Shaft Sinkers : Half Year Results

Shaft Sinkers Holdings Plc

29 August 2014

Shaft Sinkers Holdings plc

("Shaft Sinkers"; "the Group" or "the Company")

Half year results

Shaft Sinkers Holdings plc (LSE:SHFT), the international shaft sinking and underground construction group, today announces its unaudited half year results for the six months ended 30 June 2014 ("the Period").

Financial highlights

Six months to 30 June (£ million unless otherwise stated)	2014	2013
Revenue	41.3	88.4
EBITDA	(5.1)	4.7
(Loss) / Profit before tax	(8.6)	2.0
Gross Margin	3.8%	12.7%
(Loss) / Earnings per share	(13.6)p	3.0p
	30 June 2014	31 December 2013
Net debt	3.6	1.6
Total assets	93.2	101.2

Operational highlights

·    Revenues decreased by 53% principally due to terminating contracts in South Africa, adverse exchange rate movements, safety stoppages following notices from the Department of Mineral Resources, strike action and poor performance at some South African sites

·    GBP3.5 million loan agreement with Hillside and proposed GBP 9.2 million convertible loan note issueannounced after the Period end

·    Signing of GBP37 million contract for Kazchrome Donskoi 1,453m shaft project

·    Award of additional contract extensions with an estimated total value of GBP10.7 million

·    Order book of GBP191.0 million, not including the Kazchrome contract awarded after the Period end (31 December 2013: GBP238.2 million)

·    Pipeline of tenders estimated at over GBP801 million (31 December 2013: GBP970 million)

·    EuroChem arbitration progressing with key hearings held and GBP5.4 million of legal fees incurred during the Period

 Commenting on the results Alon Davidov, CEO of Shaft Sinkers Holdings plc, said:

"Shaft Sinker's business was severely impacted by a number of factors during a challenging first half of the year. A combination of legal fees incurred in relation to the EuroChem arbitration, a 5 month strike impacting our Lonmin and Impala 16 operations as well as underperformance on certain South African contracts severely impacted the Company's revenues and cash position. In order to address its short to medium term funding requirements the Company initiated a process to raise additional funds in June 2014. This culminated in the recently announced GBP3.5 million loan agreement with Hillside. The Hillside transaction has ameliorated the Company's immediate cash problems and provides us with the flexibility to secure a more comprehensive funding package by the end of November 2014."

"The signing, in August 2014, of a contract to sink a vertical shaft for Kazchrome with an approximate value of GBP37 million represents an important milestone for the Company. The contract not only illustrates our continued ability to win business but also helps us to deliver on our strategic objectives of entering the CIS market and, importantly, expanding our international business. In addition, the Company hassecured two contract extensions in South Africa, year to date, worth GBP10.7 million illustrating the continued strength of our competitive position in the country. These contract extensions underline our confidence in the Company's long-term prospects."

"Our key objectives for the remainder of the year are twofold. First, we intend to complete the proposed convertible loan issue in order to put the company back on a sound financial footing and secure its long-term future. Second, we are working hard to ensure an improved operational performance in each segment of our business."

Enquiries

Shaft Sinkers Holdings plc Alon Davidov, Chief Executive Officer Chris Hall, Chief Financial Officer	[phone] [phone]
Aura Financial Michael Oke Andy Mills	[phone]

Chief Executive Officer's statement

Overview

Shaft Sinker's business was severely impacted by a number of factors during a challenging first half of the year. A combination of legal fees incurred in relation to the EuroChem arbitration, a 5 month strike impacting our Lonmin and Impala 16 operations as well as underperformance on certain South African contracts severely impacted the Company's revenues and cash position. In order to address its short to medium term funding requirements the Company initiated a process to raise additional funds in June 2014. This culminated in the recently announced GBP3.5 million loan agreement with Hillside International Holdings Limited ("Hillside"). The Hillside transaction has ameliorated the Company's immediate cash problems and provides us with the flexibility to secure a more comprehensive funding package by the end of November 2014.

