RevenueGroup revenue for the twelve months ended December 31, 2012 was QR2.2bn, representing a significant increase of QR719.4m, or 49.0%, over the same period last year, and a QR135.5m, or 6.6%, positive variance versus the 2012 budget. Noticeably, the revenue recorded in 2012 was the highest since the group's incorporation in 2008. The revenue increase was fueled by growth across all segments and the addition of Amwaj on June 1, 2012.
The group's insurance subsidiary registered record full year gross insurance revenue of QR624.4m, a resolute QR76.5m, or 14.0%, improvement on 2011. The primary drivers for the year-on-year performance were growth in sums insured and premium inflation in the core Energy business, and the ongoing success of the Medical line's market expansion plan. Net commission income, consisting of management fees and reinsurance commissions, increased by QR21.3m, or 56.9%, over 2011. The creditable overall performance resulted in full year results robustly exceeding budgeted expectations, by QR59.3m, or 10.5%.
Aviation segmental revenue totalled QR513.6m, a noteworthy improvement on 2011 of QR70.6m, or 15.9%. A number of factors contributed to this increase on last year, the most important of which was a general increase in flying hours, the commencement of new operations within the GCC, the commercial launch of the flight simulator and pilot training facility in Doha in the second quarter of 2012, and the resumption of normal operations in Libya. In the fourth quarter the segment recorded revenue of QR143.9m, 16.5% up on the last quarter. In total, the segment reported a significantly positive variance against budget of QR25.6m, or 5.3%. Total helicopter count stood at 41 at the end of 2012 (2011: 40).
Revenue in the Drilling segment closed the year at QR 623.6 million, a notable year-on-year increase of QR 145.0 million, or 30.3%, due to a higher number of rig operating days, the commencement of operations of the accommodation barge, and the addition of two onshore rigs. During the prior year, four of GDI's offshore rigs lost operational days due to planned maintenance activities and / or time spent transitioning between contracts, whereas in 2012 all of these rigs were on contract with minimal planned maintenance activities. And, by the end of January 2012, the new accommodation barge, Zikreet, commenced operations and year-to-date has contributed QR 50.0 million to group revenue. In total, the segment reported a marginal adverse variance to budget of QR 6.1 million.
The fourth quarter of 2012 represented the second full quarter since the inclusion of Amwaj, as the company contributed QR427.2m to full year group revenue. The company's main business lines, viz. industrial catering services, corporate hospitality and VIP catering services, made up circa 75% of revenue, with the remainder attributable to manpower and facility services related to the engagement of 2,900 workers distributed over 24 projects within Qatar. In total, the segment reported a significant positive variance against budget of QR66.0m, or 17.8%.
Net ProfitCommenting on the group's net profit Mr. Al-Mannai said, "Net profit for the year was QR464.3m, a year-on-year increase of QR181.4m, or 64.1%. The year-on-year improvement was driven by improved results in all segments, and the addition of Amwaj since June 1, 2012."
Profit in the Insurance segment significantly improved due to a number of factors, including improved margins, growth in net premiums (v 2011: +QR52.9m), higher management fees from Qatar Petroleum's group life fund (v 2011: +QR15.7m), gains from structured and fixed income instruments (v 2011: +QR9.0m), and weak 2011 comparatives. Versus the last quarter, profit improved by QR23.3m, or 81.8%, primarily due to higher margins.
Profits in the Aviation segment, the major contributor to the group's earnings, increased by QR34.1m to reach QR200.6m, its highest level since the group was incorporated in 2008. This year-on-year performance was aided by strong headline growth, improved available for sale investment closing values (AFS impairment for 2011: -QR4.6m), and weak prior year comparatives. The segment maintained margins throughout the year as operating costs remained broadly flat. Profit in the last quarter was up on the previous quarter (v 2012, Q3: +QR14.1m), due to incremental margin improvements. For the full year the segment reported a positive variance of QR54.1m, or 36.9%, versus the budget.
