, the statutory reserve is to be maintained at at least one third of the issuedshare capital. During the current year, the share capital is raised by RO 4,747 thousands by way of right issue. Therefore thestatutory reserve is increased by RO 1,582 thousands, one third of increased share capital, by transferring it from share premium.

Foreign currency translation reserve represents impact of translation of subsidiaries and associates financial statement figures inforeign currency to functional currency of the parent company as allowed under IAS 21.

For the year 2013, a cash dividend of RO 0.010 (year 2012: RO 0.0175) per ordinary shares totalling RO 3,775 (year 2012: RO5,775) thousands has been approved at Annual General Meeting of the parent company held on 26th March, 2014 .




20. Bank borrowings Bank overdrafts 14,458 10,364 16,599 11,099 Loan against trust receipts 41,473 82,855 41,552 82,855 Bills discounted 11,250 - 11,250 -

67,181 93,219 69,401 93,954

21. Trade payablesSundry creditors 45,673 51,823 51,502 54,895 Provision for purchases and sub-contracts 36,173 33,977 37,517 35,038

81,846 85,800 89,019 89,933

22. Employees’ end of service benefitsBalance at beginning of the year 10,919 8,658 11,067 8,788 Charge for the year 1,799 1,837 1,924 1,898 Paid during the year (1,148) (744) (1,247) (792) Balance at end of the year 11,570 9,751 11,744 9,894

23. Other payables and provisionsProvision for employees’ leave pay and passage 7,386 7,305 7,457 7,353 Creditors for capital purchases 1,484 5,950 1,484 6,001 Advance payables -current 30,163 25,895 30,383 26,012 Billings in excess of contract income recognised (note 7) 2,260 7,016 6,261 10,455 Retention on sub-contracts 1,955 3,065 2,087 3,119 Accrued expenses 9,963 8,728 11,073 8,848 Due to related parties (note 33) 1,545 1,599 1,908 2,030 Other payables 793 892 1,462 1,366

55,549 60,450 62,115 65,184 Advance payables

Non-current portion 14,774 20,137 19,002 20,137

24. Taxation

Income tax expenseTax charge for the current year 948 943 1,442 1,783 Deferred tax charge for the year (540) (187) (446) (187)

408 756 996 1,596

Bank borrowings are repayable on demand or within one year. The interest rates on bank borrowings vary between 4.0% to 5.5%(2013: 4.0% to 5.5%) per annum. Bank borrowings are secured against the contract assignments and/or joint registration ofvehicle/equipment.

Income tax is provided for parent company and Omani subsidiaries as per the provisions of the 'Law of Income Tax on Companies' inOman @ 12% of taxable profit after adjusting non-assessable and disallowable items and statutory exemption of RO 30,000. It isprovided for Indian subsidiary as per 'Income tax Act' in India @ 33% of taxable profit after adjusting non-admissible expenses anddepreciation difference.




Provision for tax

Balance at beginning of the year 1,178 1,483 754 2,830 Charge during the period 948 943 1,442 1,783 Tax paid during the year (1,050) (1,546) (1,793) (3,383) Balance at end of the period 1,076 880 403 1,230

Deferred tax liability

Balance at beginning of the year 6,899 7,120 7,309 7,302 Charge during the period (540) (187) (446) (187) Balance at end of the period 6,359 6,933 6,863 7,115

25. Sales and services incomeSales and services 1,463 1,105 7,939 3,509 Hiring services 707 470 2,052 1,874 Training services - - 410 682

2,170 1,575 10,401 6,065

26. Other incomeGain on sale of assets 1,074 209 1,070 214 Loss on foreign exchange (168) (116) (176) (122) Dividend income 38 - - - Miscellaneous income 897 941 1,341 1,006

1,841 1,034 2,235 1,098

27. Cost of contract and salesMaterials 83,959 86,141 87,295 86,797 Manpower costs (note 29) 75,375 78,398 78,314 80,936 Sub-contracting costs 39,829 40,501 39,500 41,309 Plant and equipments repair and maintenance 13,691 13,766 14,588 14,640 Plant and equipments hiring costs 3,111 7,672 3,770 8,362 Fuel expenses 10,875 13,355 12,003 14,634 Training expenses - - 211 171 Duties and taxes - - 187 1,142 Depreciation (note 3) 15,421 16,423 16,680 17,432 General and administrative expenses (note 28) 11,077 12,210 11,795 12,819

253,338 268,466 264,343 278,242

The parent company income tax assessment up to the year 2007 has been finalized by the taxation department. The incomeassessments of the subsidiaries are at various stages of completion. The management believes that any taxation for the unassessedyears will not be material to the financial position of the Group as at the reporting date. The status of tax provision is as follows:

Deferred income taxes are calculated on all temporary differences under the balance sheet liability method using a principal tax rateas per tax law of the respective country.




28. General and administrative expensesManpower costs (note 29) 3,915 4,659 4,549 5,238 Rent 3,291 3,898 3,498 4,075 Electricity and water charges 2,463 2,540 2,543 2,656 Insurance charges 2,895 2,715 3,067 2,853 Bank guarantee and other charges 1,571 1,194 1,629 1,203 Professional and legal charges 694 2,079 913 2,159 Communication expenses 835 823 901 866 Repairs and maintenance -others 507 407 530 573 Business promotion 240 730 255 815 Traveling expenses 329 443 377 500 Printing and stationery 288 322 311 340 Tender fees 141 72 148 75 Directors expenses 200 181 200 181 Miscellaneous expenses 245 271 469 390 Depreciation and amortisation (note 3 and 4) 1,344 686 1,370 699 Debts and advances impaired - - 551 -

18,958 21,020 21,311 22,623 Pertaining to cost of contract and sales 11,077 12,210 11,795 12,819

7,881 8,810 9,516 9,804

29. Manpower costsSalary and wages 56,005 57,817 58,358 60,135 Employees service benefits 9,359 9,846 9,769 10,188 Camp and catering expenses 9,265 9,501 9,590 9,772 Hired salary and wages 2,122 2,106 2,344 2,182 Staff incentives - 1,066 133 1,068 Other expenses 2,539 2,721 2,669 2,829

79,290 83,057 82,863 86,174 Pertaining to cost of contract and sales 75,375 78,398 78,314 80,936 Pertaining to general and administration expenses 3,915 4,659 4,549 5,238

30. Financing costs, netInterest expense 7,770 6,714 8,134 6,987 Interest income (64) (154) (69) (160)

7,706 6,560 8,065 6,827

31. Earnings per share

Profit for the year 3,022 5,574 2,349 6,634 Weighted average number of shares in '000 (note 13) 377,470 330,000 377,470 330,000 Basic earnings per share (RO) 0.008 0.017 0.006 0.020

The basic earnings per share is calculated by dividing the profit for the period attributable to the shareholders of the parent companyby the weighted average number of shares outstanding during the year as follows:




32. Net assets per share

Net assets 105,026 91,266 103,681 90,632

377,470 330,000 377,470 330,000

Net assets per share (RO) 0.278 0.277 0.275 0.275

33. Related party transactions

Contract income 4,604 949 4,604 949 Sales and services 2,850 2,822 2,850 2,822 Sale of property, plant and equipment 2,977 2,592 2,977 2,592 Purchase of property, plant and equipment 144 217 144 217 Purchase of goods and services 19,959 22,569 19,959 22,569 Director's remuneration 200 200 200 200

Due from shareholders 179 856 179 856 Due from subsidiary and associate companies 7,996 5,976 4,746 4,534 Due from other related parties 3,093 1,950 3,093 1,950

11,268 8,782 8,018 7,340

Due to shareholders 166 177 166 177 Due to subsidiary and associate companies 248 144 611 575 Due to other related parties 1,131 1,278 1,131 1,278

1,545 1,599 1,908 2,030

34. Comparative amountsCertain of the corresponding figures of previous year have been reclassified in order to conform with the presentation for the currentyear. Such reclassifications do not affect previously reported profit or shareholder’s equity.

Net assets per share is calculated by dividing the equity attributable to shareholders of the parent company at the reporting date bythe number of shares outstanding as follows:

Number of shares outstanding at the year end in '000 (note13)

Related parties comprise the directors and business entities in which they have the ability to control or exercise significant influencein financial and operating decisions. The group maintains significant balances with these related parties which arise in the normal course of business from commercialtransactions, and are entered into at terms and conditions which the management consider to be comparable with those adopted forarm’s length transactions with third parties.

The following is a summary of significant transactions with related parties which are included in the financial statements:

Balances of related parties recognised and disclosed in notes 10 and 23 respectively are as follows:

The amounts outstanding are unsecured and will be settled in cash. No expense has been recognized in the period for bad ordoubtful debts in respect of the amounts owed by related parties.

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