Renaissance Annual Report 2008 (English) by Renaissance Services SAOG

His Majesty Sultan Qaboos bin Said

Renaissance Services SAOG P.O. Box 1676, P.C. 114 Muttrah, Sultanate of Oman. Tel:+968 24796636 Fax:+968 24796639

www.renaissance-oman.com

ANNUAL REPORT 2008

CONTENTS BOARD OF DIRECTORS

4-5

FINANCIAL HIGHLIGHTS

6-7

CHAIRMAN’S REPORT

8-15

CHIEF EXECUTIVE OFFICER’S REPORT

16-31

AUDITORS’ REPORT ON CORPORATE GOVERNANCE

REPORT ON CORPORATE GOVERNANCE

33-38

AUDITORS’ REPORT ON FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

40-83

MEDIA COVERAGE

84-85

MANAGEMENT TEAM

86-87

& ITS SUBSIDIARY COMPANIES

Colin Rutherford Director

ANNUAL REPORT 2008

Rishi Ajit Khimji Director

Sunder George Director

BOARD OF DIRECTORS

Samir J. Fancy Chairman

HH Sayyid Tarik bin Shabib bin Taimur Director

Yeshwant C. Desai Director Ali bin Hassan Sulaiman Director

& ITS SUBSIDIARY COMPANIES

FINANCIAL HIGHLIGHTS D US

llio

D US

llio

120.0

700.0 600.0

100.0

500.0

80.0

400.0 60.0

300.0 200.0

40.0

100.0

20.0

2006

2007

Revenue

Gross Profit

2008 Earnings Before Tax Interest Depreciation & Amortisation

2006

Profit From Operations

2007

Profit BeforeTax

2008 Profit After Tax (Before Minority)

SUMMARY FINANCIAL INFORMATION 2006

2007

2008

2006

RO MILLION

2007

US$ MILLION

142.9

199.2

234.3 REVENUE

371.3

517.4 608.5

43.9

54.4

66.7 GROSS PROFIT

113.9

141.4 173.2

21.8

27.6

37.4 PROFIT FROM OPERATIONS

56.6

33.6

43.1

61.1 EARNINGS BEFORE TAX, INTEREST, DEPRECIATION AND AMORTISATION

87.2

17.8

22.3

33.3 PROFIT BEFORE TAX

46.2

58.0

86.5

14.3

17.3

26.2 PROFIT AFTER TAX (BEFORE MINORITY)

37.0

45.0

68.0

121.8

148.6

223.5 NET FIXED ASSETS

316.4

386.0 580.4

91.8

109.4

138.7 TOTAL EQUITY

238.4

284.1 360.2

77.4

98.1

150.3 TERM LOANS

201.2

254.7 390.3

0.060

0.071

0.103

BASIC EARNINGS PER SHARE

0.157

0.184 0.267

0.025

DIVIDEND PER SHARE

0.065

0.065 0.065

71.6

ANNUAL REPORT 2008

97.2

111.9 158.8

Notes: 1. Basic earnings per share have been adjusted for changes made in share capital in subsequent years. 2. All figures converted @ 1US$ = 0.385 OMR

2008

tio

1.8

25.00

1.60 20.00

1.40 1.20

15.00

1.00 0.80

10.00

0.60 0.40

5.00

0.20

2006

Gearing

2007

2008

Total Liabilities/Net Worth

2006

2007

Return on Capital Employed (%)

2008

Return on Average Equity (%)

SIGNIFICANT RATIOS 2006

2007

2008

CURRENT RATIO

1.06

1.10

1.09

GEARING

0.87

0.90

1.10

TOTAL LIABILITIES/NET WORTH

1.42

1.52

1.68

INTEREST COVER

4.94

5.10

4.30

RETURN ON CAPITAL EMPLOYED (%)

10.92

10.94

12.44

RETURN ON AVERAGE EQUITY (%)

16.38

17.24

21.12

CHAIRMANâ&#x20AC;&#x2122;S REPORT

In 2008 Renaissance has achieved record results for the eighth consecutive year.

ANNUAL REPORT 2008

On behalf of the Board of Directors, it gives me great pleasure to present to you the audited accounts for Renaissance Services SAOG for the twelve-month period ending 31 December 2008. In 2008 Renaissance has achieved record results for the eighth consecutive year. Yet 2008 has ended with the world in the deepest global economic recession since the Great Depression of the 1930’s. So in this annual statement I not only want to report to you the achievements of 2008, but also recognise the risks and unpredictable challenges that lie ahead; and carefully consider the strength and level of resilience of Renaissance in the face of such difficult times.

2008 – Another record year The consequence of continued focus on our valuesdriven operating model is yet another year of growth and record financial performance.

RO Million

US$ Million

2007

2008

2007

2008

Revenue

199.2

234.3

517.4

608.5

EBITDA

43.1

61.1

111.9

158.8

Operating Profit

27.6

37.4

71.6

97.2

Net Profit

17.3

26.2

45.0

68.0

RO 0.071

RO 0.103

US$ 0.184

US$ 0.267

EPS

Revenues of RO 234 million (US$ 0.6 billion) are up from RO 199 million (US$ 0.5 billion) in 2007. Net profit of RO 26.2 million (US$ 68 million) is up from RO 17.3 million (US$ 45 million) in the preceding year. Revenue has increased by 17.6%, operating profit has increased by 35.8% and operating margins have improved from 13.8% in 2007 to 16%. This is an important achievement in a year of high inflationary pressure. EBITDA of RO 61.1 (US$ 159 million) has recorded a growth of 42% compared to the previous year. The net profit of 2008 includes a capital gain of RO 4.8 million (US$ 12.5 million) from the divestment of the group’s former Technology business. The company has had a prudent interest rate hedge policy in place over the years. Due to the extreme fall in US$ interest rates over the last quarter of the current year, there has been a material change in the fair value of the interest rate swaps. As a result, the company has taken a charge of the negative fair value of RO 2.7 million (US$ 7 million) directly to the income statement under finance costs. The last time the US Fed rate has fallen to such an historic low was 7 June 1954. Based on the interest rate movements in the future, any positive fair value related to the same Interest rate swaps will be written back. In spite of this charge, the net profit before capital gain in 2008 has increased by 23.4%, compared to the previous year. Including capital gain the increase in net profit is 51%. The better margins, growth in operations and capital gains resulted in higher Earnings Per Share (EPS) and Return On Equity (ROE). EPS has increased to RO 0.103 (US$ 0.267) and ROE has also increased to 21.2% compared to 17.2% in 2007. The Renaissance

CHAIRMAN’S REPORT balance sheet, with total Shareholders’ funds of more than RO 138.7 million (US$ 360 million), is well positioned to support future growth plans. This positive performance, coupled with important new secure contract gains during the year, provides Renaissance with a visible growth path even in this most turbulent global economic environment. The Auditors have issued an unqualified report and the Board of Directors is pleased to commend the accounts for approval.

Meeting the recession

challenges

global

People look at our business and reasonably assume we are exposed to the oil capex cycle through our presence in the Offshore Support Vessel (OSV), engineering and contract services businesses. Oil prices; order flows in the engineering business; credit cost and credit availability are all seen as critical factors for the company. Interestingly, oil price generally has little effect on our ongoing performance. The Renaissance business model has proved itself to be remarkably resilient to boom and bust in the oil price cycle. Our markets, our blue chip clients, our predominantly long-term contracts and our assets are primarily focused in the development and production phase of the oil & gas industry. This is recognized as least sensitive to low oil prices. Our engineering businesses will see shorter visibility in the order book, but our yards are an optimum size and strategically positioned. The contract services business always sees a positive flight to outsourcing of its portfolio of services during downturns. We have strong and dependable cash-flows sufficient to exceed all our obligations. Financing for immediate growth needs is already secured at affordable costs. While all these facts bode well for our company’s resilience, we do not underestimate the depth and uncertainty of the crisis. It is a fact that, at current lower oil prices, oil & gas producers worldwide have been looking to at least delay, if not cancel, new projects that have not yet started. So far, this has not affected any of the projects with which our businesses are connected. Our predominant presence in the growth areas of the Middle East and the Caspian, together sitting on more than 50% of the world’s oil reserves, has meant we are less affected than those with a larger presence in other declining oil & gas markets. It is also a fact that principal clients in the oil & gas sector have been seeking reductions in contract rates. Again, this has not

ANNUAL REPORT 2008

affected us thus far. In long-term contracts, clients recognize rates are already competitively lower due to the security of long-term tenure. In shorter term contracts, some clients have sought reductions but, on review, have recognized that Renaissance companies bid for work at optimum realistic prices. Our ‘close to the customer’ credo does not indulge in opportunistic pricing, but rather is aligned in helping our clients achieve the safest, most efficient, lowest unit production cost in good times and bad. If anything, the recession is bringing into sharp relief the benefits of contracting with contractually compliant companies like those in the Renaissance group. Since the global financial crisis started, many OSV markets have experienced a reduction in spot rates and short term contract rates for vessels. This has not been the case for our OSV fleet, where, so far, each contract renewal in this period has been achieved at a higher rate to compensate for the high impact of inflation over the past two years. However, it is true to say that we would have expected higher increases in rates had the financial crisis not taken hold, so we are shouldering our share of the burden with our clients. Similarly, in the teeth of the credit crunch, our companies have so far secured financing for every single new requirement at acceptable, albeit higher, costs. So we take heart from the support and confidence shown in us by our clients and the financial institutions that partner with us.

Renaissance has a track record of strong year-on-year growth in all economic cycles. Renaissance businesses strive to be very efficient and cost conscious whatever the prevailing economic conditions, so at this time of recession we have focused less on cost reduction and more on securing comfort of counter-party risk. We are very focused on the collection and conservation of cash, which is a challenge in our home market of Oman, where, in many sectors, there is an almost accepted and deliberate practice of late payment. Fortunately most of our clients honour payment terms, but we are increasing pressure on those who do not. Renaissance will continue to pay its suppliers and contractors on time.

It is extremely important for the maturity of Oman’s modern economy that timely payments become the normal course of business. Besides this, we have set about securing financial agreements and we have deferred all non-essential capital expenditure, whilst remaining alert to opportunity, including potential acquisitions arising from distress or motivated sales of assets and businesses. Renaissance has a track record of strong year-onyear growth in all economic cycles – and it is through growth that we drive efficiency in our group through scale, capacity and redeployment. The new vessels that have already joined the OSV fleet in 2008 will ensure growth with a full year’s deployment in 2009. New contracts for three new vessels for BP in Azerbaijan, and two new contracts to build, own and operate permanent accommodation for contractors for PDO in Oman, ensure further growth in 2010. These are assets that will assist our clients to drive down unit cost of production through efficient marine logistics and optimum care of workforces. These projects are needed more than ever at a time of economic downturn. As such, we find ourselves in this recession with a need to increase our workforce, not reduce it. Short-term project workforces will fluctuate, but what we strive to do is optimize the assignment of existing workforce to absorb growth and recruit only essential additional personnel as required. Whilst we do not indulge in specific forecast earnings that may be misleading to stakeholders, it is clear that the prognosis for Renaissance is good for continued growth in 2009, in spite of the recession. As usual, performance will not be even across each quarter. In the first quarter of the year (Q1) we have the usual seasonal effect of winter downtime in the northern Caspian and in Q1 and Q2 of 2009 we have a major programme of dry-docking that will ensure Q3 and Q4 will likely record the best financial performances

In 2008, the DMS (Doha Marine Services WLL) acquisition was completed in May, expanding the Gulf-based fleet into the strategically important Qatar market. Three new Anchor Handling Tug Supply vessels (AHTS) also joined the Gulf fleet, Topaz Jebel Ali from July and Topaz Jaddaf from October and Topaz Jaffiliyah at the end of the year. The Caspian-based fleet also expanded with Platform Supply Vessel (PSV) Caspian Qala and Fast Crew Boat (FCB) Caspian Breeze deploying on ten year term contracts for BP in Azerbaijan from October. Two new Flat Top barges and a Dry Bulk barge were also deployed on long-term contracts for Agip-KCO in Kazakhstan. All of these new assets, which operated partially in 2008, will have a full-year’s deployment in 2009.

of the year ahead. As usual, due to the nature of our business, we ask all our interested stakeholders not to measure our progress by the highest or lowest outcomes of any given quarter. Rather, measure us by our ongoing growth record and know that, through our reputation for transparent reporting, we will always clearly signal any material change in our plans, our problems and our progress. Whilst no economy will be immune to the global economic turmoil, we believe strongly in the capacity of our principal markets to cope, emerge and prosper: Our home market of Oman and our principal operating markets of the oil & gas economies of the wider Middle East and the Caspian. We also believe in our company and its assets and, above all, we believe in the people who run it at every level of the organization.

Dividend – 25% : 10% Cash dividend, 15% Stock dividend Our dividend policy is based on the proposition that cash is returned in the form of higher dividend payouts when there are no credible value-creating opportunities to invest in the business. Our ongoing growth plans require reinvestment of profits in the business to create substantial higher value for our shareholders. For the current fiscal year we have recommended a cash dividend of 10% and a stock dividend of 15%. Our commitment to issuing stock dividend underlines our belief in the growth prospects of the company and its ability to support a broader capital base.

Looking to the future Over 2007-08 the company has made investments of RO 183.2 million (US$476.5 million), primarily in the modernizing and enlargement of the OSV fleet. These investments secure the company’s growth path in 2009.

ANNUAL REPORT 2008

There is also further visible growth to be seen in 2009 and 2010: Four new Cutting Barges and a Liquid Mud Barge will deploy for Agip-KCO in Kazakhstan in the spring once the ice melts. A new PSV will deploy for BP in Azerbaijan in May 2009 from the Rem Offshore in Norway, and two other vessels are under construction for new 10-year BP contracts. A new AHTS is being built in the Simek Yard in Norway for deployment in May 2010 and a new Emergency Response and Recovery Vessel (ERRV) is being built in the Berjaya Yard in Malaysia for deployment in June 2010. These three vessels are being built for a new US$225 million 10-year contract for BP won during 2008. The Gulf fleet has four new AHTS vessels (Saudi spec) under construction by the Costal Shipyard and for deployment to Malaysia in May, June, August and October of 2010; and our own Nico Yard in Fujairah is building a new crew boat, the Topaz Fujairah, for deployment in June 2010. Meanwhile, the Contract Services Group (CSG) has started construction of new facilities for contractors in Oman’s interior oilfields in a RO 33 million (US$ 86 million) investment programme. This follows the 2008 award of contracts to Renaissance, by Petroleum Development Oman LLC (PDO), to build, own and operate new Permanent Accommodation for Contractors (PAC) facilities at Marmul and Bahja. The long-term contracts run until 2044 and the contract value of the initial 5-year period is in excess of RO 35 million (US$ 91 million). Construction is progressing well and the projects are on schedule for completion at Bahja in February 2010 and at Marmul in April 2010. The nature of the investments already made, the financial support already in place, the long-term tenure of secure contracts with blue

CHAIRMANâ&#x20AC;&#x2122;S REPORT chip clients and the continued vibrancy of the specific markets in which we serve, means that the Renaissance growth path is already secure and in place through 2009-11. Looking ahead to investing for growth beyond this period, we are taking a stringent â&#x20AC;&#x2DC;safety firstâ&#x20AC;&#x2122; approach to new opportunities. Competitive tendering will continue to be a major source for growth and we stand confidently on our track record of contract retention and contract gains across all our services. Our services businesses continue to be a source of strong cash generation, not just in the larger companies but also in the smaller media and training businesses that continue to grow and prosper. Growth through acquisition of new assets or new businesses shall be subject to rigorous criteria. We shall consider opportunities that may arise through motivated sales, but these shall be subject to rigorous diligence and stress testing. Most importantly we shall not consider any acquisition that may in any way place stress on our key ratios and gearing.

Good governance When you consider the real underlying cause of the major problems of the global financial crisis it is simply this: A total failure of all key aspects of governance. As an Omani listed enterprise, in these challenging times, we may best appreciate the value of good governance and prudent regulation arising from the policies and directives of the Central Bank of Oman (CBO), the Capital Market Authority (CMA) and the Muscat Securities Market (MSM). The pillars of Corporate Governance are cooperation, responsibility and accountability to protect the interests of all parties and to prevent favouring some categories at the expense of others, especially smaller investors. The outcome of effective Corporate Governance is a very well run and operated enterprise. In this regard, I would like to thank my fellow Board Members for the continuous vigilance and strengthening of the corporate governance of our company. We have a Board peopled by strong, independent non-executives who are experts in finance and other fields relevant to our success and progress. I would like to thank the members of Audit Committee and the Compensation & Remuneration Committee for their work, along with the valuable work of the independent Internal Audit function. I would like to thank our strong and independent management and people throughout the group for their successful dedication to safety, operational excellence, prudent financial management and implementation of quality-

CHAIRMANâ&#x20AC;&#x2122;S REPORT based management systems and best practices. In thanking these people, I am able to confirm to all stakeholders that the good governance of Renaissance is sound and is in good hands. The assurance of this good governance is at the heart of our companyâ&#x20AC;&#x2122;s immune system in troubled times. There is a direct link between our good corporate governance and the resilience the company continues to show through the recession.

Corporate Social Responsibility Renaissance believes in reward and through its endeavours seeks to improve the economic well-being and quality of life of all its stakeholders: Employees and their families; customers; shareholders; suppliers and contractors; and the communities in which the company serves. The Renaissance Corporate Social Responsibility (CSR) programme seeks to help people in physical or economic difficulty to fulfill their potential. It seeks to help local communities become economically viable and self-sufficient. It seeks to promote local employment and showcase local talent in the arts or sport. This outlook gives Renaissance people a clear sense of purpose in running a successful business. At the corporate level the company has invested 1% of 2007 earnings in CSR programmes, including commitment to provide support of RO 250,000 (US$ 650,000) over three years for the Association of Early Intervention for Children with Special Needs, here in Oman. We announce this donation in compliance with disclosure requirements, but also to highlight awareness of the outstanding work of the association. We have also made an array of donations to various charities in our home markets and contributions to various humanitarian disasters abroad. We have sponsored a RO 54,000 (US$140,400) programme for the top ten graduating nurses from Sultan Qaboos University Hospital (SQUH) to go on a work placement internship at MacMaster University in Canada. At a time of recession it is as important as ever that we continue with similar initiatives in 2009 and we shall be seeking shareholder approval to assign 1% of 2008 earnings for CSR expenditure in 2009.

Management There have been no changes in the senior management team in 2008 and this stability and longevity of key people retention is important for the ongoing success of the company. This does not preclude the injection of new talent, and actively encourages the emergence of new corporate leaders being developed in our businesses. There is an important new initiative under way in Marine and Engineering Group, where the diverse OSV companies are being amalgamated into a single structure as Topaz Marine with a fleet that will pass the 100 vessel mark in 2009. The engineering businesses in oil & gas fabrication and afloat ship repair are also being amalgamated as Topaz Engineering. Management believes this will result in a leaner more efficient and more effective structure for the company moving forward.

ANNUAL REPORT 2008

We have the right businesses, with the right customers, in the right markets. We have the right assets and, above all, we have the right people. Competitive share

position

and

market

In the OSV business the company has a share of some 13% in the Qatar market and some 5% in the UAE market, with considerable headroom for growth. In the Caspian the OSV business has 90% of the market in Azerbaijan and 41% of the market in Kazakhstan. These sizable shares are due to the nature of single major client positions in the oil & gas fields. The Engineering businesses enjoy 11% of the Gulf afloat ship repair market, and in oil & gas fabrication in the Gulf, 3% share of offshore field structures, 15% of process modules, 12% of pressure vessels and 4% of jack-up (MOPU). The Contract Services Group has 59% share of its home market of Oman and 40% of the offshore catering business in Norway. Other international operations are in the range of 10% market share, with the Angola JV having achieved a creditable 15% market share in its first full year of operations. In terms of reliance on major clients the Azerbaijan OSV business is 100% reliant on BP contracts, which is the nature of the market. In Kazakhstan 56% of business is with Agip-KCO and 33% with Saipem. For Contract Services in Oman 23% of business is with PDO and its contractors and 24% with Government of Oman related contracts. In Norway 80% of the business is with Maersk Contractors. The blue chip nature of this major client base is in fact a significant benefit to the company in security of counter-party risk.

Renaissance is one of the largest exporters of services from Oman; and one of the largest publicly-listed owners of foreign assets bringing profit and wealth to Oman. Renaissance is also a willing major taxpayer on the level playing field of our home market. From this stance we continue to pursue an urgent and persistent dialogue with the Government of Oman to consider a review of the principle of taxation of overseas income in the best interests of Omani competitiveness abroad. In conclusion 2008 has been another year of excellent growth and record achievement. Going into 2009 we do not underestimate the challenges of the recession and are taking all prudent measures necessary to avert its dangers. At the same time, we find our businesses in good health with the best possible chance to continue growth through these tough times: We have the right businesses, with the right customers, in the right markets. We have the right assets and, above all, we have the right people. We thank His Majesty Sultan Qaboos bin Said whose wise leadership has brought stability, progress, prosperity and opportunity to our home market of Oman. At a time of global economic turbulence, the wisdom and prudence of good governance in Omanâ&#x20AC;&#x2122;s institutions are reflected in the good governance of an Omani public company like Renaissance.

Government matters The Government of Oman and the Government of Qatar provided direct support to our company to enable the acquisition of DMS to go ahead as a 100% subsidiary retaining all the benefits of a 100% Qatari enterprise. This support has been extended to all similar investments between the two countries. I would like to record our sincere thanks to the government ministers and officers who enabled this in the best interests of both economies.

Samir J. Fancy Chairman

CHIEF EXECUTIVE OFFICERâ&#x20AC;&#x2122;S REPORT Renaissance Services SAOG (Renaissance) is an Omani multinational company listed on the Muscat Securities Market (MSM) in the Sultanate of Oman. The companyâ&#x20AC;&#x2122;s primary focus is on providing safe, efficient and quality services to the oil & gas industry. Renaissance owns and operates a combined Offshore Support Vessel (OSV) fleet of 96 vessels; has engineering business in oil & gas fabrication and afloat ship repair; is a leading turnkey contract services provider providing facilities management, facilities establishment, contract catering, operations and maintenance services. The oil & gas businesses have a large portfolio of long term contracts with many blue chip oil & gas companies. Renaissance also owns successful media and training businesses. Renaissance has revenues in excess of US$ 0.6 billion, employs over 10,000 people; operates in over 16 countries and has an outstanding growth record in all economic cycles.

ANNUAL REPORT 2008

Delivering outstanding performance requires exceptional people.

It is a great privilege for me to provide the management analysis and discussion of the progress of Renaissance in 2008. At the outset, I want to thank all Renaissance stakeholders for the outstanding performance of all our businesses in 2008; and I want to look forward to the challenges that lie ahead, as we continue to strengthen and build the future of our enterprise in 2009 and beyond. 2008 has been a year of exceptional achievement for Renaissance, as the group responded to the powerful global forces shaping the world economy and took decisive action to secure and sustain our growth path through turbulent economic times in the years ahead. Renaissance has achieved record financial results for the 7th successive year; and we have recorded a 4th consecutive year of improved safety performance.

Safety performance In HSE (Health, Safety & Environment) Safety will always come first for us as an absolute priority. Running safe and reliable operations is our greatest responsibility. We shall never be satisfied until we have achieved Goal Zero in which no-one is harmed by our activities – and we believe that is possible. In 2009 we shall be issuing, for the first time, an independent letter of assurance on HSE, which shall carry the same weight and responsibility for transparent disclosure as our annual report. We have focused on the lessons of the 25 LTIs to prevent reoccurrence. There have also been many important safety milestones and awards to celebrate. In the OSV fleet BUE Caspian has completed 9.7 million manhours without LTI for BP; and Nico Middle East Ltd. (NMEL) won the prestigious Lloyds List award for ‘Safety & Innovation’ for the Middle East and the Sub-Continent. BUE Caspian was awarded the coveted BP President’s Award for Safety in Azerbaijan after the M.V. Baki, an emergency recovery and response vessel (ERRV), safely evacuated

all 211 people from the Central Azeri platform in the Caspian Sea following a suspected gas leakage. In the Engineering businesses Adyard passed the milestone of 3 million manhours without LTI between March and July; and Nico International won the Dubai Environment, Health and Safety Gold Award for 2008 in the ‘Ports and Marine’ category. In Contract Services the Qarn Alam PAC facility won a PDO milestone award for 6 years without LTI; and the services team working at the Sohar Aluminium facilities was recognized by our client Bechtel for achieving 2 years and over 2 million manhours without LTI. These achievements show us what can be done and inspire us to strive for similar outcomes across all our operations.

CHIEF EXECUTIVE OFFICER’S REPORT Our International Offices in over 16 Countries

Norway

Azerbaijan Kazakhstan Cyprus Iraq Turkmenistan Jordan Bermuda Kuwait KSA Qatar India UAE Oman Panama

Thailand Singapore Angola

Marine & Engineering Group (MEG)

Financial Highlights - Marine Group Revenue (RO’m) Profit from Operations (RO’m) People (nos)

2007 58.0 15.7 914

2008 83.5 24.1 1,045

2007 64.7 4.5 4,027

2008 94.5 8.0 4,892

Financial Highlights - Engineering Group Revenue (RO’m) Profit from Operations (RO’m) People (nos) Activities Marine Division Offshore Support Vessel Fleet primarily servicing offshore oil & gas installations. Engineering Division Providing engineering solutions in fabrication & construction, marine repair, maintenance and ship building.

ANNUAL REPORT 2008

Business Segments

- Offshore Support Vessel Fleet - Fabrication & Construction - Marine Repair - Maintenance - Ship Building Topaz Energy & Marine Ltd., Dubai Topaz Marine • Topaz Marine MENA • Topaz Marine Kazakhstan • Topaz Marine Azerbaijan Topaz Engineering • Topaz Fabrication & Construction • Topaz Marine Repair • Topaz Maintenance • Topaz Ship Building

This map is not an authority on international boundaries

The safety performance has been achieved against a significant increase in the volume of activity and scale of risk.

Safety performance 2007 Number of Fatalities

We are proud of the continuous focus and progress on Safety shown by Renaissance people throughout the group, and we are pleased with the advances made with occupational Health initiatives. We do have a focus on Environmental issues in our HSE management systems, but we are planning to seriously step up our activity in this regard to help us achieve recognized credentials as a truly green company. We are looking at initiatives to manage waste better, and we are being even more environmentally conscious at the design stage when we build things – whether vessels, infrastructure or onshore life support facilities.

2008

Change

31,034,893 36,905,857 +5,870,964

Total Manhours worked

-1

Number of Lost Time Incidents (LTI)

-3

Lost Time Incident Frequency (LTIF)

0.90

0.68

-0.22

11,897,134

14,181,383

+2,284,249

Road Traffic Accidents (RTA) Total Kilometers Driven

Financial performance The financial performance has been achieved against a background of volatile oil price, aggressive inflation, a roller-coaster dollar value and the impact of a global credit and financial crisis, unprecedented in the lifetime of our business. The financial performance has been discussed at length in the Chairman’s Statement and the External Auditor’s Report. One of the most pleasing outcomes is the increase in operating margins from 13.8% to 16% in a year hampered by severe inflationary pressure. It is also pleasing to see in the balance sheet that the company has maintained its ratios whilst increasing equity and increasing fixed assets of property, plant and equipment from RO 148 million (US$ 385 million) to RO 234 million (US$ 608 million).

Financial performance 2005

2006

2007

2008

Revenue

62.6

106.4

142.9

199.2

234.3

Net Profit

13.5

13.8

14.3

17.3

26.2

Total equity

24.9

82.2

91.8

109.4

138.7

RO Millions

Dividend track record Our dividend policy remains unchanged based on the proposition that cash is returned to shareholders in the form of higher dividend payouts when there are no credible valuecreating opportunities to invest in the business. Even in the midst of a significant investment programme that is securing sustainable growth for the company we are still able to deliver cash and stock dividend to our shareholders consistent with last year’s total of 25%. On this occasion this will be distributed as 10% cash and 15% stock.

2004

The dividend track record is gaining in consistency year by year. The extraordinary 87.5% distribution in 2005 arose primarily from the issue of stock dividends to all shareholders post acquisition of Topaz. The acquisition of an asset-intensive business has enabled us to make better use of cash for investment in long-term growth in shareholder value. The increase distribution of stock dividend this year

Dividend track record 2004

2005

2006

2007

2008

RO’000

Cash dividend

2,311

5,068

3,041

3,344

2,453

Stock dividend

661

62.5

7,415

2,027

2,229

3,679

Total dividend

2972

87.5

12,483

5,068

5,573

6,132

CHIEF EXECUTIVE OFFICERâ&#x20AC;&#x2122;S REPORT

Providing safe, reliable, affordable services in a responsible manner.

underlines our confidence in the growth that lies ahead based on investments already made.

Business performance The Engineering businesses have sustained capacity and delivered larger and more complex projects than ever before. The Marine businesses have prospered and the Offshore Support Vessel fleet now numbers 96 vessels with a modern age profile. The Contract Services business has weathered the storm of hyper-inflation in its principal cost impacts, to strengthen its leadership position in its chosen markets. Success has not been limited to the larger conglomerates of the group: The Media and Training businesses are posting record results. In Training, the business has not only managed itself through major transition but continues to successfully change peopleâ&#x20AC;&#x2122;s lives for the better. In Media, excellent financial performance has been matched by the significant intangible benefit the whole Renaissance group derives from the creativity and professionalism of our branding and imaging, our media campaigns, and our widely-admired transparent public reporting.

Investment and divestment strategy We continue to expend resources on a considerable amount of Merger and Acquisition (M&A) activity each year. This activity may or may not bear immediate fruit, but even in the case of unconcluded M&A initiatives, the investment in understanding opportunities for expansion and the lessons of due diligence are invaluable to our growth-oriented outlook going forward.

ANNUAL REPORT 2008

In 2008, we completed the divestment of our Technology business and we are very proud to see our friends and former colleagues in Imtac continue to prosper under new ownership. The divestment of 98.5% shares in Imtac for a consideration of RO 15.8 million (US$ 41 million) realized a net capital gain of RO 4.8 million (US$ 12.5 million) after tax and transaction costs. One other smaller divestment occurred during the year with Topaz divesting the remaining 20% of its interest in Mezon Steel. An initiative to consider divestment of other nonoil & gas activities in Training and Media has been suspended in the current market conditions. We have clearly stated that any such divestment must be to the benefit of the employees in those organizations and must realize true value for Renaissance shareholders. In the meantime we continue to enjoy the benefits of having these excellent businesses in our portfolio, not just for their external commercial success, but also for their internal contribution to our own business. For the OSV business, Topaz concluded the acquisition of Doha Marine Services (DMS) - an OSV company operating 14 vessels in Qatar. The US$ 124 million acquisition gave the Topaz Gulf-based fleet a more balanced geographical spread, which has assisted in keeping the entire fleet 100% operational during the recession. The principal thrust of investment in the ongoing business has again been directed at increasing the size and reducing the age profile of the OSV fleet. The Chairmanâ&#x20AC;&#x2122;s Statement provides a specific summary of many of the vessels that have joined the fleet in 2008 and those currently under construction. The OSV fleet has now grown to 96 vessels. The company has also secured many new contracts to secure the future growth path of the company. Two major long-term contracts announced during the year were for three new vessels for BP in Azerbaijan and two new contractor accommodation facilities for PDO in Oman. Topaz subsidiary BUE Marine Limited was awarded, in an international tender, a 10-year US$225 million contract for three support vessels for BP in Azerbaijan. The three vessel package comprises one Dynamically Positioned Platform Supply Vessel (PSV), one Dynamically Positioned Anchor Handling Tug Supply Vessel with 150 tonnes bollard pull (AHTS) and one Emergency Recovery and Response Vessel (ERRV). The

SOME OF OUR CUSTOMERS

IN ALPHABETICAL ORDER

ENKA

MINISTRY OF HEALTH

CHIEF EXECUTIVE OFFICER’S REPORT AHTS and ERRV will be built specifically for the contracts with the PSV being an existing new vessel acquired to service the company’s requirements. All vessels comply with the most recent international regulations and meet the highest environmental standards. The Emergency Response Vessel is capable of providing multi installation safety cover and is the first vessel in the region to be equipped with three daughter crafts. The Platform Supply Vessel will be the first of the three vessels to enter service in the Caspian Sea in early 2009 with the remaining two vessels arriving in mid 2010.

Contract Services Group (CSG)

Financial Highlights 2007

2008

Revenue (RO’m)

54.6

61.9

Profit from Operations (RO’m)

8.4

8.8

4,662

5,323

People (nos) Activities

Providing turnkey solutions for Catering, Cleaning, Laundry, Accommodation, Operations & Maintenance (O&M), Leisure, Property, Estate Services, Facilities Management and Facilities Establishment (Build, Own, Operate); including rapid deployment capabilities in emergencies for harsh, remote or beleaguered environments. Serving Oil & Gas, Energy Services, Healthcare, Education, Military, Commerce & Industry, Ports & Marine sectors.

ANNUAL REPORT 2008

Service segments

- Catering – Oil & Gas sector, Universities, Schools, Hospitals, Military, Commerce & Industry - Facilities Management & Facilities Establishment (Build, Own, Operate): Camps, Dining Facilities (DAFC) and Life Support Accommodation (LSA), Permanent Accommodation for Contractors (PAC) - Cleaning, Laundry, Accommodation Services - Operations & Maintenance (O&M) - Leisure Services - Property & Estate Services • Tawoos Industrial Services Company LLC • Rusail Catering & Cleaning Services LLC • RS PAC Division • RS Overseas Division • Renaissance Contract Services AS – Norway • Norsk Offshore Catering AS - Norway • Renaissance Contracts Services Qatar WLL • Renaissance Catering Company WLL Kuwait

The Contract Services Group (CSG) was awarded contracts by Petroleum Development Oman LLC (PDO) to build, own and operate new Permanent Accommodation for Contractors (PAC) facilities in Oman’s interior oilfields at Marmul and Bahja. The long-term contracts run until 2044 and the contract value of the initial 5-year period is in excess of RO 35 million (US$ 91 million). Renaissance is investing some RO 33 million in establishing the facilities. Operations are expected to commence in 2010. The Marmul facility will have 512 rooms and the Bahja facility 304 rooms, with both sites having room for further expansion. The rooms are designed for single, double and triple occupancy dependent upon requirements of the contractor populations in the interior oilfields. The project anticipates an occupancy level of 1,000 residents at Marmul and 600 residents at Bahja. Renaissance already owns and operates PAC facilities for PDO contractors at Fahud and Nimr, which opened in August 2000, and Qarn Alam, which opened in February 2002. These three existing PACs have a total of 1,452 rooms and accommodate over 3,000 people. The Renaissance PAC projects won the prestigious Oman Awards for Excellence ‘Investment Project of the Year’ for 2001. The RO 183.2 million (USD 476.5 million) investments already made and in place over 2007-08, coupled with these new planned investments, underwritten by long-term contracts are the platform upon which our company may continue to grow even at a time of severe global recession.

Renaissance people Delivering outstanding performance requires exceptional people. Renaissance is thriving on the skill, hard work, ingenuity and enterprise of talented people from around the world who are the heart and soul of all our businesses. It is my pledge to all the established and emerging talent in our team that Renaissance will continue to provide our people with an environment in which they may thrive, prosper and be well rewarded. To the younger emerging talent in particular, we pledge to provide them with formal training and a broad range of experiences to develop them into the next generation of company leaders. It is our belief that Renaissance and its customers require us to nurture leadership skills at every level of the organization. Renaissance people do not rest on their laurels. The 2008 successes are just one milestone on

the journey. Renaissance people embrace a continuous improvement credo – never satisfied, always innovative. The company has had a Senior Management Incentive Plan (SMIP) in place for some years. This year we have further improved the governance of the plan by creating a Jersey based trust structure that uses trustees from an independent professional firm to oversee and administer the employees’ long term benefit scheme independently from the company. The scheme is a rolling programme that allows a part of the company’s senior management bonus payments every year to be paid into the independent trust and the underlying structure. The proceeds are invested by the trustees in the shares of the company through the Muscat Securities Market. The shares are directly released to the employees by the trustees proportionately over a period of three years. The structure and the operation mechanism ensure independency and transparency so that the employees are fully aware of the management and liquidity of their long term employment benefits. The SMIP programme complements an Employee Incentive Plan (EIP) that provides bonuses in a profit share scheme for all employees outside the SMIP scheme.

Renaissance modus operandi Providing safe, reliable, affordable services in a responsible manner enables economic progress and improves the economic wellbeing and quality of life of all our stakeholders: Renaissance people and their families; our clients

CHIEF EXECUTIVE OFFICER’S REPORT and customers; our suppliers and contractors; our financial backers; our shareholders; our professional advisers; and the people in the communities in which we serve. In 2009, Renaissance will continue to push forward with the operating agenda that drives our businesses today: • Operational Excellence: Safely and reliably providing quality services. • Driving growth: Anticipating, understanding and satisfying customer needs profitably. • Best practice systems and processes: Maximizing resources and asset value: Deploying state-of-the-art technology; prudent control; quality systems. • Empowering people: Giving people the freedom and resources to succeed in flat, efficient organization structures; developing the next generation of leaders for our business. • Good governance: Integrity, transparency, responsibility and accountability to protect the interests of all stakeholders. • Corporate social responsibility: Improving energy efficiency and minimizing environmental impacts; providing meaningful employment to indigenous workforces; developing and assisting people and communities where we operate. If this agenda has been at the heart of our success to date, what does it take to drive this agenda onward and upward in uncertain and unpredictable times as we enter 2009? • It requires an understanding of the long-term nature of our businesses. • It requires a consistent, systematic business model with the flexibility to adapt to changing business conditions. • It requires a commitment to invest in and develop people, innovative technology, and projects that grow shareholder value. • It requires a company of leaders with unwavering commitment to integrity, operational excellence and community development. • It requires belief. Belief in our people and all our stakeholders; belief in our businesses and the integrity of our assets. As a direct consequence of our values-driven management credo, Renaissance will continue to deliver good performance to our shareholders

ANNUAL REPORT 2008

Accreditations held within the group

even in this challenging economic environment. This means we can look forward to 2009 with confidence, but the uncertain and unpredictable nature of the global economic climate also requires that we look forward to 2009 with caution.

MEG - Topaz Marine Division Topaz Marine MENA (Nico Middle East Ltd.)

ISO 9001:2000 ISM Certificate

MEG - Topaz Engineering Division Topaz Marine Repair (Nico International)

OHSAS 18001 Occupational Health & Safety Management ISO 14001 Environmental Management System ISO 9001:2000 Quality Management system Recognition status for In-water Survey – ABS, DNV, Lloyds Register, Bureau Veritas, GL, NKK, RMRS, KRS

MEG - Topaz Engineering Division Topaz Fabrication & Construction (Adyard)

ISO 9001:2000 ASME –U,U2,S, PP and R API 2B

MEG – Topaz Marine Division Topaz Marine Azerbaijan (BUE Caspian)

ISM (Annual renewal by RMRS) ISO 9001: 2000 (Annual renewal by AJA)

MEG – Topaz Marine Division Topaz Marine Kazakhstan (Bue Kazakhstan)

ISM (Annual renewal by RMRS) ISO 9001: 2000 (Annual renewal by AJA)

CSG

ISO 9001-2000 series Centre Charter Certificate – Chartered Institute of Environmental Health London UK Hazard Analysis Critical Control Point (HACCP)

ETG - NTI

ROSPA Membership International Consortium for Certified Knowledge Experts (ICCKE) Pearson VUE – Only center for GMAT exams in Oman ISO 9000:2001 HR Compliance Verification Certificate (OPAL) IOSH NEBOSH National Safety Council, USA Microsoft Gold Certified Partner for Learning Solutions Oracle Approved Education Center (OAEC) ACCA – Gold Certified Tuition Provider

ETG - NHI

ISO 9000 2001 ITEC

Mitigating risks The principal perceived risks for Renaissance at this time are: • Sensitivity to low oil price

- Re-negotiation of contracts

- Cancellation of future projects

• Raising finance

- Availability of financing

- Higher cost of financing

• Receivables

- Late payments

- Default

points of Renaissance’s status in relation to the perceived risks and what steps we are taking to consolidate our resilience to risk impact:

• Capacity utilization in the Engineering businesses • Volatility in interest and exchange rates There is a very full discussion on Renaissance’s resilience to these risks in the Chairman’s Statement. There is also a detailed statement on risk contained in Note 27 of the External Auditor’s Report, which has been recommended by the management and approved by the Board, setting an even higher standard of detailed disclosure on risk for this and future reports. That disclosure gives a detailed specific account of credit risk, liquidity risk, market risk and currency risk. So here, let me simply summarize the key

• The Renaissance business model is resilient to oil price fluctuation: - Renaissance has predominantly long-term contracts with blue chip clients in stable markets. - Renaissance is well positioned in the Middle East and Caspian markets, sitting on > 50% of the world’s hydrocarbon reserves. - Renaissance provides services to the development and production phases of the

Media Communication Group (MCG)

Financial Highlights 2007

2008

Revenue (RO’m)

4.7

5.4

Profit from Operations (RO’m)

0.4

0.5

People (nos)

151

162

Activities Publishing business and general interest magazines and country books in English and Arabic. Representing international print titles for advertising and publication sales. Consulting businesses for marketing communications support including advertising, digital and web media, events, public relations, direct contact and brand activation.

