Atlas Development & Support Services : Interim Results

Atlas Development & Support Services Limited / Ticker: ADSS / Index: AIM / Sector: Support Services

28 April 2015

Atlas Development & Support Services Limited

("Atlas" or the "Company")

Interim Results

Atlas Development (AIM:ADSS), the AIM listed turnkey support services company focussed in Africa, announces its interim results for the six months ended 31 December 2014.

Overview:

§ Solid foundation established to build a leading African based multi-sectorial support services company

§ First phase of 'buy-and-build' strategy completed

§ First acquisition successfully integrated and the aggregated underlying results of Ardan Logistics Kenya and Ardan Risk & Support Services (excluding Atlas) demonstrating increased revenue to US$40m from US$23m in 2013 and profit after tax of US$4.8m for 2014 compared to a loss of US$3.7m in 2013

§ Excellent market opportunity to support targeted roll-out strategy, particularly in the rapidly growing East African region

§ Actively expanding sector and geographic reach, now operating in six countries in East and North Africa

§ Head quartered in Nairobi, Kenya, and listed on the Nairobi Securities Exchange - strengthened in-country presence to support regional growth

§ Multiple new acquisition targets identified and advanced discussions underway

§ Strengthened team to continue to drive active development strategy

§ Strong balance sheet with US$12.8m cash at 31 December 2014

Carl Esprey, Chief Executive Officer of Atlas, said: "We have built a revenue generative and profitable business with multi-sectorial coverage across six high priority countries in Africa; each with significant potential for organic growth. Following the successful acquisition of the Ardan business, the first of component of our 'buy-and-build' strategy, we have transformed the financial performance of the business.

"We are now poised to take advantage of new large-scale contracts to provide complementary offerings across new industry sectors and additional geographies. We currently have a number of tenders out; which have the potential of transforming our long term visible revenues."

Chairman's Statement

Atlas is building a leading pan-African support services and development company, with a strategy centred upon creating a scalable, margin focussed business covering multiple sectors and geographies across the continent. Since listing in London in June 2013, we have established a platform from which to grow the business, principally in East Africa, both through organic business development and through corporate acquisitions.

East Africa presents significant opportunities for a professional and scalable support services business like Atlas, because the region is in the process of undergoing rapid development, with numerous large scale infrastructure, mining, oil & gas, geothermal, power and other substantial development projects being executed.

A new management team was put in place early last year to take advantage of these opportunities and to enable the Company to complete the first stage of its "buy-and-build" strategy; the exercise of the option to acquire Ardan Logistics Kenya, ("ALK"), the new entity from which the restructured business of Ardan Risk & Support Services ("Ardan") is to be operated (as contemplated by the framework and option agreement dated 28 March 2014). Overseen by the Company, Ardan (the Group's 49% equity accounted associate) , an oilfields and logistics business with operations in Kenya and Ethiopia required and undertook considerable restructuring, which when completed, resulted in strong growth and a return to profitability, primarily through providing high-quality services to a suite of international blue chip oil and gas companies conducting exploration activities in the Turkana basin of Northern Kenya and mining companies in Northern Ethiopia. The Group has benefited both through an uplift in the carrying value of its interest in Ardan but also through the commencement of trading of ALK in the 6 months to 31 December 2014.

With demonstrable profitability and a new structure in place, we have since been able to expand our service offering both geographically and by sector. We have:

§ rebranded the Group's operations "Atlas Development & Support Services" to reflect the wider range of sectors we service

§ located our headquarters in new offices in the primary business area of Nairobi, within easy reach of all major clients and potential clients

§ established regional representation in the Turkana region of Kenya, as well as Ethiopia and Djibouti

This expansion was achieved by utilising our strong balance sheet, having raised in the region of £20m since incorporation; a portion of which was raised when we successfully completed the cross listing of the Company's share capital on the Nairobi Securities Exchange's GEMS market. Kenyanisation was viewed as a crucial step in our evolution and, with our significant local shareholder base we are now recognised as a truly African business, the importance of which cannot be understated and which distinguishes us from competitors operating on the continent.