The year-on-year positive profit variance in the Drilling segment of QR61.4m, can be largely attributed to stable drilling operations in 2012, in contrast to the early part of 2011 where the business was disrupted by extended contractual start-up delays (139 days) resulting in the incurring of significant unrecoverable overheads that dampened margins. Profit in the Drilling segment was also aided by the commencement of operations of Zikreet barge in the early part of 2012, and two onshore rigs in the last quarter of 2012. Profit in the last quarter was down on the previous quarter primarily due to start-up costs associated with the two onshore rigs. In total, the segment reported a moderate increase on its budgeted expectations of QR10.6m.
For the seven month period ended December 31, 2012, the Catering segment contributed QR17.0m to group profit, and was marginally ahead of budget by QR2.2m. Segmental profitability remained in line with budgeted expectations.
Financial Position, Cash Flows and Financial MeasuresThe group's total assets increased year-on-year by a robust QR1.7bn, or 36.8%, closing at QR6.3bn, due mainly to the acquisition of Amwaj, debt-funded advanced payments made for a number of drilling and aviation asset purchases, and cash flows from operations. Despite significant loan repayments, total loans and borrowings increased on the 2011 close by QR761.8m, or 80.3%, to close the year at QR1.7bn. The group also reported a closing cash position of QR823.2m, a decrease on 2011 of QR270.4m, or 24.7%.
Significant Financial Reporting ChangesIn May 2011, the International Accounting Standard Board issued IFRS 11 "Joint Arrangements" which superseded IAS 31 "Interests in Joint Ventures", and is mandatory for annual periods beginning on or after January 1, 2013.
In previous years, the group accounted for its interest in its joint venture using proportionate consolidation, which allowed the group to consolidate its proportionate share of each line of the joint venture's financial statements in accordance with IAS 31 "Interests in Joint Ventures".
IFRS 11 requires a joint venturer to recognise its interest in a joint venture as an investment and should account for that investment using the equity method. The group has determined that with the adoption of IFRS 11, its interests in Gulf Drilling International will meet the criteria for a joint venture. Accordingly, from January 1, 2013, on adoption of IFRS 11, Gulf International Services will account for its interest in the above company using the equity method.
The equity method of accounting requires Gulf International Services to present the carrying amount of its investment in its joint venture as a single line item in the statement of financial position, and its share of the joint venture's net income as a single line item in the statement of comprehensive income. This change in accounting policy will not affect previously reported net income and shareholders' equity, but will affect most other line items in the statement of financial position, statement of comprehensive income and statement of cash flows including revenue, gross profit, total assets and total liabilities.
Business Plan (2013 to 2017)"Further details of the group's 2013 budget and 5-year business plan will be unveiled during the Annual General Assembly Meeting slated for March 18, 2013," continued Mr. Al-Mannai. "However, the following can be shared at this stage: in 2013, revenue is expected to reach QR2.0bn, net profit to reach QR0.5bn and net assets to total QR3.1bn. The market should be aware that the reduction in the reported revenue in 2013 is solely due to the change in the financial reporting method following the adoption of IFRS 11, and not due to any operational factors.
"The group has credible plans to further improve profitability, expand the span of operations and diversify into related services. Cash generation is expected to remain healthy despite loan repayments. The outlook is positive, with expectations that offshore daily rates will improve throughout this period, demand for oil and gas-related transportation services will remain strong and capital expenditure by the Qatar Petroleum group of companies will be spurred by a number of new, large oil and gas projects," stated Mr. Al-Mannai.
Dividend AnnouncementFollowing the group's significant capital investments during the year, the Board of Directors recommends a 26.9% increase in the annual dividend distribution to a total of QR223.0m for the year ended December 31, 2012, equivalent to a payout of QR1.50 per share and representing 15% of the nominal value.
ConclusionIn conclusion, Mr. Al-Mannai said, "Gulf International Services is the premier oil and gas services group in Qatar and in the Middle East, and the future of the group is strong. With strong fundamentals and exciting and ambitious capital investment plans, the Board of Directors and senior management have an unwavering confidence in the prosperous future awaiting our dedicated shareholders.
"I would also like to express my gratitude to H.H. Sheikh Hamad Bin Khalifa Al-Thani, the Emir of the State of Qatar, for his vision and leadership, the Chairman and Managing Director, H.E. Dr. Mohammed bin Saleh Al-Sada, for his wise counsel, and to the senior management of the group companies for their hard work, commitment and dedication in achieving the group's goals."