Renaissance Annual Report 2007 (English) by Renaissance Services SAOG

H I S M A J E S T Y S U LT A N Q A B O O S B I N S A I D

CONTENT

4-5 BOARD OF DIRECTORS 6-7 FINANCIAL HIGHLIGHTS 8-15 CHAIRMAN’S REPORT 16-31 CEO’S REPORT 32 AUDITORS’ REPORT ON CORPORATE GOVERNANCE 33 REPORT ON CORPORATE GOVERNANCE 39 AUDITORS’ REPORT ON FINANCIAL STATEMENTS 40 FINANCIAL STATEMENTS 76 MANAGEMENT TEAM

BOARD OF DIRECTORS

Yeshwant C. Desai Director

Ali bin Hassan Sulaiman Director

Sunder George Director

Samir J. Fancy Chairman

HH Sayyid Tarik bin Shabib bin Taimur Director

Colin Rutherford Director

Rishi Ajit Khimji Director

USD MILLION

FINANCIAL HIGHLIGHTS

600

80 70

500

60 400

300

40 30

200

20 100

0 2005

2006

Revenue

Gross Proﬁt

2007 Earnings Before Tax Interest Depreciation & Amoritisation

2005 Proﬁt from Operations

2006

2007

Proﬁt before Tax

Proﬁt after Tax (before Minority)

SUMMARY FINANCIAL INFORMATION 2005

2006

2007

2005

RO MILLION

2006

2007

US$ MILLION

106.4

142.9

199.2

34.3

43.9

54.4

16.4

21.8

28.4

276.4

371.3

517.4

GROSS PROFIT

89.0

113.9

141.4

27.6

PROFIT FROM OPERATIONS

42.6

56.6

71.6

33.6

43.1

EARNINGS BEFORE TAX, INTEREST, DEPRECIATION AND AMORTISATION

73.9

87.2

111.9

15.7

17.8

22.3

PROFIT BEFORE TAX

40.7

46.2

58.0

13.9

14.3

17.3

PROFIT AFTER TAX (BEFORE MINORITY)

36.2

37.0

45.0

101.7

121.8

148.6

NET FIXED ASSETS

264.2

316.4

386.0

82.2

91.8

109.4

TOTAL EQUITY

213.5

238.4

284.1

70.5

77.4

98.0

TERM LOANS

183.2

201.2

254.7

0.191

0.172

0.203

0.065

0.074

0.066 0.078

0.025 0.025 0.025

REVENUE

BASIC EARNINGS PER SHARE DIVIDEND PER SHARE

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

RATIO

RATIO 1.6

1.4 1.2

1 15

0.8 0.6

0.4 5 0.2 0

0 2005 Gearing

2006

2007

Total Liabilities/Net worth

SIGNIFICANT RATIOS

2005

2006

Return on Capital Employed (%)

2007 Return on Average Equity (%)

2005

2006

2007

1.14

1.06

1.10

GEARING

0.94

0.87

0.90

TOTAL LIABILITIES/NET WORTH

1.42

1.52

INTEREST COVER

6.63

4.94

5.10

RETURN ON CAPITAL EMPLOYED (%)

10.50

10.92

10.94

RETURN ON AVERAGE EQUITY(%)

26.01

16.38

17.24

CURRENT RATIO

CHAIRMAN’S

ANNUAL REPORT 2007

REPORT 8

On behalf of the Board of Directors, it gives me great pleasure to present to you the annual report and audited accounts for Renaissance Services SAOG (Renaissance) for the year ended 31 December 2007. This report is in full compliance with the new guidelines on disclosure standards for Directors’ reports issued by the Capital Market Authority (CMA) effective 1 October 2007. It pleases me to say that in earlier years all these issues were always covered between our Chairman’s Statement and CEO Report.

Adyard Workshop & Yard Facility - Abu Dhabi

We set a new safety record in 2007, our third consecutive year of improvement, with Lost Time Injury Frequency (LTIF) per million manhours worked, down from 1.63 to 0.9. However, we will never be satisfied until we reduce the number of safety-related incidents to zero. For the sixth successive year, the 2007 financial results show the highest revenue and profits in the history of the company. The results also show strong growth in comparison to the previous record set in the last fiscal year with revenue up 39.4%, operating profit up 26.68%, EBITDA up 27.9%, and Net Profit up 21.7%

2007

2006

Amount in OMR million

substantial higher value for our shareholders. For the current fiscal year we have recommended a cash dividend of 15% and a stock dividend of 10%. The current year profit of RO 17.3 million is before considering any capital gain from the divestment of our 100% subsidiary United Media Services LLC (UMS). In December 2007, we had announced that we have accepted an offer from a group of Omani led strategic investors to sell our 100% holding in UMS. The value of the deal is RO 3 million and is expected to realise a net capital gain of RO 1.5 million. The legal formalities related to the transfer of share ownership are yet to be completed, subject to approvals from the concerned authorities. As required under the International Financial Reporting Standards (“IFRS”) we will only account the full impact of UMS divestment in our financials if the transfer of ownership is approved, registered and completed. 2007

2006

Amount in USD million

Revenue

199.2

142.9

517.4

371.2

EBITDA

43.0

33.6

111.8

87.4

Operating proﬁt

27.6

21.8

71.6

56.7

Net proﬁt

17.3

14.3

45.0

37.0

These results show a compounded annual growth of 44.2% in revenue and 33.8% in operating profit over the last five years period (2003-2007). The return on shareholder funds has increased to 17.2% compared to 16.4% in the previous year. EPS has improved to 78 baisas per share against 66 baisas in 2006. 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

In 2007 we have invested more than RO 44.6 million (US$ 116 million) in our businesses for capital assets required as part of our declared RO 195.5 million (US$ 508 million) investment programme.

During the year the company made public statements announcing each new contract win for all contracts valued above US$ 15 million. The aggregate value of the 9 contracts falling into this category amounted to US$ 767 million; and the aggregate value of all contracts won, including smaller contracts, contract renewals and contracts bound by confidentiality clauses, exceeded US$ 1 billion. Each business had significant achievements in the year – to mention a few: the oil & gas fabrication business had its first jacket rollout, just one of many high-end oil & gas fabrication contracts completed in the year;

RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

2007 was another record year for Renaissance. We continued to deliver value to all our stakeholders and to make strategic investments that will drive sustained, superior performance over the long term.

CHAIRMAN’S

REPORT the ship repair business completed its first year of operations in Bautino, Kazakhstan and Salalah, Oman; the offshore support vessel fleet businesses placed orders for 5 new vessels and 8 ice-class barges and signed new JV agreements in Azerbaijan and Saudi Arabia; and the contract services business completed the 30% expansion of its PAC facilities in Oman’s oilfields and fully established its contract operations in Angola.

business in Oman; and for the offshore support vessel ﬂeet businesses BP represents 90% of revenue in Azerbaijan and Agip KCO represents 46% of business in Kazakhstan – but this reﬂects the current single dominant oil & gas producer status in the Caspian markets. These positions are mitigated by the companies concerned holding long-term contracts of 10, 20, 30 years and more with blue chip clients in the oil & gas sector.

These results; these investments; these contract wins; and these business achievements all combine to make 2007 a year of outstanding success for our company and, more importantly, provide a platform for sustained economic growth and value in the years ahead.

Looking ahead, the company is committed to its strategy to strengthen and grow its primary oil & gas services focus. This shall be achieved through divestment of non-core businesses; capital investment in our oil & gas services businesses, onshore and offshore; strategic acquisitions in the oil & gas services sector; widening and strengthening geographical presence including formation of strategically important Joint Ventures (JV) to attract quality local content ownership to add value in key markets.

Underpinning this is a strong competitive position, strengthened by our diversity and geographical spread. The oil & gas fabrication business, based in Abu Dhabi, is the dominant local and regional player in its sector with a focus on offshore construction. The ship aﬂoat repair business is the clear leader in the region and has strengthened its international reach with bases in Azerbaijan, Kazakhstan, Oman and multiple sites in UAE. The offshore support vessel ﬂeet holds market leadership positions in the Caspian with approximately 70% of the Azerbaijan market and 44% of the Kazakhstan market. The contract services business leads its home market of Oman with 45% market share (up from 35% last year) and has established a creditable 11% share of business in its newer international markets. This strong competitive position is reinforced by a primary focus across a robust oil & gas sector, with minimal reliance on any one single client or supplier. In individual markets, no single customer or supplier represents >10% of each individual company’s revenue with three exceptions: for contract services, Petroleum Development Oman (PDO) and its contractors represent 20% of

CSG operated sewage treatment plant facility for Bechtel in Oman

Specifically, the divestment programme is already well-advanced in sourcing new ownership for the technology and training businesses. Both of these businesses have performed superbly again this year, which is attracting interest from both financial investors and industry players locally, regionally and internationally, who want to invest in the future of these businesses to the benefit of all stakeholders, especially existing employees and customers. We continue to invest in our existing businesses through the US$ 508 million 2007-09 investment strategy announced last year: to increase the size and reduce the age profile of our offshore support vessel fleet; to develop additional capacity and capability in our oil & gas fabrication and ship repair businesses; and to expand capacity and geographical spread of our permanent accommodation for contractors (PAC) facilities in remote oilfields.

Adyard - Topside Loadout in Abu Dhabi for Atlantis

In 2007 we reaffirmed local JV content in Azerbaijan, where we have a long and successful relationship through the BUE-KMNF Alliance. A new Saudi JV is under formation between Topaz Energy and Marine Ltd. (Topaz) and Gentas Ltd. We are close to concluding arrangements for an important new JV in Kazakhstan. If we are successful in concluding this deal, we believe the new JV will be in a very strong position to build on our existing market leadership position for the OSV fleet. We have also concluded a JV agreement with Kazmortransflot and Caspian Services Incorporated for a boat yard and dry docking services in Bautino. We are also considering optimum corporate structure for focus and value in our two principal business units: the oil & gas, marine & engineering businesses; and the contract services and infrastructure businesses. It is clear that even at a time of volatility in international markets, with severe credit pressure arising from the sub-prime crisis, these businesses are sustaining and growing value. We continue to work closely with our advisors Simmons & Co. on strategies for growth and value creation. Our financing structure in the balance sheet provides a robust balance between earning adequate returns on the capital employed and the need to cover financial and business risks. Our banking partners include Omani, regional and

international banks which have been playing a major role in supporting our investments in capital assets. In 2007, the RO 44.6 million (US$ 116 million) investment in capital assets were funded from a mix of internal cash flows and term loan facilities. The gearing in our balance sheet continues to be below one, demonstrating that we have a strong balance sheet to support our future expansion plans. Our planned capex for 2008 shall be funded from internal cash flows and new funding facilities from banks. The divestment programme shall provide additional liquidity. Renaissance is an Omani company with significant international operations. We are 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. However, current tax rules and export incentives in Oman do not provide any tax support for ‘services’ export initiatives. Recent changes in tax practices, applied retrospectively to all pending tax assessments, have resulted in dividend income from overseas subsidiaries being taxed in Oman. This is despite the fact that in the past overseas dividend income was not being taxed and dividends received locally continue not to be taxed. We should point out that such changes in tax practices have been initiated without any changes to the tax laws. This would have an impact, for example, on our Topaz businesses, raising additional tax liabilities applicable to the period prior to Renaissance ownership. The Renaissance acquisition of Topaz was carried out with full transparency and scrutiny required of a public company and the tax judgements we made were based on prevailing Omani tax law and prevailing Omani tax practices at that time. Most importantly, prior to the transaction, Topaz had already been assessed by the tax authorities for certain years and dividend income received from overseas subsidiaries were not taxed.

RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

At the present time we are close to concluding a major acquisition, which would increase the size and geographical spread of our offshore support vessel ﬂeet businesses. We are bound by conﬁdentiality so may not divulge more information at present. But if successful, this will give our growth plans a boost early in the year. If not, we have other opportunities under consideration, but these would not fructify until later in the year.

Ship repair workshop facility at Nico International

REPORT If new tax practices are introduced in retrospect, then it would become impossible to identify and disclose all potential tax liabilities at the time of the transaction. In this particular case, the additional taxes are not material to the balance sheet but the issue of taxing overseas dividend income remains; and we are seeking assurance from the concerned authorities that this will not be applicable in this clear-cut case. Furthermore, due to the prospect of taxation on foreign venture income your company has been forced to provide for further tax. So we have also taken up these matters with the relevant government departments to seek the fairest possible deal for Omani companies engaged in international competition, where we perceive Omani companies are at a competitive tax disadvantage, including, in some cases, paying double-tax on the same profits (locally and overseas). Given the government’s strong support for private enterprise, we hope there may be a review of the principle of taxation of overseas income in the best interests of Omani competitiveness abroad. One of the key drivers of our international competitiveness is our belief in independently accredited and certified Quality Systems that provide the coverage and protection of the ISO loop for all management systems and processes including Health, Safety and Environment (HSE) and Management Information Systems (MIS). All Renaissance companies have ISO 9001:2000 and many have additional esoteric accreditations where relevant, including ISO 14000, ISO 18000, HACCP, CIEH, IiP and others. Renaissance is driven by a continuous improvement credo: never satisfied, always innovative. There have been no changes to the top management team during the financial year; with the exception that the company appointed a CFO at the beginning of the year, who only stayed with the company for a short period for personal reasons. The Auditors have issued an unqualified report and the Board of Directors is pleased to commend the accounts for approval.

On 6 June 2007 Cyclone Gonu struck the Sultanate of Oman. Renaissance, as you would rightly expect, played its part in the relief effort with initiatives such as assisting the government in housing and feeding some 3,000 displaced individuals, helping with food lifts for remote afflicted areas, environmental clean up and assistance with rehabilitation of displaced families. These costs have been absorbed in the operating costs of the contract services group, as is our practice when providing any support or sponsorship in kind from within line company operations. In addition to these efforts, specific cash donations, pledges and cash sponsorships this year amount to RO 158,790. Further abroad, we were pleased to sponsor SANAD to showcase Omani fashion and young Omani fashion designers at the UNESCO fashion show in Paris. We have made donations towards the improvement of the Mosque in Aktau, Kazakhstan; provided gym equipment for an orphanage there; and made a donation to developing an international community library for expatriates in Azerbaijan. The Board has recommended a sum of RO 170,000 for Corporate Social responsibility Programmes in 2008. We continue our commitment to the environment and the support of the local communities in which we serve. Specifically in Oman, the contract services group continues to invest in environmental friendly technology and equipment for its facilities, including installation of auto sensors to control utility consumption, and deployment of CFC-free equipment. A specific donation of RO 100,000 has been pledged, but not yet expended, for a Ministry of Manpower initiative to provide technical training facilities for communities in Oman’s interior. We continued our sponsorship of Adrian Hayes on his 3-poles challenge to reach the 3 summits of the earth: Mount Everest, and the North and South Poles. Under Renaissance sponsorship this year, Adrian reached the North Pole on 25 April 2007 and reached the South Pole on 29 December 2007, completing the 3-Poles challenge to all 3 summits in a world record 19 months. We are pleased to be associated with the charities supported by Adrian’s expeditions. Renaissance's spirit of enterprise is aligned with Adrian's spirit of adventure. The metaphors of reaching the highest summit and expanding our business horizons from Pole to Pole are obvious, but meaningful. RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

CHAIRMAN’S

REPORT The 2007 performance is just part of a strategic journey. Our company has grown, is growing, and will continue to grow based on decisions already taken and investments already made. We continue to seek out new opportunities to blend into and add onto this established sustainable growth path. With a primary focus on oil and gas, we are in the right industry where global demand will continue to grow and where supply will rely on innovation and investment in new technologies, efﬁciency gains, energy conservation, and availability of resources. We have an ever-expanding source of assets, geographical presence, competencies, relationships and – above all – skilled people, to provide essential efﬁcient services to keep the industry operational and moving forward in the markets where we operate. Investors and other stakeholders see a consistency in our strategy and approach to the business; a consistency in our long-term view and our approach to creating value. Customers and other stakeholders see clear integrity in our commitment to high ethical standards and operating excellence. Bankers, professional advisers and other stakeholders see prudent discipline in our approach to investment in new assets, new projects and inorganic growth.

ANNUAL REPORT 2007

Above all, all our stakeholders see that Renaissance can be relied upon to deliver: This starts at the operating level where people trust Renaissance operations to be safer, more customer-focused, more efﬁcient and more proﬁtable; and permeates through to the corporate level where people trust Renaissance to be transparent, well resourced, well advised and well governed.

In this regard I would like to thank my fellow board members for their effort, commitment and counsel in guiding and directing our company. The entire board joins me in thanking all our stakeholders for their continued support: Shareholders, customers, bankers, professional advisers, suppliers, contractors, local communities and, of course, our people. At the centre of our success are our people; the men and women of Renaissance. They run our operations safely, reliably and efﬁciently, in some of the toughest conditions imaginable. They strive to exceed customer expectations. They adopt or develop best practices that improve our operations today and create new business opportunities for tomorrow. They ensure we contribute to a better quality of life in every community where we serve. They conduct themselves with integrity and dignity. They create meaningful and sustainable value. We thank them and applaud them for their outstanding performance. We thank His Majesty Sultan Qaboos bin Said whose wise leadership has brought stability, progress, prosperity and opportunity to our home market of Oman. This has provided the platform upon which an Omani company like Renaissance has been able to establish world class credentials at home in order to seek opportunity abroad and challenge the very best in international competition.

Samir J. Fancy Chairman

RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

Renaissance Permanent Accommodation for Contractors (PAC) at Qarn Alam, Oman

CHIEF EXECUTIVE OFFICER’S REPORT At Renaissance we understand the business we are in. We have a clear Vision - We know where we are, and we know where we want to be. We have a clear strategy to direct us. We have clear values to guide us. We have best practice systems and processes to inform and instruct us. We have high performance targets and business plans to stretch us and keep us focused. Above all, we have great people. People to implement our programmes; realise our vision; strive for our high aspirational targets; and go about our daily business of exceeding customer expectations safely, efﬁciently and proﬁtably. Our task in 2007, like any other business year, is about implementation.

The 2007 performance underlines the fact that the Renaissance team can be relied upon to do what we said we would do – and more. We have delivered another record year. We have delivered growth in the business and growth in shareholder value. We have made further strategic investments to drive sustained, superior performance over the years ahead. We have been decisive and consistent in implementing our declared strategy. As a result, we have a positive story to tell about 2007, and we have real momentum to carry forward into 2008 and beyond.

WHAT IS RENAISSANCE; AND WHAT DOES RENAISSANCE DO? Renaissance

Services

SAOG

(Renaissance) is an international services company listed on the Muscat Securities Market in the Sultanate of Oman, with a primary focus on providing safe, quality, efﬁcient services to the oil & gas industry. Renaissance owns and operates a combined

offshore support vessel ﬂeet comprising of 61 vessels with another 11 vessels currently under construction. Renaissance has engineering businesses in oil & gas fabrication and aﬂoat ship repair; and is a

NICO International built crew boat, the NEMO

NEMO leaves the yard in Fujairah

Renaissance employs over 10,000 people operating in over 16 countries with principal bases in the Middle East and Caspian regions; and an increasing presence in South-East Asia, Africa and Europe. In 2007, the company has achieved revenue of RO 199.2 million (US$ 517.4 million) and proďŹ ts of RO 17.3 million (US$ 45 million).

Renaissance core businesses are structured in two principal operating groups: The Marine & Engineering Group (MEG) and the Contract Services Group (CSG). The company also owns successful businesses engaged in Technology and Training: The Business Technology Group (BTG) and the Education & Training Group (ETG). An offer to acquire the companyâ&#x20AC;&#x2122;s media businesses, the Media Communications Group (MCG), has been accepted at the end of the year, subject to completion of regulatory formalities.

RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

leading turnkey contract services provider, providing facilities management, facilities establishment, contract catering, operations & maintenance services.

HOW DOES RENAISSANCE GO ABOUT ITS BUSINESS? Renaissance has a clear VISION: We want Renaissance to be recognised as a world-class, internationally competitive, premier service company; with a primary focus on oil & gas services.

CHIEF EXECUTIVE OFFICER’S

We are conﬁdent that our vision shall be achieved through the quality of our customer service; good governance; outstanding systems - HSE (Health Safety & Environment), Quality and MIS (Management Information); a sustained growth and proﬁt record; and a proven ability to improve the economic well-being and quality of life of all stakeholders: Customers, Employees, Shareholders, Suppliers and the Communities in which we serve.

REPORT

Marine & Engineering Group (MEG) 2006

2007

Revenue (RO’m)

87.8

122.7

Proﬁt from operations (RO’m)

14.7

20.2

2,832

4,976

People (nos)

Activities Providing solutions in offshore Support Vessel Fleet; Aﬂoat Ship Repair; Fabrication and Maintenance for the Oil & Gas and Energy Services sectors

Business Segments • Offshore Support Vessel Fleet • Aﬂoat Ship Repair • Oil & Gas – Fabrication & Maintenance

• Topaz Energy & Marine Ltd., Dubai • NICO World • NICO International • Adyard Abu Dhabi LLC • BUE Caspian (Azerbaijan) • BUE Kazakh (Kazakhstan) Completed BP Deep Water Gunashli Platform loaded out on Barge STB1, Azerbaijan

ANNUAL REPORT 2007

Renaissance has a clear STRATEGY: To focus primarily on oil & gas services; build market leadership positions in the markets where we serve; divest non-core businesses and investments; take a disciplined approach to long-term investment in assets to serve the oil & gas sector; create sustainable visibility through viable assets and long-term contracts with major international oil & gas producers; generate funds for these investments through highly cash-generative pure services initiatives; increase geographical spread in oil & gas based markets, with a balance between high-risk/higher-return and low-risk/lower-return environments.

Fabrication of LNG loading module for Chiyoda Technip JV at Adyard - Product destined for berth 5 / Qatargas

Chemical & water injection module being installed on ﬂoating production storage and ofﬂoading barge Golphinho-II in Dubai

Aluminium boats for refurbishment in Nico International's Bautino Marine Yard in Kazakhstan

Norway

Kazakhstan Azerbaijan Cyprus

Iraq Jordan

Bermuda

Turkmenistan Kuwait

Qatar

UAE

Oman

Yemen Thailand Singapore

Angola

GEOGRAPHICAL LOCATIONS

Vanuatu

*This map is not an Authority on boundary

RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

Panama

Contract Services Group (CSG)

Revenue (RO’m) Proﬁt from operations (RO’m) People (nos)

2006

2007

37.5

54.6

7.8

8.4

3,798

4,662

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

Renaissance Permanent Accomodation for Contractors (PAC) extension at Fahud, Oman

Service segments • Catering – Oil & Gas sector, Universities, Schools, Hospitals, Military, Commerce & Industry • Facilities Management & Facilities Establishment – Build, Own, Operate : Camps, Dining Facilities (DFACs) and Life Support Accommodation (LSA), Permanent Accommodation for Contractors (PACs) • 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

ANNUAL REPORT 2007

CSG operated water distribution operating system in Oman

CSG Kitchen in Oman

CHIEF EXECUTIVE OFFICER’S REPORT Business Technology Group (BTG) 2006

2007

14.8

19.3

Proﬁt from operations (RO’m)

1.4

1.5

People (nos)

211

235

Revenue (RO’m)

Within this strategic framework, Renaissance also has a clear INVESTMENT STRATEGY focused on three core initiatives for the period 2007-09:

•

Increasing the size and reducing the age profile of the offshore support vessel fleet – prudently balancing investment between the fleet engaged in high demand spot markets and the fleet engaged in long-term stable contracts with major oil and gas producers and operators Developing additional capacity and capability in the oil & gas fabrication and ship repair businesses Expanding capacity and geographical spread of the company’s permanent accommodation for contractors (PACs) facilities in remote oilfields

Activities Providing IT Solutions & Technology services to key industrial and business domains including E-Governance, Healthcare, Education and Financial Services.

Business Segments • • • • •

Healthcare Informatics Financial Services IT IT Infrastructure Project Delivery and Support Services Education & Training

• Imtac LLC • Imtac Technologies LLC, Dubai • United Telecommunications LLC • Imtac Yemen Ltd

While each of these three investment areas are driven primarily by organic growth, we also actively seek out potential strategic acquisitions that match the investment criteria. The current planned investment value of RO 195 million (> US$ 0.5 billion) over this 3-year timeframe, was announced in the 2006 Annual Report, in addition the investments of RO 32.9 million (US$ 85 million) already made in that year. In 2007 we have invested RO 44.6 million (US$ 116 million) in new assets as part of this programme.

RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

IMTAC @ MEFTEC, Bahrain

CHIEF EXECUTIVE OFFICER’S REPORT

Caspian Pride joined the ﬂeet in Azerbaijan in 2007

ANNUAL REPORT 2007

Water injection module ready for loadout to VWS Westgarth by Adyard in Dubai

Education & Training Group (ETG)

Revenue (RO’m) Proﬁt from operations (RO’m) People (nos)

2006

2007

2.5

3.0

0.24

0.5

132

126

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.

Business segments • HSE & Driver Training • Technical Training – Mechanical, Electrical, Welding, Construction • Hospitality Training – Hotel, Restaurant, Catering, Front Ofﬁce, Travel Agency • IT Training – New Horizons Computer Learning Centres • Administration & Management Training

• National Training Institute LLC • National Hospitality Institute SAOG

Within the same strategic framework, Renaissance also has a clear DIVESTMENT STRATEGY: We have always acted swiftly to remove non-performing assets and ensure the company only carries assets that maximise value. However, in order to rationalise the business portfolio with a primary focus on oil & gas services it has become necessary for the company to consider divestment of its high-performance, high-potential technology, media and training businesses. We shall divest these businesses if the price offers realisation of value for shareholders; and if the investment strategy or industry focus of the buyer, offers a platform for these companies to meet their ongoing growth potential to the maximum advantage of employees and customers of these businesses. We have agreed an offer for the media businesses at the end of 2007, subject to completion of legal approvals and formalities for owning media businesses in Oman. We are currently considering serious offers for the technology businesses; and will shortly start the process for divestment of the training businesses. A strong performance by the training businesses in 2007 has naturally attracted the attention of potential investors in Oman and internationally.

• New Horizons Computer Learning Centres

NHI trained waiters take up jobs in International Hotels

RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

NTI safety training course for Oman's oilﬁelds

CHIEF EXECUTIVE OFFICER’S REPORT

People; Health, Safety & Environment (HSE); Integrity; Reward; Efﬁciency & Productivity; Customers; Growth; Merit; Social Responsibility; Transparency; Quality; and Proﬁt. These values provide us with the necessary signposts Renaissance has clear VALUES: We value

and guidelines for how we behave in the conduct of our business. Renaissance adopts and applies BEST PRACTICE SYSTEMS AND PROCESSES: The company aligns itself with the values, priorities and best practices of the oil & gas sector. The company is committed to gaining third party accreditation and certiﬁcation of its systems and processes, which are set up under the coverage and protection of the ISO loop and other appropriate industry standards. This serves to enhance the quality and value of the services we offer to all our customers, both inside and outside the oil & gas industry. Renaissance sets itself HIGH PERFORMANCE TARGETS AND BUSINESS PLANS: Renaissance does not manage earnings nor provide earnings guidance. In fact, the company is prepared to make strategic decisions and complete strategic acquisitions that maximise expected value, even at the expense of lowering near-term earnings. This does not prevent us internally from driving our businesses forward with ambitious but realistic plans coupled with high but realistic aspirational targets. We work on the philosophy that it is better to have aimed high and fall short, than to aim low and reach the target.

ANNUAL REPORT 2007

Within the parameters of approved business plans and authorised expenditures; under the coverage and protection of clear policies on levels of authority; with unambiguous clarity of strategic direction; and with the immune system of a corporate culture built around principle-centered vision, purpose and values; Renaissance is able to operate through the EMPOWERMENT OF PEOPLE. At Renaissance we actively encourage innovative thinking and action throughout every business, in an atmosphere of autonomy and entrepreneurship that is hands-on and values driven.

ACCREDITATIONS HELD WITHIN THE GROUP MEG - NICO World ISM ISO 9001 : 2000

MEG – 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 - Adyard ISO 9001 : 2000 ASME (U,U2,PP,S,R) API 2B

MEG - BUE Caspian ISO 9001 QMS

MEG - BUE Kazakhstan ISO 9001 : 2000 ISM Code

CSG ISO 9001-2000 Centre Charter Certiﬁcate (Chartered Institute of Environmental Health,UK) HACCP (Hazard Analysis Critical Point)

BTG Microsoft Gold Certiﬁed Partner Technical Certiﬁcation from HP, Oracle & Microsoft for employees

ETG - NTI ISO 9001: 2000 HR Compliance Verification Certificate Health Safety & Environment Management System – OPAL CVC Microsoft Gold Certified Partner for Learning Solutions Oracle University Centre ACCA Tuition Provider Authorised Training Provider for EC Council

ETG - NHI ISO 9001: 2000 Investor in People (IiP) Chartered Institute of Environmental Health American and Hotel Lodging Association (AHLA) International Air Transport Association - Canada (IATA) City and Guilds (C&G)

TEAM SIAM at Shogklha

180 160 140 120 100 80 60 40 20 0 2003

2005

2006

2007

2005

2006

2007

2006

2007

NET PROFIT

20 18 16 14 12 10 8 6 4

HOW HAS RENAISSANCE PERFORMED IN 2007?

2 0 2003

2004

TOTAL EQUITY

Amount in RO Million

The 2007 performance is encouraging in every respect. Renaissance again delivered consistent organic growth, with revenue up 39.4%, operating profit up 26.68%, EBITDA up 27.9%, and Net Profit up 21.7%. Alongside improved performance against all our measurement criteria, we have reinvested in the businesses with over RO 44.6 million invested in 13 new vessels for the offshore support vessel fleet; we have expanded our onshore permanent accommodation for contractors (PACs) facilities by some 30% with 336 additional rooms; and we have expanded the capacity, capability and infrastructure of our engineering businesses. We have achieved this while delivering cash to shareholders and our share price hit a new high this year. Our dividend policy remains unchanged 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. Even in the midst of a US$ 508 million 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.

2004

100 90 80 70 60 50 40 30 20 10 0 2003

2004

2005

RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

The final piece of the jigsaw of how Renaissance goes about its business is the conviction that staying CLOSE TO THE CUSTOMER and making the loyal customer want to stay close to the company delivers benefits that go well beyond revenues and profits. Loyal and delighted customers act as ambassadors for the business, help to attract and retain the best employees and also serve to keep investors loyal and happy. “CUSTOMER CENTRICITY” creates a virtuous spiral of sustainable success. But customer needs and expectations change and those businesses that prosper on the back of delighted customers must keep in the forefront of timely change. We are in the business of giving customers what they want not what we think they want. We value each and every one of our clients and customers and we thank them for their patronage. In return, we assure them that Renaissance is committed to complying with customer specifications and contracts, underpinned by our corporate culture of EXCEEDING CUSTOMER EXPECTATIONS SAFELY AND PROFITABLY. That is why Renaissance needs to attract and retain the best employees; employees that are smart enough to be able to respond to the emerging needs of customers at lowest possible costs.

200

Amount in RO Million

Giving professional, trustworthy people the FREEDOM TO SUCCEED releases talent, energy and commitment that is at the very heart of Renaissance’s success.

Amount in RO Million

REVENUE

CHIEF EXECUTIVE OFFICER’S REPORT DIVIDEND TRACK RECORD 2003

2004

% RO’000

2005

% RO’000

2006

2007

% RO’000

Cash dividend

1,572

2,311

5,068

3,041

3,344

Stock dividend

315

661

62.5

7,415

2,027

2,229

1,887

2972

87.5 12,483

5,068

5,573

Total dividend

The safety of our people and all those affected by our work remains the top priority in the service of our customers, and the efficient and profitable operation of our business. The group had far greater exposure this year with significant increases in the number of manhours worked and - with road safety a key risk area - the number of kilometres driven.

SAFETY PERFORMANCE 2006 Total Manhours worked

22,716,247

Number of Fatalities

Number of Lost Time Incidents (LTI)

Lost Time Incident Frequency (LTIF)

1.63

Road Trafﬁc Accidents (RTA) Total Kilometers Driven

16 8,690,044

ANNUAL REPORT 2007

The overall group target for Lost Time Incident Frequency (LTIF), which measures the number of lost time incidents per million manhours worked, was 0.90, down from 1.63 last year and below the target of 1.0. However, this improved performance was marred by the fatality suffered this year, when a colleague fell from height while working on an assignment for a client in Abu Dhabi. It should also be noted that 20 of the 25 LTIs occurred in one single line company outside the oil & gas sector. That company is improving its safety performance, but currently continues to bring down the overall safety performance of the group. We remain committed to improving the safety performance of all the companies in all operations. We shall not be satisﬁed until we achieve zero incidents.

WHAT ARE THE KEY CHALLENGES, OBSTACLES AND RISKS FACING RENAISSANCE GOING FORWARD? It is appropriate to observe that the business climate in which the 2007 performance has been delivered is becoming increasingly complex and frequently more testing as we seek to deliver further performance growth in 2008. Understanding challenges and changes in the business environment ensures they may be met and mitigated with conﬁdence.

The outlook for Renaissance is positive: We have already made 31,034,893 +8,318,646 investments in assets and have won 1 +1 long-term contracts that ensure continued 28 -9 and sustainable economic growth; we 0.90 -0.73 have already got 11 vessels under 25 +9 construction to join our offshore support vessel 11,897,134 +3,207,090 fleet in 2008/09; we have already identified potential synergistic acquisition targets in the oil & gas sector to fast-track our growth ambitions. Our current cash-flows and balance sheet support our declared US$ 508 million investment programme – and improving cash flows suggest we may be able to more.

2007

Change

The primary challenges, obstacles and risks we must be alert to in implementing our growth programme are: potential exposure to exchange rate issues, in particular the potential de-linking of various GCC currencies from the US Dollar; availability and cost of financing in the post-subprime period; rising inflation in several key markets; availability of resources in the oil & gas sector – people, materials and infrastructure; availability of shipyard capacity and demand and potential over-supply of vessels in the marine industry; and any negative volatility in the oil & gas sector, including volatility of oil price. Balancing the cost benefit economics we have hedged some portion of our US Dollar denominated transactions to mitigate the possible exposure from any changes in currency policy in the GCC. So far, while there has been some post-subprime upward pressure on financing costs we have found our presence in the oil & gas sector and the nature of many of our assets being linked to long-term safe contracts, mean that our business remains an attractive proposition for financiers.

RENAISSANCE INVESTING IN SUSTAINABLE GROWTH •

Adyard bags US$ 35 million Abu Dhabi contract

•

Forms Saudi JV with Gentas Ltd

•

Wins US$ 210 million contract from BP in Azerbaijan

•

Inks US$ 37 million ﬁnance facility with Bank Muscat & Bank Dhofar

•

Builds Nemo, the ﬁrst vessel from NicoCraft

•

Signs US$ 50 million Syndicated Islamic lease ﬁnance facility

•

Builds new AHTS vessels worth US$ 23million

•

Wins US$ 20 million contract in Thailand

•

Wins US$ 350 million contract for Agip KCO in Kazakhstan

•

Enters Angola with Contract Services Group

•

Wins US$ 24 million Oil Storage Terminal Contract from FAL Energy

•

Plans US$ 508 million investments in 3 years

•

Renews US$ 48 million contracts with BP in Caspian

•

Supports Adrian Hayes’ Expedition to the North Pole

•

Signs US$ 47 million contract for cable Lay Vessel TEAM Oman

•

Wins US$ 18 million contracts in North Sea Oil & Gas sector

TEAM Oman working on windfarm in Holland for Oceanteam

Installation of jacket in the Umm al Quwain off shore ﬁeld for Atlantis Holding Norway

RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

SOME MILESTONES IN 2007

CHIEF EXECUTIVE OFFICER’S REPORT CSG catering services in Oman

Rising inflation in the region has been a matter of concern and we are keeping a close watch on rising costs especially while bidding for new contracts. Some contracts have inflation-proof clauses, others don’t. Whilst there is sometimes a time lag between rising costs filtering through to price, we are generally able to mitigate the impact through cyclical re-tendering. One inflationary issue that causes most concern is the spiraling cost of living and its impact on human resource costs. We are dealing with this by conducting fair independent reviews of cost of living in the markets that we serve. We have an excellent track record on people retention and this is a key factor when addressing shortage of resources in the booming oil & gas industry. We handle shortages in materials, infrastructure and shipyard capacity by maintaining a high level of industry expertise in our management team, focused on sourcing optimum economic and technical solutions to meet our growth needs.

ANNUAL REPORT 2007

We draw on the same industry expertise to ensure we are comfortable with concerns about potential over-supply of vessels in the coming years. For this we consider the markets we are in, the balance of long-term contracts with short-term contract assignments, and the type of offshore support vessels we own.

In 2007, 76% of Renaissance revenues of RO 199.2 million (US$ 517.4 million) were generated providing services to the oil & gas sector, and as we implement our declared strategy, the oil & gas content share of our business will increase further still. This does not mean that oil & gas customers are any more important than customers in other sectors like Healthcare, Defence, Education, Marine, Commerce & Industry, that generate the other 24% of our income. Not at all, each and every one of our customers is of intrinsic value to us. In fact, aligning ourselves with the values and priorities of the oil & gas sector enhances the quality and value of the services we offer to all our customers. However, this also requires us to consider any potential exposure to volatility in the energy sector and its dependence on stable and sufﬁcient oil price. Here we consider three important factors: First, the energy sector is going through a boom cycle that is increasingly viewed as sustainable. The traditional volatility of boom and bust in the industry is increasingly seen as likely to enjoy higher-highs and lower-lows. This is driven by the increasing demand for energy in a growing and developing world, and the spectre of decreasing supply of a ﬁnite commodity – which demands

greater investment in new technology to recover diminishing and previously inaccessible or economically unviable reserves. Second, we have to consider the services we provide – looking after people and infrastructure has proved to be generally far more immune to economic cycles in the industry, as the oilfields still have to be sustained during downturns. Third, we have a significant number of long-term 10, 20, 30 and more year contracts with leading oil & gas producers in many markets. We are convinced that the oil & gas sector is the right place for Renaissance to be for the long-term. Beyond the generic risks and challenges discussed here, we do have two specific areas of concern that we are addressing: The first of these is our concern about changes in practice for taxing overseas dividend income applied retrospectively. This has been discussed at length in the Chairman’s Report and we are hopeful that the concerned authorities will understand our position on this and tax of overseas income in general. The second is a specific problem we have encountered in a contract given out by our subsidiary BUE Kazakh to build 4 barges in Ukraine: BUE Kazakh is building 8 special purpose ice class barges for its contract with Agip Kazakhstan North Caspian Operating Company N.V. (Agip KCO). Four of the barges under construction in Ukraine have met a delay problem with a change in ownership of the shipyard, which has given rise to questions of ownership of the work-in-progress on our barges. We have an exposure of US$ 10 million of materials and deposits. However, our international and Kazakh legal advisers are completely confident that the matter will be resolved in our favour. The dispute is effectively between the past and current owners of the shipyard and our project is temporarily caught in the middle. Our legal advisers are certain that the evidence of our rights is clear and our status as a valued foreign investor will prevail as soon as the local dispute is resolved. This of course takes time, so we have moved swiftly to provide alternative solutions to ensure uninterrupted service to our client. We have now decided to build 4 replacement barges in other shipyards and the Ukraine barges will subsequently be used as option barges on the contract when required. In a company of our size and international operations profile, we will always meet problems and challenges of this kind. It is the nature of business. But our scale, diversity and flexibility allow us to manage turbulence without deflecting us from our obligations, our vision and our purpose.