The successful restructuring of the business and management team of Ardan/ALK has been reflected in positive financial performance. Aggregated revenue generated by Ardan and ALK in Kenya and Ethiopia for the full year in 2014 was US$40m, compared to US$23m in 2013. For these businesses (excluding Atlas), aggregated profit after tax was US$4.8m for 2014, compared to a loss of US$3.7m in 2013. The operations of Ardan have been equity accounted for, during the period, as associated undertakings in accordance with IFRS. To provide an overall picture of performance, aggregated results of Ardan and ALK have been described above. Copies of the underlying audited accounts for each of Ardan and ALK for the year ended 31 December 2014 are available from the Company's website (www.atlassupport.com).

Importantly, during the six month period currently under review, the Company raised US$10m in London and US$4m in Kenya (after fees, costs and expenses), leaving us with a Group cash position of US$12.8m as at 31 December 2014 (US$14m including equity accounted associates). As announced, we have changed our year end to 31 December to align year end dates between the parent and its associates and subsidiaries.

Financial Review

During the 6 month interim period to 31 December 2014, the Company exercised the call option to acquire 100% of ALK, a separate and new shell company in Kenya from which the restructured business of Ardan is now operated. The transfer of business (including the novation of contracts and the transfer of net assets etc.) began in October 2014, and as such, from this date, revenue and associated expenses within this subsidiary are fully consolidated. During the period, revenue was US$3.1m with direct costs of US$2.1m resulting in gross profits of $1.0m. Operating costs for ALK were US$800k, with taxes payable within Kenya of US$69k.

As mentioned, the Company raised US$14m during the period after fees and commissions, plus fees associated with the readmission of the Company's share capital to AIM following the exercise of the call option to acquire ALK (from which the business of Ardan will be conducted going forward) which totalled US$1.6m, and which have been included in operating expenses of US$4.1m.

On 14 September 2014, share options and warrants were issued to the senior management, consultants and advisors. These have been valued at US$4.6m and the charge for the current period of $2.4m has been calculated using the standard valuation models (Black Scholes and Monte Carlo) and accounted for as per the applicable accounting standard.

During the period, GBP:USD exchange rates fell 10% resulting in exchange rate losses of US$532k which have been recorded in Finance Costs for the period.

Outlook

The Company's strategy continues to be to build, grow and develop a professional support services firm, both organically and through acquisition, in order to support multiple sectors in multiple jurisdictions across East Africa.

The exercise of the option over ALK gives the Company a platform from which to commence operations and implement its growth strategy; through this existing business the Company gained exposure to quality oil and gas exploration support. This starting position has now been successfully leveraged and has led to further contracts in this space including:

§ the award of our first support services contract in Mozambique with an international oil company

§ a contract win in Tanzania, to provide turn-key support services, including workforce accommodation, facilities management, medical infrastructure, and logistical support to an international drilling company operating in the Ruvuma Basin

§ an advance into North Africa though the award of a contract with an oil and gas company operating in Western Sahara.

Unfortunately, as shareholders will be aware, the outlook for oil and gas exploration has weakened compared to a year ago, with consequential effects on the support services required. A substantial fall in the oil price has resulted in a curtailment of expenditure by major operators and a resultant decrease in near term activity within oil and gas exploration. The focus on on-shore support is a benefit to us and we are still receiving steady work and continue to see interest for our services to support oil and gas exploration, although we have seen an increase in the length of time being taken for decisions to be made and contracts to be awarded while these circumstances prevail.

In any event, our business model has always been to grow a multi-sector support services and logistics business. To this end we have been actively building on our platform to achieve this objective and have gained significant traction in additional sectors where demand remains strong for a company such as ours. The outlook for geothermal, energy infrastructure, engineering, and facilities management - which provide stable long term visible revenue - has increased and with our enhanced profile as a local service provider (as a result of the Nairobi listing) we are hopeful of success in these areas in the future, particularly as the sales pipeline for sizeable projects in the geothermal and energy infrastructure sectors is now substantial.