Service segments - Advertising - Direct Marketing Solutions - Web and Digital Media Solutions - Public Relations - Events - Media Representation - Media Distribution - Publishing (magazines) – Oman Economic Review (OER), OER Dossier, Al Mar’a, Alam Aliktisaad Wala’mal (AAI) Progress, OMAN, Qatar Today, Qatar Alyoum, Woman Today, GLAM and Signature

• United Media Services LLC • United Press and Publishing LLC • Oryx Advertising Co. WLL (Qatar)

ANNUAL REPORT 2008

CHIEF EXECUTIVE OFFICER’S REPORT

oil capex cycle, which is least susceptible to downturns in oil price. • Financing for major current growth requirements are in place: - Renaissance is able to demonstrate a capital structure appropriate for current conditions. - Financing arrangements secured after the crisis have been agreed at affordable rates over the long-term. - Renaissance has a wide-range of diversified funding sources over the long term, comprising a mix of solid local and international banks. - Renaissance has strong and dependable cash flows. • The businesses are focused on Receivables Management and counter-party risk: - Major clients are blue-chip oil & gas producers and stable governments. • Renaissance businesses continue to operate at capacity: - Since the crisis no contract rates have been revised downwards. - The company has not been affected by any project cancellations. - We expect to see reduced visibility in the order book for the engineering businesses. but expect to sustain capacity. - Assets that joined the OSV fleet in 2008 will operate for the full year in 2009, ensuring growth. • Renaissance has fully provided for 2008 downside on US$ interest rate hedge: - RO 2.7 million (US$ 7 million) unrealized

CHIEF EXECUTIVE OFFICER’S REPORT

loss provided for in 2008. - This may be written back in part or in whole if US$ interest rates rise from their current historic lows. Beyond our normal focus of prudent financial control we remain focused on the key initiatives we have taken throughout the current financial crisis: • The constant analysis and understanding of counter-party risk: including debtors, clients, customers, suppliers, financial backers, continuity of contracts, and terms of borrowing. • The collection and conservation of cash. • Finalization of pending financial agreements. • Deferring non-essential capital expenditure • Remaining alert to opportunity, including potential distress sales of assets and businesses. We do not underestimate the scale and depth of the global economic crisis. However, we are alert to its risks and its opportunities; and we believe in the resilience of our business model. Corporate Social Responsibility Besides our business focus on providing employment opportunities for local workforces; and our efforts to minimise energy usage and mitigate any environmental impact of our work; the social aspect of our Corporate Social Responsibility (CSR) ethos is focused in these key areas: • Helping those less fortunate than ourselves to lead fulfilling lives. • Providing opportunity to help people to

ANNUAL REPORT 2008

improve themselves and make a valid contribution to society. • Improving the economic well-being and quality of life in local communities where we operate. • Supporting good causes in the community. • Showcasing local talent and helping people fulfill their potential. There is a wider discussion on our 2008 initiatives in the Chairman’s Statement. We have made some good progress in this regard over the past year and we are working at improving our CSR programme further in 2009. Our programme must be genuine, not just generous. We want to make a meaningful positive difference in people’s lives. Looking ahead Topaz is Renaissance’s largest subsidiary and based on the substantial investments already made in the OSV business, and our continued investment focus on enlarging the OSV fleet, we have to recognize that this business is dominating, and will increasingly continue to dominate, our balance sheet and P&L. As such the Topaz management team is implementing a restructure of what we have previously termed the Marine & Engineering Group (MEG) into two interdependent but responsibly independent business units: Topaz Marine and Topaz Engineering. Topaz Marine will combine the OSV fleets of the company into one single fleet comprising the two Caspian fleets based in Azerbaijan and Kazakhstan and the MENA fleets based in Saudi Arabia, Qatar and UAE. Each individual country business will continue to operate independently at a local level, but will benefit from being part of an ever enlarging OSV fleet of international scale.

The entire fleet will be subject to a common rebranding under the Topaz logo. Topaz Engineering will combine the oil & gas fabrication operations of Adyard and the Afloat Ship Repair and Boat building businesses of Nico International. Companies like Adyard will retain their local independence, but will benefit from being part of a single major engineering enterprise structured in four divisions: Topaz Fabrication and Construction; Topaz Marine Repair; Topaz Maintenance Services; and Topaz Marine Construction. We believe the new structure will retain the very best of local content and know-how in each independent market. It will bring synergies and economies of scale; and brand uniformity that will be increasingly recognized internationally.

Education Training Group (ETG)

Financial Highlights 2007

2008

Revenue (RO’m)

3.0

3.6

Profit from Operations (RO’m)

0.5

People (nos)

126

138

Service segments - HSE & Driver Training - Technical Training – Mechanical, Electrical, Welding, Construction - Hospitality Training – Hotel, Restaurant, Catering, Front Office, Travel Agency

Activities Providing people solutions in HSE, Technical, Hospitality, Retail, IT and Administration training, with expertise in developing indigenous workforces in developing countries. Providing services to Oil & Gas, Energy Services, Construction, Hospitality, Tourism and Retail sectors.

- IT Training – New Horizons Computer Learning Centres - Administration & Management Training • National Training Institute LLC • National Hospitality Institute SAOG • New Horizons Computer Learning Centres

CHIEF EXECUTIVE OFFICER’S REPORT EXAMPLES OF CSR INITIATIVES IN 2008

Association of Early Intervention for Children with Special Needs RO 80,500 Sultan Qaboos University – College of Medicine & Health Sciences RO 54,000

Renaissance People: Ever vigilant, Never satisfied, Always innovative.

Indian Social Club charity drive for the Bihar Flood Relief Fund RO 5,000 UNICEF – AIDS awareness drive RO 1,000 Women’s Guild in Oman – The Diabetic Society and Downs Children Parents Support Group RO 2,000 Ecumenical Council for Charity of the Al Amana Centre RO 5,000 BizPro Young Achievers Award Winners RO 7,500 BizPro Business Leader Award Winner RO 5,000 British Scholarships for Oman RO 2,500 Environment Society of Oman RO 4,000

ANNUAL REPORT 2008

Operationally, across all our businesses, we will continue our perpetual alignment with the very best in the oil & gas industry. In this regard, we shall continue with our focus on the important agenda issues that are crucial to the industry as its operating fields, its infrastructure and the age profile of the professionals who work in oil & gas, all get older:

Every day we are focused on exceeding customer expectations safely and efficiently.

• Continuous improvement of HSE. • Continuous upgrading and renewal of assets and infrastructure. • Serious commitment to local content: - Training and development of indigenous workforce. - Shortening the supply line to be as local as is efficiently and qualitatively possible. - Local partners. - Local community benefit and social responsibility initiatives. • Drive efficiency and lower cost base: - Sharing our clients’ own concern to drive down the unit cost of production. - Programmes to measure and reduce our own energy usage. - Conservation initiatives. - Efficiency or cost reduction suggestions for clients. We want to thank our clients and customers for their continued trust. We assure them that every day we are focused on exceeding customer expectations safely and efficiently. We thank the banks and financial institutions for their continued confidence and support. We take pride in the rigour of their conduct of due diligence upon our business and the projects that they support. We thank the Capital Market Authority and Muscat Securities Market for providing us with an exemplary regulatory framework that bears quality comparison with any securities market in the world. We assure them of our commitment to be an exemplary public company in their listings. We thank the business professionals who advise us and guide us. They provide us with the necessary stress tests on our business and we believe we continue to enjoy the very best legal, audit, financial and industry advice available to us. We thank our suppliers and contractors. They are our partners in delivering safe and profitable operational excellence. We thank the local communities in which we serve. They

support and sustain our presence and in turn we assure them of our commitment to their future. We thank our shareholders for placing their trust in us and we thank our Board for their direction, governance and guidance. We assure them of our commitment to deliver enduring and growing shareholder value. We thank the families and friends of all Renaissance employees who support and sustain us in all our efforts. Together, all these stakeholders make up the greater Renaissance family. The challenges we face in 2009 are more numerous and more unpredictable than ever. I am convinced that Renaissance people, with their expertise and their sense of purpose, will rise to these challenges, knowing that they can rely on the sound financial base of our company, the confidence of our Board and our shareholders, and the support and sustenance of the greater Renaissance family.

Stephen R. Thomas Chief Executive Officer

ANNUAL REPORT 2008

REPORT ON CORPORATE GOVERNANCE

The Board and Management of Renaissance Services SAOG (“the Company”) are committed to adopt the best practices of corporate governance that promotes ethical standards and individual integrity. This report describes how the Principles of Governance and the provisions of the Code of Corporate Governance, set out in the Capital Market Authority’s (CMA) Code of Corporate Governance for companies listed on the Muscat Securities Market (MSM), and the CMA Rules & Guidelines on Disclosure, are adhered to by the Company. In accordance with the CMA Rules & Guidelines on Disclosure, KPMG has issued a separate Factual Findings Report on the Company’s Corporate Governance Report for the year ended 31st December 2008. 1. Company’s Philosophy The Company upholds a governance philosophy that aims at enhancing long term shareholder value while at the same time adheres to the laws and observes the ethical standards of the business environment within which it operates. According to the Company’s governance paradigm the management assumes accountability to the Board, and the Board assumes accountability to the Shareholders. The Board’s role is to be an active participant and decisionmaker in fostering the overall success of the Company by enhancing Shareholder value, selecting and evaluating the top management team, approving and overseeing the corporate strategy and management’s business plan and acting as a resource for management in matters of planning and policy. The Board monitors corporate performance against the strategic and business plans, and evaluates on a regular basis whether those plans pay off in terms of operating result. In order that it can effectively discharge its governance responsibilities, the Board ensures that the majority of Board members are non-executive, at least one third of Directors are independent and that the majority of committees formed by the

Board consist of independent Directors. Furthermore, the Board accesses independent legal and expert advice of professionals who also assist the Management. The Board also encourages active participation and decision making on the part of shareholders in General meeting proceedings. The Board maintains a positive and ethical work environment that is conducive to attracting, retaining and motivating a diverse group of top quality employees at all levels. The Board through the Compensation Committee reviews and decides the parameters for assessment and compensation of key personnel.

The Company upholds a governance philosophy that aims at enhancing long term shareholder value.

The Board ensures ethical behaviour and compliance with all laws and regulations. The Company’s Manuals of Procedures (internal regulations) cover a wide range of functions including but not limited to Corporate Information & Disclosure Policy, Rules for Related Party Transactions, Procurement Manual and Financial Authority Manual. 2. Board of Directors During 2008 the Board consisted of 7 Directors. All the Directors are Non-Executive and Independent. Six Directors on the Board are Shareholder/ representative of Shareholder and only one Director is a Non-Shareholder Director.

& ITS SUBSIDIARY COMPANIES

REPORT ON CORPORATE GOVERNANCE 2.1/3 The Composition and Category of Directors, Attendance of Board Meetings

SI No.

Name of Director

Position

Chairman

No of Board meetings attended

Whether attended last AGM

Independent Non- Executive Shareholder

Yes

Samir J. Fancy

HH Sayyid Tarik bin Shabib bin Taimur

Director

Independent Non- Executive Shareholder

Yes

Ali bin Hassan Sulaiman

Director

Independent Non- Executive Shareholder

Yes

Sunder George

Director

Independent Non- Executive Non-Shareholder

Yes

Yeshwant C. Desai

Director

Independent Non- Executive Representative of Shareholder

Yes

Rishi Khimji

Director

Independent Non- Executive Representative of Shareholder

Yes

Colin Rutherford

Director

Independent Non- Executive Representative of Shareholder

Yes

2.2 Statement of the Names & Profiles of Directors and Top Management The Renaissance Board brings together core competencies of directors with vision, strategic insight, and industry knowledge, who provide direction to the executive management.

Founder and Director of Tawoos Group. • Chairman of Marina Bander Al Rowdha SAOG for six years until its takeover by the Government of the Sultanate of Oman in April 2003. • Chairman of National Hospitality Institute SAOG since 1995.

Samir J. Fancy - Chairman

Ali bin Hassan Sulaiman – Director

Mr. Samir J. Fancy is the Chairman of the Board of Directors since 1996. He held senior positions and undertook leading roles such as:

Mr. Ali bin Hassan Sulaiman is a member of the Board of Directors of the Company since 1996. He is a founder of Ali and Abdul Karim Group and a director of the following companies:

• Founder and Vice Chairman of Tawoos Group since 1983, and Chairman of Tawoos Group since 2005.

• Director of Topaz Energy & Marine SAOG for several years up to its acquisition by the Company in May 2005.

• Chairman of Topaz Energy & Marine SAOG since foundation and up to its acquisition by the Company in May 2005.

• Director of Majan Glass Manufacturing Co SAOG.

• Chairman of Amani Financial Services SAOC since 1997.

• Director of National Hospitality Institute SAOG.

• Chairman of Topaz Energy & Marine Ltd.

Sunder George - Director

• Director of National Hospitality Institute SAOG.

Mr. Sunder George is a member of the Board of Directors of the Company since 2001. He has extensive experience in Banking & Finance and held senior executive positions in Oman and abroad, including the following:

• Director of Vision Insurance Co SAOC. HH Sayyid Tarik bin Shabib bin Taimur - Director HH Sayyid Tarik bin Shabib bin Taimur is a member of the Board of Directors of the Company since 1996. Other positions held by him include the following:

Category

5040

16,018,217

6.53

100,000 – 200,000 shares

9,385,456

3.83

200,001 – 500,000 shares

14,425,897

5.88

500,001 – 2,200,000 shares

48,670,413

19.84

1% - 1.99% of share capital

30,012,954

12.23

2% - 6% of share capital

89,796,999

36.61

10% of share capital & above

36,989,588

15.08

5212

245,299,524

100

Total 8.4 The company does not have any outstanding GDRs/ ADRs/ Warrants or any convertible instruments. 9. Professional Profile of the Statutory Auditors KPMG is a leading professional services firm, providing audit, tax and advisory services. KPMG has more than 100,000 professionals throughout the world, offices in 800 cities and 7,000 partners in over 150 countries. KPMG in the Middle East and South Asia employs more than 4,000 professionals and have offices in 15 countries. The Oman practice of KPMG was established in 1974. KPMG Oman currently has a staff engaged in audit, tax and advisory services in excess of 100, including three partners, two directors and 12 managers. KPMG Oman is accredited by the Capital Market Authority to audit Omani listed companies. As per article 9 (para b) of the Code of Corporate Governance pertaining to the rotation of external auditors, KPMG have completed only one year as Statutory Auditors of the Company by the end of 2008, and therefore, are eligible for re-appointment as Statutory Auditors of the Company. 10. Audit Fees paid to the Auditors For the year 2008, audit fees of RO 172,201 were paid/ provided by the Company and its subsidiaries, in Oman and abroad, while the fees paid for other services amounted to RO 125,377. 11. Confirmation by the Board of Directors The Board of Directors confirms its accountability for the preparation of the financial statements in accordance with the applicable standards and rules.

ANNUAL REPORT 2008

The Board of Directors confirms that it has reviewed the efficiency and adequacy of the Internal control Systems of the Company. The Board is pleased to inform the shareholders that adequate and efficient internal controls are in place and that they are in full compliance with the Internal Rules & Regulations. The Board of Directors also confirms that there are no material things that affect the continuation of the Company and its ability to continue its operations during the next financial year.

Chairman

Director

CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2008 Notes Revenue Operating expenses Gross profit Administrative expenses Profit from operations Net finance costs

Net gain on sale of investments

2008 ROâ&#x20AC;&#x2122;000

2007 ROâ&#x20AC;&#x2122;000

234,260

199,213

(167,567)

(144,792)

66,693

54,421

(29,276)

(26,863)

37,417

27,558

(10,103)

(5,441)

6,290

Share of (loss) / profit from associate companies

(202)

300

Amortisation of intangible assets

(83)

Profit before income tax

33,319

22,334

Income tax expenses

(7,122)

Net profit for the year

26,197

17,342

23,894

16,525

2,303

817

26,197

17,342

(4,992)

Net profit attributable to: Shareholders of the Parent Company Minority interests

Basic and diluted earnings per share (RO)

0.103

0.071

Dividend per share (RO)

0.025

The attached notes 1 to 29 form an integral part of these financial statements. The Parent Company income statement is presented as a separate schedule attached to the financial statements.

CONSOLIDATED BALANCE SHEET as at 31 December 2008 Notes

2008 ROâ&#x20AC;&#x2122;000

2007 ROâ&#x20AC;&#x2122;000

3 4 6 18

223,457 34,057 2,424 1,239

148,625 34,247 2,554 1,675

261,177

187,101

12 9,915 86,047 15,011

31 13,086 59,603 15,974

110,985

88,694

68,002 2,803 31,336

60,125 779 19,889

102,141

80,793

8,844

7,901

118,945 8,231 4,151

78,160 3,798 3,647

Total non-current liabilities

131,327

85,605

Net assets

138,694

109,397

Non-current assets Property, plant and equipment Intangible assets Investments Deferred tax asset Total non-current assets Current assets Trading investments Inventories and work in progress Trade and other receivables Cash and bank balances

8 9 10

Total current assets Current liabilities Trade and other payables Bank borrowings Term loans and leases

11 10,12 13

Total current liabilities Net current assets Non-current liabilities Term loans and leases Non current payables and advances Staff terminal benefits

Capital and reserves Share capital Share premium Treasury shares Legal reserve Proposed distribution Retained earnings Exchange reserves

13 14 15

16 16 16 16 21

24,530 20,723 (1,704) 9,087 6,132 66,474 71

22,300 25,146 (1,704) 8,024 5,575 44,984 318

Minority interests

125,313 13,381

104,643 4,754

Total equity

138,694

109,397

0.539

0.494

Net assets per share (RO)

The financial statements were authorised for issue in accordance with a resolution of the Directors on 22 February 2009.

Chairman

Director

The attached notes 1 to 29 form an integral part of these financial statements. The Parent Company income statement is presented as a separate schedule attached to the financial statements.

CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2008 2008 ROâ&#x20AC;&#x2122;000

2007 ROâ&#x20AC;&#x2122;000

212,960 (170,002)

186,715 (143,810)

Cash generated from operations Net finance costs Income tax paid

42,958 (7,390) (5,302)

42,905 (5,441) (5,531)

Cash flows from operating activities

30,266

31,933

INVESTING ACTIVITIES Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Investment in jointly controlled entity Proceeds from sale of investments Acquisition of a subsidiary (net of cash acquired) Dividend received

(60,742) 1,176 (847) 15,911 (44,289) 176

(44,644) 3,924 89 1,214

Cash flows used in investing activities

(88,615)

(39,417)

FINANCING ACTIVITIES Net receipts of term loans Net movement in related parties Cash dividends paid Funds introduced by minority interests

53,184 (748) (3,345) 6,271

20,604 2,829 (3,041) -

Cash flows from financing activities

55,362

20,392

Net (decrease)/ increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year

(2,987) 15,195

12,908 2,287

12,208

15,195

15,011 (2,803)

15,974 (779)

12,208

15,195

Notes OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees

Cash and cash equivalents at the end of the year

Cash and cash equivalents comprise the following: Cash and bank balances Bank borrowings Cash and cash equivalents at the end of the year

The attached notes 1 to 29 form an integral part of these financial statements. The Parent Company income statement is presented as a separate schedule attached to the financial statements.

22,300

25,146

20,723

24,530

28,052 (2,230) (676)

(3,679) (744)

2,230 -

20,273 2,027 -

25,146

22,300

(1,704)

(1,687) (17) -

(1,704)

8,024

7,105 919

9,087

(50) -

1,113

8,024

44,984

5,575

5,068 (5,068) 3,345 2,230 -

6,132

44,984

31,889 16,525 (3,345) 158 (243)

66,474

247 -

- 23,894 (5,575) 2,453 (2,453) 3,679 171 (369)

5,575

The Parent Company income statement is presented as a separate schedule attached to the financial statements.

The attached notes 1 to 29 form an integral part of these financial statements.

Balance at 31 December 2007

Balance at 1 January 2007 Net profit for the year Dividend paid and bonus shares issued Proposed dividend Proposed bonus shares Income from treasury shares Transfer to legal reserve Movement related to investment in subsidiaries Currency translation difference

Balance at 31 December 2008

Net profit for the year Dividend paid and bonus shares issued Proposed dividend Proposed bonus shares Income from treasury shares Transfer to legal reserve Movement related to investment in Subsidiaries Currency translation difference

Balance at 1 January 2008

Share premium RO’000

Share capital RO’000

318

181

137 -

(247)

318

Attributable to shareholders of the Parent Company Treasury Legal Proposed Retained Exchange shares reserve distribution earnings reserves RO’000 RO’000 RO’000 RO’000 RO’000

104,643

181

90,837 16,525 (3,041) 141 -

125,313

197 (247)

23,894 (3,345) 171 -

104,643

Total RO’000

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2008

4,754

3,008 -

929 817

13,381

6,324 -

2,303 -

4,754

Minority interest RO’000

109,397

3,008 181

91,766 17,342 (3,041) 141 -

138,694

6,521 (247)

26,197 (3,345) 171 -

109,397

Total RO’000

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 1

LEGAL STATUS AND PRINCIPAL ACTIVITIES Renaissance Services SAOG (the “Parent Company”) is incorporated in the Sultanate of Oman as a public joint stock company. The business activities of Renaissance Services SAOG and its subsidiary companies (together referred to as the “Group”) include investments in companies and properties, providing solutions in offshore support vessel fleet, a float ship repair, fabrication and maintenance for the oil & gas and energy services sectors, a leading turnkey contract services provider providing facilities management, facilities establishment, contract catering, operations and maintenance services, provision of training services, media publishing, advertising and distribution, manufacturing, general trading and related activities.

SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and applicable requirements of the Commercial Companies Law of 1974 and the minimum disclosure requirements of the Capital Market Authority (CMA). These financial statements have been prepared in Rial Omani (“RO”) rounded to the nearest thousand. The consolidated financial statements are prepared under the historical cost convention modified to include the measurement at fair value of the following assets: -

Held for trading investments;

Available for sale investments

Basis of consolidation Subsidiaries Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Company, using consistent accounting policies. Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total recognised gains and losses of associates on an equity accounting basis, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) Investments in jointly controlled entities Investments in the jointly controlled entities are accounted for under the proportionate consolidation method whereby the Group accounts for its share of the assets and liabilities, income and expenses in the jointly controlled entity. Jointly controlled operations Where the Group participates in jointly controlled operations as defined in International Accounting Standard 31 the Group accounts only for its own share of assets and liabilities, income and expenditure. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated to the extent of the Groupâ&#x20AC;&#x2122;s interest in the entity, against the investment in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Minority interests Minority interests represent the portion of profit or loss and net assets not held by the Group and are presented in the income statement and within equity in the consolidated balance sheet, separately from parent shareholdersâ&#x20AC;&#x2122; equity. Acquisitions of minority interests are accounted for using the parent entity extension method, whereby, the difference between the consideration and the book value of the share of the net assets acquired is recognised as goodwill. Revenue recognition Ship repair and oil and gas services Revenue comprises amounts derived from ship repair, provision of mechanical, electrical and instrumentation services, fabrication and maintenance services, turbocharger services and marine boiler repairs. Revenue is recognised under the percentage of completion method and is stated net of discounts and allowances. Where the outcome of a contract can be assessed with reasonable certainty, a prudent estimate of attributable profit is recognised in the consolidated income statement. Full provision is immediately made for all known or expected losses on individual contracts, when such losses are foreseen. Goods sold and services rendered Revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer i.e. delivery of goods, acceptance by the customer and the amount of revenue can be measured reliably. Revenue from services rendered is recognised in the income statement in proportion to the stage of completion of the transaction in the accounting period in which the services are rendered and the right to receive the consideration is established. No revenue is recognised if there are significant uncertainties regarding the recovery of the consideration due, associated costs or the possible return of goods.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) Long-term contracts As soon as the outcome of a long-term contract can be estimated reliably, contract revenue and expenses are recognised in the income statement in proportion to the stage of completion of the contract. An expected loss on a contract is recognised immediately in the income statement. No revenue is recognised if there are significant uncertainties regarding the recovery of the consideration due, associated costs or the possible return of goods. Maintenance contracts Income from maintenance contracts is recognised in the income statement on a straight line basis evenly over the term of the contract. Commission income Commission income is recognised when the amount is notified to the Group entities by the principal. Investment income and gain or loss on disposals On disposal of an investment, the resultant gain or loss between the net disposal proceeds and the carrying amount is recognised in the income statement. Dividend income Dividend income is recognised in the income statement on the date that the dividend is declared. Marine charter Revenue comprises operating lease rent from charter of marine vessels, revenue from provision of onboard accommodation, catering services and sale of fuel and other consumables. Lease rent income is recognised on a straight line basis over the period of the lease. Revenue from provision of onboard accommodation and catering services is recognised over the period of hire of such accommodation while revenue from sale of fuel and other con sum abies is recognised when delivered. Interest Interest revenue is recognised as the interest accrues. Property, plant and equipment Owned assets Items of property, plant and equipment are stated at cost or revalued amounts less accumulated depreciation and impairment losses, if any. Subsequent to initial recognition or certain assets are carried at revalued amount, being their fair value at the date of the revaluation less any subsequent accumulated depreciation. The revaluation of these assets is carried out at regular intervals on an open-market basis to ensure that the carrying amount does not differ materially from the fair value. Surplus arising on revaluation is credited to a revaluation surplus account within equity. Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditure is capitalised. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in property, plant and equipment. All other expenditure is recognised in the income statement as an expense as incurred.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) Depreciation Depreciation is charged to the income statement on a straight line basis over the estimated useful lives of items of property, plant and equipment. The estimated useful lives are as follows: Years Buildings and improvements Furniture and fixtures Plant, machinery and office equipment Marine vessels revalued (from the date of latest revaluation) Marine vessels acquired Expenditure on marine vessel dry docking (included as a component of marine vessels)

5 - 25 3-5 1 - 15 10 15 - 25 3

Jetty and land development

Floating dock

Motor vehicles

Freehold land is not depreciated. The cost of certain assets used on specific contracts is depreciated to estimated residual value over the period of the respective contract, including extensions if any. Capital work-in-progress Capital work-in-progress is stated at cost and comprises all costs directly attributable to bringing the assets under construction ready for their intended use. Capital work-in-progress is transferred to property, plant and equipment at cost on completion. Dry docking costs The expenditure incurred on vessel dry docking, a component of property, plant and equipment, is amortised over the period from the date of dry docking, to the date on which the management estimates that the next dry docking is due. Vessel refurbishment costs Leased assets Costs incurred in advance of charter to refurbish vessels under long term charter agreements are capitalised within property, plant and equipment in line with the use of the refurbished vessel. Where there is an obligation to incur future restoration costs under charter agreements which would not meet the criteria for capitalisation within property, plant and equipment, the costs are accrued over the period to the next vessel re-fit to match the use of the vessel and the period over which the economic benefits of its use are realised. Owned assets Cost incurred to refurbish owned assets are capitalised within property, plant and equipment and then depreciated over the shorter of the estimated economic life of the related refurbishment or the remaining life of the vessel.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets and liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

•

represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and

•

is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with IAS 14 Segment Reporting. Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cashgenerating units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset. Computer software costs represent expenditure incurred on implementing an ERP solution for the Group. Amortisation is charged on a straight line basis over a period of five years, from the date of completion.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) Investments Held for trading investments are stated at fair value, with any resultant gain or loss recognised in the income statement. Other investments held by the Group are classified as being available for sale and are stated at fair value. Unrealised gains and losses on remeasurement to fair value are reported as a separate component of equity until the investment is derecognised or the investment is determined to be impaired. Upon impairment any loss, or upon derecognition any gain or loss, previously reported as cumulative changes in fair valueî within equity is included in the income statement for the period. Inventories and work-in-progress Inventories are valued at the lower of cost and net realisable value. Cost is determined applying the firstin, first-out and the weighted average methods and includes all costs incurred in acquiring and bringing them to their present location and condition. Net realisable value signifies the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. Work-in-progress in the case of short-term contracts is stated at the invoice value of goods and services supplied less amounts received or receivable. In the case of long-term contracts, work-in-progress is stated at cost, which includes direct costs and all attributable overheads, plus profit recognised to date less a provision for foreseeable losses, uncertainty and progress billings. Cost includes all expenditure related to specific contracts and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity. Trade and other receivables Trade and other receivables are stated at cost less impairment losses, if any. Treasury shares Own equity instruments which are reacquired (treasury shares) are deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any gain or loss or income related to these shares are directly transferred to retained earnings and shown in the statement of changes in equity. Cash and cash equivalents Cash and cash equivalents comprise cash at hand, bank balances and short-term deposits with an original maturity of three months or less. Bank borrowings that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) 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 borrowings Interest bearing borrowings are recognised initially at the fair value of the consideration received less directly attributable transaction costs. Subsequent to initial recognition interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. Provisions A provision is recognised in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefit will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liabilities. Dividends Dividends are recognised as a liability in the period in which they are declared. Leases Group as a lessee Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the income statement. Capitalised leased assets are depreciated over the estimated useful life of the asset or the lease term, whichever is less. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the consolidated income statement on a straight-line basis over the lease term. Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as lease rental income. Contingent rents are recognised as revenue in the period in which they are earned.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) Employee benefits Contributions to a defined contribution retirement plan for Omani employees, in accordance with the Oman Social Insurance Scheme, are recognised as an expense in the income statement as incurred. The Group provides end of service benefits to its expatriate employees. The entitlement to these benefits is based upon the employees’ salary and length of service, subject to completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment. For non Omani companies the end of service benefits are provided as per the respective regulations in their country. Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme. Directors’ remuneration The board of directors’ remuneration is accrued within the limits specified by the Capital Market Authority and the requirements of the Commercial Companies Law of the Sultanate of Oman. Term loans Term loans are carried on the balance sheet at the fair value of the consideration received less directly attributable transaction costs. Installments due within one year are shown as a current liability. Interest expense is accrued on a time-proportion basis with unpaid amounts included in accounts payable and accruals. Net finance costs Net finance costs comprise interest payable on borrowings calculated using the effective interest rate method and interest received on funds invested. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Financing costs are recognised as an expense in the income statement in the period in which they are incurred. Borrowing costs, net of interest income, which are directly attributable to the acquisition of items of property, plant and equipment are capitalised as the cost of property, plant and equipment. Borrowing costs incurred beyond the construction period are recognised in the income statement. Interest income is recognised in the income statement as it accrues, taking into account the effective yield on the asset.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Income tax Income tax is provided for in accordance with the fiscal regulations of the country in which the Group operates. Income tax on the profit or loss for the year comprises current and deferred taxation. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts use for taxation purposes. The amount of deferred tax provided is based on the expected manner of realistic settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Ijarah-fil-Thimma Ijara-fil-Thimma is an agreement whereby the Group as a lessee, leases the asset from banks and financial institutions for a specified rental over a specific period. The duration of the lease, as well as the basis for rental, are set and agreed in advance. The risks and benefits incidental to ownership of the leased item are transferred to the Group. The Group capitalises the leased item at the inception of the lease at the fair value of the leased property or, if lower, at the present value of minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease. Foreign currency transactions Transactions denominated in foreign currencies are translated to Rial Omani at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to Rial Omani at foreign exchange rates prevailing on the balance sheet date. Foreign exchange differences arising on conversion are recognised in the income statement.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into Rial Omani at the foreign exchange rates ruling at the dates the values were determined. Exchange differences, arising on a monetary item that, in substance, forms part of the Group’s net investment in a foreign entity, are classified as equity until the disposal of the net investment, at which time they are recognised as income or as expenses, as the case may be, in the same period in which the gain or loss on disposal is recognised. Impairment

• • •

An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset may be impaired. If such evidence exists, any impairment loss is recognised in the consolidated income statement. Impairment is determined as follows: For assets carried at fair value, impairment is the difference between cost and fair value, less any impairment loss previously recognised in the consolidated income statement; For assets carried at cost, impairment is the difference between carrying value and the present value of future cash flows discounted at the current market rate of return 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 the original effective interest rate. Derivatives Derivatives are stated at fair value. For the purposes of hedge accounting, hedges are classified into two categories: (a) fair value hedges which hedge the exposure to changes in the fair value of a recognised asset or liability; and (b) cash flow hedges which hedge exposure to variability in cash flows of a recognised asset or liability or a highly probable transaction. In relation to effective fair value hedges any gain or loss from remeasuring the hedging instrument to fair value, as well as related changes in fair value of the item being hedged, are recognised immediately in the consolidated income statement. In relation to effective cash flow hedges, the gain or loss on the hedging instrument is recognised initially in equity and either transferred to the consolidated income statement in the period in which the hedged transaction impacts the consolidated income statement, or included as part of the cost of the related asset or liability. For hedges which do not qualify for hedge accounting, any gains or losses arising from changes in the fair value of the hedging instrument are taken directly to the consolidated income statement for the year. Fair value hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. For fair value hedges of financial instruments with fixed maturities any adjustment arising from hedge accounting is amortised over the remaining term to maturity. For cash flow hedges, any cumulative gain or loss on the hedging instrument recognised in equity remains in equity until the hedged transaction occurs. If the hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the consolidated income statement.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) New standards and interpretation not yet effective A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2008 and have not been applied in preparing these financial statements:

•

IFRS 8 Operating Segments introduces the ìmanagement approachî to segment reporting. IFRS 8, which becomes mandatory for the Group’s 2009 financial statements, will require the disclosure of segment information based on the internal reports regularly reviewed by the Group’s Chief Operating Decision maker in order to assess each segment’s performance and to allocate resources to them. Currently the Group presents segment information in respect of its business segments. The Group does not prepare internal reports containing other segment information and accordingly it is not expected that IFRS 8 will have any significant impact on the financial statements.

•

Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised IAS 23 will become mandatory for the Group’s 2009 financial statements is not expected to have any significant impact on the financial statements.

•

Revised IAS 1 Presentation of Financial Statements (2007) introduces the term total comprehensive income, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively combining both the income statement and all non-owner changes in equity in a single statement), or in an income statement and a separate statement of comprehensive income. Revised IAS 1, which becomes mandatory for the Group’s 2009 financial statements, is not expected to have a significant impact on the presentation of the financial statements. The Group plans to provide total comprehensive income in a single statement of comprehensive income for its 2009 financial statements.

•

Revised IFRS 3 Business Combinations (2008) incorporates the following changes that are likely to be relevant to the Group’s operations: -

The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations.

Contingent consideration will be measured at fair value, with subsequent changes therein recognised in profit or loss.

Transaction costs, other than share and debt issue costs, will be expensed as incurred.

Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognised in profit or loss.

Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis. Revised IFRS 3, which becomes mandatory for the Group’s 2010 financial statements, will be applied prospectively and therefore there will be no impact on prior periods in the Group’s 2010 financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 2

SIGNIFICANT ACCOUNTING POLICIES (contd.)

â&#x20AC;˘

Amended IAS 27 Consolidated and Separate Financial Statements (2008) requires accounting for changes in ownership interests by the Group in a subsidiary, while maintaining control, to be recognised as an equity transaction. When the Group loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognised in profit or loss. The amendments to IAS 27, which become mandatory for the Groupâ&#x20AC;&#x2122;s 2010 financial statements, are not expected to have a significant impact on the financial statements. Fair values For investments traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date. For unquoted investments, a reasonable estimate of the fair value is determined by reference to the market value of a similar investment or is based on the expected discounted cash flows. Fair value cannot be reliably measured for certain unquoted foreign investments. Such investments are measured at cost. The fair value of interest-bearing items is estimated based on discounted cash flows using market interest rates for items with similar terms and risk characteristics. Judgements In the process of applying the groupâ&#x20AC;&#x2122;s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect in the amounts recognised in the financial statements: Classification of investments Management decides on acquisition of an investment whether it should be classified as held to maturity, held for trading, carried at fair value through profit and loss account, or available for sale. The Group classifies investments as trading if they are acquired primarily for the purpose of making a short term profit by the dealers. Classification of investments as fair value through profit and loss account depends on how management monitor the performance of these investments. When they are not classified as held for trading but have readily available reliable fair values and the changes in fair values are reported as part of profit or loss in the management accounts, they are classified as fair value through profit and loss. All other investments are classified as available for sale. Estimates and assumptions The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 3

PROPERTY, PLANT AND EQUIPMENT Freehole land and buildings RO’000

Marine vessels RO’000

Jetty and dock RO’000

Machinery and equipment RO’000

Motor vehicles RO’000

Furniture and fixtures RO’000

Capital work in progress RO’000

Total RO’000

Cost or valuation 1 January 2008 37,372 Additions related to acquisitions Additions during the year 7,855 Disposals/transfers (165)

132,214 41,712 24,405 12,924

2,468 143 -

22,285 56 4,836 (1,434)

2,034 113 467 (252)

2,093 281 (678)

16,172 18,895 (19,707)

214,638 41,881 56,882 (9,312)

31 December 2008

45,062

211,255

2,611

25,743

2,362

1,696

15,360

304,089

Depreciation 1 January 2008 Charge for the year Related to acquisitions On disposal

15,003 3,712 (146)

33,707 10,644 974 (1,771)

724 128 -

13,553 2,583 50 (1,382)

1,369 357 64 (187)

1,657 199 (606)

66,013 17,623 1,088 (4,092)

31 December 2008

18,569

43,554

852

14,804

1,603

1,250

80,632

Net carrying amount 31 December 2008

26,493

167,701

1,759

10,939

759

446

15,360

223,457

31 December 2007

22,369

98,507

1,744

8,732

665

436

16,172

148,625

Cost or valuation 1 January 2007 Additions Disposals/transfers

27,730 2,352 7,290

116,697 15,610 (93)

2,107 361

15,328 5,374 1,583

1,525 610 (101)

2,086 230 (223)

10,830 20,880 (15,538)

176,303 45,056 (6,721)

31 December 2007

37,372

132,214

2,468

22,285

2,034

2,093

16,172

214,638

Depreciation 1 January 2007 Charge for the year On disposal

11,755 3,248 -

27,679 9,252 (3,224)

589 135 -

11,588 2,072 (107)

1,183 327 (141)

1,682 188 (213)

54,476 15,222 (3,685)

31 December 2007

15,003

33,707

724

13,553

1,369

1,657

66,013

Net carrying amount 31 December 2007

22,369

98,507

1,744

8,732

665

436

16,172

148,625

31 December 2006

15,975

89,018

1,518

3,740

342

404

10,830

121,827

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 3

PROPERTY, PLANT AND EQUIPMENT (contd.) Certain marine vessels at a carrying value of RO 20.84 million are subject to commercial agreements with a third party whereby that third party has a call option to purchase each of the relevant vessels owned by the Group at a price related to the US dollar borrowing remaining outstanding against those vessels. The Group has not been notified of any intention to exercise such a call option and consequently the call option and associated implications are not reflected in these financial statements. The net carrying value of marine vessels includes an amount of RO 101,000 (2007: RO 239,000) in respect of assets held under finance leases. Capital work in progress includes progress payments for the construction of new vessels. This will not be depreciated until the vessels are fully complete and fit for operational use. Advances or deposits paid for construction or acquisition of assets are classified as advances to suppliers and contractors, and the amount will be transferred to capital work in progress after the commencement of construction.

The depreciation charge has been allocated in the consolidated income statement as follows: 2008 RO’000

2007 RO’000

16,471 1,152

14,263 959

17,623

15,222

Goodwill

2008 RO’000

2007 RO’000

Goodwill At 1 January Additions Disposals

41,497 2,997 (4,534)

41,441 56 -

31 December

39,960

41,497

Impairment 1 January Disposals

7,356 (1,388)

7,356 -

5,968

7,356

33,992

34,141

Operating expenses Administrative expenses

INTANGIBLE ASSETS

31 December Net carrying amount at 31 December

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 4

INTANGIBLE ASSETS (contd.) Goodwill represents the excess of the cost of acquiring shares in certain subsidiaries companies over the aggregate fair value of their net assets. The carrying amount of goodwill at 31 December allocated to each of the cash-generating units:

Goodwill

2008 RO’000

2007 RO’000

Topaz Energy and Marine Group Industrial Management Technology and Contracting LLC Tawoos Industrial Services Company LLC Norsk Offshore Catering AS Others (UMS, NTI and NHI)

29,079 1,900 1,007 2,006

26,083 3,145 1,900 1,007 2,006

33,992

34,141

The recoverable amount of each cash-generating unit is determined based on a value in use calculation, using cash flow projections based on financial budgets approved by senior management. The key assumptions of the value in use calculations are those regarding discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates that reflect current market assessments of the time value of money and the risks specific to each cashgenerating unit. The growth rates are based on management estimates having regard to industry growth rates. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. Sensitivity to changes in assumptions: With regard to the assessment of value in use of the cash generating units, management believes that no reasonably possible change in any of the key assumptions would cause the carrying value of the unit to materially exceed its recoverable amount. For the year ended 31 December 2008, there have been no events or changes in circumstances to indicate that the carrying values of goodwill of the above cash-generating units may be impaired.

Computer software

2007 RO’000

1 January Addition on acquisition of subsidiary Amortisation

106 42 (83)

189 (83)

Net carrying amount at 31 December

106

34,057

34,247

Total intangible assets

2008 RO’000

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 5

SUBSIDIARIES AND ASSOCIATES The Group and Parent Company investments in Subsidiary and Associate companies are as follows: Ownership interest (%) 2008 2007 Subsidiary Companies Topaz Energy and Marine Limited (“TOPAZ“) (incorporated in UAE) Industrial Management Technology and Contracting LLC (“IMTAC”) Tawoos Industrial Services Company LLC (“TISCO”) United Media Services Company LLC (“UMS”) National Training Institute LLC (“NTI”) National Hospitality Institute SAOG (“NHI”) Associate Companies Dubai Wire FZE (“DW”) (incorporated in the UAE) Darium Thai Offshore Limited (incorporated in Thailand) Mezon Stainless Steel FZE Zone Company (incorporated in UAE)

100 100 100 100 46

100 100 100 100 100 46

20 49 -

20 49 20

100 100

100 -

The Group’s subsidiaries have investments in the following subsidiaries: Subsidiary Companies of TOPAZ Nico Middle East Limited (incorporated in Bermuda) Topaz Holding Limited (incorporated in the UAE)

Nico Middle East Limited has a subsidiary BUE Marine Ltd, incorporated in UK, which operates through its subsidiaries and engaged principally in charter of marine vessels and vessel management. During the year, the Group acquired 49% interest in Doha Marine Service WLL (ìDMSî), an entity incorporated in the state of Qatar. In addition to 49% ownership interest in DMS, the Group has a beneficial interest in further 51% in DMS. Accordingly the Group also has power to govern the financial and operating policies of DMS, and therefore, DMS has been dealt as a subsidiary in these consolidated financial statements. Subsidiary Companies of IMTAC United Drug Stores LLC (“UDS”) IMTAC Yemen Ltd. (“IYL”) (incorporated in Yemen) IMTAC Technology LLC (“ITECH”) (incorporated in the UAE) United Telecommunications LLC (“UNITEL”)

100 49 100 100

100 100 100

IMTAC Group was disposed on 1 January 2008. Subsidiary Companies of TISCO Rusail Catering and Cleaning Services LLC (“RCCS”) Supraco Limited (incorporated in Cyprus) Renaissance Contract Services International LLC (“RCSI”) RCSI through its subsidiary in Angola provides contract catering services. Supraco Limited through its subsidiaries in Norway provides contract catering services to offshore oil rigs operating in the Norwegian Water.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 5

SUBSIDIARIES AND ASSOCIATES (contd.) Ownership interest (%) 2008 2007 Subsidiary Companies of UMS United Press and Publishing Company LLC (“UPP”) Oryx Advertising Company WLL (incorporated in Qatar)

100 49

2008 RO’000

2007 RO’000

1,186 391 847

2,360 194 -

2,424

2,554

2008 RO’000

2007 RO’000

Except as otherwise stated, the companies are incorporated in Oman. 6

INVESTMENTS

Investment in associates Available for sale investments Investment in a jointly controlled entity (note 7)

Investment in associates Movements in the investment in associates are set out below:

At 1 January Share of (loss) income Exchange (loss) gain transferred to translation reserve Disposal of interest in associate Dividend received

2,360 (202) (33) (939) -

2,992 300 83 (1,015)

At 31 December

1,186

2,360

2008 RO’000

2007 RO’000

Share of associates’ balance sheet: Current assets Non current assets Current liabilities Non current liabilities Net assets

1,669 1,528 (1,611) (400)

3,281 1,684 (1,361) (1,244)

1,186

2,360

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 6

INVESTMENTS (contd.) Share of associates’ revenues and results: Revenues

10,175

3,085

(202)

Result

300

Available for sale investments Available for sale investments is as follows: 2008 Ownwership % Global Fasteners Limited (incorporated in the Isle of Man) Fund for Development of Youth Projects SAOC Industrial Management Technology and Contracting LLC

RO’000

2007 Ownership %

RO’000

10.00 2.33

69 125

10.00 2.33

69 125

1.25

197

391

194

The Group as per the sale agreement has retained 1.25% shareholding of its former subsidiary Industrial Management and Technology Contracting LLC. 7

INVESTMENTS IN JOINTLY CONTROLLED ENTITIES The Group’s share of income, expenses, assets and liabilities in the jointly controlled entities at 31 December are set out below: 2008 2007 RO’000 RO’000

Current assets Current liabilities

2,464 (879)

Net assets

1,585

Revenue Cost of sales Administrative expenses Finance cost Tax Net profit for the year

2,657 (1,771) (291) (34) (25) 536

1,737 (1,264) 473 2,382 (1,981) (132) 269

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 7

INVESTMENTS IN JOINTLY CONTROLLED ENTITIES (contd.) Investments in jointly controlled entities are in:

Nico Mitsui Dososan Babcock DMS Jaya Marine WLL Jaya DMS Marine Pte Ltd.

2008 %

2007 %

50 51 50

50 -

The above entities are incorporated in the UAE, Qatar and Singapore. Investment in jointly controlled entity represents an investment made by the Group in Mangistau Oblast Boat Yard LLP. The Group entered into a Participation Agreement on 18 April 2008. As at the balance sheet date the jointly controlled entity has not yet commenced operations and accordingly the investment is stated at cost. 8

INVENTORIES AND WORK IN PROGRESS

Stocks and consumables, net Work in progress for long-term contracts

2008 RO’000

2007 RO’000

4,792 5,123

4,234 8,852

9,915

13,086

2008 RO’000

2007 RO’000

52,766 15,965 16,281 1,035

45,445 12,375 1,112 671

86,047

59,603

TRADE AND OTHER RECEIVABLES

Trade receivables, net Prepayments and other receivables Advances to suppliers and contractors Amounts due from related parties (note 22)

As at 31 December 2008, trade receivables of RO 2,587,000 (2007: RO 4,666,000) were impaired. Movements in the allowance for impairment of receivables were as follows: 2008 RO’000 At 1 January Charge for the year Amounts written off Unused amounts reversed Adjustment relating to subsidiary disposed off At 31 December

2007 RO’000

4,666 1,190 (2,789) (37) (443)

3,582 1,399 (285) (30) -

2,587

4,666

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 9

TRADE AND OTHER RECEIVABLES (contd.) As at 31 December, the ageing of unimpaired trade receivables is as follows: Past due but not impaired

Total RO’000

Neither past due nor impaired RO’000

<30 days RO’000

30-60 days RO’000

60-90 day RO’000

90-120 day RO’000

>120 days RO’000

2008

52,766

34,983

7,699

3,763

2,070

2,383

1,868

2007

45,445

30,806

7,519

2,862

1,584

1,708

966

Unimpaired receivables are expected, on the basis of past experience, to be fully recoverable. It is not the practice of the Company to obtain collateral over receivables and the vast majority are, therefore, unsecured. 10

CASH AND CASH EQUIVALENTS

Cash and bank balances Bank borrowings (note 12)

2008 RO’000

2007 RO’000

15,011 (2,803)

15,974 (779)

12,208

15,195

Included in cash and bank balances are call deposits of RO 6,022,000 (2007: RO 5,524,000) maintained with commercial banks. These are denominated mainly in Rial Omani, US Dollar and UAE Dirhams, are short term in nature, and earn interest at commercial rates (2007 - same terms and conditions). 11

TRADE AND OTHER PAYABLES

Trade payables Accrued expenses and other payables Income tax payable Amounts due to related parties (note 22)

2008 RO’000

2007 RO’000

22,896 36,822 7,806 478

20,819 30,765 8,477 64

68,002

60,125

BANK BORROWINGS Certain of the Group’s bank borrowings are secured by a registered first mortgage over certain assets, guarantees and assignment of receivables in certain subsidiary companies. Bank borrowings carries interest rates ranging from 6% to 7% per annum (2007: 6% to 7% per annum).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 13

TERM LOANS AND LEASES Term loans 31 December 2008

Total RO’000

1 year or less RO’000

2 -5 years RO’000

More than 5 years RO’000

Parent Company Subsidiary companies

35,719 114,462

7,827 23,408

26,758 78,152

1,134 12,902

150,181

31,235

104,910

14,036

31 December 2008

Total RO’000

1 year or less RO’000

2 -5 years RO’000

More than 5 years RO’000

Parent Company Subsidiary companies

26,310 71,492

5,739 14,004

20,571 39,373

18,115

97,802

19,743

59,944

18,115

Included in term loans from bank are the following: Term loans in Parent Company Term loans in Parent Company amounting to RO 35,719,000 are secured by charge over certain assets, rights on leasehold land, assignment of certain project receivables, assignment of insurance interests in certain contract assets and guarantees. Interest is charged at commercial rates (2007 : same terms and conditions). Term loans in Subsidiaries Term loans is related to TOPAZ amounting to RO 114,462,000 are secured by a first preferred mortgage over selective assets of the Group, the assignment of marine vessel insurance policies, the assignment of the marine vessel charter lease income. The equipment finance loan is secured against plant and machinery acquired with the proceeds of the loan. Term loans in subsidiaries include financing under Ijarah-fil-Thimma which represent funds advanced to the Group by a bank under an Islamic financing scheme. Total amount of such financing is RO 6,996,000 (2007: RO 8,036,000) out of which RO 2,079,000 (2007: RO 869,000 is classified as current portion). Term loans carries interest rates ranging from 5% to 6% per annum (2007: 5% to 6% per annum). Leases 2008 RO’000 Total lease payments outstanding as at 31 December Less: Due within one year (disclosed as current liabilities) Long term lease obligations (note 24 c)

101 (101) -

2007 RO’000 247 (146) 101

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 13

TERM LOANS AND LEASES (contd.) Term loans and leases are disclosed in the balance sheet as: 2008 RO’000

2007 RO’000

118,945 -

78,059 101

118,945

78,160

31,235 101

19,743 146

31,336

19,889

2008 RO’000

2007 RO’000

5,393 1,721 1,117

2,296 1,502

8,231

3,798

2008 RO’000

2007 RO’000

Movements in the liability recognized in the balance sheet are as follows: 1 January

3,647

2,903

Accruals during the year

1,438

1,161

Non current liabilities: Term loans Finance leases

Current liabilities: Term loans Finance leases

NON CURRENT PAYABLE AND ADVANCES

Other payables and advances Income tax payable Deferred income

STAFF TERMINAL BENEFITS Defined contribution plan

Payments during the year

(594)

(417)

Adjustment on sale of a subsidiary

(340)

31 December

4,151

3,647

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 15

STAFF TERMINAL BENEFITS (contd.) Defined benefit plan The pension scheme of one of Group’s subsidiary covers a total of 369 employees (2007 - 183 employees). The pension scheme gives the right to defined future benefits, which are mainly dependent on number of years worked, salary level at time of retirement and the amount of payment from the national insurance fund. The obligations are covered through an insurance company. The calculated pension obligations are based on actuarial valuation. The actuarial valuations are based on assumptions of demographical factors normally used within the insurance industry.

CAPITAL AND RESERVES Share capital The authorised share capital of the Parent Company comprises 400,000,000 ordinary shares of RO 0.100 each (2007 : 400,000,000 of RO 0.100 each). At 31 December 2008, the issued and fully paid up share capital comprised 245,299,524 ordinary shares of RO 0.100 each (2007: 222,999,568 of RO 0.100 each). During 2008, the share capital increased by RO 2,229,996 due to the issue of 22,299,956 bonus shares. Details of shareholders, who own 10% or more of the Parent Company’s share capital, are as follows: 2008

Tawoos LLC

2007

Number of shares ‘000

36,989

15.08

Number of shares ‘000

26,543

11.90

Legal reserve The Omani Commercial Companies Law of 1974 requires that 10% of an entity’s net profit be transferred to a non-distributable legal reserve until the amount of legal reserve becomes equal to one-third of the entity’s issued share capital. The legal reserve is not available for distribution. Legal reserve also includes transfer relating to non Oman registered subsidiary companies as per the respective regulations in their country of incorporation. The Group utilises the share premium for transfers to legal reserve. Treasury shares These are shares held by certain subsidiaries in the Parent Company at the cost of RO 1,703,826 (2007: RO 1,703,826). Dividend received on these treasury shares have been directly transferred to retained earnings and shown as movement in the statement of changes in equity. At 31 December 2008, the subsidiaries held 12,656,163 shares (2007: 11,505,604) in the Parent Company. The market value of these shares at 31 December 2008 was approximately RO 7.85 million (2007: RO 15.45 million).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 16

CAPITAL AND RESERVES (contd.) Share premium The Company has proposed aggregate dividend in the amount of RO 6,132,487 for the year ended 31 December 2008. Out of this an amount of RO 3,679,492 will be stock dividend and has been adjusted against the share premium in the statement of changes in equity. The Group utilises the share premium for transfers to legal reserve.

NET ASSETS PER SHARE Net assets per share is calculated by dividing the net assets at the year end attributable to the shareholders of the Parent Company by the number of shares outstanding as follows: 2008 RO’000

2007 RO’000

Net assets Net assets Minority interest

138,694 (13,381)

109,397 (4,754)

Net assets attributable to the shareholders of the Parent Company

125,313

104,643

Number of shares Number of shares at 1 January Bonus shares issued

223,000 22,299

202,727 20,273

Treasury shares (refer note 16)

245,299 (12,656)

223,000 (11,506)

Number of shares at 31 December

232,643

211,494

0.539

0.494

Net assets per share (RO) 18

INCOME TAX The expense relates to tax payable on the profits earned by the subsidiaries, as adjusted in accordance with the taxation laws and regulations of the countries in which the Group operates. 2008 RO’000

2007 RO’000

Charge for the year

7,122

4,992

Current liability Non current liability

7,806 1,721

8,477 -

9,527

8,477

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 18

INCOME TAX (contd.) Deferred tax asset Opening as on 1 January (Debited) credited to income statement

1,675 (436)

1,123 552

At 31 December

1,239

1,675

The Parent Company and its Oman incorporated subsidiaries are subject to income tax at the rate of 12% of taxable income in excess of RO 30,000 in accordance with the income tax law of the Sultanate of Oman. The income tax assessments of the Parent Company for the years 2003 to 2007 have not yet been finalised by the Secretariat General for Taxation at the Ministry of Finance (the ‘Department’). The Parent Company and some of its Omani subsidiaries have filed objection and further appeal against the decision of the Department on various disallowances made by the Department in the assessment. The Company has established provisions at 31 December 2008 against the potential tax liabilities which might arise in this regard. As required under the tax laws, the Company and its subsidiaries have paid the tax dues and continuing to appeal at the higher authorities for some of the disallowances made by the Department in assessment. 19

NET PROFIT FOR THE YEAR Net profit for the year is stated after charging:

Staff costs

2008 RO’000

2007 RO’000

67,206

58,552

7,390 2,713

4,896 545

10,103

5,441

Net finance costs Net interest expense Provision for derivative used for hedging (refer note 25)

Net gain on sale of investment Subsidiary With effect from 1 January 2008 the Group sold 98.75% equity in its subsidiary Industrial Management Technology and Contracting LLC (ìIMTACî) and its subsidiaries and recognised a net gain before tax on disposal of RO 6,028,000.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 19

NET PROFIT FOR THE YEAR (contd.) Revenue, net profit and net assets of IMTAC and its subsidiaries reported in 2007 financial statements were as follows: 2007 RO’000 Revenue

19,258

Net profit for the year

4,294

Net assets

5,005

Associate The Group has disposed of its share in an associate Mezon stainless Steel FZE Zone Company (incorporated in UAE) and recognized a net gain of RO 262,000. 20

BASIC AND DILUTED EARNINGS PER SHARE Basic and diluted earnings per share are calculated by dividing the net profits for the year attributable to the shareholders of the Parent Company by the weighted average number of shares as follows: 2008

2007

23,894

16,525

Weighted average number of shares (‘000) Less: weighted average treasury shares (‘000)

245,299 (12,656)

Weighted average number of shares (‘000)

232,643

0.103

0.071

2008

2007

6,132

5,575

245,299

222,999

Dividend per share (RO)

0.025

Proposed cash dividend (RO’000)

2,453

3,345

Proposed bonus shares, at par (RO’000)

3,679

2,230

6,132

5,575

Net profit for the year attributable to the shareholders of the Parent Company (RO’000)

Basic and diluted earnings per share (RO) 21

DIVIDEND PER SHARE

Total distribution for the Shareholders (RO ‘000) Number of shares outstanding at 31 December (‘000)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 21

DIVIDEND PER SHARE (contd.) The dividend proposed by the Board of Directors is subject to the approval of shareholders at the Annual General Meeting (AGM) of the Company on 29 March 2009. Dividend for the year 2007 was approved by the shareholders at the AGM held on 29 March 2008. As required by CMA regulation, unclaimed dividends of previous years have been deposited with the CMA Investors’ Trust Fund. There were no unclaimed dividends for 2008.

RELATED PARTY TRANSACTIONS The Group has entered into transactions with entities over which certain Directors are able to exercise significant influence. In the ordinary course of business, such related parties provide goods, services and funding to the Group. The Group also provides goods, services and funding to the related parties. The Board of Directors believes that the terms of purchases, sales, provision of services and funding arrangements are comparable with those that could be obtained from unrelated third parties. The value of significant related party transactions during the year was as follows: 2008 RO’000

2007 RO’000

4,188

3,796

Advances due from related parties Net advances

775

Expenses Services received and purchases Interest

542 -

210 2

Directors’ remuneration and sitting fees Remuneration Sitting fees

176 24

179 21

Income Service rendered and sales

Remuneration and sitting fees above relate only to the Parent Company. Out of above related party transactions, the following are the details of transactions entered into with the related parties holding 10% or more interest in the Parent Company: Service rendered and sales

Compensation of key management personnel The remuneration of directors and other members of key management during the year was as follows:

Short-term benefits Employees’ end of service benefits

2008 RO’000

2007 RO’000

1,354 49

998 48

1,403

1,046

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 22

RELATED PARTY TRANSACTIONS (contd.) Amounts due from and due to related parties have been disclosed in notes 9 and 11 respectively. Outstanding balances at the year-end arise in the normal course of business. For the year ended 31 December 2008, the Group has not recorded any impairment of amounts owed by related parties (2007: nil).

23 COMMITMENTS AND CONTINGENT LIABILITIES 2008 RO’000

2007 RO’000

Commitments Letters of credit Capital expenditure commitments

1,026 60,781

1,310 28,367

Contingent liabilities Letters of guarantee Bills discounted - receivables

20,068 3,069

15,477 -

Litigation In December 2005, the Group entered into a contract with a customer to undertake cleaning and repair work on a vessel. In 2007, the customer filed proceedings against the Group in the Court of First Instance in Abu Dhabi with claims for damages for failure to complete the work promptly. The Group denies liability for these claims and has filed both a statement of defense to the claim and a counter-claim for costs against the customer. In the opinion of management, it is unlikely that any material liability will arise in respect of this matter. Accordingly, no provision has been made in these financial statements relating to these claims. 24

LEASES

Operating leases - receivable The Group leases its marine vessels under operating leases. The leases typically run for a period of ten years and are renewable for similar periods after the expiry date. The lease rental is usually renewed to reflect market rentals. Future minimum lease rentals receivable under non-cancellable operating leases are as follows as of 31 December:

Within one year Between one and five years More than five years

2008 RO’000

2007 RO’000

54,087 110,685 58,256

44,140 71,226 32,693

223,028

148,059

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 24

LEASES (contd.)

Operating leases - payable The Group has future minimum lease payments under operating leases for marine vessels with payments as follows:

Within one year Between one and five years More than five years

2008 RO’000

2007 RO’000

14,402 37,706 17,443

6,051 7,449 1,732

69,551

15,232

Finance lease commitments The Group has entered into finance lease commitments with monthly rentals payable as follows: Present value of minimum lease payments

2008 RO’000

2007 RO’000

Within one year After one year but not more than five years

101 -

146 101

Total minimum lease payments

101

247

DERIVATIVE FINANCIAL INSTRUMENTS The table below shows the positive and negative fair values of derivative financial instruments, which are equivalent to the market values, together with the notional amounts analysed by the term to maturity. The notional amount is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional amounts indicate the volume of transactions outstanding at year end and are neither indicative of the market risk nor credit risk. 31 December 2008:

Interest rate swaps

Notional amounts by term to maturity Notional Over 1 amount Within 1 year to Over 5 Total year 5 years years RO’000 RO’000 RO’000 RO’000 44,251 1,595 42,656 -

Positive fair value RO’000 -

Negative fair value RO’000 (3,190)

Positive fair value RO’000

Negative fair value RO’000

Notional amount Total RO’000

(725)

43,129

31 December 2007:

Interest rate swaps

Notional amounts by term to maturity Over 1 Within 1 year to Over 5 year 5 years years RO’000 RO’000 RO’000 9,492

33,637

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 25

DERIVATIVE FINANCIAL INSTRUMENTS (contd.) The term loan facilities of the Group bear interest at US LIBOR plus applicable margins. In accordance with the financing documents, the Group has fixed the rate of interest through Interest Rate Swap Agreements (“IRS”) amounting to approximately RO 21.15 million at a fixed interest rate of 3.95% per annum, excluding margin, RO 6.54 million (2007: 7.75 million) at a fixed margin of 4.89% per annum, excluding margin, RO 0.38 million (2007: RO 0.88 million) at a fixed margin of 2.94% per annum, excluding margin, and an amount of RO 19.23 million at the rate of 4.40% per annum excluding margin. At 31 December 2008, the US LIBOR was approximately 1.75% per annum (2007: 4.3%), whereas the Group has fixed interest at 3.95%, 4.89%, 2.94% and 4.40% per annum. Accordingly, the gaps between US LIBOR and fixed rate under IRS were approximately 2.2%, 3.14%, 1.19% and 2.03% respectively. Based on the interest rates gap, over the life of the IRS, the indicative losses were assessed at approximately RO 3.26 million (2007: RO 0.54 million) by the counter parties to IRS. In case the Group terminates the IRS at 31 December 2008, it may incur losses to the extent of approximately RO 3.25 million (2007: RO 0.54 million). Consequently, in order to comply with International Accounting Standard 39 ìFinancial Instruments: Recognition and Measurementî fair value of the hedge instruments’ indicative losses in the amount of approximately RO 3.25 million (2007: RO 0.54 million) has been recorded under trade and other payables and the net impact for the year amounting to RO 2.71 million (2007: RO 0.54 million) has been recorded under net finance costs (refer note 19).

SEGMENTAL REPORTING The Group operates four business units and the results are analysed by this classification and not by geographical segment. Inter segment pricing is determined on an arm’s length basis. Information relating to these primary segments is as follows:

Revenue Technology Group Contract services Group Marine Group Engineering Group Others and inter company adjustments

2008 RO’000

2007 RO’000

61,905 83,488 94,516 (5,649)

19,317 54,592 58,048 64,664 2,592

234,260 Profit from operations Technology Group Contract services Group Marine Group Engineering Group Others and inter company adjustments

199,213

8,763 24,179 7,970 (3,495)

1,522 8,373 15,719 4,536 (2,592)

37,417

27,558

Others include results of media and communication, education and training and other unallocated cost and revenue. The inter company revenues and expenses are netted off and are shown in others and inter company adjustments.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 27

FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT Financial instruments carried on the balance sheet comprise investments, trade receivables, amount due from related parties, cash in hand and at bank, term loans, bank borrowings, trade and other payables, amount due to related parties and employee terminal benefits. The (i) (ii) (iii)

Group has exposure to the following risks from its use of financial instruments: Credit risk Liquidity risk Market risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the management of capital. Further quantitative disclosures are included throughout these financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the receivables from customers and investments. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the balance sheet date was:

Investments Trade receivables Advances to suppliers and contractors Amount due from related parties Cash and bank balances

2008 RO’000

2007 RO’000

2,436 52,766 16,281 1,035 15,011

2,585 45,445 1,112 671 15,974

87,529

65,787

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 27

FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (contd.) The Group has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Credit evaluations are generally performed on all customers requiring credit over specified amounts. The Group does not require collateral in respect of financial assets. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. With respect to credit risk arising from the other financial assets of the Group, including cash and cash equivalents, and derivative instruments with positive values, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group limits its liquidity risk by ensuring that bank facilities are available. Short term loans and overdraft are, on average, utilized for period of 90 days to bridge the gap between collections of receivables and settlement of payables during the month. The contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements at balance sheet date is as below: 31 December 2008

Carrying amount RO’000

Contractual cash flows RO’000

Upto 1 year RO’000

Term loans and leases

150,281

169,615

33,558

100,882

35,175

2,803

80,384

68,002

12,382

233,468

252,802

104,363

113,264

35,175

Carrying amount RO’000

Contractual cash flows RO’000

Upto 1 year RO’000

1 year to 5 years RO’000

More than 5 years RO’000

98,049

115,327

20,611

69,144

25,572

779

67,570

60,125

7,445

166,398

183,676

81,515

76,589

25,572

Bank borrowings Trade and other payables

31 December 2008

Term loans and leases Bank borrowings Trade and other payables

1 year to More than 5 years 5 years RO’000 RO’000

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 27

FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (contd.) Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk. The Group also enters into derivative transactions, primarily interest rate swaps and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of finance. Currency risk Trade accounts payable include amount due in foreign currencies, mainly US Dollars, Euros, Pounds Sterling, UAE Dirham and Norwegian Kroner. The table below indicates the Group’s foreign currency exposure at 31 December, as a result of its monetary assets and liabilities. The analysis calculates the effect of a reasonably possible movement of the RO currency rate against the foreign currencies, with all other variables held constant, on the income statement (due to the fair value of currency sensitive monetary assets and liabilities). Effect on profit before tax Increase/decrease in respective Currency rate to the RO ‘000 2008

+5%

-5%

Euro (EUR)

(31)

Azerbaijan Manat (MNT)

(35)

Kazakhstan Tenge (KZT)

(11)

UK Pound (GBP)

(14)

Norwegian Krone (NOK)

(92)

2007

+5%

-5%

Euro (EUR)

(32)

Azerbaijan Manat (MNT)

(21)

Kazakhstan Tenge (KZT)

(12)

UK Pound (GBP)

(11)

Norwegian Krone (NOK)

(84)

The Group is also exposed to foreign exchange risk on sales, purchases, receivables and payables arising primarily from GCC currencies and US Dollar exposures which are pegged to the Omani Rial.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 27

FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (contd.) Interest rate risk The Group’s borrowings are on fixed as well as floating interest rate basis. The Group is exposed to interest rate risk due to fluctuation in the market interest rate of floating interest rate borrowings. The following table demonstrates the sensitivity of the income statement to reasonably possible changes in interest rates, with all other variables held constant. The sensitivity of the income statement is the effect of the assumed changes in interest rates on the Group’s profit for the year, based on the floating rate financial assets and financial liabilities held at 31 December 2008. Increase/decrease in basis points

Effect on profit for the year RO ‘000

2008 Borrowings converted to Rial Omani

+15

(387)

Borrowings converted to Rial Omani

-10

373

Borrowings converted to Rial Omani

+15

(258)

Borrowings converted to Rial Omani

-10

170

2007

Other market price risk Equity price risk arises from available-for-sale equity securities. Management of the Group monitors the mix of debt and equity securities in its investment portfolio based on market indices. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Board of Directors. Capital management The Group’s policy is to maintain an optimum capital base to maintain investor, creditor and market confidence to sustain future growth of business as well as return on capital. 28

FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values of all financial assets and liabilities are not significantly different from their carrying amounts.

KEY SOURCES OF ESTIMATION UNCERTAINTY Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2008 29

KEY SOURCES OF ESTIMATION UNCERTAINTY (contd.) Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cashgenerating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The net carrying amount of goodwill at 31 December 2008 was RO 33,992,000 (2007: RO 34,141,000). Impairment of accounts receivable An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates. At the balance sheet date, gross trade accounts receivable were RO 55,353,000 (2007: RO 50,111,000) and the provision for doubtful debts was RO 2,587,000 (2007: RO 4,666,000). Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the consolidated income statement. Impairment of inventories Inventories are held at the lower of cost and net realisable value. When inventories become old or obsolete, an estimate is made of their net realisable value. For individually significant amounts this estimation is performed on an individual basis. Amounts which are not individually significant, but which are old or obsolete, are assessed collectively and a provision applied according to the inventory type and the degree of ageing or obsolescence, based on historical selling prices. At the balance sheet date, gross inventories were RO 5,344,000 (2007: RO 4,945,000) with provisions for old and obsolete inventories of RO 552,000 (2007: RO 711,000). Any difference between the amounts actually realised in future periods and the amounts expected will be recognised in the consolidated income statement.

SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS INCOME STATEMENT (PARENT COMPANY) for the year ended 31 December 2008

Revenue Operating expenses

2008 RO’000

2007 RO’000

25,178

25,487

(17,518)

(18,204)

Gross profit

7,660

7,283

Other income

9,673

7,991

Administrative expenses

(2,590)

(2,543)

Net finance costs

(1,856)

(1,323)

Gain on sale of investments

8,961

104

Profit before income tax

21,848

11,512

Income tax expenses

(3,309)

Net profit for the year

18,539

10,426

Basic and diluted earnings per share (RO)

0.076

0.046

Proposed dividend per share (RO)

0.025

(1,086)

SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS BALANCE SHEET (PARENT COMPANY) as at 31 December 2008 2008 ROâ&#x20AC;&#x2122;000

2007 ROâ&#x20AC;&#x2122;000

25,425 95,958 -

24,392 77,501 3,128

Total non-current assets

121,383

105,021

Current assets Inventories Trade and other receivables Cash and bank balances

837 29,484 3,174

959 18,175 1,253

Total current assets

33,495

20,387

Current liabilities Trade and other payables Bank borrowings Term loans

13,949 373 7,828

11,481 5,739

Total current liabilities

22,150

17,220

Net current assets

11,345

3,167

Non-current liabilities Term loans Non current payables and advances Staff terminal benefits

27,893 1,721 544

20,571 438

Total non-current liabilities

30,158

21,009

102,570

87,179

24,530 20,723 8,177 6,132 43,008

22,300 25,146 7,433 5,575 26,725

Total capital and reserves

102,570

87,179

Net assets per share (RO)

0.418

0.391

Non-current assets Property, plant and equipment Investments Due from a subsidiary

Net assets Capital and reserves Share capital Share premium Legal reserve Proposed distribution Retained earnings

SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS CASH FLOW STATEMENT (PARENT COMPANY) for the year ended 31 December 2008

OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Net finance costs Income tax paid Cash flows from operating activities INVESTING ACTIVITIES Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Investments Proceeds from sale of investments Dividend received

2008 RO’000

2007 RO’000

25,337 (14,687)

25,715 (17,155)

10,650 (1,856) (899)

8,560 (1,323) (378)

7,895

6,859

(8,631) (23,538) 14,239 9,173

(5,307) 16 (12,703) 107 7,849

Cash flows from investing activities

(8,757)

(10,038)

FINANCING ACTIVITIES Net receipts of term loans Net payments to related parties Dividend paid

9,411 (3,656) (3,345)

10,867 (3,901) (3,041)

Cash flows from financing activities

2,410

3,925

Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year

1,548 1,253

746 507

Cash and cash equivalents at the end of the year

2,801

1,253

SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY (PARENT COMPANY) for the year

Share capital RO ‘000

Share premium RO ‘000

20,273

28,052

2,027

Proposed dividend

Proposed bonus shares

(2,230)

Net profit for the year

Transfer to legal reserve

(676)

22,300

25,146

2,230

Proposed dividend

Proposed bonus shares

Movement related to investment in subsidiaries

Net profit for the year

Transfer to legal reserve

Balance at 1 January 2007 Dividend paid and bonus shares issued

Balance at 31 December 2007 Dividend paid and bonus shares issued

Balance at 31 December 2008

24,530

(3,679)

(744)

20,723

ended 31 December 2008

Legal reserve RO ‘000

Proposed distribution RO ‘000

Retained earnings RO ‘000

Total RO ‘000

6,757

5,068

19,644

79,794

(5,068)

(3,041)

3,345

(3,345)

2,230

10,426

676

7,433

5,575

26,725

87,179

(5,575)

2,453

3,679

197

18,539

744

8,177

6,132

43,008

102,570

(2,453)

(3,345) -

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