The Group recorded a loss of GBP6.4 million in H1 2014 (H1 2013 a profit of GBP1.4 million). Revenues declined by 53.3% due largely to a 51% decline in revenues at our South Africa operations on a constant currency basis.

The decline in the Company's South African revenues was, in ZAR terms, due principally to the previously announced termination of a number of contracts in 2013, notably at Impala 16, Impala 17 Fridge shaft, Moab and Hernic Ferrochrome (33%), the impact of the strike action (10%), safety related stoppages (4%) and poor performance at Styldrift (4%). While we managed to reduce overheads significantly in South Africa to reflect the declining revenues, these savings were partly offset by adverse currency movements which also impacted total revenues by 9%.

Following the conclusion of the strike in late June, imminent changes to the terms of a number of contracts and the award of recent contract extensions, revenues in South Africa should stabilise in the second half of the year.

The signing, in August 2014, of a contract to sink a vertical shaft for TNK Kazchrome JSC ("Kazchrome") with an approximate value of GBP37 million represents an important milestone for the Company. The contract not only illustrates our continued ability to win business but also helps us to deliver on our strategic objectives of entering the CIS market and, importantly, expanding our international business. In addition, the Company hassecured two contract extensions in South Africa, year to date, worth GBP10.7 million illustrating the continued strength of our competitive position in the country. These contract extensions underline our confidence in the Company's long-term prospects.

South Africa

As previously announced, the Company's Impala 17 contract, which has long been loss making, was converted to a cost reimbursable contract in April 2014 for a limited term until September 2014 (since extended until October 2014). The contract is being retendered by Impala and the Company is participating with the aim of securing the revised contract on more favourable terms. During Q1, performance at Impala 17 was impacted by Section 54 safety stoppages which reduced South African revenues by about 4%.

Although Styldrift made progress during the Period, with sinking completed in the main and service shafts, this was offset by operational issues and the restrictions of our tight cash flow. Due to this underperformance, as well as rates not covering actual costs incurred, the project recorded significant losses for the Period. The effect of these issues reduced South African revenues by 4%. Recognising our difficult cash situation, Royal Bafokeng Platinum, who own the Styldrift project, have been proactive in assisting Shaft Sinkers through this difficult period. The client chose to purchase some of the project assets as well as to manage key suppliers. Most significantly discussions with Royal Bafokeng Platinum are at an advanced stage with regard to the conversion of the balance of the contract to a cost reimbursable contract.

The conversion of both the Impala 17 and Styldrift contracts to cost reimbursable contracts should lead to a more stable financial performance from our projects in South Africa. Industrial action in South Africa's platinum sector severely impacted our operations during the Period, resulting in about a 10% reduction in South African revenues compared to the same period of last year. However, following the conclusion of the strike just before the end of the Period our employees at affected sites have returned to work. Operations are now ramping up well and approaching steady state levels. .

The Company's project for Afplats continued to perform well and is now ahead of schedule.

International

At our international operations, our teams continued to deliver an excellent performance at Kibali Goldmines, with sinking progressing in line with or above our expectations.

Operations at Hindustan Zinc also delivered an improved performance, however, the project remains significantly behind schedule and work has been impacted by a number of factors. As a result, the financial performance was below management's expectations for the Period.

Overall revenues at our international operations in the first half were in line with the first half of 2013 at GBP20.7 million. However, we expect international revenues to increase in the remainder of the year following the signing of the Kazchrome contract after the end of the Period.

EuroChem Arbitration

As previously indicated, arbitral hearings relating to the EuroChem proceedings took place in June and July 2014. Whilst we cannot predict the outcome of the hearings at this stage, we remain confident in our case and continue to expect the proceedings to conclude in early 2015. The conclusion of the Swiss arbitral hearings, however, should result in a decrease in legal fees in future. Legal fees associated with the case amounted to GBP5.4 million during the period. 

Financing

As announced in July 2014, the cumulative impact of the factors set out above severely impacted the Company's financial position resulting in a need to secure short term financing in order to satisfy near-term liquidity requirements. The Company has now entered into a loan agreement with Hillside pursuant to which Hillside has made available to the Company a non-interest bearing loan facility of GBP3.5 million (the "Hillside Loan"). This loan aims to provide the Company with additional working capital to secure a funding package appropriate to its longer term financing requirements. The board has commenced preparations to raise up to GBP9.2 million by way of a proposed issue of convertible loan notes (the "Convertible Loan Notes"). It is intended that part of the proceeds of the Convertible Loan Notes will be used to repay the Hillside Loan and that Hillside will, accordingly, subscribe GBP3.5 million for Convertible Loan Notes. The proposals relating to the Hillside Loan and Convertible Loan Notes are subject to regulatory and shareholder approvals.

A number of Board changes have resulted from the loan agreement with Hillside and I would like to thank outgoing board members Stephen Oke and Roger Williams for their significant contributions to the Company since 2010. I would also like to welcome Marius Heyns, Robin Haller and Alexander Haller to the Board. I look forward to working with them as we develop plans to secure the Company's future.

For further details please see the announcement dated 22 August 2014.

Safety

Our health and safety performance remains a key focus. It is with regret that we report that, after the period end, one of the Company's employees, Mr Atafo Manabe Claude, was fatally injured at the Kibali Goldmines in the Democratic Republic of Congo following an accident during construction of the vertical shaft. This tragic incident is currently under investigation. Shaft Sinkers expresses its deepest condolences to those affected by the accident. Our LTIFR during the Period was 3.81 against target levels of 3.5, although there has been a considerably improvement compared to the same period of 4.29 in 2013. A number of initiatives are under way to address this underperformance and we have recorded some excellent safety scores at some operations, notably on 12 August 2014, our company achieved the significant milestone of 3 Million Fatality Free Shifts.

Outlook

Our key objectives for the remainder of the year are twofold. First, we intend to complete the proposed convertible loan issue in order to put the company back on a sound financial footing and secure its long-term future. Second, we are working hard to ensure an improved operational performance in each segment of our business.

Despite the Company's difficult financial position we continue to win new business, such as the Kazchrome contract, and also to secure contract extensions. Our order book stands at GBP191 million for 30 June 2014 with a pipeline of GBP802 million of outstanding tenders. The Company is endeavouring to secure new major international projects which will significantly boost its medium to long term outlook.

The position in South Africa, which remains an important market despite our international expansion, is improving following the conclusion of the labour dispute. Our clients have been sympathetic of the difficulties faced by the Company and their support has been welcome. Our operations post the strike are ramping up well and we are confident that revenues will improve in H2 2014. There are several new tenders in South Africa which the company is working on.

We see our expansion into Kazakhstan with the Kazchrome project as a significant step in implementing our strategy to grow in the CIS region.

The outlook for the remainder of 2014 is for an improvement on the first half of the year and we continue to strive to address the underlying problems which the business is facing whilst also raising new capital.

Financial review

Six months to 30 June (£ million)	2014	2013
Revenue	41.3	88.4
Direct expenses	(39.7)	(77.2)
Gross profit	1.6	11.2
	30 June 2014	31 December 2013
Cash on balance sheet	(0.7)	1.3
Net debt	3.6	1.6

Analysis of results

Revenues for the first half of 2014 were GBP 41.3 million, a 53.3% decrease in relation to same period in 2013. The decline in revenues was largely the result of several contracts coming to an end in South Africa, the weaker South African Rand exchange rate, the impact of the strike action in South Africa, work stoppages at our Impala 17 contract and poor financial performance at our Styldrift project.  The depreciation of the ZAR against the GBP led to a reduction of revenues of 8.7%.  .

Gross profits of GBP1.6 million were achieved in H1 2014, an 86.1% decrease compared to the first half of 2013. This was largely due to gross losses at our South African operations as a whole offset by positive margins at our international operations with the Kibali Goldmine and Hindustan Zinc Limited contracts each contributing positively to the overall gross profit.

Earnings before interest, tax and depreciation decreased 208.5% to a loss of GBP5.1 million (2013: Profit of GBP4.7 million).

In the first half of 2014 the Group achieved a loss before tax of GBP8.6 million, a 530% decrease on the profit before tax of the corresponding period last year.

Total finance expenses incurred by the Group amounted to GBP 0.5 million a 47.3% increase compared to H1 2013. 

The Group's total income tax relief in H1 2014 was GBP2.2 million versus an expense of GBP0.6 million in H1 2013. The credit for income taxes in the Period was mainly due to taxable losses incurred in South Africa with higher non-deductible expenses offset by taxes accrued for the profits generated in India and the DRC. The effective tax rate was 25.3% compared to 30.2% in 2013.

Basic loss per share was calculated at 13.6p (H1 2013: earning per share of 3.0p).

Cash flow

At 30 June 2014, the Group had gross positive cash of GBP3.5 million and an overdraft of GBP4.3 million, compared to gross positive cash of GBP4.2 million and an overdraft of GBP2.9 million at 31 December 2013. Net bank cash balances were therefore a negative cash position of GBP0.8 million at 30 June 2014 compared to a positive cash position of GBP1.3 million at 31 December 2013. The main reason for the change in cash position is the higher taxes paid in India compared to the previous year.

The level of unpaid variation orders at 30 June 2014 reduced to GBP3.9 million compared to GBP5.5 million at 31 December 2013. This had a welcome positive impact on cash generation during the Period.

Net debt (defined as interest bearing debt less bank cash balances) increased to GBP3.6 million (GBP1.6 million at 31 December 2013). The Group continues to discuss with its bankers the possibility of extending the term for repayment of the final bullet instalment of GBP2.9 million on its term debt due at the end of December 2014.

Financial position

The Group had net equity of GBP29.2 million compared to GBP36.8 million at 31 December 2013. Total assets amounted to GBP93.2 million compared to GBP101.2 million at 31 December 2013.

Current assets compared to current liabilities (excluding the deferred recognition of revenue) yielded a ratio of 0.8 to 1 compared to 1.0 to 1 at the 31 December 2013. Interest bearing liabilities compared to net equities yielded a gearing ratio of 9.8% compared to 7.9% at 31 December 2013.

Dividend policy

As a result of the Group's continued operational and financial challenges, which have caused Shaft Sinkers' cash position to remain constrained during the first half of 2014, the Board is recommending that the interim dividend for 2014 is withheld.

The Board continues to believe in the Group's long term growth prospects and the Board intends to resume its progressive dividend policy as soon as financially prudent.

Operational review

Health & Safety

The Group achieved a LTIFR of 3.81 for the Period compared to 4.29 in the same period of 2013 and 4.29 for the whole of 2013. Although this is an improvement, it is still below our target rate of 3.5. In particular, performance at Impala 17 was unsatisfactory with a number of safety related incidents occurring in the main and ventilation shaft during the Period.

The most common cause of accidents at our operations in the Period was employees not following standard operating procedures. Shaft Sinkers therefore continues to focus on improving behaviour amongst its staff through leadership campaigns, employee engagement and training programmes. These campaigns are implemented across the Group and on a project specific basis where required. A number of corrective and/or preventative actions are also being implemented following a rigorous basic cause analysis investigation and, where necessary, disciplinary action has taken place.

South Africa

Lonmin

Strike action by the Association of Mineworkers and Construction Union ("AMCU") meant Shaft Sinkers was prevented from working on its projects for Lonmin during a large part of the strike period. However, under specific commercial arrangements, Shaft Sinkers employees undertook certain critical works for Lonmin during the latter part of the strike.  The aim of these works was to ensure a more rapid ramp up once the strike concluded and ensure the continued safety and integrity of the operations whilst also giving Shaft Sinkers' employees the opportunity to work during the protracted strike action.

Shaft Sinkers' crews were mobilised by Lonmin shortly after the conclusion of the strike and work underground has recommenced following the completion of mandatory training programmes. Efficiency and productivity levels are improving incrementally in line with management's expectations and we expect to reach normal operating levels by Q4.

Impala

Work at Impala 16 was suspended for most of the Period due to the strike action by AMCU. Following the conclusion of industrial action in June, Shaft Sinkers received notification to mobilise on the 25th of June. Following a period of mandatory training for all employees and the implementation of a strict start up plan monitored by the Department of Mineral Resources, all workers returned underground in July.  Ramp up at Impala 16 is proceeding well and work rates are now approaching normal steady state levels with almost all employees back at work following mandatory training programmes.

In February 2014 Impala declared force majeure at Impala 16 because of the strike action by its work force. Discussions to resolve the situation amicably remain ongoing and Shaft Sinkers continues to believe that certain costs can be recovered from the client in terms of the contract.

Performance at Impala 17 continued to be disappointing during the Period with performance below contractual levels. Management is focusing resources to stabilise the project performance. Despite this, financial performance at Impala 17 has improved with the contract's risk profile also reduced. The revised contract, which was originally intended to run until mid-September 2014, has been extended by a month.

Impala 17 construction achieved 500 lost time injury free days on 30 May 2014.

Afplats

Work at the Leeuwkop project proceeded well during the Period and the project is currently ahead of schedule with the Main Shaft now more than 1,000m deep.

Afplats awarded the Group a contract extension in July, after the Period end, for the continuation of sinking activities on the Main Shaft to 1,307 metres as well as for certain underground construction work. This new contract is now expected to run until the middle of 2015 by which time the Main Shaft will be at a depth of more than 1,300 metres.

Leeuwkop also delivered an excellent safety performance having achieved more than 378 days without a lost time injury.

Royal Bafokeng/Anglo Platinum

Styldrift reached a number of important operational milestones during the year with sinking completed in both the Main and Services shafts. In addition, the conveyor rock loading system on 708 level was completed during the Period. Work is now focussing on equipping the Main shaft and the first phase of the headgear change over to the permanent configuration.

Despite the progress made, work at Styldrift during the Period was impacted by hoisting constraints whilst the Main shaft was being equipped. Consequently all hoisting of rock and the handling of men and material had to be carried out via the Services shaft.  In order to improve operating efficiency, work is underway to debottleneck the Services shaft hoisting capacity by prioritising blasting operations and the implementation of a strict shaft schedule. Other initiatives underway are the partial outsourcing of construction work, selective recruitment of specialist staff and very detailed planning and monitoring of operations. Discussions with the client to convert the contract into a cost reimbursement style of contract are ongoing.

The Styldrift Development operations achieved 260 lost time injury free days on 25 May 2014. Despite an incident on 25 July in which seven employees received minor injuries following an accident in the services shaft, Styldrift has been fatality-free for over three years and no serious injuries were recorded during the Period.

International

Hindustan Zinc Limited (HZL)

Operations at HZL continued to improve during the Period when compared to 2013 with the Main, North Vent and South Vent shafts reaching 432m, 392m and 11m respectively.

Despite improved progress, the project remains significantly behind schedule and work has been impacted by a number of logistical factors.

Health and safety performance at HZL was also below expectations due to the challenge of the local work force lacking vertical shaft sinking experience and their ability to react to the inherent risks associated with vertical shaft sinking operations. The Main and North Ventilation shafts reached 100 and 200 lost time injury free days respectively during the Period.

Randgold/Kibali

Work at Kibali Goldmines in the Democratic Republic of Congo continued to progress well with the Main Shaft reaching a depth of 500 metres in May as a result of sinking proceeding at a rate on average of at least 3 metres per day for more than 90 continuous days.

Sinking of the main shaft continued until the beginning of June when work on the development of the level commenced thereafter.

Mining Engineering and Technical Services (METS) division

METS performed slightly below expectations in the Period due to the reduction in work load and the lack of new contract awards.

Order Book and Tendering Activity

The order book represents outstanding revenues for contractually committed projects, excluding any escalation which is typically built into the contracts. At 30 June 2014, the order book amounted to GBP191.0 million compared to GBP238.2 million at 31 December 2013. Subsequent to the Period end, further contract awards added GBP47 million to the order book.

Commodities represented in the order book were:

COMMODITY	30 June 2014	31 December 2013
Platinum	19%	25%
Gold	57%	52%
Chrome	0	0
Zinc	24%	23%

The committed remaining order book by year was:

YEAR	30 June 2014	31 December 2013
	£ million	£ million
2014	44.0	106.6
2015	57.5	46.4
2016	34.0	35.2
2017	36.9	38.2
2018	18.6	11.8
	191.0	238.2

Principal risks and uncertainties

The Group faces many risks in the operation of its business. Some risks are summarised below but shareholders should refer to the 2013 Annual Report and Accounts which is available from the Company's website, www.shaftsinkersgroup.com for a full discussion on the principal risks and uncertainties facing the Group. 

Risk	Mitigating Actions
Liquidity Risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient cash flow and marketable securities to meet its obligations when they fall due, under both normal and stressed conditions, without incurring unacceptable losses or risk damage to the Group's reputation.	The Group ensures that it has sufficient cash on hand to meet unexpected operational expenses, including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot be reasonably predicted, such as natural disasters. In addition, the Group maintains overdraft facilities with its bankers to cover periods where high volumes of the operational liabilities are expected to occur. The Board and management conduct regular and intensified planning sessions to ensure the cash resources available to the Group are managed in the most efficient manner, especially in times of tight cash flow constraints when liquidity is limited. This includes exploring various initiatives to secure additional funds for the Group into near-term cash. After the Period end the Group announced that it had secured a short term loan facility with Hillside Investments Limited which resulted in a bridging loan of GBP3.5 million being provided to the Group. The Board has also commenced preparations to raise up to GBP9.2 million by way of a proposed issue of convertible loan notes (the "Convertible Loan Notes"). The proposals relating to the Hillside Loan and Convertible Loan Notes are subject to regulatory and shareholder approvals and the proposed terms are available from the Company's website.
Financial Risk The risk of inadequate funding or inappropriately managing the funding of the business is one of the primary risks that could affect the Group's ability to trade. Other significant financial risks include the safeguarding of assets, inappropriate tendering prices that could cause the Group to lose potential contracts or undertake contracts which are unprofitable, corrupt procurement practices resulting in excessive costs and mismanagement of expenditure.	For each of these risks the Group has implemented appropriate policies and procedures and executive management regularly reviews performance against set targets. Daily reviews of cash management with rolling forecasts for at least an 18-month forward-looking period and strong controls are implemented by the executive management. Stress tests are applied to these forecasts in order to properly ascertain the financial standing of the Group. Furthermore, the Board sets prudent policies for the hedging of currency and interest rate risks and the Audit and Risk Committee reviews these aspects on a quarterly basis. Insurance is taken to protect the Group against the risk of fraud or theft of funds.
Safety Risk Due to the nature of the Group's operations, safety is a significant issue for the Company. Failure to maintain high levels of safety can result in harm and serious injury to our employees and significantly impact our ability to carry out and grow our business.	A comprehensive set of safety procedures are in place and these are regularly reviewed and updated for any new risks which have been identified. In addition, the Group periodically introduces new safety campaigns to improve performance. A dedicated Safety, Health, Environment, Quality and Training department ('SHEQT') monitors safety performance and events on a daily basis. Each site has a dedicated safety officer responsible for managing safety matters, including monitoring the progress of action plans, reporting on safety incidents and ensuring the Group's policies are being adhered to. In this way the Group ensures accountability and responsibility for these matters remains with operational management teams. The Safety Committee of the Board endeavours to meet at least quarterly to review performance reports from the SHEQT department and reports to the Board with recommendations should they be required.
Legal and Regulatory Risks Changes in standards, laws and regulations in the countries where we operate may affect our business. We are aware that some of the jurisdictions in which the Group operates pose particular and often heightened reputational issues that need to be managed appropriately. We are conscious of the risk of failure to comply with anti-bribery, anti-corruption, anti-money laundering and/or sanctions laws and regulations which could lead to share price devaluation, financial penalties and criminal prosecutions. The Group is currently subject of legal action from EuroChem.	We adhere to the principle of self-regulation backed by appropriate policies and management review. The Group actively monitors regulatory and political developments on a continuous basis to ensure we are in compliance with all relevant regulations. We have developed a Group-wide anti-bribery and corruption policy which has been implemented throughout the Group through the necessary procedures, taking into account the requirements of the OECD Convention on Bribery of Foreign Public Officials in International Business Transactions, the US Foreign Corrupt Practices Act of 1977, as amended, the UK Bribery Act 2010 and the anti-bribery and corruption statutes of all jurisdictions to which the Company and its subsidiaries and affiliates are subject and any related rules and regulations. The rolling out of an enhanced compliance framework is in progress. The Group continues to robustly reject and defend against the EuroChem claim proceedings.
External/ Political Risk The Group is aware of the political, social and labour relations risks in some of the geographies in which it operates. The political, social or economic environment in any jurisdiction may change leading to the inability to realise the expected results from our projects.	Through its strategy of diversification both geographically and into other related areas of operation, the Board has sought to mitigate these risks to the extent possible. Political risks are mitigated through the contractual terms agreed and where appropriate, the involvement of Export Credit Agencies.
Operational Risks Operational performance can be influenced by technical and engineering factors as well as events or circumstances. Failure to meet project delivery timetables and budgets may delay cash inflows, increase capital costs, and reduce profitability. The risk of operating below best industry standards could also lead to lost contracts in the long run.	The Group's contracting models have been established to provide flexibility thus mitigating some of these risks. Management oversight, strong disciplines within the operations departments and a focus on attracting and retaining key skills are also key elements of the Group's strategy. Regular planning by executive management on securing the appropriate resources for current and future projects form part of the mitigating strategies which are reviewed at all levels of management and the Board.
Commodity Cycle/Global Economic Environment The Group's customers operate in markets which are closely linked to the global economic environment and the commodities cycle. As a result, demand for the Group's services can be impacted by changes in global economic performance.	The Group seeks to mitigate this risk by pursuing a strategy to increase geographic, commodity and end market diversity.

The directors are responsible for preparing the condensed consolidated interim financial statements in accordance with applicable law and regulations. In addition, the directors have elected to prepare the condensed consolidated interim financial statements in accordance with International Accounting Standard 34, Interim Financial Reporting, as approved by the EU.

The condensed consolidated interim financial statements are required to state of affairs of the Group and of the profit or loss of the Group for the period.

In preparing condensed consolidated interim financial statements, the directors are required to:

§ select suitable accounting policies and then apply them consistently;

§ make judgements and estimates that are reasonable and prudent;

§ state whether they have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as approved by the EU; and

§ prepare the condensed consolidated interim financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and to allow for the preparation of the condensed consolidated financial statements. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation governing the preparation and dissemination of financial statements may differ from one jurisdiction to another.

We confirm that to the best of our knowledge:

§ the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as approved by the EU; and

§ the interim management report includes a fair review of the information required by:

(a)   DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b)   DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Chief Executive Officer Alon Davidov 28 August 2014

Chief Financial Officer Christopher Hall 28 August 2014

for the six months ended 30 June 2014

		6 months to	6 months to	Year ended
		30 June 2014	30 June 2013	31 December 2013
		GBP	GBP	GBP
	Notes	(Unaudited)	(Reviewed)	(Audited)
Revenue		41,284,187	88,381,955	152,153,837
Direct expenses		(39,721,845)	(77,162,955)	(132,162,521)
Gross profit		1,562,342	11,219,000	19,991,316
Operating income		3,026,944	4,797,243	6,542,612
Operating expense		(7,313,854)	(12,777,332)	(18,736,127)
Legal fees		(5,399,096)	(870,013)	(3,890,393)
(Loss) / profit from operations	4	(8,123,664)	2,368,897	3,907,408
Finance income		27,640	289,012	317,134
Finance costs		(519,182)	(622,648)	(1,340,724)
(Loss) / profit before income tax		(8,615,206)	2,035,261	2,883,818
Income tax		2,180,333	(614,649)	(832,500)
(Loss) / profit for the period		(6,434,873)	1,420,612	2,051,318
Attributable to:
Owners of the Company		(6,458,743)	1,414,849	1,966,880
Non-controlling interests

The Directors consider all results derived from continuing operations.

The accompanying notes form an integral part of the condensed consolidated interim financial statements.

for the six months ended 30 June 2014

		6 months to	6 months to	Year ended
		30 June 2014	30 June 2013	31 December 2013
		GBP	GBP	GBP
		(Unaudited)	(Reviewed)	(Audited)
(Loss) / profit for the period		(6,434,873)	1,420,612	2,051,318
Other comprehensive income:
Foreign currency translation differences for foreign operations		(1,216,392)	(3,053,543)	(7,454,173)
Other comprehensive loss for the period		(1,216,392)	(3,053,543)	(7,454,173)
Total comprehensive loss for the period		(7,651,265)	(1,632,931)	(5,402,855)
Attributable to:
Owners of the Company		(7,667,490)	(1,623,552)	(5,457,862)
Non-controlling interests		16,225	(9,379)	55,007
		(7,651,265)	(1,632,931)	(5,402,855)

The accompanying notes to the condensed consolidated interim financial statements form an integral part of the condensed consolidated interim financial statements.

at 30 June 2014

	Notes	30 June 2014	31 December 2013	30 June 2013
		GBP	GBP	GBP
		(Unaudited)	(Audited)	(Reviewed)
Assets
Non-current assets		52,838,594	57,550,022	52,390,852
Property, plant and equipment	6	37,970,476	42,792,122	36,122,593
Goodwill	7	1,513,021	1,576,045	1,816,050
Other intangible assets	8	2,036,292	2,015,462	1,962,281
Other unlisted investments		588	613	707
Loan to related party		-	-	57,713
Claim receivable	12	8,329,186	9,174,901	8,632,221
Deferred taxation		2,790,243	1,510,147	3,120,140
Finance lease receivables		198,788	480,732	679,147
Current assets		40,393,443	43,657,826	73,243,724
Inventories		4,168,254	4,583,729	4,378,290
Trade and other receivables		29,894,986	33,266,898	47,615,636
Finance lease receivables		287,818	299,807	262,909
Loan receivable		-	11,178	-
Income taxation		1,674,203	512,373	558,685
Cash and cash equivalents - unrestricted		1,784,570	2,414,911	7,691,944
Cash and cash equivalents - restricted		1,761,845	1,819,505	1,972,646
Assets held for sale	9	821,767	749,425	10,763,614
Total assets		93,232,037	101,207,848	125,634,576
Equity and liabilities
Equity		29,150,777	36,802,042	40,728,868
Ordinary share capital		56,563,799	56,563,799	56,563,799
Retained earnings		32,357,009	38,815,752	38,263,721
Foreign currency translation reserve		(11,037,926)	(9,829,179)	(5,442,838)
Common control reserve		(48,965,631)	(48,965,631)	(48,965,631)
Share based payment reserve		-	-	156,902
Equity attributable to owners of the Company		28,917,251	36,584,741	40,575,953
Non-controlling interest		233,526	217,301	152,915
Non-current liabilities		9,137,393	16,161,087	26,875,217
Deferred taxation		155,858	2,237,492	4,224,568
Deferred revenue		335,976	4,446,604	5,950,472
Interest bearing borrowings	10	-	-	3,331,801
Interest free advances from clients		8,269,489	9,074,212	12,681,173
Sub-contractor liabilities		-	-	222,515
Loan from a related party		153,611	155,120	166,381
Post retirement benefit obligations		222,459	247,659	298,307
Current liabilities		54,943,867	48,244,719	58,030,491
Trade and other payables		34,439,366	33,694,070	32,899,562
Deferred revenue		6,450,821	3,577,257	12,131,516
Income taxation		693,590	1,860,446	1,853,715
Interest bearing borrowings	10	2,862,185	2,891,477	5,149,204
Interest free advances from clients		6,238,230	3,278,679	2,668,752
Bank overdraft		4,259,675	2,942,790	3,327,742
Total equity and liabilities		93,232,037	101,207,848	125,634,576

The accompanying notes to the condensed consolidated interim financial statements form an integral part of the condensed consolidated interim financial statements.