Furthermore, we are not just relying on organic growth; the board have an aggressive "buy-and-build" strategy which we are pursuing. To this end, complementary acquisition targets have been identified and we are in advanced discussions with a number of possible targets. All of the targets in question would provide us with sectorial and geographic diversification, additional visible revenue and would help build critical mass.

Finally I'd like to thank our shareholders for their support. We have a highly scalable business model and a huge opportunity to grow an African based support services company. We are focussed on margins and have a strong balance sheet to deliver our strategy and generate increased shareholder value.

Ian H. Mann

Non-Executive Chairman

28 April 2015

For further information please visit www.atlassupport.com or contact:

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Interim Income Statement

Consolidated Interim Statement of Comprehensive income

Consolidated Interim Statement of Financial Position

Consolidated Interim Statement of Changes in Equity

Consolidated Interim Cash Flow Statement

Notes to the Interim Financial Statements

1. General Information

Atlas Development & Support Services Limited is incorporated and domiciled in Guernsey. The nature of the Group's operations and its principal activities are set out in the Chairman's Statement.

The presentational currency of the Group is US Dollars as this reflects the Group's planned business activities in the logistics sector in sub-Saharan Africa and therefore the Group's financial position and financial performance.

The interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

2. BASIS OF PREPARATION

The results presented in this report are unaudited and they have been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards ('IFRS') as adopted by the EU that are expected to be applicable to the financial statements for the period ended 31 December 2015 and on the basis of the accounting policies to be used in those financial statements.

The interim financial information does not include all of the information required for full annual financial statements and accordingly, whilst the interim financial information has been prepared in accordance with the recognition and measurement principles of IFRS, it cannot be construed as being in full compliance with IFRS. The financial information contained in this announcement does not constitute statutory accounts as defined by the Companies (Guernsey) Law 2008.

The audited financial information for the year ended 30 June 2014 is based on the statutory accounts for the financial year ended 30 June 2014. The auditors reported on those accounts: their report was (i) unqualified, and (ii) did not contain statements where the auditor is required to report by exception.

Going concern

The board has prepared forecasts for the Group covering the period of 12 months from the date of approval of these interim financial statements.

The directors believe that, the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

These interim financial statements have been prepared in accordance with the IFRS principles applicable to a going concern, which contemplate the realisation of assets and liquidation of liabilities during the normal course of operations. Having carried out a going concern review in preparing these interim financial statements, the Directors have concluded that there is a reasonable basis to adopt the going concern principle.

Consolidation of Subsidiaries

Subsidiary undertakings are consolidated in accordance with IFRS 10 when the parent entity controls an investee and it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Investment in Associates

Associates are entities over which the group has significant influence but not control or joint control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting. Under this method the investment is initially recognised at cost and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition.

The group's share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

The group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount as part of its 'share of profit/ (loss) of associates in the income statement.

3. Critical Accounting Estimates Judgments

The preparation of the interim consolidated financial statements is in conformity with IFRS as adopted in the EU requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are discussed below.

Acquisition of Ardan Logistics Kenya

The board has considered whether the exercise of the option in respect of Ardan Logistics Kenya Limited on 22 October 2014 should be accounted for as a business combination under IFRS 3. They have concluded that, since the transaction comprised an acquisition of assets or group assets rather than a business, it was outside the scope of IFRS 3.

Given the existence of the unexercised option prior to 22 October 2014, the board have considered whether the existence of an option constituted control under IAS 27 (in respect of the year to 30 June 2014) or IFRS 10 (subsequent to 1 July 2014) gave rise to a need to consolidate the entity. Since the group has no voting rights prior to 22 October 2014, the board have concluded that it is appropriate to recognise Ardan Logistics Kenya Limited as a subsidiary with effect from 22 October 2014.

4. Loss for the period

Operating expenses include:

5. Loss per Share

The calculation of the basic and diluted loss per share is based on the following data:

Number of shares

6. Property, Plant and Equipment

7. Interest in Associate companies

Set out below are the associates of the group as at 31 December 2014, which, in the opinion of the directors, are material to the group. The associates listed have share capital consisting solely of ordinary shares, which are held directly by the group.

The above companies (together "ARSS") are private companies and there is no quoted market price available for the shares.