WHAT IS THE OUTLOOK FOR RENAISSANCE GOING FORWARD? In aligning ourselves with the oil & gas industry that we serve, there are three things that are already an integral part of our Renaissance leadership and operating paradigm that we are giving even greater focus in 2008; and these are of enormous importance to our oil & gas clients in all markets:

Continuous improvement of HSE 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 / cost reduction suggestions for clients

IMTAC Customer service centre in Oman

These operational initiatives, allied to our investment and divestment strategies, supported and sustained by our values-driven culture, all blend to suggest an extremely positive outlook for Renaissance. Our vision will be accomplished with the continued support of our outstanding people employed throughout our group, who I cannot thank enough for their achievements and endeavours. Our purpose will be accomplished through our highly successful relationships with customers, suppliers, ﬁnanciers, professional advisors and the communities in which we serve. We thank them all for their continued support and trust. In 2008 we are committed to delivering further superior performance that will be sustainable over the long-term. We are committed to enhancing the economic well-being and quality of life of all those whose lives are touched by our business. Our commitment extends to every aspect of the way we do business. It is reﬂected in our determination to meet the highest standards of probity and transparency. It is our intention to build a business that is enduring. A business that consistently produces excellent results and a business that consistently does the right thing.

Stephen R. Thomas Chief Executive Ofﬁcer

RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

Shah Deniz Gas Production / Drilling Unit nears completion at Zykh Yard Baku Azerbaijan

CHIEF EXECUTIVE OFFICER’S REPORT

SAFETY MILESTONES & AWARDS Marine & Engineering Group – Nico World Nico World – 0.5m LTI free man hours

Marine & Engineering Group – Nico International Dubai Maritime EHS Gold Award

Marine & Engineering Group – BUE Caspian BUE Caspian – 8m LTI free manhours Tabriz Khalibeylei reached end of 5 year charter with Zero LTI

Marine & Engineering Group – BUE Kazakhstan BUE Kazakh – 4m LTI free manhours

Marine & Engineering Group – Adyard Adyard – 3.87m LTI free manhours

Contract Services Group Team award for 7.5m LTI free manhours for Sohar Alumunium Smelter Project for Bechtel and all contractors 1m LTI free manhours by Tisco at Bechtel 868 days LTI free days at RS Overseas division – KBR Camp Jackson DFAC 150 days LTI free days at RS Overseas division – KBR C1.1 ANNUAL REPORT 2007

DFAC construction

7 years operations without LTI at RS PAC Nimr 5 years operations without LTI at RS PAC Qarn Alam

Education & Training Group LTI free operations

RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

OUR CUSTOMERS IN ALPHABETICAL ORDER

REPORT ON CORPORATE GOVERNANCE

MANAGEMENT TEAM

CORPORATE OFFICE

Stephen R.Thomas

Arindam Ray

Chief Executive Ofﬁcer

Executive Assistant to CEO

Hilal Al Esry

Vishal Goenka

General Manager GLD

Financial Controller

Parul Burman

Saad Abdullah Ali

Group Chief Internal Auditor

Company Secretary

MARINE & ENGINEERING GROUP

Fazel Fazelbhoy Chief Executive Ofﬁcer

Pramod Balakrishnan

ANNUAL REPORT 2007

Chief Financial Ofﬁcer

Carl Rolaston Chief Strategic Ofﬁcer

Richard Steele

Jim Masterton General Manager Adyard

Ronald Clark General Manager Nico World

Roy Donaldson General Manager BUE Caspian

General Manager BUE Kazakh

Ananda Fernando

General Manager Commercial

Adil Bahwan

CONTRACT SERVICES GROUP Baqar Haider

Operations Manager Facility Management Services

General Manager Operations

Philip Caine

Operations Manager RS Overseas Division Ingvar Varhaug

General Manager NOC Norway

Peter Roles

Operations Manager Angola

Karim Shaikh

Finance Manager Saalim Gaima

Support Services Manager

Hilal Al Habsy

Operations Manager Oil & Gas Sector

Keith Laddiman

Business Development Manager Offshore Oil & Gas

Joaquim D’ Costa

Operations Manager Private Sector Peter James

QA/HSE Advisor

EDUCATION & TRAINNING GROUP RENAISSANCE SERVICES SAOG & ITS SUBSIDIARY COMPANIES

BUSINESS TECHNOLOGY GROUP

Ashok Sardiwal

Chief Executive Ofﬁcer

3 Gautam Dey

Lawrence Alva

Chief Strategic Ofﬁcer

General Manager, NTI

Robert Maclean

Principal, NHI

P.O. Box: 1750, Ruwi 112 Muscat, Sultanate of Oman 6th Floor Bank Dhofar Building Muttrah Business District Muscat, Sultanate of Oman

Telephone: 24703105 Fax: 24702734 muscat.om@ey.com www.ey.com/me C.R. No. 1/36809/5 P.R. No. MH/4

Report of Factual Findings on the corporate governance reporting of Renaissance Services SAOG and its application of the corporate governance practices in accordance with the CMA code of corporate governance

TO THE SHAREHOLDERS OF RENAISSANCE SERVICES SAOG We have performed the procedures prescribed in Capital Market Authority (CMA) circular no 16/2003, dated 29 December 2003 with respect to the accompanying corporate governance report of Renaissance Services SAOG and its application of corporate governance practices in accordance with the CMA Code of Corporate Governance issued under circular no. 11/2002 dated 3 June 2002 and the CMA Rules and Guidelines on disclosure, issued under CMA administrative decision 5, dated 27 June 2007. Our engagement was undertaken in accordance with the International Standard on Related Services applicable to agreed-upon procedures engagements. The procedures were performed solely to assist you in evaluating the extent of the company's compliance with the code as issued by the CMA. We report our findings below: We found that the company's corporate governance report fairly reflects the company's application of the provisions of the code and is free from any material misrepresentation. Because the above procedures do not constitute either an audit or a review made in accordance with International Standards on Auditing or International Standards on Review Engagements, we do not express any assurance on the corporate governance report. Had we performed additional procedures or had we performed an audit or review of the corporate governance report in accordance with International Standards on Auditing or International Standards on Review Engagements, other matters might have come to our attention that would have been reported to you. Our report is solely for the purpose set forth in the first paragraph of this report and for your information and is not to be used for any other purpose. This report relates only to the accompanying Board of Director's corporate governance report to be included in its annual report for the year ended 31 December 2007 and does not extend to any financial statements of Renaissance Services SAOG, taken as a whole.

20 February 2008 Muscat

A Member of Ernst & Young Global

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, Ernst & Young has issued a separate Factual Findings Report on the Company’s Corporate Governance Report for the year ended 31 December 2007. 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 decision- maker in fostering the overall success of the Company by enhancing Shareholder value, selecting & evaluating the top management team, approving & overseeing the corporate strategy & 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 Board ensures ethical behaviour and compliance with all laws and regulations. The Company’s Manuals of Procedures (internal regulations), which are already in place, 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 2007 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.

2.1 The Composition and Category of Directors, Attendance of Board Meetings Sl No.

Name of Director

Position

Category

Number of Shareholders

No of shares

% Shareholding

Less than 100,000 shares

4,831

16,892,037

7.57

100,000 – 200,000 shares

7,246,805

3.25

200,001 – 500,000 shares

15,445,842

6.93

500,001 – 2,200,000 shares

32,764,090

14.69

1 % - 1.99% of share capital

29,294,200

13.14

2 % - 6% of share capital

94,813,122

42.52

10% of share capital & above

26,543,472

11.90

4,985

222,999,568

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 Ernst & Young is one of Oman’s oldest established accounting firms, having had a permanent office in the country since 1974. The practice comprises some eighty professionals, and is under the direction of four partners. The Oman office forms part of Ernst & Young’s Middle East practice, with over 80 partners and nearly 1,700 other professionals in 16 offices throughout the region. The Middle East practice is a member of Ernst & Young Global, operating in more than 130 countries with approximately 100,000 personnel worldwide. As per article 9 (para b) of the Code of Corporate Governance pertaining to the rotation of external auditors, Ernst & Young have completed four years as statutory auditors of the Company by the end of 2007. Therefore, the Annual General Meeting of Shareholders has to appoint new statutory auditors for the year ending 31st December 2008 and approve their fees. 10 Audit Fees paid to the Auditors For the year 2007, audit fees of RO 213,913/- were paid by the Company and its subsidiaries, in Oman and abroad, while the fees paid for other services amounted to RO 107,468/-.

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. 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.

Director

P.O. Box: 1750, Ruwi 112 Muscat, Sultanate of Oman 6th Floor Bank Dhofar Building Muttrah Business District Muscat, Sultanate of Oman

Telephone: 24703105 Fax: 24702734 muscat.om@ey.com www.ey.com/me C.R. No. 1/36809/5 P.R. No. MH/4

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF RENAISSANCE SERVICES SAOG Report on the financial statements We have audited the accompanying financial statements of Renaissance Services SAOG (“the Company”), and its subsidiaries (the Group) which comprise the consolidated balance sheet as at 31 December 2007 and the consolidated income statement, cash flow statement and statement of changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Board of Directors’ Responsibility for the Financial Statements The Board of Directors is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the relevant disclosure requirements of the Commercial Companies Law of 1974, as amended and the Rules and Guidelines on disclosure issued by the Capital Market Authority, effective 1 October 2007. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entityís internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Company’s Board of Directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the group as of 31 December 2007 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Report on Other Legal and Regulatory Requirements In our opinion the financial statements comply, in all material respects, with the relevant disclosure requirements of the Commercial Companies Law of 1974, as amended and the Rules and Guidelines on disclosure issued by the Capital Market Authority, effective 1 October 2007.

20 February 2008 Muscat

Philip D Stanton Partner A Member of Ernst & Young Global

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007

Notes Revenue Operating expenses Gross profit Administrative expenses Profit from operations Share of profit from associate companies Impairment and amortisation of intangible assets

2007 ROâ&#x20AC;&#x2122;000

2006 ROâ&#x20AC;&#x2122;000

199,213

142,939

(144,792)

(99,068)

54,421

43,871

(26,863)

(22,064)

27,558

21,807

300

592

(83)

(82)

(5,441)

(4,517)

(11)

22,334

17,789

Net finance costs Net profit/(loss) on investments Profit before income tax Income tax expenses

(4,992)

(3,538)

Net profit for the year

17,342

14,251

16,525

14,039

817

212

17,342

14,251

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

Basic and diluted earnings per share (RO)

0.078

0.066

Dividend per share (RO)

0.025

The attached notes 1 to 30 form 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 2007

Notes

2007 ROâ&#x20AC;&#x2122;000

2006 ROâ&#x20AC;&#x2122;000

3 4 6 18

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

121,827 34,274 3,186 1,123

187,101

160,410

31 13,086 59,603 15,974

30 8,081 48,368 4,916

88,694

61,395

60,125 779 19,889

38,233 2,629 17,329

80,793

58,191

7,901

3,204

78,160 3,798 3,647

60,116 8,829 2,903

Total non-current liabilities

85,605

71,848

Net assets

109,397

91,766

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

20,273 28,052 (1,687) 7,105 5,068 31,889 137

Minority interests

104,643 4,754

90,837 929

Total equity

109,397

91,766

0.494

0.472

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

6 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 gain on investment in foreign subsidiaries

Net assets per share (RO)

13 14 15

16 16 16 16 21

The financial statements were authorised for issue in accordance with a resolution of the directors on 20 February 2008.

Chairman

Director

The attached notes 1 to 30 form part of these financial statements. The parent company balance sheet is presented as a separate schedule attached to the financial statements.

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 2007 RO’000

2006 RO’000

186,715 (143,810)

135,056 (106,029)

Cash generated from operations Net finance costs Income tax paid

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

29,027 (4,517) (3,142)

Cash flows from operating activities

31,933

21,368

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

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

(32,868) 2,209 11 (1,247) 263

Cash flows used in investing activities

(39,417)

(31,632)

FINANCING ACTIVITIES Net receipts of term loans Net movement in related parties Cash dividends paid

20,604 2,829 (3,041)

6,913 (112) (5,068)

Cash flows from financing activities

20,392

1,733

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

12,908 2,287

(8,531) 10,818

15,195

2,287

15,974 (779)

4,916 (2,629)

15,195

2,287

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 30 form part of these financial statements. The parent company cash flow statement is presented as a separate schedule attached to the financial statements.

28,052

(1,687)

(1,704)

7,105

3,761

3,344

8,024

919

7,105

RO’000

Legal reserve

5,068

(5,068) 3,041 2,027 -

5,068

5,575

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

5,068

RO’000

Proposed distribution

31,889

14,039 (3,041) 262 (79)

14,039

20,708

44,984

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

16,525

31,889

RO’000

Retained earnings

The attached notes 1 to 30 form part of these financial statements. The parent company statement of changes in equity is presented as a separate schedule attached to the financial statements.

20,273

Balance at 31 December 2006

(2,027) (3,682)

Total income and expense for the year Dividend paid Proposed dividend Proposed bonus shares Income from treasury shares Transfer to legal reserve Movement related to disposal Of subsidiary

33,761

20,273

Balance at 1 January 2006

25,146

Currency translation difference Profit for the year

22,300

Balance at 31 December 2007

(17) -

(2,230) (676)

(1,687)

Total income and expense for the year Dividend paid and bonus shares issued 2,027 Proposed dividend Proposed bonus shares Income from treasury shares Transfer to legal reserve Movement related to investment in subsidiaries -

28,052

RO’000

Treasury shares

20,273

Share premium (Restated) RO’000

Currency translation difference Profit for the year

Balance at 1 January 2007

RO’000

Share capital

Attributable to shareholders of the Parent Company

137

213 -

(76)

318

181 -

137

RO’000

Exchange reserves

90,837

14,252 (5,068) 262 -

213 14,039

81,391

104,643

16,706 (3,041) 141 -

181 16,525

90,837

RO’000

Total

929

(28)

212 (58) -

212

803

4,754

3,008

817

929

RO’000

Minority interest

91,766

(28)

14,464 (5,126) 262 -

213 14,251

82,194

109,397

3,008

17,523 (3,041) 141 -

181 17,342

91,766

RO’000

Total

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 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, catering and cleaning services, sale of computers, development, sale and service of computer related software, telecommunications and medical equipments, provision of training services, media publishing and distribution, construction, repair and chartering of ships and vessels, fabrication and maintenance for oil and gas industries, 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 Certain revalued assets

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. 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 non-current and current 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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 2

SIGNIFICANT ACCOUNTING POLICIES (contd.)

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 Group’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 shareholders’ 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. Changes in accounting policies The accounting policies are consistent with those used in the previous year except as follows: The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of these revised standards and interpretation did not have any effect on the financial performance or position of the Group. They did however give rise to additional disclosures: IFRS 7 Financial Instruments: Disclosures IAS 1 Amendment - Presentation of financial statements The principal effects of these changes are as follows:

IFRS 7 Financial lnstruments Disclosures This standard requires disclosures that enable users of the financial statements to evaluate the significance of the Group’s financial instruments and the nature and extent of risks arising out of those financial instruments. The new disclosures are included throughout the financial statements. lAS I Presentation of financial statements This amendment requires the Group to make new disclosures to enable users of the financial statements to evaluate the Group’s objectives, policies and processes for managing capital. These new disclosures are shown in note 34. IASB Standards and Interpretations issued but not adopted The Group has not adopted the new accounting standards or interpretations that have been issued but are not yet effective. These standards and interpretations except for revised IAS 1, are not likely to have any significant impact on the consolidated financial statements of the Group in the period of their initial application. The Group has not adopted the revised IAS 1 “Presentation of Financial Statements” which will be effective for the year ending 31 December 2009. The application of this standard will result in amendments to the presentation of the consolidated financial statements. Revenue recognition Ship repair and oil & 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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 2

SIGNIFICANT ACCOUNTING POLICIES (contd.)

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 and acceptance by the customer. 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.

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 on-board 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 on-board accommodation and catering services is recognised over the period of hire of such accommodation while revenue from sale of fuel and other consumables is recognised when delivered.

Trading Revenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably. 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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 2

SIGNIFICANT ACCOUNTING POLICIES (contd.)

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. 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:

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) Jetty and land development Floating dock Motor vehicles

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

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 Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Groupâ&#x20AC;&#x2122;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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) 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 cash-generating 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 cashgenerating 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. 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 asî 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 first-in, 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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) 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 Groupâ&#x20AC;&#x2122;s own equity instruments. 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 Groupâ&#x20AC;&#x2122;s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. 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 against income. 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 recognised 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 2007 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. Retirement Benefit Costs Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to statemanaged 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. Operating lease payments Payments made under operating leases are recognised in the income statement on a straight line basis over the term of the lease. 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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) 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. 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. 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 Groupâ&#x20AC;&#x2122;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: (a)

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;

(b)

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;

(c)

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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 2

SIGNIFICANT ACCOUNTING POLICIES (contd.) 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. 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 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

Impairment of Goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the â&#x20AC;&#x2DC;value in useâ&#x20AC;&#x2122; of the cash-generating units to which the goodwill is allocated. Estimating a value in use amount requires management to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Further details are given in Note 4.

Deferred Tax Assets Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Further details are contained in Note 18.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 3

PROPERTY, PLANT AND EQUIPMENT

Freehold land and buildings RO’000

Jetty Marine and vessels Dock RO’000 RO’000

Machinery and equipment RO’000

Furniture Motor and vehicles Fixtures RO’000 RO’000

Capital work in progress RO’000

Total RO’000

2,086

10,830

176,303

Cost or valuation 1 January 2007

27,730

116,697

2,107

15,328

Additions

2,352

Disposals/transfers

7,290

31 December 2007

37,372

1 January 2007

11,755

Charge for the year

1,525

15,610

5,374

610

230

20,880

45,056

(93)

361

1,583

(101)

(223)

(15,538)

(6,721)

132,214

2,468

22,285

2,034

2,093

16,172

214,638

27,679

589

11,588

1,183

1,682

54,476

3,248

9,252

135

2,072

327

188

15,222

(3,224)

(107)

(141)

(213)

(3,685)

Depreciation

On disposal

15,003

33,707

724

13,553

1,369

1,657

66,013

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

24,984

94,574

2,035

13,065

1,432

1,891

7,705

145,686

1,603

1,754

2,462

236

339

26,402

32,868

1,143

20,369

(199)

(143)

(144)

(23,277)

(2,251)

27,730

116,697

2,107

15,328

1,525

2,086

10,830

176,303

10,454

19,896

490

10,439

1,032

1,660

43,971

1,344

7,947

1,365

284

163

11,202

(43)

(164)

(216)

(133)

(141)

(697)

11,755

27,679

589

11,588

1,183

1,682

54,476

31 December 2006

15,975

89,018

1,518

3,740

342

404

10,830

121,827

31 December 2005

14,530

74,678

1,545

2,626

400

231

7,705

101,715

31 December 2007 Net carrying amount

Cost or valuation 1 January 2006 Additions Disposals/transfers 31 December 2006 Depreciation 1 January 2006 Charge for the year On disposal 31 December 2006 Net carrying amount

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 3

PROPERTY, PLANT AND EQUIPMENT (contd.) Certain marine vessels were revalued at 31 December 2003, based on independent valuations undertaken by professionally qualified valuers. The independent valuations were based on an open market basis for existing use. The net book value of revalued assets was RO 12,829,740 (2006: RO 14,531,440). Had these assets been carried at cost less depreciation, the net book values would have been RO 10,184,790 (2006: RO 11,295,900). Marine vessels with a net book value of RO 80,503,000 (2006: RO 69,894,000) and plant and machinery with a net book value of RO 2,621,000 (2006: RO 1,832,000) are pledged against bank loans obtained. Certain marine vessels 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 239,000 (2006: RO 378,000) 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. The depreciation charge has been allocated in the consolidated income statement as follows:

2007 RO’000

2006 RO’000

14,263 959

10,429 773

15,222

11,202

2007 RO’000

2006 RO’000

Goodwill at 1 January Additions

41,441 56

39,913 1,528

31 December

41,497

41,441

Impairment 1 January Impairment charge during the year

7,356 -

31 December

7,356

Net carrying amount at 31 December

34,141

34,085

Operating expenses Administrative expenses

INTANGIBLE ASSETS Goodwill

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 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:

2007 RO’000

2006 RO’000

26,083

Industrial Management Technology and Contracting LLC

3,145

Tawoos Industrial Services Company LLC

1,900

Norsk Offshore Catering AS

1,007

951

Others

2,006

34,141

34,085

Goodwill

Topaz Energy and Marine Group

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 2007, 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.

2007 RO’000

2006 RO’000

189

249

Amortisation

(83)

(82)

Net carrying amount at 31 December

106

189

34,247

34,274

Computer software

1 January Addition on acquisition of subsidiary

Total intangible assets

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 5

SUBSIDIARIES AND ASSOCIATES The Group and Parent company investments in Subsidiary and Associate companies are as follows

Ownership interest (%) 2007 2006 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)

100 100 100 100 100 46

20 49 20

100

The Group’s subsidiaries have investments in the following subsidiaries:

Subsidiary Companies of TOPAZ Nico Middle East Limited (incorporated in Bermuda)

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.

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”) Subsidiary Companies of TISCO Rusail Catering and Cleaning Services LLC (“RCCS”) Supraco Limited (incorporated in Cyprus) Renaissance Contract Services International LLC (“RCSI”)

(ii)

100 49 100 100

100 100 100

100 100 -

RCSI was set up in 2007 and is providing contract catering services through its subsidiary in Angola. Supraco Limited through its subsidiaries in Norway provides contract catering services to offshore oil rigs operating in the Norwegian Water.

Subsidiary Companies of UMS United Press and Publishing Company LLC (“UPP”) Oryx Advertising Company WLL (incorporated in Qatar) Except as otherwise stated, the companies are incorporated in Oman. 56

100 49

100 -

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 6

INVESTMENTS

Investment in associates Available for sale

2007 RO’000

2006 RO’000

2,360 194

2,992 194

2,554

3,186

Investments in associates The Group has the following investments in associates

Associate

Country of incorporation

Ownership interest (%) 2007 2006 49 20 20

49 20 20

2007 RO’000

2006 RO’000

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

2,992 300 83 (1,015)

2,245 592 191 (36)

At 31 December

2,360

2,992

2007 RO’000

2006 RO’000

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

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

3,557 1,733 (1,190) (1,108)

Net assets

2,360

2,992

Share of associates’ revenues and results Revenues

3,085

7,852

300

592

Darium Thai Offshore Limited Mezon Stainless Steel Free Zone Company Dubai Wire FZE

Thailand U.A.E. U.A.E.

Movements in the investment in associates are set out below:

Result Available for sale investments represent the fair value of investments in the following entities

Ownership interest (%) 2007 2006 Global Fasteners Limited (incorporated in the Isle of Man) Fund for Development of Youth Projects SAOC

Held for trading investments

10.00 2.33

2007 RO’000

2006 RO’000

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 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

Non-current assets Current assets Current liabilities Net assets Revenue Cost of sales Administrative expenses Net profit for the year

2007 RO’000

2006 RO’000

1,737 (1,264)

535 (332)

473

203

2,382 (1,981) (132)

907 (746) (65)

269

2007 % 51 50

2006 % 51 50

2007 RO’000

2006 RO’000

4,234 8,852

3,604 4,477

13,086

8,081

2007 RO’000

2006 RO’000

45,445 13,487 671

36,411 11,430 527

59,603

48,368

Investments in jointly controlled entities are in

Adyard Anglian Water Nico Mitsui Both the above entities are incorporated in the UAE. 8

INVENTORIES AND WORK IN PROGRESS

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

TRADE AND OTHER RECEIVABLES

Trade receivables, net Prepayments and other receivables Amounts due from related parties (Note 22)

As at 31 December 2007, trade receivables of RO 4,666,000 (2006: RO 3,582,000) were impaired. Movements in the allowance for impairment of receivables were as follows:

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 9

TRADE AND OTHER RECEIVABLES

2007 RO’000

2006 RO’000

At 1 January Charge for the year Amounts written off Unused amounts reversed

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

3,443 215 (62) (14)

At 31 December

4,666

3,582

As at 31 December, the ageing of unimpaired trade receivables is as follows

Past due but not impaired

2007 2006

Total RO ‘000

Neither past due nor impaired RO ‘000

< 30 days RO ‘000

30-60 days RO ‘000

60-90 days RO ‘000

90-120 days RO ‘000

> 120 days RO ‘000

45,445 36,411

30,806 24,315

7,519 5,188

2,862 1,644

1,584 1,719

1,708 1,138

966 2,407

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)

2007 RO’000

2006 RO’000

15,974 (779)

4,916 (2,629)

15,195

2,287

Included in cash and bank balances are call deposits of RO 5,524,000 (2006: RO 1,204,000) maintained with commercial banks. These are denominated mainly in US Dollar and UAE Dirhams, are short term in nature, and earn interest at commercial rates (2006: 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)

2007 RO’000

2006 RO’000

20,819 30,765 8,477 64

16,001 16,645 5,488 99

60,125

38,233

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 12

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 carry interest at commercial rates (2006: Same terms and conditions).

TERM LOANS AND LEASES Term Loans 31 December 2007

Parent company Subsidiary companies

Total RO’000

1 year or less RO’000

2 -5 years RO’000

More than 5 years RO’000

26,310 71,492

5,739 14,004

20,571 39,373

18,115

97,802

19,743

59,944

18,115

Total RO’000

1 year or less RO’000

2 -5 years RO’000

More than 5 years RO’000

15,443 61,615

6,014 11,175

9,188 32,388

241 18,052

77,058

17,189

41,576

18,293

31 December 2006

Parent company Subsidiary companies

Included in term loans from bank are the following:

Term loans in Parent Company Term loans in Parent company 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 (2006 : same terms and conditions). Term loans in Subsidiaries 1) Term loans to TOPAZ amounting to RO 70,789,000 are secured by a first preferred mortgage over selective assets of the Group, the assignment of marine vessel insurance policies, and in the event of default, 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. 2)

Another short term loan of RO 950,000 is related to an Omani registered subsidiary. Interest is charged at commercial terms.

Leases

Total lease payments outstanding as at 31 December Less: Due within one year (disclosed as current liabilities) Long term lease obligations (Note 24 c) 60

2007 RO’000

2006 RO’000

247 (146)

387 (140)

101

247

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 13

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

2007 RO’000

2006 RO’000

78,059 101

59,869 247

78,160

60,116

19,743 146

17,189 140

19,889

17,329

2007 RO’000

2006 RO’000

3,798 -

6,399 2,430

3,798

8,829

2007 RO’000

2006 RO’000

Movements in the liability recognised in the balance sheet are as follows: 1 January Accruals during the year Payments during the year

2,903 1,161 (417)

2,608 755 (460)

31 December

3,647

2,903

Non current liabilities: Term loans Leases

Current liabilities: Term loans Leases

NON CURRENT PAYABLE AND ADVANCES

Other payables and advances Deferred income

STAFF POST EMPLOYMENT BENEFITS (I) DEFINED CONTRIBUTION PLAN

(II) DEFINED BENEFIT PLAN The pension scheme of one of group’s subsidiary covers a total of 183 employees (2006 - 99 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 valuaion. The actuarial valuations are based on assumptions of demographical factors normally used within the insurance industry. 16

CAPITAL AND RESERVES

Share capital The authorised share capital of the Parent Company comprises 400,000,000 ordinary shares of RO 0.100 each (2006: 40,000,000 of RO 1 each). At 31 December 2007, the issued and fully paid up share capital comprised 222,999,568 ordinary shares of RO 0.100 each (2006: 202,726,880 of RO 0.100 each). During 2007, the share capital increased by RO 2,027,269 due to the issue of 20,272,688 bonus shares.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 16

CAPITAL AND RESERVES (contd.) Details of shareholders, who own 10% or more of the Parent Company’s share capital, are as follows

2007

Tawoos LLC Kuwait & Middle East Financial Inv Co

Number of shares 000 ‘0

26,543 -

11.90 -

2006 Number of shares ‘000 24,130 20,664

11.90 10.19

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. Treasury shares These are shares held by certain subsidiaries in the parent company at the cost of RO 1,703,826 (2006: RO 1,686,587). 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 2007, the subsidiaries held 11,505,604 shares (2006: 10,459,636) in the Parent Company. The market value of these shares at 31 December 2007 was approximately RO 15.45 million (2006: RO 5.54 million). Share premium During the year company has declared proposed dividend of RO. 5,574,989 for the year ended on 31st December 2007. Out of this RO 2,229,995 (10%) is in the form of stock dividend and has been adjusted against the share premium in the statement of changes in equity. 17

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 2007 2006 RO’000 RO’000 Net assets 109,397 Net assets 91,766 (4,754) Minority interest (929) Net assets attributable to the shareholders of the Parent Company

104,643

90,837

Number of shares Number of shares at 1 January Bonus shares issued Treasury shares (refer note 16)

202,727 20,273 (11,506)

20,273 (1,046)

211,494

19,227

173,043

211,494

192,270

0.494

0.472

Number of shares at 31 December Effect of 1:10 stock split Number of shares at 31 December 62

Net assets per share (RO)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 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.

2007 RO’000

2006 RO’000

Charge for the year

4,992

3,538

Current liability

8,477

5,488

2,976

Opening as on 1 January

1,123

1,675

Credited (debited) to Income Statement

552

(552)

1,675

1,123

Non-current liability Deferred tax asset

At 31 December

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 2002 to 2006 have not yet been finalised by the Secretariat General for Taxation at the Ministry of Finance (the ‘Department’). The Department has completed the assessment of certain Oman incorporated subsidiaries up to the year 2002 disallowing the management fees paid by them to the Parent Company. The Parent Company and its subsidiaries have filed objections and appeals against the Department’s assessment. The Company has established provisions at 31 December 2007 against the potential tax liabilities which might arise in this regard (see Note 23 for the contingent liability in respect of taxation of overseas dividends received from a UAE subsidiary). 19

PROFIT FOR THE YEAR The profit for the year is stated after charging

Staff costs

2007 RO’000

2006 RO’000

58,552

28,510

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: 63

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 20

BASIC AND DILUTED EARNINGS PER SHARE (contd.)

Net profit for the year attributable to the shareholders of the parent company

Weighted average number of shares (’000) Bonus shares issued (’000)

Less: Treasury shares (’000) Less: Bonus shares issued (’000)

Weighted average number of shares (’000) Basic and diluted earnings per share (RO)

2007 RO’000

2006 RO’000

16,525

14,039

222,999 -

202,727 20,272

222,999

(11,506) -

(10,460) (1,046)

(11,506)

211,493

0.078

0.066

During 2006, the company had split its shares by a multiple of 10 from RO 1 per share to RO 0.100 (100 baisas) per share. The effect of increase in number of shares has been considered in the opening balance of 2006. 21

DIVIDEND PER SHARE

Total distribution for the Shareholders (RO ’000) Number of shares outstanding at 31 December (’000) Dividend per share (RO) Proposed cash dividend (RO) Proposed bonus shares, at par (RO)

2007

2006

5,575

5,068

223,000

202,727

0.025

3,344,994 2,229,995

3,040,903 2,027,269

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 2008. Dividend for the year 2006 was approved by the shareholders at the AGM held on 28 March 2007. 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 2007. 22

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:

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 22

RELATED PARTY TRANSACTIONS (contd.)

2007 RO’000

2006 RO’000

3,796 -

2,653 2 15

Expenses Services received and purchases Interest

210 2

563 -

Directors’ remuneration and sitting fees Remuneration Sitting fees

179 21

182 18

Income Service rendered and sales Interest income Management fees

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: 23

2007 RO’000

2006 RO’000

998 48

783 37

1,046

820

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

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 2007, the Company has not recorded any impairment of amounts owed by related parties (2006: nil). 23

COMMITMENTS AND CONTINGENT LIABILITIES

Commitments Letters of credit Capital expenditure commitments Contingent liabilities Letters of guarantee Bills discounted

2007 RO’000

2006 RO’000

1,310 28,367

984 5,759

15,477 -

7,259 1,354

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 23

COMMITMENTS AND CONTINGENT LIABILITIES (contd.)

Overseas dividends received by a subsidiary A former subsidiary Topaz Energy and Marine SAOG, prior to its acquisition by Renaissance Services SAOG had earned dividend income from its overseas subsidiaries for the years 2002 to 2004. This has been excluded from the taxable income in Oman following management’s view that overseas dividends should not be taxed, as Oman follows a territorial system of taxation, a view confirmed by the Supreme Court in a decision given in November 2004. In the event the dividends from these overseas investments are taxed, the tax exposure for the open tax years from 2002 to 2004 would be approximately RO 800,000 to the Parent Company. The management of the company are confident that they have a strong case and therefore have not established any provision. 24

LEASES a) 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: 2007 2006 RO’000 RO’000 Within one year Between one and five years More than five years

44,140 71,226 32,693

41,519 59,151 26,892

148,059

127,562

b) 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

2007 RO’000

2006 RO’000

6,051 7,449 1,732

7,957 4,607 2,839

15,232

15,403

c) Finance lease commitments The Group has entered into finance lease commitments with monthly rentals payable as follows:

Present value of minimum lease payments

2007 RO’000

2006 RO’000

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

146 101

140 247

Total minimum lease payments

247

387

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 25

PROPOSED DIVIDEND The Board of Directors has proposed a dividend amounting to RO 5,575K (2006: 5,068). This dividend will be submitted for approval at the annual general meeting in 2008.

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 2007:

Interest rate swaps

Positive fair value RO’000

Negative fair value RO’000

Notional amount Total RO’000

(725)

43,129

Positive fair value RO’000

Negative fair value RO’000

Notional amount Total RO’000

219

20,256

Notional amounts by term to maturity Over1 Within 1 year to Over 5 year 5 years years RO’000 RO’000 RO’000 9,492

33,637

31 December 2006:

Interest rate swaps

Notional amounts by term to maturity Over1 Within 1 year to Over 5 year 5 years years RO’000 RO’000 RO’000 6,935

13,321

In 2007, the amount of cash flow hedge ineffectiveness was immaterial. 27

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 Profit from operations Technology group Contract services group Marine Group Engineering Group Others and inter Company adjustments

2007 RO’000

2006 RO’000

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

14,845 37,449 52,794 35,030 2,821

199,213

142,939

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

1,406 7,815 12,108 2,638 (2,160)

27,558

21,807 67

Others include results of media and communication, education and training and other unallocated cost and revenue.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 28

RISK MANAGEMENT Exposure to credit, interest rate, foreign currency and market risk arises in the normal course of the Group’s business.

Credit risk 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 Company, including cash and cash equivalents, and derivative instruments with positive values, the Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

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 Company’s profit for one year, based on the floating rate financial assets and financial liabilities held at 31 December 2007. There is no impact on the Company’s equity.

2007 RO RO 2006 RO RO

Increase/decrease In basis points

Effect on profit for the year RO’000

+15

(134)

-10

(89)

+15 -10

118 (79)

Equity price risk The Group is not exposed to any significant equity price risk.

Foreign currency risk Trade accounts payable include amounts due in foreign currencies, mainly US Dollars, Euros, Pounds Sterling, and UAE Dirhams. It is a policy of Group companies to hedge significant exposures in foreign currencies in most cases. As of 31 December 2007, the group did not have any significant exposures in foreign currencies.

Market risk By the nature of its activities, the Group is exposed to fluctuations in market prices for available for sale investments and held for trading investments.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 28

RISK MANAGEMENT (contd.)

Liquidity risk The group limits its liquidity risk by ensuring bank facilities are available. The table below summarises the maturities of the Company’s undiscounted financial liabilities at 31 December 2007, based on contractual payment dates and current market interest rates.

Less than 12 months RO ‘000

1 to 5 years RO ‘000

> 5 years RO ‘000

Total RO ‘000

39,082 779 20,264 146

3,797 69,970 101

22,603 -

42,879 779 112,837 247

60,271

73,868

22,603

156,742

Less than 12 months RO ‘000

1 to 5 years RO ‘000

> 5 years RO ‘000

Total RO ‘000

Accounts payables and accruals Bank Overdraft Term Loans Finance leases

25,416 2,629 17,628 139

5,536 49,996 247

24,158 -

30,952 2,629 91,782 386

Total

45,812

55,779

24,158

125,749

At 31 December 2007 Accounts payables and accruals Bank Overdraft Term Loan Finance leases Total

At 31 December 2006

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. 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 cash-generating 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 2007 was RO 34,141,000 (2006 : 34,085,000). More details are given in Note 4. 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.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 30

KEY SOURCES OF ESTIMATION UNCERTAINTY (contd.) At the balance sheet date, gross trade accounts receivable were RO 50,110,000 ( 2006: 39,993,000) and the provision for doubtful debts was RO 4,666,000 (2006: 3,582,000). 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 13,797,000 (2006: 8,742,000) with provisions for old and obsolete inventories of RO 712,000 (2006: 661,000). 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 2007

2007 RO’000

2006 RO’000

Revenue

25,487

22,433

Operating expenses

(18,204)

(14,729)

Gross profit

7,283

7,704

Other income

7,991

1,841

Administrative expenses

(2,543)

(2,822)

Net finance costs

(1,323)

(348)

104

(13)

11,512

6,362

Income tax expenses

(1,086)

(706)

Net profit for the year

10,426

5,656

Basic and diluted earnings per share (RO)

0.046

0.025

Proposed dividend per share (RO)

0.025

Net profit/( loss) on investments Profit before income tax

SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS BALANCE SHEET (PARENT COMPANY) AS AT 31 DECEMBER 2007

2007 ROâ&#x20AC;&#x2122;000

2006 ROâ&#x20AC;&#x2122;000

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

24,392 77,501 3,128

22,859 64,798 4,090

Total non-current assets

105,021

91,747

959 18,175 1,253

3 867 11,722 507

20,387

13,099

Current liabilities Trade and other payables Term loans

11,481 5,739

9,254 6,014

Total current liabilities

17,220

15,268

3,167

(2,169)

Non-current liabilities Term loans Staff terminal benefits

20,571 438

9,429 355

Total non-current liabilities

21,009

9,784

Net assets

87,179

79,794

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

20,273 28,052 6,757 5,068 19,644

Total capital and reserves

87,179

79,794

Net assets per share (RO)

0.391

0.394

Current assets Trading investments Inventories Trade and other receivables Cash and bank balances Total current assets

Net current 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 DECEMEBR 2007

2007 RO’000

2006 RO’000

Cash receipts from customers

25,175

23,551

Cash paid to suppliers and employees

(17,155)

(15,997)

Cash generated from operations

8,560

7,554

Net finance costs

(1,323)

(348)

Income tax paid

(378)

(603)

6,859

6,603

(5,307)

(9,944)

(12,703)

(10,231)

107

7,849

1,629

(10,038)

(18,545)

Net receipt of term loans

10,867

3,201

Net (payments to) receipts from related parties

(3,901)

7,319

Cash dividends paid

(3,041)

(5,068)

Cash flows from financing activities

3,925

5,452

Net increase (decrease) in cash and cash equivalents

746

(6,490)

Cash and cash equivalents at the beginning of the year

507

6,997

1,253

507

OPERATING ACTIVITIES

Cash flows from operating activities

INVESTING ACTIVITIES Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Movements in investments Proceeds from sale of investments Dividend received

Cash (used in) from investing activities

FINANCING ACTIVITIES

Cash and cash equivalents at the end of the year

SCHEDULE TO THE CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY (PARENT COMPANY) FOR THE YEAR

Share capital RO’000

Share premium RO’000

Legal reserve RO’000

20,273

33,761

3,075

Dividend paid and bonus shares issued

Proposed dividend

Proposed bonus shares

(2,027)

Net profit for the year

Transfer to legal reserve

(3,682)

3,682

20,273

28,052

6,757

2,027

Proposed dividend

Proposed bonus shares

(2,230)

Net profit for the year

Transfer to legal reserve

(676)

676

Balance at 1 January 2006

Balance at 31 December 2006 Dividend paid and bonus shares issued

Balance at 31 December 2007

22,300

25,146

7,433

ENDED 31 DECEMBER 2007

Proposed distribution RO’000

Retained earnings RO’000

Total RO’000

5,068

17,029

79,206

(5,068)

3,041

(3,041)

2,027

5,656

5,068

19,644

79,794

(5,068)

(3,041)

3,345

(3,345)

2,230

10,426

5,575

26,725

87,179