There are no contingent liabilities relating to the group's interest in the associates.

The Board identified the above named associate as an appropriate acquisition target and on 5 August 2013 the Company entered into an acquisition agreement pursuant to which the Company agreed to acquire a 49% interest in the associate for a consideration of US$4m, satisfied by the issue of new Ordinary Shares. In addition, the Company was granted a period of exclusivity with a view to entering into an agreement to acquire the remaining 51% interest in ARSS.

On 28 March 2014, the Company entered into a Framework and Option Agreement pursuant to which the associate, overseen by the Company, undertook a corporate and contractual restructuring programme to rationalise operational management, and implementation, planning and reporting. The Company was also granted a three year conditional call option to acquire 100% of ALK, a separate and new 'shell' company from which the restructured business would be operated.

On 26 September 2014 the Company exercised the call option granted to it pursuant to the framework and option agreement announced on 28 March 2014, to acquire the entire issued share capital of ALK. Following receipt of shareholder approval for the Acquisition granted at a general meeting held on 22 October 2014 the Company completed the acquisition of ALK.

Completion of the transfer of business (including the novation of contracts and the transfer of net assets etc) into ALK is targeted for completion during the first half of 2015, although certain contracts have transferred in the period to 31 December 2014.. Upon completion of the formalities of transfer, and the Company being satisfied that the entire economic value has been transferred into ALK, the Company's 49% interest in ARSS will be returned to the seller.

8. InVESTMENTS IN SUBSIDIARIES

Investments include

During the period the Company exercised the call option to acquire 100% of Ardan Logistics Kenya ("ALK"), a separate and new shell company in Kenya from which the restructured business of Ardan would be operated. This entity is a 100% subsidiary or Ardan Risk Holdings Limited.

The transfer of business from ARSS to ALK (including the novation of contracts and the transfer of net assets etc.) began in October 2014, and as such, from this date, revenue and associated expenses within this subsidiary have been consolidated and recognised during the period, namely revenue of US$3.1m with direct costs of US$2.1m resulting in gross profits of $1.0m. Operating Costs for ALK were US$800k, with taxes payable within Kenya of US$69k.

9. TRade and other receivables

All non-current receivables are due within five years from the end of the reporting period.

The effective interest rates on non-current receivables were 2.2%.

The directors consider that the carrying amount of trade and other receivables approximates their fair value.

There are no significant amounts past due.

10. CaSH AND CASH EQUIVALENTS

11. Financial Liabilities

Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The increase during the current period in payables relates to ALK which has now been consolidated.

The directors consider that the carrying amount of financial liabilities approximates their fair value.

12. Share Capital

The Company has one class of ordinary share which carries no right to fixed income.

On 15 August 2014, 77.8 million ordinary shares were issued for cash at a price of 9.0 pence per ordinary share.

On 23 October 2014, the Company issued 350,000 ordinary shares in part payment for services rendered by an advisor.

On 17 December 2014, the Company issued 39.1 million ordinary shares at a price of 8.13 pence per ordinary share.

During the period, 350,000 shares were issued to the Company's nominated advisor at a price of £0.10/shares in lieu of professional fees of £35,000.

13. Movement in Retained Earnings

14. Share-based payments

The Group operates a share plan relating to shares in the parent company known as the AOL Share Option Scheme 2013.

The Group recognised a total share based payment of $2,375,829 related to equity-settled share based payment transactions in the six month period to 31 December 2014, (June 2014: Nil).

The exercise price of the options granted under the share option scheme is determined at every grant date and set for each grant. There is generally no vesting period but in certain instances vesting periods of 6-30 months have been included. Options are forfeited if the employee leaves the Group before the options vest.

The following information relates to the share option scheme:

The fair values of the options were calculated using the Monte Carlo and Black Scholes models. In valuing the options, the following assumptions were used:

Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous three years. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

15. Controlling Party

The Directors believe that there is no ultimate controlling party.

16. Post Balance Sheet Events

i) On 27 February 2015, the Company announced a change in accounting reference date from 30 June to 31 December 2015.

17. Interim Segmental reporting

Segment information about these businesses is presented below: