Stock Code : 0689
A Hong Kong Listed Company (Stock Code : 0689)
(Incorporated in Bermuda with limited liability)
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Annual Report 2013
CORPORATE PROFILE
EPI is focused on the exploration and production of
oil and gas in the conventional upstream oil and gas
sector. While having a strong oil and gas exploration
and production operation in Argentina, the
Company is progressively expanding its portfolio
through strategic acquisitions in other upstream oil
and gas assets that have good upside potentials
around the world.
EPI is committed to becoming one of leading HK
listed companies in the oil and gas industry, in order
to create long-term, sustainable returns to maximize
our shareholders value.
FINANCIAL SUMMARY
2013
HK$’000
2012
HK$’000
Change
Revenue
Loss before income tax
Loss for the year attributable to the owners of the Company
89,853
(679,171)
(679,171)
86,682
(3,341,689)
(3,352,040)
4%
80%
80%
Losses per share
– Basic (HK$)
– Diluted (HK$)
FINANCIAL POSITIONS
Cash and cash equivalents
Total assets
Current liabilities
Non-current liabilities
Total equity
(0.19)
(0.19)
(1.26)
(1.26)
2013
HK$’000
2012
HK$’000
Change
48,029
676,343
103,390
354,767
218,186
2,680
1,136,707
187,251
275,854
673,602
1692%
40%
45%
29%
68%
CONTENTS
Corporate Profile
Financial Summary
Vision and Mission
Chairman’s Statement
Management Discussion and Analysis
Directors and Senior Management Profile
Corporate Governance Report
Report of the Directors
1
2
4
6
15
19
28
Independent Auditor’s Report
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
Five year Financial Summary
Corporate Information
36
38
39
41
43
44
45
103
104
EPI (Holdings) Limited Annual Report 2013
1
VISION AND MISSION
CORPORATE VISION
To transform EPI from a regional oil and gas
industry player into a leading, international oil
and gas company that competes and operates
successfully in the global oil and gas industry.
CORPORATE MISSION
At EPI, we strive to grow our business by
capturing good opportunities in the oil and gas
industry that are well aligned with our business
objectives, create new value for the Group,
and generate substantial capital growth for our
stakeholders.
CHAIRMAN’S STATEMENT
On behalf of the board (the “Board”) of directors (the “Directors”) of EPI (Holdings) Limited (the “Company”) and its
subsidiaries (collectively, the “Group”), I hereby present the annual results and the audited financial statements of the Group
for the year ended 31 December, 2013. The Group recorded a loss for the year of HK$679.2 million, against a loss for the
year of HK$3,352.0 million in year 2012.
During the year ended 31 December 2013, the economic and political environment in Argentina remained uncertain. Taking
into account of other potential acquisition opportunities identified by the Group, the Directors decided to further delay the
Group’s overall drilling plan in Argentina to later years, which in turn affect the future cash flow generated from the project
and led to the Group’s exploration and evaluation assets and oil and gas properties under property, plant and equipment a
further impairment.
As per the memorandum of understanding referred to in the Company’s announcement dated 28 November 2012, the
Board is pleased to announce that the Company entered into a confidential letter of intent with three independent third
parties (the “Possible Vendors”) on 10 January 2014, with respect to the proposed acquisition of the entire interest in
those private oil and gas properties in the U.S. and certain related assets held by the Possible Vendors through specific
corporate and partnership structures. The structure of the transaction is still under negotiations at the moment and may
entail the sale and purchase of equity ownership, or underlying oil and gas interests.
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EPI (Holdings) Limited Annual Report 2013
CHAIRMAN’S STATEMENT
This upstream oil and gas acquisition in US is a crucial milestone to EPI. We are confident to strive for a successful
acquisition, so as to broaden and stabilize our business operation structure, leading EPI to become an important player
within all HK listed companies in oil and gas sector.
The Board promises that the Group will be accountable to shareholders through which their interests will be protected, by
enhancing the communications with the capital market and strengthening our corporate governance, in order to deliver a
considerable capital growth and maximum profit returns to our shareholders.
Eric Ho
Non-Executive Chairman
28 March 2014
EPI (Holdings) Limited Annual Report 2013
5
MANAGEMENT DISCUSSION AND ANALYSIS
The Group’s core business is the petroleum exploration and production in the Puesto Pozo Cercado Concession and
Chañares Herrados Concession (together, the “Concessions”) in the Cuyana Basin, Mendoza Province of Argentina.
Pursuant to the operation agreement signed on 5 June 2012, Chañares agreed to release EP Energy S.A. (“EP Energy”)
from the commitment under the JV agreement signed on 12 January 2011.
Following the short-term development plan, the Group continued to focus on investment to improve production, and to
lower operation costs of the existing 10 producing wells. The Group has performed 3 workover jobs to the oil wells during
year 2013. The overall results are satisfactory with increase in initial production after workover better than expected. The
Group has completed the investment in our own water injection capacity in the field. Our owned well fluid collection tank
and pipeline have been put into use, and the Group is investing on its improvement, such as heating system.
As at 31 December 2013, the Group has finished drilling 10 oil wells in the Chañares Herrados Concession Area, Mendoza
oilfield project. All the 10 wells are in production, of which 5 oil wells were drilled by Have Result Investments Limited (“Have
Result”) where the Group is entitled to 51% interest on production, and 5 oil wells were drilled by EP Energy where the
Group is entitled to 72% interest on production.
The contingent oil resources in certain shallow reservoirs in the Mendoza Oilfield as at 31 December 2013 are as follows,
Contingent Oil Resource (unit: million barrels) *
31 Dec 2013
31 Dec 2012
Category Gross (100%)
Low Estimate (1C)
Best Estimate (2C)
High Estimate (3C)
82.3
140.6
239.2
83.5
146.9
245.5
*
According to the Technical Review Report issued by Roma Oil and Mining Associates Limited on 19 March 2014 on The Chañares Herrados and Puesto Pozo Cercado Oil
Project in Mendoza Province, Argentina.
During year 2013, the Group had received HK$13.3 million incentive from Petróleo Plus Program executed by the
government of Argentina. The incentive was received from and distributed by Chañares according to the distribution
methodology as agreed in the Operation Agreement signed on 5 June 2012 between EP Energy, Have Result and
Chañares.
The carrying amount of the exploration and evaluation assets (“E&E assets”) is reviewed for impairment indicators annually
and adjusted for impairment loss in accordance with HKAS 36 “Impairment of assets” (“HKAS 36”) and whenever there are
any “trigger” events or changes in circumstances indicating that the carrying amount may not be recoverable. During the
years ended 31 December 2009, 31 December 2010, 31 December 2011 and the six months period ended 30 June 2012,
there were no events or changes in circumstances indicating that the carrying amount of exploration and evaluation assets
might not be recoverable. Accordingly, no impairment needed to be provided for the E&E assets.
6
EPI (Holdings) Limited Annual Report 2013
MANAGEMENT DISCUSSION AND ANALYSIS
The Company has performed an impairment test on its E&E assets during the preparation of year 2012 annual result
and has applied a more prudent estimation on factors and assumptions in accessing the recoverable amounts on the
E&E assets by adopting discounted cash flow method. An impairment loss of HK$3,130,106,000 was recognised as
the carrying amount of the E&E assets exceeds its recoverable amount as at 31 December 2012. It is a non-cash item
adjustment and does not affect the current operations of oil field. With reference to the short term West Texas Intermediate
spot oil price forecast in Year 2014 Energy Outlook issued by U.S. Energy Information Administration (part of the U.S.
Department of Energy) that was reduced by 20% or more as compared with the Year 2013 Energy Outlook and the
economic and political environment in Argentina remained uncertain, the Group decided to further delay its development
plan on the Argentina oil project and performed an impairment test on its E&E assets as at 31 December 2013. The
Company has engaged Roma Oil and Mining Associate Limited (“Roma”) to perform a valuation of the E&E assets.
Details of impairment review are set out in the Group Financial Review section.
On 2 March 2014, EP Energy had been notified by the shareholders of Chañares that the shareholders of Chañares
received an irrevocable offer for the acquisition of the entire issued share capital of Chañares. Pursuant to the JV
Agreement, EP Energy has the right to compete on equal footing in the event that Chañares decides to, among other things,
sell or transfer, totally or partially, its capacity as concessionaire of the Concessions, or if Chañares’ shareholders decide to
sell the majority of the shares of Chañares. However, pursuant to the terms of the JV Agreement, this shall not constitute
any preference or right of first refusal in favour of EP Energy. Should such interest be informed to Chañares in the referred
terms on or before 5 April 2014, the deadline for submission of the Proposed Offer will be in Principal on 5 May 2014.
GROUP FINANCIAL REVIEW
For the year ended 31 December 2013, the Group’s turnover was HK$89.8 million, an increase of HK$3.1 million as
compared with HK$86.7 million recorded in last year. The Group recorded a loss for the year of HK$679.2 million, against
a loss for the year of HK$3,352.0 million in year 2012. During year 2013, an impairment loss of HK$442,197,000 (year
2012: HK$3,130,106,000) was recognised in respect of the E&E assets and impairment loss of HK$51,111,000 (year 2012:
HK$132,906,000) was recorded in respect of property, plant and equipment relating to the Chañares oil project.
EPI (Holdings) Limited Annual Report 2013
7
MANAGEMENT DISCUSSION AND ANALYSIS
On 3 November 2009, the Group acquired the entire issued share capital of Have Result for a consideration of
HK$3,835,273,000. The principal assets held by Have Result are E&E assets, including oil exploration rights. For the fair value
of the oil exploration rights acquired, as the exploration on the acquired areas was at the initial stage and the prospective
resources have been estimated using a consideration of deterministic and probabilistic methods, the range of reasonable fair
value estimates is so significant that the directors of the Company are of the opinion that their fair values cannot be measured
reliably. As a result, the fair value of the consideration paid, including shares and convertible notes issued, was used to account
for the cost of the oil exploration rights, which was HK$3,810,136,000, being capitalised as an E&E assets.
At the time of acquiring the entire issued share capital of Have Result, except for the 51% working interest in the
Concessions in the Cuyana Basin, Mendoza Province of Argentina, Have Result has no other operating assets and
therefore the market value of Have Result is mainly dominated by the value of the oilfield. Three generally accepted valuation
methodologies have been considered in valuing Have Result by BMI Appraisals Limited (“BMI”), the professional valuer,
namely the market approach, the cost approach and income approach. The market approach provides indications of value
by comparing the subject to similar businesses, business ownership interests, and securities that have been sold in the
market. The cost approach provides indications of value by studying the amounts required to recreate the business for
which a value conclusion is desired. This approach seeks to measure the economic benefits of ownership by quantifying
the amount of fund that would be required to replace the future service capability of the business.
The income approach is the conversion of expected periodic benefits of ownership into an indication of value. It is based
on the principle that an informed buyer would pay no more for the project than an amount equal to the present worth of
anticipated future benefits from the same or a substantially similar business with a similar risk profile.
BMI have considered that the income approach is not appropriate to value Have Result, as there are insufficient historical
and forecasted financial and operational data of the oilfield. Moreover, the income approach may involve adoption of much
more assumptions than the other two approaches, not all of which can be easily quantified or ascertained. In the event that
8
EPI (Holdings) Limited Annual Report 2013
MANAGEMENT DISCUSSION AND ANALYSIS
any such assumptions are founded to be incorrect or unfounded, the valuation result would be significantly affected. The
cost approach is also regarded inadequate in this valuation, as this approach does not take future growth potential of Have
Result into consideration. Thus, they have determined that the market approach is the most appropriate valuation approach
for this valuation.
BMI used the market approach by referring to recent sales and purchase transactions of oilfields. They referred to 84 recent
sales and purchase transactions related to oilfields over the world (referred to as the “Comparable Transactions”) till
June 2009, of which they further analysed the natures, the presentation methods of the reserves and other parameters that
may affect the comparability to the oilfield. In the valuation, BMI used the weighted-average adjusted consideration price
to proved and probable reserve (referred to as the “Adjusted P/Reserve”) multiple of the Comparable Transactions to
determine the market value of the oilfield and the market value of Have Result accordingly.
Based on the investigation and analysis done by BMI, it was determined that the market value of a 100% equity interest
in Have Result as at 30 June 2009 was US$612,000,000 (or HK$4,773,600,000). The carrying value of the E&E assets of
HK$3,810,136,000 as at 3 November 2009, date of acquisition, was approximately 79.82% of the valuation of a 100%
equity interest in Have Result as at 30 June 2009.
When determining the fair value of the E&E assets acquired, as the exploration on the acquired areas was at the initial stage
and the prospective resources have been estimated using a consideration of deterministic and probabilistic methods, the
range of reasonable fair value estimates is so significant that the Directors are of the opinion that their fair values cannot be
measured reliably. As a result, the fair value of the consideration paid, including shares and convertible notes issued, was
used to account for the cost of the E&E assets.
The carrying amount of the E&E assets is reviewed for impairment indicators annually and adjusted for impairment loss in
accordance with HKAS 36 and whenever there are any “trigger” events or changes in circumstances indicating that the
carrying amount may not be recoverable. During the years ended 31 December 2009, 31 December 2010, 31 December
2011 and the period ended 30 June 2012, there were no events or changes in circumstances indicating that the carrying
amount of E&E assets might not be recoverable. According to the requirements under HKAS 36, no impairment needed to
be provided for the E&E assets.
In November 2012, the Group noted that the crude oil selling price to YPF through Chañares decreased by US$1.5 per
barrel to US$67.2 per barrel, and dropped to US$66.5 per barrel in December 2012, which maintained through April 2013.
This is the first time of oil price decrease since the Company commenced its investment in Argentina. The Company has
performed an impairment test on its E&E assets during the preparation of year 2012 annual result and has applied a more
prudent estimation on factors and assumptions in accessing the recoverable amounts on the E&E assets by adopting
discounted cashflow method. An impairment loss of HK$3,130,106,000 was recognised as the carrying amount of the E&E
assets exceeded its recoverable amount in year ended 31 December 2012.
From May 2013, the crude oil selling price has gradually increased and reached US$71.7 per barrel in December 2013,
represents a 7.8% increase as compared with December 2012. In January and February 2014, the Group noted that the
crude oil selling price to YPF through Chañares decreased to US$61.72 per barrel.
During January 2014, Argentina Peso, the Official Currency of Argentina, has been depreciated against US Dollar by more
than 15%. There is no official explanation from the Argentina Government on the currency depreciation.
EPI (Holdings) Limited Annual Report 2013
9
MANAGEMENT DISCUSSION AND ANALYSIS
Taking into account of the decrease in short term West Texas Intermediate spot oil price forecast in Year 2014 Energy
Outlook issued by U.S. Energy Information Administration (part of the U.S. Department of Energy) by 20% or more as
compared with the Year 2013 Energy Outlook and the potential acquisition opportunity, the Directors of the Company
decided to further delay the Group’s overall drilling plan to later years, and, conducted a review of the impairment on the
E&E assets as at 31 December 2013.
The Company has engaged Roma to perform a valuation of the E&E assets, based on Market Approach and Income Approach.
Roma used the market approach by referring to certain comparable sales and purchase transactions of oilfields in year
2012 and 2013, of which they further analysed the natures, the presentation methods of the reserves and other parameters
that may affect the comparability to the oilfield. In the valuation, Roma used the Adjusted P/Reserve multiple of the
Comparable Transactions to determine the market value of the oilfield and the market value of the E&E assets held by the
Company accordingly.
Roma adopted discounted cash flow method in the Income Approach valuation. During the adoption of the discounted
cash flow method, a more prudent estimation on those factors and assumptions for future recoverable amounts on the
exploration and evaluation assets were used:
•
Future oil selling price are reference to West Texas Intermediate spot oil price. The Company noticed that the short
term West Texas Intermediate spot oil price forecast in Year 2014 Energy Outlook issued by U.S. Energy Information
Administration (part of the U.S. Department of Energy) reduced by 20% or more as compared with the Year 2013
Energy Outlook (“2013 Outlook”), where forecast oil price per barrel for year 2015 at USD89.8 (2013 Outlook:
USD119.4), year 2016 at USD92.9 (2013 Outlook: USD122.4), year 2017 at USD97.8 (2013 Outlook: USD125.5),
year 2018 at USD100.5 (2013 Outlook: USD126.6), and year 2019 at USD103.1 (2013 Outlook: USD127.9). The
Directors take a more prudent approach in estimating future oil selling price to YPF and consider the future selling
price will increase in a more steadily way;
• With reference to the decrease in future oil selling price, the directors of the Company decided to further delay the Group’s
overall drilling plan to later years. The production quantity used to calculate future cash flows from operations decrease.
•
The discount rate used for the impairment assessment in 2013 consider a higher country risk of Argentina in view of
the depreciation of Argentina Peso against US Dollar in January 2014. The discount rate used in year 2013 is 17.7%
(year 2012: 14.1%). The discount rate substantially reduced the net present value of future cash flow of the project.
With reference to the E&E Assets Valuation issued by Roma dated 24 March 2014, the E&E Assets are valuated at
USD24,575,000 and USD26,445,000 by Market Approach and Income Approach respectively. The Directors considered
the valuation in Market Approach represents the fair value less cost to sell and Income approach represents the Value in
use of its E&E assets.
According to HKAS 36, the recoverable amount of an asset is defined as “the higher of its fair value less costs to sell and
its value in use”. The Directors considered the valuation in Market Approach and Income-based approach represents
the fair value less cost to sell and the value in use of its E&E assets. The Company adopted the Income-based approach
valuation as the recoverable amount of the E&E asset following the requirement in HKAS 36. As a result, an impairment loss
of HK$442,197,000 (year 2012: HK$3,130,106,000) was recognised as the carrying amount of the E&E assets exceeds its
recoverable amount. It is a non-cash item adjustment and does not affect the current operations of oil field.
10
EPI (Holdings) Limited Annual Report 2013
MANAGEMENT DISCUSSION AND ANALYSIS
EPI (Holdings) Limited Annual Report 2013 11
MANAGEMENT DISCUSSION AND ANALYSIS
REVIEW OF GROUP OPERATIONS
During year ended 31 December 2013, the Group’s core and continuing operations is petroleum exploration and production.
Exploration and sales of petroleum
During year 2013, the Group has performed 3 workover jobs to the oil wells, The overall results are satisfactory with increase
in initial production after workover better than expected. The Group had completed the investment in our own water
injection capacity and invested in our owned centralised well fluid collection tank and collection pipeline.
During year 2013, the Group had 10 producing wells generating oil sales revenue and has received from Chañares incentive
from Petróleo Plus Program in respect of production for 3rd quarter 2011 and in respect of Proved Reserve for year 2011.
All our oil production was sold to YPF Sociedad Anónima, through Chañares, the Concessions owner.
Revenue generated from the sales of petroleum segment for the year ended 2013 amounted to HK$89.9 million.
As of 31 December 2013, the Company has invested HK$585.8 million in the drilling and completion of its oil wells, as well
as related infrastructure, in the Mendoza project. This amount includes: 1) HK$408.4 million in oil well drilling and completion
which is classified as oil & gas properties and for which depreciation started from the commencement of production; 2)
HK$177.4 million of oil well drilling exploration cost for exploration purpose to collect data in the Potrerillos Formation that
is located at a depth of over 4,200 meters, which was charged to profit or loss in year 2010.
During the year 2013, the depreciation of the oil & gas properties was HK$27 million.
Future operation plan
Short-term development plan
Pursuant to the Operation Agreement signed on 5 June 2012, Chañares agreed to release EP Energy from the Commitment
under the JV Agreement signed on 12 January 2011. The Group is focused on workover and infrastructure investments to
improve production on the existing oil wells from year 2012 and 2013. The Group has completed the investment in our own
water injection capacity in year 2013.
The Group will continue invest in workover on the existing 10 producing wells and in improving own well fluid collection
system during year 2014.
Long-term development plan
The Directors considered the current economic situation of Argentina and decided to restart the overall business development
plan on Chañares oil project in later years. The future business plan is developed by applying a more prudent estimation
on those factors and assumptions for future cashflow estimation on the project. In developing the future business plan, the
Directors take a more prudent approach and only considered the production estimation up to the expiry of Concessions after
a 10-year extension to year 2027. The change in development plan and the production estimation is a more prudent way to
value the project. The production quantity used to calculate future cash flow from operations decrease.
12
EPI (Holdings) Limited Annual Report 2013
MANAGEMENT DISCUSSION AND ANALYSIS
Other business opportunities
After setting up the technical & operational team and having a stable development in Argentina operation, the Group
continues making effort in searching for opportunities on Oil & Gas Exploration and production business. The Group is
focused on the oil & gas field with stable production base, with proven reserve, with certain development opportunities, in
those industrial-advanced countries, such as the United States of America. The Group is now looking into a few acquisition
opportunities in North America and one of them has been negotiated to an advance stage. If the proposed acquisition
proceeds, the transaction may constitute a major/very substantial acquisition transaction for the Company under Chapter
14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and
further announcement will be made by the Company in accordance with the Listing Rules. The Board wishes to emphasize
that the negotiations for the proposed acquisition may or may not proceed. Shareholders and investors of the Company are
urged to exercise caution when dealing in the shares of the Company.
FINANCIAL POSITION
As at 31 December 2013, the net asset value of the Group was HK$218.2 million (2012: HK$673.6 million) and the net
asset value per share was HK$0.05 (2012: HK$0.2).
LIQUIDITY AND FINANCIAL RESOURCES
In order to meet general working capital requirements, the Group had decided to raise additional capital via the placement
of shares and the issue of convertible notes during the year. On 21 January 2013, the Company raised net proceeds of
approximately HK$21.6 million via the placement of 125,000,000 shares at HK$0.18 per share. In addition, the Company
issued non-listed warrants, on the basis of 5 warrants for each placing share issued, at no initial issue price, entitling the
holder of each warrant to subscribe for one new share, at an exercise price of HK$0.20 at any time for a period of three
years from the date of issue of such warrant. On 24 February 2013, the Company raised net proceeds of approximately
HK$95.5 million via the issue of HK$100 million 8% convertible notes due 2015. The initial conversion price of the
convertible notes was HK$0.19 per conversion share. On 22 July 2013, the Company raised net proceeds of approximately
HK$118.6 million via the placement of 650,000,000 shares at HK$0.19 per share. The Company will raise additional funds
via placement of shares and the issue of convertible notes to finance its general working capital requirements and the
potential acquisition in the coming year.
PLEDGE OF ASSETS
At 31 December 2013, the following assets were pledged to secure the Group’s bank borrowings and banking facilities:
(a) The entire stock capital of EP Energy whose principal asset is the 72% equity interest in the joint venture company
formed under the New JV Agreement.
(b) The entire issued share capital of Have Result.
(c) The entire issued share capital of two wholly-owned subsidiaries of the Company which together hold the entire stock
capital of EP Energy.
EPI (Holdings) Limited Annual Report 2013 13
DIRECTORS AND SENIOR MANAGEMENT PROFILE
14
EPI (Holdings) Limited Annual Report 2013
DIRECTORS AND SENIOR MANAGEMENT PROFILE
NON-EXECUTIVE CHAIRMAN
Mr. HO King Fung, Eric, Non-executive Chairman, aged 37
Mr. Ho is EPI’s Non-executive Chairman. Mr. Ho joined EPI as Non-executive Director on 4 April 2013 and was re-designated as
the Non-executive Chairman on 30 July 2013.
Mr. Ho has extensive experience in investment banking origination, capital markets and legal practice. Prior to joining EPI, he was
an analyst at JP Morgan in 2000 and then was a solicitor at Linklaters between 2003 and 2006. Between 2007 and 2010, Mr.
Ho worked at Deutsche Bank AG, Hong Kong Branch and his last position held was vice president and the head of Hong Kong
and Macau Origination.
Mr. Ho is a committee member of the Chinese People’s Political Consultative Conference of Beijing, a role which he has been
in since 2008. He is also and the president of the Macau Money Exchangers’ Association. Mr. Ho was awarded the Chinese
Economics Elite Award in 2009. From April 2011 and April 2012, Mr. Ho was the non-executive director of United Energy Group
Limited (HKSE Stock Code: 467). He has been appointed as the independent non-executive director of Nature Flooring Holding
Company Limited (HKSE Stock Code: 2083) since May 2011. And, Mr. Ho has also been appointed as a non-executive director
of AGTech Holdings Limited (HKSE Stock Code: 8279) since 23 May 2013. In Macau, Mr. Ho is the chairman of P&W Money
Changer Limited and Jing Yang Company Limited, and an executive director of Mascargo (Macau) Company Limited.
Mr. Ho graduated from the University of New South Wales, Australia with a Bachelor of Commerce degree, majoring in Finance.
Mr. Ho has also obtained his Bachelor of Laws degree from the University of New South Wales. He has been designated as a
practicing solicitor in the Hong Kong Special Administrative Region.
EXECUTIVE DIRECTORS
Mr. TSE Kwok Fai, Sammy, Executive Director and Chief Executive Officer, aged 50
Mr. Tse joined the Company in 2009 as a consultant for the business development in Argentina and has been appointed as the
Executive Director and Chief Executive Officer of the Company since April 2013.
Mr. Tse’s wealth of managerial and executive experience is derived from working at various major corporations including the
Hongkong Telecom 2 Group, Hutchison Whampoa Group and South China Group. He had been involved in the day-to-day
operations of telecommunications, technology, media, energy and resources businesses in Hong Kong, the PRC and other
countries. Mr. Tse has developed an extensive business network in the resources and energy sector and specializes in mergers
and acquisitions, listings and asset injections, as well as business development.
Mr. Tse graduated from the University of Hong Kong majoring in Geography and Geology. He also obtained his MBA from the
Chinese University of Hong Kong.
EPI (Holdings) Limited Annual Report 2013 15
DIRECTORS AND SENIOR MANAGEMENT PROFILE
Mr. CHAN Chi Hung, Anthony, Executive Director, aged 41
Mr. Chan is EPI’s Executive Director and he was appointed as Executive Director on 16 July 2013.
Prior to joining EPI, Mr. Chan has held senior management positions at other Hong Kong listed companies. He was the managing
director of China Financial Leasing Group Limited (HKSE Stock Code: 2312) from July 2008 to July 2013. He was re-designated
as advisor to the board on 15 July 2013. Previous to being the managing director, he served this company as executive director.
Mr. Chan has held the position of non-executive director at Build King Holdings Limited (HKSE Stock Code: 240) since 2008. Mr.
Chan has also been appointed as the director of the board of Wealth Assets Management Limited, a licensed corporation to carry
out type 4 (advising on Securities) and type 9 (asset management) regulated activities as defined under the Securities & Future
Ordinance since 2009. Prior to his managerial career, Mr. Chan was the investment manager of Springfield Financial Advisory
Limited, in charge of private equity, fund-of-funds and fixed income investments portfolios. He held this position for four years. Mr.
Chan started his career as a banker in J.P. Morgan covering Asia ex-Japan region.
Mr. Chan holds a Bachelor of Science degree majoring in Economics from the University of Minnesota, and is a graduate of the
Stanford University Executive Program.
INDEPENDENT NON-EXECUTIVE DIRECTORS
Mr. QIAN Zhi Hui, Independent Non-executive Director, aged 51
Mr. Qian joined the Company in September 2008. He joined China National Native Produce & Animal By-Products Import &
Export Corporation, Guangdong Province, as chief legal advisor in 1988. He joined Guangzhou King Pound Law Firm as a
lawyer in 1993 and is currently a partner of Guangdong Justwin Law Firm. From 2006 to 2008, he was an independent non-
executive director of New Times Group Holdings Limited (HKSE stock code: 166). He has a Master degree in Procedural Law
from Southwest University of Political Science and Law, China.
Mr. TEOH Chun Ming, Independent Non-executive Director, aged 43
Mr. Teoh joined the Company in January 2014. He is currently a non-executive director of Nature Flooring Holding Company
Limited (HKSE Stock Code: 2083) since July 2012 and the chief financial officer and company secretary of Hui Tong Jia Hua (HK)
Company Limited. Mr. Teoh joined Nature Flooring Holding Company Limited in 2008 and was appointed as the chief financial
officer and the company secretary on 1 September 2008 and 26 March 2009 respectively. Mr. Teoh was also the authorised
representative of Nature Flooring Holding Company Limited for the purpose of the Rules governing the Listing of Securities on
the Stock Exchange of Hong Kong Limited and the Companies Ordinance. Mr. Teoh held the positions of chief financial officer,
company secretary and authorised representative of Nature Flooring Holding Company Limited until his appointment as a non-
executive director of Nature Flooring Holding Company Limited on 1 July 2012. Mr. Teoh was also the investor relations officer of
Nature Flooring Holding Company Limited. Mr. Teoh has over 20 years of accounting and finance experience and had held senior
positions in accounting and finance in various companies listed on the Stock Exchange of Hong Kong Limited.
16
EPI (Holdings) Limited Annual Report 2013
DIRECTORS AND SENIOR MANAGEMENT PROFILE
Mr. Teoh obtained a Master degree in Professional Accounting from the Hong Kong Polytechnic University in 2005. He is a fellow
member of the Hong Kong Institute of Certified Public Accountants, a fellow member of the Association of Chartered Certified
Accountants and a member of the Institute of Chartered Accountants in England and Wales.
Mr. ZHU Tiansheng, Independent Non-executive Director, aged 69
Mr. Zhu joined the Company in November 2009. He has over 41 years extensive experience in project management, operations,
design and construction process of oil and natural gas transmission pipeline, exploration, production and transporting heavy oil,
recycling of light hydrocarbon, design and construction of natural gas treatment plants in numerous oil field projects in China.
Mr. Zhu has been employed by China National Offshore Oil Corporation (“CNOOC”) since 1986. Since 2005, he is the
Senior Consultant and the Chief Project Officer for China Offshore Oil & Gas Development & Utilization Company of CNOOC,
participating in the construction of asphalt plant. From 2004 to 2005, he was the Deputy Director of Coordination Office of
CNOOC and Mr. Fu Chengyu, was the director and currently the General Manager of CNOOC.
From 2001 to 2004, Mr Zhu was the General Manager of China Ocean Oilfields Services (Hong Kong) Limited. During the period
of 1997 to 2001, Mr. Zhu was the General Manager of the Construction Department of CNOOC. The Construction Department
was responsible for the organization and investigation of concept design and plans of development, an immediate and final
investigation of the basic design. The detailed designs, constructions and installations were managed by the Project Units, which
were organized by the Construction Department. The Construction Department also organized and cooperated with foreign
companies for the development and construction of oil and gas fields.
From 1992 to 1997, Mr. Zhu was the Deputy Manager of Development and Production Department of CNOOC and he was
responsible for construction development. During the period of 1986 to 1992, he was offered the position of Chief of Project
Management Office of Construction Department of CNOOC.
In 1986, Mr. Zhu was transferred to CNOOC from Liaohe Oil Field, China where he had worked there for over 11 years in the 70s
and his last position was the Chief of Oil and Gas Management Office of Liaohe Oil Field.
Mr. Zhu graduated from the Beijing Petroleum Institute and was majoring in oil and gas storage and transportation engineering
since 1969. During his work tenor, Mr. Zhu was trained in Japan for 3 months in recycling of light hydrocarbon and studied project
management in EGT in United Kingdom during 1994.
SENIOR MANAGEMENT PROFILE
Mr. CHENG Sing Wai, Henry, Company Secretary, aged 48
Mr. Cheng joined the Company in June 2013 as company secretary. Mr. Cheng is a licensed Certified Public Accountant in the
State of Washington, United States of America and has the CPA Practising Certificate in Hong Kong. Mr. Cheng is a member of
the Hong Kong Institute of Certified Public Accountants and the American Institute of Certified Public Accountants. He has over
15 years’ experience in accounting, auditing, taxation and corporate finance.
Mr. Cheng holds an accounting degree from Chu Hai College, Hong Kong and a master degree in business administration from
Hawaii Pacific University, United States of America.
EPI (Holdings) Limited Annual Report 2013 17
DIRECTORS AND SENIOR MANAGEMENT PROFILE
Mr. PAK Ka Kei, Financial Controller, aged 43
Mr. Pak joined the Company in November 2009 as a Financial Controller.
Mr. Pak has over 18 years experience in the fields of audit, internal control, accountancy, taxation and treasury. Prior to joining
the Company, Mr. Pak had been working for TCL Multimedia Technology Holdings Limited for over 10 years on the finance
departments in Hong Kong, Emerging Markets and Europe and he had held the positions of Deputy Internal Control Director and
Deputy Financial Controller for Emerging Markets and Europe there.
Mr. Pak graduated from City University of Hong Kong with a Bachelor of Arts degree in Accounting and has been working for
Ernst & Young for 5 years.
Mr. QUIROGA Daniel Federico, General Manager, Argentina, aged 48
Mr. Quiroga joined the Company in December 2010 as the General Manager of Argentina Business. Mr. Quiroga oversees the
Company’s oil project in Argentina as the General Manager of Argentina Operation. He has over 28 years extensive experience
in operations, exploration and production management of oil field projects in Argentina, and Mexico.
Mr. Quiroga had been employed by Tecpetrol S.A. since year 1991. The last position held by Mr. Quiroga in year 2000 was the
Head of Secondary Recovery Division. During the work in Tecpetrol S.A., Mr. Quiroga was appointed as Operation Engineer,
Production Manager, Field Operation Manager and had gained experiences in operations, production management for various
oil fields in Argentina.
Mr. Quiroga was the Operation Superintendent and Field Manager who was in charge of field operations in oil fields located in
Neuquina Basin and S.J. Gulf Basin, Argentina for Pioneer NRA S.A. during 2002 to 2006. After that, Mr. Quiroga also worked
for Apache Corp Argentina and Petrolera El Trebol.
Before joining the Company, Mr. Quiroga had been working for Weatherford Regional Mexico as the Operation Coordinator. He
was in charge of field operations for oil field in Mexico.
Mr. Quiroga graduated from the National University of Cuyo in Mendoza Province, Argentina and was majoring in Petroleum
Engineer in year 1991. Mr. Quiroga was the Postgrade in Business & Finance at National University of Cuyo in Mendoza Province,
Argentina.
18
EPI (Holdings) Limited Annual Report 2013
The board of Directors (the “Board”) of the Company hereby presents the Corporate Governance Report of the Company
for the year ended 31 December 2013.
CORPORATE GOVERNANCE REPORT
COMPLIANCE WITH THE CODE ON CORPORATE GOVERNANCE PRACTICES
The Board recognises the importance of incorporating elements of good corporate governance into the management
structure and the internal control procedures of the Group so as to ensure that all business activities of the Group and the
decision making processes are properly regulated. During the year under review, the Company has applied the principles
and has complied with the code provisions set out in the Code on Corporate Governance Practices (the “CG Code”) in
Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited with deviations
from the code provision A.4.1 of the CG Code as summarized below.
The code provision A.4.1 of the CG Code stipulates that non-executive directors should be appointed for a specific term,
subject to re-election. Currently the non-executive directors are not appointed for a specific term. However, all non-
executive directors are subject to retirement and can offer themselves for re-election in accordance with the Company’s
Bye-laws.
During the year 2012, the office of the chairman of the Company was vacant and in turn the Company had deviated from
the code provision of A.2.2 and A.2.3. The code provision A.2.2 of the CG Code stipulates that the chairman should ensure
that all directors are properly briefed on issues arising at board meetings and the code provision A.2.3 of the CG Code
stipulates that the chairman should be responsible for ensuring that directors receive adequate information, which must
be complete and reliable, in a timely manner. During the year 2013, the Company has ratified the code provision deviation
by re-designating Mr. Ho King Fung, Eric, the Non-executive Director who was appointed on 4 April 2013, as the Non-
executive Chairman with effect from 30 July 2013.
MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS
The Company has adopted a code of conduct rules (the “Model Code”) regarding securities transactions by directors on
terms no less exactly than the required standard set out in the Model Code for Securities Transactions by Directors of Listed
Issuers as set out in Appendix 10 of the Listing Rules, and that having made specific enquiry of all directors, the Company
confirms that all the directors have complied with the Model Code throughout the year.
BOARD OF DIRECTORS
The overall management of the Group’s business is vested in the Board.
The Board is responsible for the promotion of the success of the Company by directing and guiding its affairs in an
accountable and effective manner. Board members have a duty to act in good faith, with due diligence and care, and in the
best interests of the Company and of its shareholders.
EPI (Holdings) Limited Annual Report 2013 19
CORPORATE GOVERNANCE REPORT
CORPORATE GOVERNANCE
Types of decisions taken by the Board include the following:
1.
setting the Company’s mission and values;
2.
formulating strategic directions of the Company;
3.
reviewing and guiding corporate strategies; setting performance objectives, monitoring implementation and corporate
performance;
4. monitoring and managing potential conflicts of interests between the Board members and the management of the
Company; and
5. ensuring the integrity of the Company’s accounting and financial reporting systems, including the independent audit,
and that appropriate systems of control are in place, in particular, systems for monitoring risk, financial control and
compliance with the law.
The Board gives clear directions as to the powers delegated to the management for the administration and management
functions of the Group, in particular, with respect to circumstances where management should report back and obtain prior
approvals from the Board before making decisions or entering into any commitments on behalf of the Group. The Board
reviews these arrangements on a periodic basis to ensure that they remain appropriate to the needs of the Group.
For the year ended 31 December 2013, the Board:
1.
reviewed and approved the audited annual results of the Group for the year ended 31 December 2012 and the interim
results of the Group for the six months ended 30 June 2013;
2.
reviewed the performance of and formulated the business strategies of the Group;
3.
reviewed the internal controls of the Group;
4.
reviewed and approved the general mandates to issue and repurchase shares of the Company;
5.
reviewed and approved the new shares placing of 125,000,000 shares at HK$0.18 per share with unlisted warrants
attached;
6.
reviewed and approved the issue of convertible notes in the principal amount of HK$100 million;
7.
reviewed and approved the new shares placing of 650,000,000 shares at HK$0.19 per share; and
8.
reviewed and approved the price-sensitive transactions.
Regular Board meetings are scheduled in advance to give all directors an opportunity to attend. All directors are kept
informed on a timely basis of major changes that may affect the Group’s businesses, including relevant rules and
regulations. Directors have full access to information on the Group and are able to obtain independent professional advice
whenever deemed necessary. No request was made by any director for such independent professional advice in 2013.
The company secretary prepares minutes and keeps records of matters discussed and of decisions resolved at all Board
meetings, which are available for inspections by any director upon request.
20
EPI (Holdings) Limited Annual Report 2013
CORPORATE GOVERNANCE REPORT
BOARD COMPOSITION
The Board currently comprises one Non-executive Chairman and two Executive Directors and three Independent Non-
executive Directors, whose biographical details are set out in “Directors and Senior Management Profile” on page 15. The
composition of the Board is well balanced with each director having sound knowledge, experience and expertise relevant to
the business operations and developments of the Group. The Company has also adopted the recommended best practice
under the CG Code for having at least one-third of its Board members being independent non-executive directors.
All directors are aware of their collective and individual responsibilities to the shareholders and have exercised their duties
with care, skill and diligence contributing to the successful performance of the Group.
BOARD MEETING RECORDS
There were eight meetings held during the financial year 2013 and the attendance summary of each Board member is as
follows:
Name of Directors
Number of board meetings
attended in 2013
Mr. Ho King Fung, Eric (appointed on 4 April 2013)
Mr. Tse Kwok Fai, Sammy (appointed on 9 April 2013)
Mr. Chan Chi Hung, Anthony (appointed on 16 July 2013)
Mr. Allan Ritchie (appointed on 4 April 2013 and resigned on 29 November 2013)
Mr. Chu Kwok Chi, Robert (resigned on 9 April 2013)
Mr. Hong Kin Choy (resigned on 3 June 2013)
Mr. Cheung Yuk Ming (retired on 3 July 2013)
Mr. Qian Zhi Hui
Mr. Teoh Chun Ming (appointed on 10 January 2014)
Mr. Lam Ting Lok (appointed on 4 April 2013 and resigned on 10 January 2014)
Mr. Zhu Tiansheng
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
5/8
5/8
5/8
3/8
3/8
3/8
1/8
6/8
N/A
1/8
5/8
The Chairman’s responsibility is to provide leadership to the Board and to formulate the Group’s business strategies. Mr.
Ho King Fung, Eric is the Non-executive Chairman of the Company.
The Chief Executive Officer is responsible for the day to day operation of the Company and the implementation of the
development strategy adopted by the Board. Mr. Tse Kwok Fai, Sammy is the Chief Executive Officer of the Company.
The code provision A.2.2 of the CG Code stipulates that the chairman should ensure that all directors are properly briefed
on issues arising at board meetings and the code provision A.2.3 of the CG Code stipulates that the chairman should
be responsible for ensuring that directors receive adequate information, which must be complete and reliable, in a timely
manner. Both Mr. Ho King Fung, Eric and Mr. Tse Kwok Fai, Sammy, had complied with the relevant CG Code.
EPI (Holdings) Limited Annual Report 2013 21
CORPORATE GOVERNANCE REPORT
INDEPENDENT NON-EXECUTIVE DIRECTORS
Independent Non-executive Directors serve the relevant function of bringing independent judgment on the development,
performance and risk management of the Group. The Independent Non-executive Directors of the Company have been
appointed to hold office until the next Annual General Meeting and shall retire and offer themselves for re-election according
to the Company’s Bye-laws.
All Independent Non-executive Directors are financially independent from the Company and from any of its subsidiaries.
Each of the Independent Non-executive Director has provided a written confirmation to the Company confirming that he has
met the criteria as set out in Rule 3.13 of the Listing Rules regarding the guidelines for the assessment of the independence
of directors.
BOARD COMMITTEES
The Board has established the following committees with defined terms of reference:
1. Audit Committee
2. Remuneration Committee
3. Nomination Committee
Each board committee makes decisions on matters within its terms of reference and applicable limit of authority. The terms
of reference as well as the structure and membership of each committee will be reviewed from time to time.
1) Audit Committee
a) Members of the Audit Committee
Mr. Teoh Chun Ming (Chairman, appointed on 10 January 2014)
Mr. Lam Ting Lok (appointed on 4 April 2013, redesignated as Chairman on 3 July 2013 and resigned on
10 January 2014)
Mr. Cheung Yuk Ming (Chairman, retired on 3 July 2013)
Mr. Qian Zhi Hui
Mr. Zhu Tiansheng
b) Role and function
The Audit Committee is mainly responsible for:
i.
reviewing the financial statements and annual reports and considering any significant or unusual items
raised by the external auditor before submission to the Board;
22
EPI (Holdings) Limited Annual Report 2013
ii.
reviewing the relationship with the external auditor by reference to the work performed by the auditor,
their fees and terms of engagement, and making recommendations to the Board on the appointment,
reappointment and removal of external auditor;
CORPORATE GOVERNANCE REPORT
iii.
reviewing the adequacy and effectiveness of the Company’s financial reporting system, internal control
and risk management system and associated procedures;
iv.
reviewing the Group’s financial and accounting policies; and
v.
reviewing the external auditor’s management letter and ensuring a timely response to the issues raised
there.
c) Meeting records
Two meetings were held during the financial year 2013 and the attendance summary of each committee
member is as follows:
Name of committee members
Number of committee
meetings attended in 2013
Mr. Teoh Chun Ming (Chairman, appointed on 10 January 2014)
Mr. Lam Ting Lok (appointed on 4 April 2013, redesignated as Chairman on 3 July 2013
and resigned on 10 January 2014)
Mr. Cheung Yuk Ming (Chairman, retired on 3 July 2013)
Mr. Qian Zhi Hui
Mr. Zhu Tiansheng
N/A
1/2
1/2
2/2
2/2
During the meetings, the Audit Committee discussed the following matters:–
I.
Financial Reporting
The Audit Committee reviewed with the Chief Executive Officer and the financial controller of the Company
the audited results for the year ended 31 December 2012 and the interim results for the six months ended
30 June 2013.
II.
External Auditors
The Audit Committee reviewed the audit fee for the year ended 31 December 2012 and recommended it
to the Board.
The Audit Committee reviewed the Audit Committee Report prepared by Deloitte Touche Tohmatsu for the
year ended 31 December 2012.
EPI (Holdings) Limited Annual Report 2013 23
CORPORATE GOVERNANCE REPORT
2) Remuneration Committee
a) Members of the Remuneration Committee
Mr. Qian Zhi Hui (Chairman)
Mr. Tse Kwok Fai, Sammy (appointed on 9 April 2013)
Mr. Zhu Tiansheng
b) Role and function
The Remuneration Committee is mainly responsible for:
i.
reviewing and approving the management’s remuneration proposals with reference to the corporate goals
and objectives of the Board;
ii.
determining the remuneration packages of individual executive directors and senior management, and
recommending to the Board on the remuneration packages of individual executive directors and senior
management;
iii.
recommending to the Board the remuneration of non-executive directors;
iv. making recommendations to the Board on the Company’s policy and the structure of all remuneration
of the directors and senior management as well as on the establishment of formal and transparent
procedures for developing policy on such remuneration;
v.
reviewing and approving the compensation payable to executive directors and senior management in
connection with any loss or termination of their office or appointment to ensure that such compensation
is determined in accordance with relevant contractual terms and that such compensation is otherwise fair
and not excessive for the Company; and
vi.
ensuring that no director or any of his associates is involved in deciding his or her own remuneration.
c) Meeting records
One meeting was held during the financial year 2013 and the attendance summary of each committee member
is as follows:
Name of committee members
Mr. Qian Zhi Hui (Chairman)
Mr. Tse Kwok Fai, Sammy (appointed on 9 April 2013)
Mr. Zhu Tiansheng
24
EPI (Holdings) Limited Annual Report 2013
Number of committee
meetings attended in 2013
1/1
1/1
1/1
CORPORATE GOVERNANCE REPORT
During the year under review, the Remuneration Committee reviewed the policies for the remuneration of
the directors and the senior management of the Group, the staff costs and the headcount of the Group. The
Remuneration Committee also reviewed the remuneration package of the directors and the senior management
to ensure they were in line with the market.
3) Nomination Committee
a) Members of the Nomination Committee
Mr. Qian Zhi Hui (Chairman)
Mr. Tse Kwok Fai, Sammy (appointed on 9 April 2013)
Mr. Zhu Tiansheng
b) Role and function
The Nomination Committee is mainly responsible for:
i.
reviewing the structure, size and composition (including the skills, knowledge and experience) of the Board
on a regular basis and making recommendations to the Board regarding any proposed changes;
ii.
identifying individuals suitably qualified to become Board members and selecting or making
recommendations to the Board on the selection of individuals nominated for directorships;
iii. assessing the independence of the independent non-executive directors; and
iv. making recommendations to the Board on relevant matters relating to the appointment or re-appointment
of directors and succession planning for directors, in particular the chairman and the chief executive
officer.
c) Meeting Records
One meeting was held during the financial year 2013 and the attendance summary of each committee member
is as follows:
Name of committee members
Mr. Qian Zhi Hui (Chairman)
Mr. Tse Kwok Fai, Sammy (appointed on 9 April 2013)
Mr. Zhu Tiansheng
Number of committee
meetings attended in 2013
1/1
1/1
1/1
EPI (Holdings) Limited Annual Report 2013 25
CORPORATE GOVERNANCE REPORT
ACCOUNTABILITY AND AUDIT
The directors are responsible for preparing the accounts of each financial year, which give a true and fair view of the state
of affairs of the Group and of the results and cash flow for that year. The directors also ensure that the financial statements
of the Group are prepared in accordance with the statutory requirements and applicable accounting policies.
In preparing the financial statements, the directors consider that the financial statements of the Group are prepared on a
going concern basis and appropriate accounting policies have been consistently applied. The directors have also made
judgments and estimates that are prudent and reasonable in the preparation of the financial statements.
The statement of the auditor of the Company about their reporting responsibilities on the financial statements is set out in
the Independent Auditor’s Report on pages 36 and 37.
INTERNAL CONTROL AND RISK MANAGEMENT
The Board is responsible for the Group’s systems of internal control so as to maintain sound and effective controls to
safeguard the shareholders’ investments and the assets of the Group.
The Board has established an on-going process for identifying, evaluating and managing the significant risks faced by the
Group. This process includes continuous updating of the internal control systems of the Group in response to the changing
business environment and regulatory requirements. The Board is also conducting a review of the internal controls of the
Group to ensure that the policies and procedures in place are adequate.
EXTERNAL AUDITORS
The Board acknowledges its responsibility for preparing the financial statements of the Group. In preparing the financial
statements, the Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public
Accountants have been adopted. The principal accounting policies adopted for the preparation of financial statements of
the Group, which have been consistently applied, are set out in Note 2 to the consolidated financial statements.
It is the auditor’s responsibility to form an independent opinion, based on their audit, on those financial statements and
to report their opinion solely to the Company, as a body, in accordance with Section 90 of the Companies Act 1981 of
Bermuda, and for no other purpose. They do not assume responsibility towards or accept liability to any other person for
the contents of the auditor’s report.
Deloitte Touche Tohmatsu resigned as auditor of the Company during the reporting year. Pursuant to a board resolution
dated 15 January 2014, PricewaterhouseCoopers was appointed by the Board to act as the new auditor of the Company.
The consolidated financial statements for the year ended 31 December 2013 have been audited by PricewaterhouseCoopers.
A resolution will be submitted to the annual general meeting to re-appoint PricewaterhouseCoopers as auditor of the
Company.
26
EPI (Holdings) Limited Annual Report 2013
During the year under review, the remuneration paid to the Company’s external auditors was as follows:
CORPORATE GOVERNANCE REPORT
Nature of services
Audit services
Non-audit related services (Note)
Fee paid/payable
HK$’000
2,500
2,832
Note: To the extent of HK$400,000 was paid to Deloitte Touche Tohmatsu, who resigned as auditor of the Company during the year under review.
COMMUNICATION WITH SHAREHOLDERS
The Company uses various communication methods to ensure its shareholders are kept well informed of key business
imperatives. These include general meetings, annual report, various notices, announcements and circulars. The poll voting
procedures and the rights of shareholders to demand a poll were included in all circulars accompanying notices convening
general meeting and the detailed procedures for conducting a poll have been read out by the company secretary at all
general meetings.
The annual general meeting provides a useful forum for shareholders to exchange views with the Board. The Non-executive
Chairman, the Executive Directors, the chairman and the members of the board committees and external auditor are
available to answer questions at the meeting. To ensure all shareholders timely access to important corporate information,
the Company utilizes its corporate website to disseminate to the shareholders information such as announcements,
circulars, annual and interim reports.
EPI (Holdings) Limited Annual Report 2013 27
REPORT OF THE DIRECTORS
The Directors have pleasure in presenting their annual report and the audited consolidated financial statements for the year
ended 31 December 2013.
PRINCIPAL ACTIVITIES AND SEGMENT INFORMATION
The Company is an investment holding company. Its subsidiaries are principally engaged in the petroleum exploration
and production and metals transactions. Particulars of the Company’s principal subsidiaries are set out in note 17 to
the consolidated financial statements. An analysis of the Group’s performance for the year by operating and reportable
segments is set out in note 5 to the consolidated financial statements.
RESULTS AND DIVIDENDS
The results of the Group for the year ended 31 December 2013 are set out in the consolidated statement of comprehensive
income on page 38.
No interim dividend was declared (2012: Nil) and the Board does not recommend the payment of any final dividend for the
year.
FIVE-YEAR FINANCIAL SUMMARY
A summary of the consolidated results and of the assets and liabilities of the Group for the last five financial years is set out
on page 103.
PROPERTY, PLANT AND EQUIPMENT
Details of the movements in the property, plant and equipment of the Group during the year are set out in note 16 to the
consolidated financial statements.
RESERVES
Details of the movements in the reserves of the Group during the year are set out in the consolidated statement of changes
in equity on page 43.
SHARE CAPITAL
Details of the movements in the share capital of the Company during the year are set out in note 23 to the consolidated
financial statements.
PURCHASE, SALES AND REDEMPTION OF SHARES
Neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during
the year ended 31 December 2013.
28
EPI (Holdings) Limited Annual Report 2013
CORPORATE GOVERNANCE
The Company is committed to adopt corporate governance practices. Details of the Company’s corporate governance
practices are set out on page 19 under Corporate Governance Report.
REPORT OF THE DIRECTORS
DIRECTORS
The Directors of the Company during the year and up to the date of this report are as follows:
Non-executive Chairman:
Mr. Ho King Fung, Eric (appointed on 4 April 2013 as Non-executive Director and re-designated as Non-executive
Chairman on 30 July 2013)
Executive Directors:
Mr. Tse Kwok Fai, Sammy (Chief Executive Officer, appointed on 9 April 2013)
Mr. Chan Chi Hung, Anthony (appointed on 16 July 2013)
Mr. Allan Ritchie (appointed on 4 April 2013 and resigned on 29 November 2013)
Mr. Hong Kin Choy (resigned on 3 June 2013)
Mr. Chu Kwok Chi, Robert (resigned on 9 April 2013)
Independent Non-executive Directors:
Mr. Qian Zhi Hui
Mr. Teoh Chun Ming (appointed on 10 January 2014)
Mr. Zhu Tiansheng
Mr. Lam Ting Lok (appointed on 4 April 2013 and resigned on 10 January 2014)
Mr. Cheung Yuk Ming (retired on 3 July 2013)
Biographical details of the Directors of the Company are set out on page 15 under “Directors and Senior Management
Profile”.
In accordance with Article 99(A) of the Company’s bye-laws, all Directors, except the Managing Director, shall retire and,
being eligible, offer themselves for re-election at the forthcoming Annual General Meeting of the Company in accordance
with the Company’s bye-laws.
The Company has received from each of the Independent Non-executive Directors an annual confirmation of his
independence pursuant to Rule 3.13 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited (the “Listing Rules”) and considers all the Independent Non-executive Directors to be independent.
EPI (Holdings) Limited Annual Report 2013 29
REPORT OF THE DIRECTORS
DIRECTORS’ SERVICE CONTRACTS
None of the Directors has a service contract with the Company, or any of its subsidiaries, which is not determinable by the
Company within one year without payment of compensation, other than statutory compensation.
DIRECTORS’ INTEREST IN CONTRACTS OF SIGNIFICANCE
No contract of significance, to which the Company, or any of its subsidiaries was a party and in which a Director of the
Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the
year.
MANAGEMENT CONTRACTS
No contract concerning the management and administration of the whole or any substantial part of the business of the
Company and the Group was entered into or existed during the year.
COMPETING INTEREST
None of the Directors or their respective associates (as defined in the Listing Rules) has an interest in a business, which
competes or may compete with the business of the Group.
DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN THE SHARES,
UNDERLYING SHARES AND DEBENTURES OF THE COMPANY
As at 31 December 2013, the interests and short positions of the Directors and chief executive of the Company in any
shares of the Company (the “Shares”), underlying shares and debentures of the Company or any of its associated
corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)) which were required to be
notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests
and short positions in which they were taken or deemed to have under such provisions of the SFO) or which were required,
pursuant to section 352 of Part XV of the SFO, to be entered in the register referred to therein, or were required pursuant to
the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules to be notified to the Company
and the Stock Exchange were as follows:
LONG POSITIONS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY
Directors
Nature of
interest
Number of
ordinary
Number of
share
shares held
options held
Total
interests
Approximate
% of issued
share capital
Mr. Ho King Fung, Eric
Mr. Tse Kwok Fai, Sammy
Mr. Chan Chi Hung, Anthony
Personal
Personal
Personal
–
2,200,000
–
217,000,000
88,000,000
78,000,000
217,000,000
90,200,000
78,000,000
(note)
5.20%
2.16%
1.87%
Note:
The calculation of percentages is based on 4,169,877,588 Shares in issue as at 31 December 2013.
30
EPI (Holdings) Limited Annual Report 2013
REPORT OF THE DIRECTORS
Save as disclosed above and as at 31 December 2013, no Directors or chief executive of the Company had any other
interests or short position in the Shares, underlying shares and debentures of the Company or any of its associated
corporations (within the meaning of Part XV of the SFO) which would have to be notified to the Company and the Stock
Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which were taken or
deemed to be have under such provisions) or which were required, pursuant to Section 352 of the SFO, to be entered
in the register referred to therein or which were required in the Listing Rules pursuant to the Model Code for Securities
Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.
SUBSTANTIAL SHAREHOLDERS
As at 31 December 2013, according to the register of interests maintained by the Company pursuant to section 336 of the
SFO and so far as is known to, or can be ascertained after reasonable enquiry by the Directors or chief executive of the
Company, the following persons, other than the Directors and the chief executive of the Company, who had an interest or a
short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the
provisions of Divisions 2 and 3 of Part XV of the SFO, or who were, directly or indirectly, deemed to be interested in 5% or
more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any
other member of the Group and the amount of each of such person’s interests in such securities, together with particulars
of any options in respect of such capital are as follows:
LONG/SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY
Name of
Shareholders
Long/short
positions
Capacity/
nature of
interest
Number of
Approximate %
shares/underlying
of issued
shares held
share capital
(note 2)
Long
Beneficial owner
7,466,856
0.18%
City Smart
International
Investment Limited
(note 1)
City Wise
Long
Beneficial owner
438,232,975
10.51%
Investment Limited
(note 1)
South America
Long
Petroleum Investment
Holdings Limited
(note 1)
Mr. Wu
Shaozhang
(note 1)
Long
Interest of a
controlled
corporation
Interest of a
controlled
corporation
438,232,975
10.51%
445,699,831
10.69%
EPI (Holdings) Limited Annual Report 2013 31
REPORT OF THE DIRECTORS
Notes:
1.
So far as is known to the Directors, City Smart International Investment Limited, South America Petroleum Investment Holdings Limited and City Wise Investment Limited
are beneficially wholly-owned by Mr. Wu Shaozhang.
2.
The calculation of percentages is based on 4,169,877,588 Shares in issue as at 31 December 2013.
Saved as disclosed above, as at 31 December 2013 and so far as is known to, or can be ascertained after reasonable
enquiry by the Directors or chief executive of the Company, no persons had interests or short positions in the shares or
underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and
3 of Part XV of the SFO, or who were, directly or indirectly, deemed to be interested in 5% or more of the nominal value of
any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group or
had any options in respect of such capital.
SHARE OPTION SCHEME
The Company’s share option scheme (the “Scheme”) was adopted for a period of 10 years commencing 6 November 2006
pursuant to an Ordinary Resolution passed at the Special General Meeting of the shareholders held on 6 November 2006
for the purpose of providing incentives or rewards to selected directors and employees for their contribution to the Group.
Under the Scheme, the Company may grant options to selected directors and employees of the Company and its
subsidiaries, to subscribe for shares in the Company. Additionally, the Company may, from time to time, grant share options
to eligible vendors, customers, advisors and consultants to the Company and its subsidiaries at the discretion of the Board
of Directors.
The total number of shares in respect of which options may be granted under the Scheme is not permitted to exceed
10% of the shares of the Company in issue at any point of time, without prior approval from the Company’s shareholders.
The number of shares issued and to be issued in respect of which options granted and may be granted to any individual
in any one year is not permitted to exceed 1% of the shares of the Company in issue at any point in time, without prior
approval from the Company’s shareholders. Options granted to substantial shareholders, Independent Non-executive
Directors, or any of their respective associates (including a discretionary trust whose discretionary objects include a
substantial shareholders, Independent Non-executive Directors, or any of their respective associates) in excess of 0.1%
of the Company’s share capital or with a value in excess of HK$5,000,000 must also be approved by the Company’s
shareholders.
The exercise price of the share options is determinable by the Directors, but may not be less than the higher of (i) the Stock
Exchange closing price of the Shares on the date of the offer of the share options which must be a business day; (ii) the
average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of
the offer; and (iii) the nominal value of the Company’s shares.
As at 31 December 2013, options to subscribe for an aggregate of 703,000,000 shares granted to the Directors, certain
employees and other participants pursuant to the Scheme remained outstanding, details of which are as follows:
32
EPI (Holdings) Limited Annual Report 2013
Date of grant
Exercisable period
(both dates inclusive)
Exercise
price
HK$
Outstanding
at
1.1.2013
Granted
during
the year
Lapsed
during
the year
Exercised
during
the year
Outstanding
at
31.12.2013
REPORT OF THE DIRECTORS
Category and
name of
participant(s)
Non-executive
Chairman
Mr. Ho King
Fung, Eric
Executive Directors
Mr. Tse Kwok
Fai, Sammy
Mr. Chan
Chi Hung,
Anthony
Independent
Non-executive
Director
Mr. Zhu
Tiansheng
30 July 2013
(Note 1)
11 April 2013
(Note 2)
30 July 2013
(Note 1)
19 March 2010
19 March 2010
19 March 2010
Employees
10 February 2010
Other
participants
10 February 2010
10 February 2010
25 November 2013
10 February 2010
10 February 2010
10 February 2010
11 October 2011
11 April 2013
11 April 2013
(Note 3)
25 November 2013
25 November 2013
16 September 2013–
29 July 2016
16 September 2014–
29 July 2016
16 September 2015–
29 July 2016
3 July 2013–
10 April 2016
16 September 2013–
29 July 2016
16 September 2014–
29 July 2016
16 September 2015–
29 July 2016
19 March 2010–
9 February 2013
10 November 2010–
9 February 2013
10 August 2011–
9 February 2013
10 February 2010–
9 February 2013
10 November 2010–
9 February 2013
10 August 2011–
9 February 2013
25 November 2013 –
24 November 2016
10 February 2010–
9 February 2013
10 November 2010–
9 February 2013
10 August 2011–
9 February 2013
11 October 2011–
10 October 2013
11 April 2013 –
10 April 2016
11 April 2013–
28 February 2014
25 November 2013 –
24 November 2016
25 February 2014 –
24 November 2016
–
–
–
–
–
–
–
108,500,000
54,250,000
54,250,000
88,000,000
39,000,000
19,500,000
19,500,000
–
–
–
–
–
–
–
90,000
90,000
90,000
2,096,667
2,096,667
2,096,667
–
–
–
–
–
–
(90,000)
(90,000)
(90,000)
(2,096,667)
(2,096,667)
(2,096,667)
–
64,000,000
–
0.206
0.206
0.206
0.255
0.206
0.206
0.206
1.610*
1.610*
1.610*
1.564*
1.564*
1.564*
0.219
1.564*
1.564*
1.564*
1,939,999
1,939,999
1,940,000
–
–
–
–
0.141**
140,000,000
0.255
0.255
0.219
0.219
–
–
–
–
128,000,000
32,000,000
32,000,000
64,000,000
(1,939,999)
(1,939,999)
(1,940,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(140,000,000)
108,500,000
54,250,000
54,250,000
88,000,000
39,000,000
19,500,000
19,500,000
–
–
–
–
–
–
64,000,000
–
–
–
–
–
–
–
–
128,000,000
32,000,000
32,000,000
64,000,000
152,379,999
703,000,000
(12,379,999)
(140,000,000)
703,000,000
*
**
This reflects the adjusted share price on grant date after the completion of the consolidation of shares on 23 June 2011.
This reflects the share price on grant date after the completion of the consolidation of shares on 23 June 2011.
Note 1: Date of approval by shareholders was 16 September 2013.
Note 2: Date of approval by shareholders was 3 July 2013.
Note 3: The 32,000,000 share options were granted to one of the executive directors on 11 April 2013 and the Director resigned on 29 November 2013. According to the Scheme,
the outstanding number of share options held by the Director can be exercised within 3 months from the date of his resignation. These share options were classified in the
category of “other participants” as at 31 December 2013 in the above table.
EPI (Holdings) Limited Annual Report 2013 33
REPORT OF THE DIRECTORS
EMOLUMENT POLICY
The emolument policy of the employees of the Group is set up by the human resources department on the basis of
their merit, qualifications and competence. The emoluments of the Directors and senior management of the Company
are decided by the Remuneration Committee, having regard to factors including the Group’s operating results, their
responsibilities and comparable market statistics. Details of the Directors’ fees and emoluments, and the five highest paid
individuals in the Group are set out in note 7 to the consolidated financial statements.
MAJOR CUSTOMERS AND SUPPLIERS
The percentages of sales and purchases for the year attributable to the Group’s major customers and suppliers are as
follows:
Sales
– the largest customer
– five largest customers combined
Purchases
– the largest supplier
– five largest suppliers combined
100%
100%
100%
100%
None of the Directors and their associates or any shareholders (which to the knowledge of the Directors owns more than
5% of the Company’s share capital) had an interest in the major customers or suppliers as noted above.
EMPLOYEES
As at 31 December 2013, the Group had a total of 12 employees in Hong Kong and 9 employees in Argentina. Employee’s
cost (excluding directors’ emoluments) amounted to approximately HK$23.45 million (2012: HK$13.97 million). The Group
ensures that the pay levels of its employees are competitive according to market trend and its employees are rewarded on
a performance related basis within the general framework of the Group’s salary and bonus system.
34
EPI (Holdings) Limited Annual Report 2013
PRE-EMPTIVE RIGHTS
There is no provision for pre-emptive rights under the Company’s Bye-laws or the laws of Bermuda which would oblige the
Company to offer new shares on a pro rata basis to existing shareholders.
REPORT OF THE DIRECTORS
PUBLIC FLOAT
As at the date of this report, based on information that is publicly available to the Company and within the knowledge of the
Directors, at least 25% of the Company’s total issued share capital was held by the Public.
AUDITORS
Deloitte Touche Tohmatsu resigned as auditor of the Company during the reporting year. Pursuant to a board resolution
dated 15 January 2014, PricewaterhouseCoopers was appointed by the Board to act as the new auditor of the Company.
PricewaterhouseCoopers will retire and, being eligible, offer themselves for reappointment at the forthcoming
annual general meeting. The consolidated financial statements for the year ended 31 December 2013 have been
audited by PricewaterhouseCoopers. A resolution will be submitted to the annual general meeting to re-appoint
PricewaterhouseCoopers as auditor of the Company.
On Behalf of the Board
Tse Kwok Fai, Sammy
Executive Director and CEO
Hong Kong, 28 March 2014
EPI (Holdings) Limited Annual Report 2013 35
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF EPI (HOLDINGS) LIMITED
(incorporated in Bermuda with limited liability)
We have audited the consolidated financial statements of EPI (Holdings) Limited (the “Company”) and its subsidiaries (together,
the “Group”) set out on pages 38 to 102, which comprise the consolidated and company statements of financial position as at 31
December 2013, and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the
consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory
information.
DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in
accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the
disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report our opinion solely
to you, as a body, in accordance with Section 90 of the Companies Act 1981 of Bermuda and for no other purpose. We do not assume
responsibility towards or accept liability to any other person for the contents of this report.
We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public
Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement
of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entity’s preparation of consolidated financial statements that give a true and fair view in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by the directors, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
36
EPI (Holdings) Limited Annual Report 2013
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF EPI (HOLDINGS) LIMITED – continued
(incorporated in Bermuda with limited liability)
OPINION
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs of the Company and of the Group
as at 31 December 2013, and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial
Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies
Ordinance.
PricewaterhouseCoopers
Certified Public Accountants
Hong Kong, 28 March 2014
EPI (Holdings) Limited Annual Report 2013 37
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2013
Revenue
Purchases, processing and related expenses
Other gains, net
Wages, salaries and other benefits
Depreciation and depletion
Impairment losses
Fair value (losses)/gains on financial instruments
Expenses incurred in exploring potential investment opportunities
Other expenses
Finance costs
Loss before income tax
Income tax expense
Note
2013
HK$’000
2012
HK$’000
(Restated)
(Note 2.1.1)
5
6
7
8
9
10
11
12
89,853
86,682
(44,333)
13,689
(56,201)
(27,443)
(36,382)
15,513
(16,909)
(37,374)
(506,614)
(3,266,628)
(18,402)
(16,248)
(69,715)
(43,757)
363
(17,331)
(34,698)
(34,925)
(679,171)
(3,341,689)
–
(10,351)
Loss for the year attributable to the owners of the Company
(679,171)
(3,352,040)
Other comprehensive (loss)/income:
Items that may be reclassified subsequently to profit or loss:
Reclassification adjustment for the cumulative gain of available-for-sale
investments included in profit or loss upon disposal
Reversal of deferred tax liabilities upon disposal
of available-for-sale investments
Other comprehensive loss for the year
Total comprehensive loss attributable to
the owners of the Company
Losses per share
– basic (HK$)
– diluted (HK$)
–
–
–
(57,176)
5,718
(51,458)
13
(679,171)
(3,403,498)
(0.19)
(0.19)
(1.26)
(1.26)
The notes on pages 45 to 102 are an integral part of these consolidated financial statements.
38
EPI (Holdings) Limited Annual Report 2013
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2013
Note
2013
HK$’000
2012
HK$’000
Assets
Non-current assets
Exploration and evaluation assets
Property, plant and equipment
Other tax recoverables
Current assets
Trade and other receivables and prepayments
Other tax recoverables
Held-for-trading investments
Cash and cash equivalents
Total assets
Equity
Share capital
Reserves
Total equity
Liabilities
Non-current liabilities
Borrowings
Convertible notes
Derivative financial liabilities
Assets retirement obligations
Current liabilities
Trade and other payables
Borrowings
Convertible notes
15
16
18
20
18
21
22
23
26
27
27, 28
29
30
26
27
206,271
153,458
28,542
648,468
204,456
48,878
388,271
901,802
227,192
12,753
98
48,029
218,635
13,553
37
2,680
288,072
234,905
676,343
1,136,707
416,988
(198,802)
313,038
360,564
218,186
673,602
218,400
273,000
76,054
58,903
1,410
–
–
2,854
354,767
275,854
38,790
56,600
8,000
95,516
65,808
25,927
103,390
187,251
EPI (Holdings) Limited Annual Report 2013 39
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2013
Total liabilities
Total equity and liabilities
Net current assets
Total assets less current liabilities
2013
HK$’000
2012
HK$’000
458,157
463,105
676,343
1,136,707
184,682
47,654
572,953
949,456
The notes on pages 45 to 102 are an integral part of these consolidated financial statements.
The consolidated financial statements on pages 38 to 102 were approved by the Board of Directors on 28 March 2014 and are signed
on its behalf by:
Tse Kwok Fai, Sammy
DIRECTOR
Chan Chi Hung, Anthony
DIRECTOR
40
EPI (Holdings) Limited Annual Report 2013
Assets
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Current assets
Other receivables
Amounts due from subsidiaries
Cash and cash equivalents
Total assets
Equity
Share capital
Reserves
Total equity
Liabilities
Non-current liabilities
Borrowings
Convertible notes
Derivative financial liabilities
Current liabilities
Other payables
Amounts due to subsidiaries
Borrowings
Convertible notes
STATEMENT OF FINANCIAL POSITION
As at 31 December 2013
Note
2013
HK$’000
2012
HK$’000
16
17
20
17
22
23
25
26
27
27, 28
30
17
26
27
1,231
8
1,239
236
8
244
596
715,539
21,179
5,611
1,138,759
143
737,314
1,144,513
738,553
1,144,757
416,988
(210,910)
313,038
345,307
206,078
658,345
218,400
76,054
58,903
273,000
–
–
353,357
273,000
23,704
90,814
56,600
8,000
30,691
90,986
65,808
25,927
179,118
213,412
EPI (Holdings) Limited Annual Report 2013 41
STATEMENT OF FINANCIAL POSITION
As at 31 December 2013
Total liabilities
Total equity and liabilities
Net current assets
Total assets less current liabilities
2013
HK$’000
2012
HK$’000
532,475
486,412
738,553
1,144,757
558,196
931,101
559,435
931,345
The notes on pages 45 to 102 are an integral part of these consolidated financial statements.
The consolidated financial statements on pages 38 to 102 were approved by the Board of Directors on 28 March 2014 and are signed
on its behalf
Tse Kwok Fai, Sammy
DIRECTOR
Chan Chi Hung, Anthony
DIRECTOR
42
EPI (Holdings) Limited Annual Report 2013
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2013
Attributable to owners of the Company
Investment
Share
capital
HK$’000
Share
revaluation
Contributed Share option Accumulated
premium
HK$’000
reserve
HK$’000
surplus
HK$’000
(Note a)
reserve
HK$’000
losses
HK$’000
Total
HK$’000
Balance at 1 January 2012
215,088
3,962,469
51,458
60,322
39,747
(410,143)
3,918,941
Reclassification adjustment for the cumulative
gain of available-for-sale investments
included in profit or loss upon disposal
Reversal of deferred tax liabilities upon disposal
of available-for-sale investments
Loss for the year
Total comprehensive loss for the year
–
–
–
–
–
–
–
–
(57,176)
5,718
–
(51,458)
Issue of shares upon placements (Note (b))
Share issue expenses
Issue of shares upon conversion of convertible notes
69,000
–
28,950
36,300
(4,528)
28,437
Balance at 31 December 2012
313,038
4,022,678
Balance at 1 January 2013
313,038
4,022,678
Loss and total comprehensive loss for the year
Issue of shares upon placements (Note (b))
Share issue expenses
Issue of shares upon conversion of convertible notes
Issue of shares upon exercise of share options
Recognition of equity settled share-based payments
–
77,500
–
12,450
14,000
–
–
53,748
(5,006)
16,354
12,306
–
Balance at 31 December 2013
416,988
4,100,080
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(57,176)
5,718
(3,352,040)
(3,352,040)
(3,352,040)
(3,403,498)
–
–
–
105,300
(4,528)
57,387
60,322
39,747
(3,762,183)
673,602
60,322
39,747
(3,762,183)
–
–
–
–
–
–
–
–
–
–
(6,566)
48,969
(679,171)
–
–
–
–
–
673,602
(679,171)
131,248
(5,006)
28,804
19,740
48,969
60,322
82,150
(4,441,354)
218,186
Notes:
(a)
(b)
The contributed surplus reserve represents the credit arising from the capital reduction in 2006.
During the year ended 31 December 2013, the Company completed two placements by which total of 775,000,000 (2012: 690,000,000) shares of the Company were
issued. Details of the placements are set out in Note 23.
The notes on pages 45 to 102 are an integral part of these consolidated financial statements.
EPI (Holdings) Limited Annual Report 2013 43
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2013
Cash flows from operating activities
Cash used in operations
Income tax paid
Net cash used in operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Payment for oil concession rights
Proceeds from disposal of available-for-sale investments
Proceeds from disposal of property, plant and equipment
Interest received
Note
31
2013
HK$’000
2012
HK$’000
(91,687)
–
(53,103)
(1,784)
(91,687)
(54,887)
(27,720)
–
–
–
–
(26,552)
(20,248)
12,000
1,503
43
Net cash used in investing activities
(27,720)
(33,254)
Cash flows from financing activities
Proceeds from issue of new shares
Proceeds from exercise of share options
Proceeds from other loans
Interest paid
Repayment of other loans
Repayment of bank borrowings
Share issue expenses
Proceeds from issue of convertible notes
Expenses on issuance of convertible notes
146,000
19,740
5,335
(28,670)
(45,743)
(23,400)
(5,006)
100,000
(3,500)
105,300
–
39,680
(25,540)
(38,000)
(15,600)
(4,528)
–
–
Net cash generated from financing activities
164,756
61,312
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
45,349
2,680
(26,829)
29,509
48,029
2,680
The notes on pages 45 to 102 are an integral part of these consolidated financial statements.
44
EPI (Holdings) Limited Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
1
GENERAL INFORMATION
EPI (Holdings) Limited (the “Company”) and its subsidiaries (together, the “Group”) are principally engaged in the petroleum
exploration and production and metals transactions.
The Company is a limited liability company incorporated in Bermuda. The address of its registered office is Clarendon House, 2
Church Street, Hamilton HM11, Bermuda.
The Company has its primary listing on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).
These financial statements are presented in Hong Kong dollars (“HK$”), unless otherwise stated. These financial statements have
been approved for issue by the Board of Directors on 28 March 2014.
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These
policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with Hong Kong Financial Reporting
Standards (“HKFRS”). The consolidated financial statements have been prepared under the historical cost convention, as
modified by the revaluation of held-for-trading investments, and financial liabilities (including derivative instruments) at fair
value through consolidated profit or loss, which are carried at fair value.
The preparation of financial statements in conformity with HKFRS 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 areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements are disclosed in Note 4.
2.1.1 Changes in presentation of the consolidated statement of comprehensive income
In previous years, the Group presented an analysis of expenses in its consolidated statement of comprehensive
income using a classification based on their functions within the Group.
During the year, the Board of Directors performed a review of the content and presentation of the financial
statements to ensure compliance with relevant accounting standards as well as comparison to those of other market
participants within the same industry and to better reflect the business development and operation of the Group. As
a result of this review, the Board of Directors considered that it is appropriate to adopt an analysis of expenses in its
consolidated statement of comprehensive income using a classification based on their nature which would be more
relevant to the Group’s circumstances and users of the Group’s consolidated financial statements.
Consequently, the presentation of the consolidated statement of comprehensive income for the year ended 31
December 2013 has been revised and the comparative figures have been reclassified in order to conform with the
presentation adopted in these financial statements. The changes in presentation of the consolidated statement of
comprehensive income did not have any impact on the Group’s loss position or the calculation of the Group’s loss
per share for all years presented.
EPI (Holdings) Limited Annual Report 2013 45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
2.1 Basis of preparation – continued
2.1.2 Changes in accounting policy and disclosures
(a) New standards, revisions and amendments to existing standards and interpretations effective for annual
periods beginning 1 January 2013 and adopted by the Group
Amendment to HKAS 1
Amendment to HKFRS 7
Presentation of financial statements
Financial instruments: Disclosures – Offsetting financial assets
Amendments to HKFRS 10, 11 and 12
Transition guidance
and financial liabilities
HKAS 19 (2011)
HKAS 27 (2011)
HKAS 28 (2011)
HKFRS 10
HKFRS 11
HKFRS 12
HKFRS 13
Employee benefits
Separate financial statements
Investments in associates and joint ventures
Consolidated financial statements
Joint arrangements
Disclosures of interests in other entities
Fair value measurement
HK(IFRIC)-Int 20
Stripping costs in the production phase of a surface mine
The adoption of the new standards, revisions and amendments to existing standards and interpretations did
not have any material impact on the preparation of the Group’s financial statements.
(b) New standards, amendments to existing standards and interpretations which have been issued but are not
effective and have not been early adopted
Effective for
annual periods
beginning on
or after
Amendment to HKAS 32
Financial instruments: Presentation – Offsetting financial assets
1 January 2014
Amendments to HKFRS 7 and 9
Disclosures: Mandatory effective date of HKFRS 9 and
1 January 2015
and financial liabilities
Amendments to HKFRS 10,
Investment entities
transitional disclosures
HKFRS 11 and HKAS 27
Amendments to HKFRSs
Amendments to HKFRSs
HKAS 36 (Amendment)
HKFRS 9
HKFRS 14
Financial instruments
Regulatory deferral accounts
HK(IFRIC)-Int 21
Levies
Note: The Group intends to adopt this new standard when the effective date is determined.
Annual improvements to HKFRSs 2010 – 2012 cycle
Annual improvements to HKFRSs 2011 – 2013 cycle
Recoverable amount disclosures for non-financial assets
1 January 2014
1 January 2014
1 July 2014
1 July 2014
(Note)
1 January 2016
1 January 2014
The Group is assessing the impact of these amendments, standards and interpretations and will apply them
once they are effective.
46
EPI (Holdings) Limited Annual Report 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2.2 Subsidiaries
2.2.1 Consolidation
A subsidiary is an entity (including a structured entity) over which the Group has control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control
is transferred to the Group. They are deconsolidated from the date that control ceases.
The Group applies the acquisition method to account for business combinations. The consideration transferred for
the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of
the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any
asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition
date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis,
either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s
identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held
equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from
such re-measurement are recognised in consolidated profit or loss.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is
recognised in accordance with HKAS 39 either in consolidated profit or loss or as a change to other comprehensive
income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is
accounted for within equity.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net
assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised
and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the
case of a bargain purchase, the difference is recognised directly in the consolidated income statement.
Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated.
Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to
conform with the Group’s accounting policies.
EPI (Holdings) Limited Annual Report 2013 47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
2.2 Subsidiaries – continued
2.2.2 Separate financial statements
Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs of
investment. The results of subsidiaries are accounted for by the Company on the basis of dividends received and
receivable.
Impairment testing of the investments in subsidiaries is required upon receiving a dividend from these investments
if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or
if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the
consolidated financial statements of the investee’s net assets including goodwill.
2.3 Joint operations
The Group has applied HKFRS 11 to all joint arrangements as of 1 January 2012. Under HKFRS 11 investments in joint
arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations
each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint operations.
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the
assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators.
A joint operator recognises in relation to its interest in a joint operation:
•
•
•
•
•
its assets, including its share of any assets held jointly;
its liabilities, including its share of any liabilities incurred jointly;
its revenue from the sale of its share of the output of the joint operation;
its share of the revenue from the sale of the output and income earned by the joint operation; and
its expenses, including its share of any expenses incurred jointly.
2.4 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-
maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the Chief Executive Officer that makes strategic decisions.
48
EPI (Holdings) Limited Annual Report 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2.5 Foreign currency translation
(a)
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the
primary economic environment in which the entity operates (“the functional currency”). The Company’s functional
currency is United States dollars (“US$”) and since the Company’s shares are listed on the Main Board of the Stock
Exchange, the Board of Directors considered that it is more appropriate to adopt HK$ as the Group’s and the
Company’s presentation currency in the preparation of the consolidated financial statements.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are presented in the consolidated profit or loss within “other gains, net”.
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit
or loss are recognised in consolidated profit or loss as part of the fair value gain or loss. Translation differences on
non-monetary financial assets are included in other comprehensive income.
(c) Group companies
The results and financial position of all the Group’s entities (none of which has the currency of a hyper-inflationary
economy) that have a functional currency different from the presentation currency are translated into the presentation
currency as follows:
(i)
assets and liabilities for each statement of financial position presented are translated at the closing rate at the
date of that statement of financial position;
(ii)
income and expenses for each profit or loss are translated at average exchange rates (unless this average
is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in
which case income and expenses are translated at the rate on the dates of the transactions); and
(iii)
all resulting currency translation differences are recognised in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of
the foreign entity and translated at the closing rate. Currency translation differences arising are recognised in other
comprehensive income.
EPI (Holdings) Limited Annual Report 2013 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
2.6 Exploration and evaluation assets
Oil and gas exploration and evaluation expenditures are accounted for using the successful efforts method of accounting.
Costs are accumulated on a field-by-field basis. Geological and geophysical costs are expensed as incurred. Costs
directly associated with an exploration well, and exploration and property leasehold acquisition costs, are capitalised
within exploration and evaluation assets until the determination of reserves is evaluated. If it is determined that commercial
discovery has not been achieved, these costs are charged to expense.
Once commercial reserves are found, exploration and evaluation assets are tested for impairment and transferred to
construction in progress under property, plant and equipment. No depreciation and depletion is charged during the
exploration and evaluation phase.
Exploration and evaluation assets are tested for impairment when reclassified to construction in progress, or whenever
facts and circumstances indicate impairment. An impairment loss is recognised for the amount by which the exploration
and evaluation assets’ carrying amount exceeds their recoverable amount. The recoverable amount is the higher of the
exploration and evaluation assets’ fair value less costs of disposal and their value in use.
2.7 Oil and gas properties
Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the
drilling of commercially proven development wells, is capitalised within construction in progress under property, plant and
equipment. When development is completed on a specific field, it is transferred to oil and gas properties. No depreciation
and depletion is charged during the development phase.
Oil and gas production properties are aggregated exploration and evaluation assets and development expenditures
associated with the production of proved reserves.
Oil and gas properties are depreciated and depletion using the unit-of-production method. Unit-of-production rates are
based on proved developed reserves, which are oil, gas and other mineral reserves estimated to be recovered from existing
facilities using current operating methods. Oil and gas volumes are considered to be part of production once they have
been measured through meters at custody transfer or sales transaction points at the outlet valve on the field storage tank.
Proven oil and gas properties are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal
and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows.
50
EPI (Holdings) Limited Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
2.8 Property, plant and equipment
Property, plant and equipment, including oil and gas properties (Note 2.7), is stated at historical cost less depreciation,
depletion and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be
measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged
to the consolidated profit or loss during the financial period in which they are incurred.
Except for oil and gas properties (Note 2.7) and construction in progress, depreciation is calculated using the straight-line
method to allocate their cost to their residual values over their estimated useful lives ranging from 3 to 5 years.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount (Note 2.9).
Construction in progress includes property, plant and equipment for production or for its own use purposes. Construction
in process in respect of exploratory wells is classified to oil and gas properties when production of oil starts. Construction
in progress in respect of other assets is classified to the appropriate category of property, plant and equipment when
construction is completed and the asset is ready for intended use.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are recognised within
“other gains, net” in the consolidated profit or loss.
2.9
Impairment of non-financial assets
Assets that are subject to depreciation, depletion or amortisation are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the
amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an
asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped
at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets that
suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
EPI (Holdings) Limited Annual Report 2013 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
2.10 Financial assets
2.10.1 Classification
The Group classifies its financial assets in the following categories: held-for-trading investments and loans and
receivables. The classification depends on the purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial recognition.
(a) Held-for-trading investments
Held-for-trading investments are financial assets held for trading. A financial asset is classified in this category
if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for
trading unless they are designated as hedges. Such derivatives are classified as current assets if expected to
be settled within 12 months; otherwise, they are classified as non-current.
(b)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They are included in current assets, except for the amounts that are settled or
expected to be settled more than 12 months after the end of the reporting period. These are classified as non-
current assets. The Group’s loans and receivables comprise “trade and other receivables” and “cash and cash
equivalents” in the consolidated statement of financial position (Notes 2.14 and 2.15).
2.10.2 Recognition and measurement
Regular way purchases and sales of financial assets are recognised on the trade-date – the date on which the Group
commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all
financial assets not carried at fair value through profit or loss. Held-for-trading investments are initially recognised at
fair value, and transaction costs are expensed in the consolidated profit or loss. Financial assets are derecognised
when the rights to receive cash flows from the investments have expired or have been transferred and the Group has
transferred substantially all risks and rewards of ownership. Held-for-trading investments are subsequently carried at
fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method.
Gains or losses arising from changes in the fair value of the “held-for-trading investments” category are presented
in the consolidated profit or loss within “fair value (losses)/gains on financial instruments” in the period in which they
arise.
2.11 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position
when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis
or realise the asset and settle the liability simultaneously.
52
EPI (Holdings) Limited Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
2.12 Impairment of financial assets
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group
of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred
only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition
of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial
asset or group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial
difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other
financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future
cash flows, such as changes in arrears or economic conditions that correlate with defaults.
For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred)
discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the
amount of the loss is recognised in the consolidated profit or loss. If a loan has a variable interest rate, the discount rate for
measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient,
the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of
the previously recognised impairment loss is recognised in the consolidated profit or loss.
2.13 Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-
measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the item being hedged.
Changes in the fair value of derivative instruments not qualified for hedge accounting are recognised immediately in the
consolidated profit or loss.
2.14 Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of
business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the
business if longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method, less allowance for impairment.
EPI (Holdings) Limited Annual Report 2013 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
2.15 Cash and cash equivalents
In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. In the
consolidated and entity statement of financial position, bank overdrafts are shown within borrowings in current liabilities.
2.16 Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
2.17 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business
from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal
operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method.
2.18 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at
amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in
the consolidated profit or loss over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is
probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To
the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as
a pre-payment for liquidity services and amortised over the period of the facility to which it relates.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability
for at least 12 months after the end of the reporting period.
2.19 Borrowing costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to
the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying
assets is deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in consolidated profit or loss in the period in which they are incurred.
54
EPI (Holdings) Limited Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
2.20 Compound financial instruments
Compound financial instruments issued by the Group comprise convertible notes that can be converted to share capital at
the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.
The derivative component of the convertible notes is recognised initially at fair value. The liability component is recognised
initially at the difference between the fair value of the convertible notes as a whole and the fair value of the derivative
component. Any directly attributable transaction costs are allocated to the derivative financial liability and the liability
components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost
using the effective interest method. The derivative are subsequently measured at fair value and any gains or losses derived
from its changes are recognised in the consolidated profit or loss.
The liability component of a convertible instrument is classified as current unless the Group has an unconditional right to
defer settlement of the liability for at least 12 months after the end of the reporting period.
2.21 Current and deferred income tax
The tax expense for the year comprises current and deferred tax. Tax is recognised in the consolidated profit or loss,
except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the
tax is also recognised in other comprehensive income or directly in equity, respectively.
(a) Current income tax
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the
date of the statement of financial position in the countries where the Group operates and generates taxable income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected
to be paid to the tax authorities.
(b) Deferred income tax
Inside basis differences
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However,
deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill, the deferred income tax
is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income
tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the date of the
statement of financial position and are expected to apply when the related deferred income tax asset is realised or
the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilised.
EPI (Holdings) Limited Annual Report 2013 55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
2.21 Current and deferred income tax – continued
(b) Deferred income tax – continued
Outside basis differences
Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries,
except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the
Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets are recognised on deductible temporary differences arising from investments in
subsidiaries only to the extent that it is probable the temporary difference will reverse in the future and there is
sufficient taxable profit available against which the temporary difference can be utilised.
(c) Offsetting
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income tax levied
by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to
settle the balances on a net basis.
2.22 Employee benefits
The Group maintains a number of defined contribution plans in the countries in which it operates, the assets of the
retirement benefit are generally held in separate trustees-administered funds. The retirement plans are generally funded by
payments from employees and by the Group.
(a) Pension obligations
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity.
The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient
assets to pay all employees the benefits relating to employee service in the current and prior periods.
The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory,
contractual or voluntary basis. The Group has no further payment obligations once the contributions have been
paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are
recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
(b) Profit-sharing and bonus plans
The Group recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into
consideration the profit attributable to the owners of the Company after certain adjustments. The Group recognises a
provision where contractually obliged or where there is a past practice that has created a constructive obligation.
(c) Employee leave entitlements
Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the
estimated liability for annual leave as a result of services rendered by employees up to the end of reporting period.
Employee entitlements to sick leave and maternity leave are not recognised until the time of leave.
56
EPI (Holdings) Limited Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
2.23 Share-based payments
The Group operates an equity-settled, share-based compensation scheme, under which the entity receives services from
employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received
in exchange for the grant of the options is recognised as an expense. Share options issued to non-employees are for
exchange for goods or services and are measured at the fair value of the goods or services received, unless the fair value
cannot be reliably measured, in which case the goods or services received are measured by reference to the fair value
of the share options granted. The fair value of the services is recognised as expenses while the fair value of the goods is
recognized as assets. The total amount to be expensed is determined by reference to the fair value of the options granted:
–
–
including any market performance conditions (for example, an entity’s share price);
excluding the impact of any service and non-market performance conditions (for example, profitability, sales growth
targets and remaining an employee of the entity over a specified time period); and
–
including the impact of any non-vesting conditions (for example, the requirement for employees to save).
Non-market performance and service conditions are included in assumptions about the number of options that are
expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified
vesting conditions are to be satisfied.
In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant
date fair value is estimated for the purposes of recognising the expense during the period between service commencement
period and grant date.
At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest
based on the non-marketing performance and service conditions. It recognises the impact of the revision to original
estimates, if any, in the consolidated profit or loss, with a corresponding adjustment to equity.
When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable
transaction costs are credited to share capital (nominal value) and share premium.
When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously
recognised in share option reserve will continue to be held in share option reserve.
The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the
Group is treated as a capital contribution. The fair value of employee services received, measured by reference to the
grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a
corresponding credit to equity in the parent entity accounts.
EPI (Holdings) Limited Annual Report 2013 57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
2.24 Provisions
The Group is required to make payments for restoration and rehabilitation of the land at the end of the productive life of oil
and gas fields. Provisions for restoration are recognised when: the Group has a present legal or constructive obligation as a
result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has
been reliably estimated. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to
any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a
pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The
increase in the provision due to passage of time is recognised as interest expense.
Restoration cost is recorded in the period in which the obligation is identified and is capitalised to the costs of oil and gas
properties. This cost is charged to consolidated profit or loss through depreciation of the assets, which are depreciated
using the unit-of-production method based on the actual production volume over the expected reserves of the developed
wells.
2.25 Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for
goods supplied, stated net of discounts, returns and value added taxes. The Group recognises revenue when the amount
of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when
specific criteria have been met for each of the Group’s activities, as described below. The Group bases its estimates of
return on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each
arrangement.
Sales of goods are recognised when goods are delivered and title has passed.
Interest income from a financial asset excluding financial assets at fair value through profit or loss is accrued on a time
basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly
discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying
amount on initial recognition.
Dividend income is recognised when the shareholders’ right to receive payment is established.
2.26 Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the
consolidated profit or loss on a straight-line basis over the period of the lease.
58
EPI (Holdings) Limited Annual Report 2013
2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
2.27 Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be
received and the Group will comply with all attached conditions.
Government grants relating to costs are deferred and recognised in the consolidated profit or loss over the period
necessary to match them with the costs that they are intended to compensate.
Government grants relating to property, plant and equipment are included in non-current liabilities as deferred government
grants and are credited to the consolidated profit or loss on a straight-line basis over the expected lives of the related
assets.
2.28 Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s and the Company’s
financial statements in the period in which the dividends are approved by the Company’s shareholders or directors, where
appropriate.
3
FINANCIAL RISK MANAGEMENT
3.1 Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, cash flow and
fair value interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme
focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial
performance.
(a) Market risk
(i)
Foreign exchange risk
The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect
to HK$ and Argentina peso (“ARS”). The Group considers there is no significant exposure to foreign exchange
fluctuations so long as the Hong Kong-United States dollar exchange rate remains pegged. At 31 December
2013, the Group has minimal exposure to foreign currency risk with respect to ARS as most of the financial
assets and liabilities held by the Group’s overseas subsidiaries and their future commercial transactions are
denominated in the respective local currency of such subsidiaries. The Group currently does not have a formal
foreign currency hedging policy. However, management monitors foreign exchange exposure and will consider
hedging significant foreign currency exposure should the need arises.
EPI (Holdings) Limited Annual Report 2013 59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
3
FINANCIAL RISK MANAGEMENT – CONTINUED
3.1 Financial risk factors – continued
(a) Market risk – continued
(ii)
Price risk
The Group is engaged in a wide range of petroleum-related activities. Prices of crude oil and petroleum
products are affected by a wide range of global and domestic factors which are beyond the control of the
Group. The fluctuations in such prices may have favourable or unfavourable impacts to the Group. The Group
did not enter into any material hedging of its price risk during the year.
The Group is exposed to the risk of fluctuations in prevailing market commodity prices of metals as the Group
entered into metals purchase and sale contracts with its suppliers and customers. The Group manages these
commodity price risks through entering into metals purchase and sales contracts with short delivery time.
Accordingly, the Group minimises its exposure to such risk and is subject to short term price fluctuations in the
prevailing market commodity prices in the intervening periods between entering into the metals purchase and
sales contracts.
The Group is also exposed to equity securities price risk because of the Group’s issuance of warrants and
derivative component of convertible notes. If the input of the Company’s share price to the valuation models of
the warrants and derivative component of the convertibles notes had been higher/lower while all other variables
held constant, the loss for the year ended 31 December 2013 would increase/decrease.
(iii) Cash flow and fair value interest rate risk
The Group’s interest rate risk arises from borrowings. Borrowings obtained at variable rates expose the Group
to cash flow interest rate risk which is partially offset by cash held at variable rates. Borrowings obtained at
fixed rates expose the Group to fair value interest rate risk. The Group currently does not have an interest rate
hedging policy. However, management monitors interest rate exposure and will consider hedging significant
interest rate exposure should the need arise.
The Company’s amounts due from subsidiaries were interest-free, and expose the Company to fair value
interest rate risk.
At 31 December 2013, if interest rates on US$-denominated bank borrowings had been 50 basis points (2012:
50 basis point) higher/lower with all other variables held constant, post-tax loss for the year would have been
HK$1,125,000 (2012: HK$1,469,000) higher/lower, mainly as a result of higher/lower interest expense on
floating rate borrowings.
60
EPI (Holdings) Limited Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
3
FINANCIAL RISK MANAGEMENT – CONTINUED
3.1 Financial risk factors – continued
(b) Credit risk
As at 31 December 2013, the Group’s maximum exposure to credit risk which may cause a financial loss to the
Group due to failure to discharge an obligation by the counterparties is arising from the carrying amount of the
respective recognised financial assets as stated in the consolidated statement of financial position.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by
international credit-rating agencies and state-owned banks with good reputation.
With respect to credit risk arising from other receivables, the Group’s exposure to credit risk from default of
counterparties are limited as the counterparties have good credit standing and the Group does not expect any
significant loss for uncollected advances from these entities.
The Group’s concentration of credit risk for trade receivables by geographical locations is mainly in Argentina, which
accounted for 100% (2012: 100%) of the total trade receivables as at 31 December 2013. For the year ended 31
December 2013, the entire Group’s revenue was derived from one customer (2012: 93% of the Group’s revenue
was derived from the customer). The Group had concentration of credit risk as 100% (2012: 100%) of the total trade
receivables was due from the Group’s only customer as at 31 December 2013. In order to minimise the credit risk,
management of the Group has delegated a team responsible for determination of credit limits, credit approvals and
other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group
reviews regularly the recoverable amount of each individual trade receivable to ensure that adequate impairment
losses are made for irrecoverable amounts. In determining whether allowance for bad and doubtful debts is required,
the Group has taken into consideration the aging status and the likelihood of collection. Following the identification of
doubtful debts, the directors discuss with the relevant customers and report on the recoverability. Specific allowance
is only made for trade and other receivables that is unlikely to be collected. In this regard, the management considers
that the Group’s credit risk is significantly reduced.
(c)
Liquidity risk
The Group’s liquidity risk management involves maintaining sufficient cash and cash equivalents and internally
generated funds and funds arose from financing activities, such as issue of convertible notes or equity instruments, if
necessary.
The table below analyses the Group’s and the Company’s non-derivative financial liabilities and net-settled derivative
financial liabilities into relevant maturity groupings based on the remaining period at the date of statement of financial
position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash
flows.
EPI (Holdings) Limited Annual Report 2013 61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
3
FINANCIAL RISK MANAGEMENT – CONTINUED
3.1 Financial risk factors – continued
(c)
Liquidity risk – continued
Weighted
On demand
Total
average
or less than
1 to 6
7 months
1 to
Over 5 undiscounted
interest
%
1 month
HK$’000
months
HK$’000
to 1 year
HK$’000
5 years
HK$’000
years
cash flows
HK$’000
HK$’000
Carrying
amount
HK$’000
N/A
N/A
4. 35%
24%
37.34%
3,050
2,322
–
–
–
5,372
N/A
N/A
34,447
42,784
4.53%
25.29%
23.41%
–
–
–
–
–
–
2,049
–
2,049
–
–
–
–
–
–
–
66,476
242,151
–
–
–
110,000
66,476
352,151
–
–
–
–
–
–
–
–
–
–
–
–
36,826
253,025
57,073
45,512
–
–
24,278
–
–
–
–
3,050
2,322
308,627
2,049
110,000
3,050
2,322
273,000
2,000
84,054
426,048
364,426
34,447
42,784
346,924
45,512
24,278
34,447
42,784
296,400
42,408
20,993
77,231
45,512
61,104
253,025
57,073
493,945
437,032
Group
At 31 December 2013
Non-derivative financial liabilities
Trade payables
Other payables
Borrowings
– variable-rate
– fixed-rate
Convertible notes
Group
At 31 December 2012
Non-derivative financial liabilities
Trade payables
Other payables
Borrowings
– variable-rate
– fixed-rate
Convertible notes
Note: As the conversion feature in convertible notes and warrants issued (if exercised) would be settled by shares of the Company, they are not
included in the maturity table above.
A payable of HK$104,140,000 (2012: HK$104,140,000) arisen from the financial guarantee provided by the Company to third parties in respect
of a bank loan (Note 26 and 33), is interest free and payable in the event that the Company defaults on the repayment of the bank borrowings.
62
EPI (Holdings) Limited Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
3
FINANCIAL RISK MANAGEMENT – CONTINUED
3.1 Financial risk factors – continued
(c)
Liquidity risk – continued
Weighted
On demand
average
or less than
1 to 6
7 months
Total
undiscounted
interest rate
%
1 month
HK$’000
months
HK$’000
to 1 year
1 to 5 years Over 5 years
cash flows
HK$’000
HK$’000
HK$’000
HK$’000
Company
At 31 December 2013
Non-derivative financial liabilities
Other payables
Amount due to subsidiaries
Borrowings
– variable-rate
– fixed-rate
Convertible notes
Company
At 31 December 2012
Non-derivative financial liabilities
Other payables
Amount due to subsidiaries
Borrowings
– variable-rate
– fixed-rate
Convertible notes
N/A
N/A
2,322
90,814
4.35%
24%
37.34%
–
–
–
93,136
N/A
N/A
19,469
90,986
4.53%
25.29%
23.41%
–
–
–
–
–
–
2,049
–
2,049
–
–
–
–
–
–
–
66,476
242,151
–
–
–
110,000
66,476
352,151
–
–
–
–
–
–
–
–
–
–
–
–
36,826
253,025
57,073
45,512
–
–
24,278
–
–
–
–
Carrying
amount
HK$’000
2,322
90,814
273,000
2,000
84,054
2,322
90,814
308,627
2,049
110,000
513,812
452,190
19,469
90,986
346,924
45,512
24,278
19,469
90,986
296,400
42,408
20,993
110,455
45,512
61,104
253,025
57,073
527,169
470,256
Note: As the conversion feature in convertible notes and warrants issued (if exercised) would be settled by shares of the Company, they are not
included in the maturity table above.
A payable of HK$104,140,000 (2012: HK$104,140,000) arisen from the financial guarantee provided by the Company to third parties in respect
of a bank loan (Note 26 and 33), is interest free and payable in the event that the Company defaults on the repayment of the bank borrowings.
EPI (Holdings) Limited Annual Report 2013 63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
3
FINANCIAL RISK MANAGEMENT – CONTINUED
3.2 Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in
order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to
reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group does not have a target gearing ratio, but has a policy of maintaining a flexible financing structure so as to be
able to take advantage of new investment opportunities that may arise.
3.3 Fair value estimation
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been
defined as follows:
–
–
Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level 2).
–
Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The following table presents the Group’s financial assets and liabilities that are measured at fair value on recurring basis at
31 December 2013.
Assets
Held-for-trading investments
–Trading securities
Total assets
Liabilities
Derivatives financial instruments
– Convertible note – conversion component
– Warrants
Total liabilities
Level 1
Level 2
Level 3
Total
HK$’000
HK$’000
HK$’000
HK$’000
98
98
–
–
–
–
–
–
–
–
–
–
98
98
38,152
20,751
58,903
38,152
20,751
58,903
64
EPI (Holdings) Limited Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
3
FINANCIAL RISK MANAGEMENT – CONTINUED
3.3 Fair value estimation – continued
The following table presents the Group’s financial assets and liabilities that are measured at fair value on recurring basis at
31 December 2012.
Assets
Held-for-trading investments
–Trading securities
Total assets
Liabilities
Derivatives financial instruments
Convertible note – conversion component
Total liabilities
Level 1
Level 2
Level 3
Total
HK$’000
HK$’000
HK$’000
HK$’000
37
37
–
–
–
–
4,934
4,934
–
–
–
–
37
37
4,934
4,934
There were no transfers among levels 1, 2 and 3 during the year.
(a)
Financial instruments in level 1
The fair value of financial instruments traded in active markets is based on quoted market prices at the date of the
statement of financial position. A market is regarded as active if quoted prices are readily and regularly available from
an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual
and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial
assets held by the Group is the current bid price. These instruments are included in level 1. Instruments included in
level 1 comprise primarily Hong Kong Stock Exchange equity investments classified as trading securities.
(b)
Financial instruments in level 2
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter
derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable
market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument is included in level 2.
(c)
Financial instruments in level 3
Specific valuation techniques used to value financial instruments include the use of appropriate valuation techniques.
Such techniques include using recent arm’s length market transactions; reference to the current market value of
another instrument which is substantially the same; a discounted cash flow analysis; and option pricing models.
EPI (Holdings) Limited Annual Report 2013 65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
3
FINANCIAL RISK MANAGEMENT – CONTINUED
3.3 Fair value estimation – continued
(c)
Financial instruments in level 3 – continued
The following table presents the changes in level 3 instruments for the year ended 31 December 2013
2011 CN-
2013 CN-
conversion
conversion
component
component
(Note 27)
(Note 27)
Warrants
Total
HK$’000
HK$’000
HK$’000
HK$’000
4,934
–
–
–
(4,934)
–
59,899
(25,229)
3,482
–
–
14,752
(2,689)
8,688
–
4,934
74,651
(27,918)
12,170
(4,934)
–
38,152
20,751
58,903
–
–
(12,464)
(5,999)
(18,463)
21,746
(5,999)
15,747
1 January 2013
At issue day
Gain recognised in profit and loss
Amortisation of deferred loss on
conversion component and warrants
Conversion
31 December 2013
Total loss for the year included in
profit or loss for liabilities held at
the end of the year
Changes in unrealised gains or losses
for the year included in profit or loss
at the end of the year
The higher the Company’s share price and the expected volatility used in determining the fair value of the level 3
instruments, the higher the fair value of these instruments.
The lower the interest-free rate used in determining the fair value of the level 3 instruments, the lower the fair value of
these instruments.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
66
EPI (Holdings) Limited Annual Report 2013
4
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom
equal the related actual results. 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 year are addressed below.
(a)
Impairment of other receivables
The Group’s management determines the provision for impairment of other receivables based on an assessment of the
recoverability of the receivables. The assessment is based on the credit history of its customers and other debtors and the
current market condition and requires the use of judgments and estimates. Management reassesses the provision at each
of the date of statement of financial position.
(b) Estimation of petroleum reserves
Estimates of petroleum reserves are key elements in the Group’s investment decision-making process. They are also an
important element in testing for impairment. Changes in proved petroleum reserves, particularly proved developed reserves,
will affect unit-of-production depreciation and depletion recorded in the Group’s consolidated financial statements for
property, plant and equipment related to oil and gas production activities. A reduction in proved developed reserves will
increase depreciation and depletion charges. Proved reserve estimates are subject to revision, either upward or downward,
based on new information, such as from development drilling and production activities or from changes in economic
factors, including product prices, contract terms or development plans.
(c)
Impairment of exploration and evaluation assets and oil and gas properties under in property, plant
and equipment
The carrying amounts of the exploration and evaluation assets and oil and gas properties under property, plant and
equipment are assessed for impairment when facts and circumstances suggest that the carrying amounts of them may
exceed their recoverable amounts. The Group’s determination as to whether they are impaired requires an estimation of the
recoverable amount of the assets. The Group relied on experts to assess the geological prospects for the discovery of oil
in the oil field and estimated the value of oil to be produced in the future at a suitable discount rate in order to calculate the
present value. For drilling costs and other exploration and evaluation assets, the Group determined whether the related well
costs are expensed if it is determined that such economic viability is not attained after performing further feasibility studies.
Judgement is required by the directors to determine key assumptions adopted in the cash flow projections and changes to
key assumptions can significantly affect these cash flow projections and therefore the results of the impairment reviews.
Details of the key assumptions adopted and the corresponding impact are set out in Note 15.
EPI (Holdings) Limited Annual Report 2013 67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
4
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS – CONTINUED
(d) Fair value of warrant
The fair value of warrants issued requires judgment in determining the expected volatility of the share price, the dividends
expected on the shares, the risk-free interest rate during the life of the warrants. Details of the assumptions used in
determining the fair value of the warrants are set out in Note 28.
(e) Fair value of convertible notes and the embedded conversion options
The fair value of convertible notes and the embedded conversion options are determined using valuation techniques
including reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing
model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a
degree of judgement is required in establishing fair values. Details of the assumptions used in determining the fair value of
the convertible notes and the embedded conversion options are set out in Note 27.
(f) Accounting for the convertible notes and warrants issued during the year ended 31 December 2013
For the convertible notes and warrants issued during the year ended 31 December 2013 (the “Instruments”) with fair
values substantially higher than the identifiable consideration received, management is required to apply judgement in
determining the accounting for the Instruments either under ‘share-based payments’ or ‘compound financial instruments’.
If the Instruments are issued, with the intention, for services to be received or received by the Group, the Instruments are
accounted for under ‘share-based payments’. Otherwise, the Instruments are accounted for under ‘compound financial
instruments’. As the Instruments are issued for the purpose of capital financing and are not issued for services to be
received or received by the Group, the differences between the fair values and the consideration received with respect
to the Instruments are accounted for in accordance with their intended purposes which are disclosed in Note 27 for the
convertible notes and Note 28 for the warrants.
(g) Recognition of share-based payments
The Group’s employees have participated in a share-based incentive scheme of the Company. Management of the Group
have used the Binomial Model to determine the total value of the share options granted, which is based on fair value and
various attributes of the underlying shares of the Company. Significant estimates and assumptions are required to be made
in determining the parameters for applying the Binomial Model, including estimates and assumptions regarding the risk-
free rate of return, expected dividend yield and volatility of the underlying shares and the expected life of the share options.
In addition, the Group is required to estimate the expected percentage of grantees that will remain in employment or terms
with the Group at the end of the vesting period. The Group only recognises an expense for those share options expected
to vest over the vesting period during which the grantees become unconditionally entitled to these share-based awards.
Changes in these estimates and assumptions could have a material effect on the determination of the fair value of the share
options and the amount of such share-based awards expected to become vested, which may in turn significantly impact
the determination of the share-based payments.
68
EPI (Holdings) Limited Annual Report 2013
4
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS – CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
(h) Current and deferred income tax
The Group is subject to income taxes in various jurisdictions. Judgement is required in determining the provision for income
taxes in these jurisdictions. There are transactions and calculations during the ordinary course of business for which the
ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were
initially recorded, such differences will impact the income tax and deferred income tax provisions in the period in which such
determination is made.
Deferred income tax assets relating to certain temporary differences and tax losses are recognised when management
considers it is probable that future taxable profits will be available against which the temporary differences or tax losses
can be utilised. When the expectation is different from the original estimate, such differences will impact the recognition of
deferred income tax assets and taxation charges in the period in which such estimate is changed.
5
REVENUE AND SEGMENT INFORMATION
The Group is principally engaged in the petroleum exploration and production, and metals transactions. Turnover and revenue for
the year comprise the following:
Sales of petroleum
Income from metals transactions
2013
HK$’000
2012
HK$’000
89,853
–
89,853
80,854
5,828
86,682
The Chief Executive Officer is the Group’s chief operating decision-maker. Management has determined the operating segments
based on the information reviewed by the Chief Executive Officer for the purposes of allocating resources and assessing
performance.
The Chief Executive Officer considers the business from both a geographic and product perspective. Geographically,
management considers the performance in the People’s Republic of China (the “PRC”), Argentina and Hong Kong. From a
product perspective, management separately considers the activities of petroleum exploration and production, and metal
transactions in these geographies. The Group has activities of petroleum exploration and production in Argentina, and activities of
metal transactions in the PRC and Hong Kong.
The Group presented the following two reportable segments:
–
–
Petroleum exploration and production
Metals transactions
The Chief Executive Officer assesses the performance of the operating segments based on a measure of segment results. This
measurement basis excludes the effects of non-recurring expenses from the operating segments such as legal expenses and
impairments when the impairment is the result of an isolated, non-recurring event. The measure also excludes the effects of
equity-settled share-based payments and unrealised gains/losses on financial instruments. Interest income and expenses are not
allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the
Group.
EPI (Holdings) Limited Annual Report 2013 69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
5
REVENUE AND SEGMENT INFORMATION – CONTINUED
For the year ended 31 December 2013
Petroleum
exploration and
Metals
production
transactions
HK$’000
HK$’000
Total
HK$’000
Segment revenue (external sales)
89,853
–
89,853
Results
Segment results excluding impairment
Impairment losses
Segment loss
Unallocated other gains and losses
Unallocated corporate expenses
Finance costs
Loss before income tax
4,408
(493,308)
(1,091)
(13,966)
3,317
(507,274)
(488,900)
(15,057)
(503,957)
13,360
(144,817)
(43,757)
(679,171)
For the year ended 31 December 2012
Petroleum
exploration and
Metals
production
transactions
HK$’000
HK$’000
Total
HK$’000
Segment revenue (external sales)
80,854
5,828
86,682
Results
Segment results excluding impairment
Impairment losses
Segment loss
Unallocated other gains and losses
Unallocated corporate expenses
Finance costs
Loss before income tax
(5,463)
(3,263,012)
(148)
–
(5,611)
(3,263,012)
(3,268,475)
(148)
(3,268,623)
1,724
(39,865)
(34,925)
(3,341,689)
70
EPI (Holdings) Limited Annual Report 2013
5
REVENUE AND SEGMENT INFORMATION – CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
Assets
Petroleum exploration and production
Metals transactions
Total segment assets
Unallocated
Consolidated assets
Liabilities
Petroleum exploration and production
Metals transactions
Total segment liabilities
Unallocated
Consolidated liabilities
2013
HK$’000
2012
HK$’000
422,002
200,838
622,840
53,503
867,089
201,014
1,068,103
68,604
676,343
1,136,707
10,904
6
10,910
447,247
46,378
16,781
63,159
399,946
458,157
463,105
For the purposes of monitoring segment performances and allocating resources between segments:
–
all assets are allocated to reportable segments other than other tax recoverables, held-for-trading investments and assets
used jointly by reportable segments.
–
all liabilities are allocated to reportable segments other than convertible notes, borrowings, derivative financial liabilities and
liabilities for which reportable segments are jointly liable.
For the year ended 31 December 2013
Petroleum
exploration and
Metals
production
transactions Unallocated
Segment
total
HK$’000
HK$’000
HK$’000
HK$’000
26,473
27,307
–
–
1,247
136
–
13,966
442,197
51,111
–
–
–
–
–
27,720
27,443
13,966
442,197
51,111
Amounts included in the measure of segment
profit or loss or segment assets:
Capital expenditure
Depreciation and depletion
Impairment loss of other receivable
Impairment loss recognised in respect of
exploration and evaluation assets
Impairment loss recognised in respect of
property, plant and equipment
EPI (Holdings) Limited Annual Report 2013 71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
5
REVENUE AND SEGMENT INFORMATION – CONTINUED
For the year ended 31 December 2012
Petroleum
exploration and
Metals
production
transactions
Unallocated
Segment
total
HK$’000
HK$’000
HK$’000
HK$’000
26,321
37,265
3,130,106
132,906
–
1
–
–
231
108
–
–
26,552
37,374
3,130,106
132,906
Amounts included in the measure of segment
profit or loss or segment assets:
Capital expenditure
Depreciation and depletion
Impairment loss recognised in respect of
exploration and evaluation assets
Impairment loss recognised in respect of
property, plant and equipment
The Group’s revenue from external customers based on the location of customers and information about its non-current assets,
excluding other tax recoverables, by geographical location of the assets are detailed below:
Argentina
Others
Revenue from
external customers
Non-current assets
2013
2012
2013
2012
HK$’000
HK$’000
HK$’000
HK$’000
89,853
–
80,854
5,828
358,480
1,249
852,623
301
89,853
86,682
359,729
852,924
For the year ended 31 December 2013, external revenue of approximately HK$89,853,000 (2012: HK$80,854,000) is generated
from one major customer which accounts for 10% or more of the Group’s external revenue. The revenue is attributable to
petroleum exploration and production segment.
72
EPI (Holdings) Limited Annual Report 2013
6 OTHER GAINS, NET
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
Other interest income
Imputed interest on other tax recoverables
Total interest income
Government grants (Note)
Exchange gains/(losses), net
(Loss)/gain on disposal of property, plant and equipment
Gain on disposal of available-for-sale financial assets
Others
Note:
The amount represented government subsidy obtained for the Group’s petroleum exploration and production in Argentina.
7
STAFF COSTS (INCLUDING DIRECTORS’ EMOLUMENTS)
Wages and salaries
Pension costs – defined contribution plans (Note (a))
Share-based payments (Note 24)
Notes:
(a)
Pension costs – defined contribution plans
2013
HK$’000
2012
HK$’000
1
–
1
13,313
328
(164)
–
211
13,688
43
6,327
6,370
14,746
(8,878)
962
1,566
747
9,143
13,689
15,513
2013
HK$’000
2012
HK$’000
23,780
182
32,239
56,201
16,752
157
–
16,909
With effect from 1 December 2000, a Mandatory Provident Fund scheme (the “MPF Scheme”) has been set up for employees in Hong Kong in accordance with
the Mandatory Provident Fund Scheme Ordinance. Commencing on 1 December 2000, the existing employees in Hong Kong may elect to join the MPF Scheme,
and all new employees in Hong Kong are required to join the MPF Scheme. Under the rules of the MPF Scheme, the employer and its employees in Hong Kong
are each required to contribute 5% of their gross earnings with a current ceiling of HK$1,250 per month to the MPF Scheme. The only obligation of the Group
with respect to the MPF Scheme is to make the required contributions under the scheme. No forfeited contribution is available to reduce the contribution payable
in the future years. The MPF contributions charged to the profit or loss represent the contributions paid or payable to the funds by the Group.
The Group also participates in the employees’ pension schemes of the respective municipal governments in the countries where the Group operates. The Group
makes monthly contributions calculated as a percentage of the monthly basic salary and the relevant municipal government undertakes to assume the retirement
benefit obligations of all existing and future retirees of the Group.
The Group has no other obligations for the payment of pension and other post-retirement benefits of employees other than the above contributions.
EPI (Holdings) Limited Annual Report 2013 73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
7
STAFF COSTS (INCLUDING DIRECTORS’ EMOLUMENTS) – CONTINUED
Notes: – continued
(b)
Directors’ and chief executive officer emoluments
The remuneration paid or payable to each of the directors and the Chief Executive Officer for the year ended 31 December 2013 is set out below:
Name
Executive directors
Tse Kwok Fai, Sammy (Note (ii))
Chan Chi Hung, Anthony (Note (iii))
Allan Ritchie (Note (iv))
Chu Kwok Chi, Robert (Note (v))
Hong Kin Choy (Note (vi))
Independent non-executive directors
Ho King Fung, Eric (Note (vii))
Lam Ting Lok (Note (viii))
Qian Zhi Hui
Zhu Tiansheng
Cheung Yuk Ming (Note (ix))
Total emoluments
Salaries
and other
benefits
(Note (i))
HK$’000
Other emoluments
Share-based
payments
HK$’000
Retirement
benefits
scheme
contributions
HK$’000
Fees
HK$’000
–
–
–
–
–
450
90
150
150
75
915
2,130
276
658
561
890
–
–
–
–
–
4,515
7,392
4,449
3,072
–
–
12,378
–
–
–
–
27,291
11
8
–
5
6
–
–
–
–
–
30
The remuneration paid or payable to each of the directors and the Chief Executive Officer for the year ended 31 December 2012 is set out below:
Name
Executive directors
Chu Kwok Chi, Robert (Note (v))
Hong Kin Choy (Note (vi))
Independent non-executive directors
Cheung Yuk Ming (Note (ix))
Qian Zhi Hui
Zhu Tiansheng
Total emoluments
Salaries
and other
benefits
(Note (i))
HK$’000
Other emoluments
Share-based
payments
HK$’000
Retirement
benefits
scheme
contributions
HK$’000
910
1,552
–
–
–
2,462
–
–
–
–
–
–
14
13
–
–
–
27
Fees
HK$’000
–
–
150
150
150
450
Total
HK$’000
9,533
4,733
3,730
566
896
12,828
90
150
150
75
32,751
Total
HK$’000
924
1,565
150
150
150
2,939
Tse Kwok Fai, Sammy (2012: Chu Kwok Chi, Robert) is also the Chief Executive Officer of the Company in 2013 and his emoluments disclosed above include
those for services rendered by him as the chief executive.
There was no arrangement under which a director and the Chief Executive Officer waived or agreed to waive remuneration during both years. In addition,
no remuneration was paid by the Group to any of the directors and the Chief Executive Officer as an inducement to join, or upon joining the Group or as
compensation for loss of office.
Notes:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
Other benefits mainly comprise leave pay and quarter expenses.
Appointed on 9 April 2013.
Appointed on 16 July 2013.
Appointed on 4 April 2013 and resigned on 29 November 2013.
Resigned on 9 April 2013.
Resigned on 3 June 2013.
Appointed on 4 April 2013.
Appointed on 4 April 2013 and resigned on 10 January 2014.
Retired on 3 July 2013.
74
EPI (Holdings) Limited Annual Report 2013
7
STAFF COSTS (INCLUDING DIRECTORS’ EMOLUMENTS) – CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
Notes: – continued
(c)
Five highest paid individuals
The five individuals whose emoluments were the highest in the Group for the year include four (2012: two) directors whose emoluments are reflected in the
analysis presented above. The emoluments payable to the remaining one (2012: three) individual during the year are as follows:
Salaries, allowances and benefits in kind
Pension costs – defined contribution plans
Share-based payments
The emoluments fell within the following bands:
Emolument bands
Nil-HK$1,000,000
HK$4,000,001-HK$5,000,000
8
IMPAIRMENT LOSSES
Impairment loss of exploration and evaluation assets (Note 15)
Impairment loss of property, plant and equipment (Note 16)
(Reversal of impairment loss)/impairment loss of other tax recoverables (Note 18)
Impairment loss of other receivable (Note 20)
9
FAIR VALUE (LOSSES)/GAINS ON FINANCIAL INSTRUMENTS
Fair value (loss)/gain on derivative component of convertible notes
Fair value gain/(loss) on held-for-trading investments
Fair value loss on warrants
2013
HK$’000
2012
HK$’000
1,610
9
2,474
4,093
2,749
14
–
2,763
Number of individuals
2013
2012
–
1
1
3
–
3
2013
HK$’000
2012
HK$’000
442,197
51,111
(660)
13,966
3,130,106
132,906
3,616
–
506,614
3,266,628
2013
HK$’000
2012
HK$’000
(12,464)
61
(5,999)
(18,402)
378
(15)
–
363
EPI (Holdings) Limited Annual Report 2013 75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
10 FINANCE COSTS
Interest on borrowings wholly repayable within five years:
Bank borrowings and overdrafts
Other loans
Interest on borrowings not wholly repayable within five years:
Bank borrowings
Effective interest expense on convertible notes
Compensation charge for late payments to supplier in relation to
petroleum exploration and production
11 LOSS BEFORE INCOME TAX
2013
HK$’000
2012
HK$’000
14,345
9,292
–
20,120
–
43,757
2
8,987
13,281
9,031
3,624
34,925
2013
HK$’000
2012
HK$’000
Loss before income tax has been arrived after charging the following items:
Auditor’s remuneration
Minimum lease payments under operating leases in respect of office properties and buildings
Share-based payments granted to consultants (Note 24)
Professional fees
2,500
2,524
16,730
14,401
3,050
3,289
–
8,200
12
INCOME TAX EXPENSE
No provision for Hong Kong profits tax has been made in these financial statements as the Group did not have assessable profits
arising in Hong Kong for the year (2012: Nil).
Argentina income tax is calculated at 35% (2012: 35%) of assessable profit for the year. No provision for Argentina income tax
has been made as there is no assessable profits arising in Argentina for the year.
2013
HK$’000
2012
HK$’000
–
–
–
–
–
(311)
(1,026)
(1,337)
(9,014)
(10,351)
Current tax:
Hong Kong profits tax – under provision in prior years
Argentina income tax
Total current tax
Deferred tax
Income tax expense
76
EPI (Holdings) Limited Annual Report 2013
12
INCOME TAX EXPENSE – CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
The tax on the Group’s loss before income tax differs from the theoretical amount that would arise using the domestic tax rates
applicable to loss of the consolidated entities are as follows:
Loss before income tax
Tax calculated at weighted average tax rates applicable to profits in the respective countries
Income not subject to tax
Expenses not deductible for tax purpose
Tax losses for which no deferred income tax asset was recognised
Others
Tax charge
The gross movements in the deferred tax liabilities account are as follows:
At 1 January
Charged to the consolidated profit or loss
Credited to other comprehensive income upon disposal of available-for-sale investments
At 31 December
2013
HK$’000
2012
HK$’000
(679,171)
(3,341,689)
123,894
4,180
(112,396)
(15,707)
29
–
543,323
5,426
(549,319)
(9,536)
(245)
(10,351)
Group
2013
HK$’000
2012
HK$’000
–
–
–
–
3,296
(9,014)
5,718
–
The movements in deferred tax assets and (liabilities) during the year, without taking into consideration the offsetting of balances
within the same tax jurisdiction, are as follows:
Withholding
Accrued
tax
expenses
Tax losses
Total
HK$’000
HK$’000
HK$’000
HK$’000
At 1 January 2012
Credited/(charged) to the consolidated profit or loss
Credited to other comprehensive income
At 31 December 2012 and 2013
(5,718)
–
5,718
–
(856)
856
–
–
9,870
(9,870)
–
–
3,296
(9,014)
5,718
–
At 31 December 2013, the Group had unused tax losses of HK$257,889,000 (2012: HK$199,292,000) available for offset against
future profits. No deferred tax asset has been recognised in respect of the unused tax losses due to the unpredictability of future
profit streams. Included in unused tax losses are losses of HK$47,899,000 (2012: HK$61,915,000) that will expire within 5 years.
All other tax losses may be carried forward indefinitely.
EPI (Holdings) Limited Annual Report 2013 77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
13 LOSSES PER SHARE
(a) Basic
Basic losses per share is calculated by dividing the loss for the year attributable to owners of the Company by the weighted
average number of ordinary shares in issue during the year.
2013
HK$’000
2012
HK$’000
Loss for the year attributable to owners of the Company
(679,171)
(3,352,040)
Weighted average number of ordinary shares in issue
3,544,464
2,670,736
’000
’000
(b) Diluted
Diluted losses per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume
conversion of all potential dilutive ordinary shares. The Company has three (2012: two) categories of potential dilutive
ordinary shares: warrants, convertible notes and share options (2012: convertible notes and share options). The convertible
notes are assumed to have been converted into ordinary shares, and the net loss is adjusted to eliminate the interest
expense less the tax effect. For the share options and warrants (2012: share options), a calculation is done to determine
the number of shares that could have been acquired at fair value (determined as the average annual market share price of
the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The
number of shares calculated as above is compared with the number of shares that would have been issued assuming the
exercise of the share options and warrants.
These potential dilutive ordinary shares were anti-dilutive for the years ended 31 December 2013 and 2012.
14 DIVIDEND
The Board does not recommend the payment of a dividend during the year (2012: Nil).
78
EPI (Holdings) Limited Annual Report 2013
15 EXPLORATION AND EVALUATION ASSETS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
Cost
At 1 January
Write-off
Transfer to property, plant and equipment (Note 16)
At 31 December
Impairment
At 1 January
Charged to consolidated profit or loss (Note 8)
At 31 December
Net book amount
At 1 January
At 31 December
Note:
Group
2013
HK$’000
2012
HK$’000
3,778,574
3,837,156
–
–
(50,700)
(7,882)
3,778,574
3,778,574
3,130,106
442,197
–
3,130,106
3,572,303
3,130,106
648,468
206,271
3,837,156
648,468
The balance relates to exploration and evaluation assets in respect of oil exploration rights through the participating interest in the Puesto Pozo Cercado Concession and
Chañares Herrados Concession (together, the “Concessions”) in the Cuyana Basin, Mendoza Province, Argentina, covering a total surface area of approximately 169.4
and 40 square kilometers respectively.
The Puesto Pozo Cercado Concession and Chañares Herrados Concession were awarded to Chañares Herrados Empresa de Trabajos Petroleros S.A. (“Chañares”), the
concessionaire, and the terms of these oil exploration and production concessions are 25 years commencing from 26 June 1992 and 24 September 1992, respectively,
with the possibility of obtaining a 10-year extension under certain conditions.
In 2011, Chañares obtained an extension of 10 years from the date of expiry of the original term of the Concessions under a Decree dated 30 June 2011 issued by the
Executive of the Province of Mendoza.
Since 2012 onwards, the Argentina government has been taking more drastic measures to ensure growth and keeping the currency stable, such as import restrictions
and severe capital controls. These policies are exacerbating economic stagnation and leading to political unrest. As a result, the Directors of the Company decided to
delay the Group’s overall drilling plan to later years until the investment climate in Argentina is improved. The deferral of drilling plans had a significant impact on the net
present value of the cash flows of the oil and gas fields. Accordingly impairment losses of HK$3,130,106,000 and HK$132,906,000 were recognised in respect of the
Group’s exploration and evaluation assets and oil and gas properties under property, plant and equipment, respectively during the year ended 31 December 2012.
During the year ended 31 December 2013, the economic and politic environment in Argentina remained uncertain. With reference to certain future oil price forecast, the
Directors expect that there would be a high probability of deterioration in the growth of future oil price outlook. Taking into account of potential acquisition opportunity
identified by the Group, the Directors decided to further delay the Group’s overall drilling plan to later years. As a result, the Directors conducted a review of the Group’s
petroleum exploration and production business in Argentina and determined that the Group’s exploration and evaluation assets, and oil and gas properties under
property, plant and equipment should be further impaired.
The above changes in oil price outlook and the Group’s deferral in the Argentina investment plan would have a significant impact to the timing and amount of expected
future cash flows from the operation as well as the recoverable amount of the exploration and evaluation assets, and oil and gas properties under property, plant and
equipment of the Group. Consequently, impairment losses of HK$442,197,000 and HK$51,111,000 were recognised in respect of the Group’s exploration and evaluation
assets and oil and gas properties under property, plant and equipment, respectively, during the year ended 31 December 2013.
The recoverable amounts of the exploration and evaluation assets and oil and gas properties under property, plant and equipment were determined from value in use
calculations based on a cash flow projection derived from estimated oil reserve at the Concessions up to the expiry of the concession right in 2027 at a discount rate of
17.7% (2012: 14.1%) for exploration and evaluation assets and 17.0% (2012: 14.1%) for oil and gas properties under property, plant and equipment respectively.
The relevant pre-tax discount rates used in these value in use calculation for exploration and evaluation assets and oil and gas properties under property, plant and
equipment are 27.2% (2012: 21.7%) and 26.2% (2012: 21.7%) respectively.
The key assumptions for the value in use calculation are those regarding the discount rates, production decline rates and expected changes in future oil prices. The
expected future West Texas Intermediate spot oil prices for the next five years range from US$89.87 to US$100.45 per barrel (2012: US$105.89 to US$125.48 per barrel)
are with reference to industry forecasts.
Should the future oil price be further decreased by 5% (2012: 15%), the carrying amount of the exploration and evaluation assets would be impaired in full. For oil and
gas properties under property, plant and equipment, if the expected future oil price be further decreased by 5% (2012: 15%) the Group would have recognised further
impairment of HK$10,442,000 (2012: HK$50,348,000).
Should the discount rate used in the value in use calculations for exploration and evaluation assets and oil and gas properties under property, plant and equipment had
been one percentage point higher, additional impairment of HK$79,856,000 (2012: HK$160,090,000) and HK$8,255,000 (2012: HK$12,262,000) would have been
recognised respectively.
EPI (Holdings) Limited Annual Report 2013 79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
16 PROPERTY, PLANT AND EQUIPMENT
Group
Company
Oil and gas
properties
Construction
Others
in progress
HK$’000
HK$’000
HK$’000
Total
HK$’000
Others
HK$’000
338,916
(51,125)
(34,023)
253,768
253,768
26,281
–
93,340
–
(36,909)
(132,906)
203,574
458,537
(88,034)
(166,929)
203,574
203,574
26,324
–
(27,081)
(51,111)
151,706
484,861
(115,115)
(218,040)
151,706
3,350
(1,733)
–
1,617
1,617
271
–
–
(541)
(465)
–
882
2,453
(1,571)
–
882
882
1,396
(164)
(362)
–
1,752
3,411
(1,659)
–
1,752
85,458
–
–
427,724
(52,858)
(34,023)
85,458
340,843
85,458
–
7,882
(93,340)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
340,843
26,552
7,882
–
(541)
(37,374)
(132,906)
204,456
460,990
(89,605)
(166,929)
204,456
204,456
27,720
(164)
(27,443)
(51,111)
153,458
488,272
(116,774)
(218,040)
153,458
1,337
(958)
–
379
379
215
–
–
(250)
(108)
–
236
997
(761)
–
236
236
1,247
(150)
(102)
–
1,231
2,048
(817)
–
1,231
At 1 January 2012
Cost
Accumulated depreciation
Accumulated impairment losses
Net book amount
Year ended 31 December 2012
Opening net book amount
Additions
Transfer from exploration and
evaluation assets (Note 15)
Transfer
Disposals
Depreciation and depletion
Impairment loss (Notes 8 and 15)
Closing net book amount
At 31 December 2012
Cost
Accumulated depreciation
Accumulated impairment losses
Net book amount
Year ended 31 December 2013
Opening net book amount
Additions
Disposals
Depreciation and depletion
Impairment loss (Notes 8 and 15)
Closing net book amount
At 31 December 2013
Cost
Accumulated depreciation
Accumulated impairment losses
Net book amount
80
EPI (Holdings) Limited Annual Report 2013
17
INVESTMENTS IN AND AMOUNTS DUE FROM/TO SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
Investments, at cost:
Unlisted shares
Amounts due from subsidiaries (Note (a))
Less: Provision for impairment (Note (b))
Company
2013
HK$’000
2012
HK$’000
8
8
4,770,141
4,691,094
(4,054,602)
(3,552,335)
715,539
1,138,759
Amounts due to subsidiaries (Note (a))
90,814
90,986
Investments in the Group undertakings are recorded at cost, which is the fair value of the consideration paid.
Notes:
(a)
(b)
The amounts due from/to subsidiaries are unsecured, interest-free and repayable on demand and majority of the balances are denominated in HK$.
Movements in the provision for the impairment of amounts due from subsidiaries are as follows:
At 1 January
Recognition of impairment loss
At 31 December
(c)
The following is a list of the principal subsidiaries at 31 December 2013:
Company
2013
HK$’000
3,552,335
502,267
4,054,602
2012
HK$’000
231,160
3,321,175
3,552,335
Name
Place of
incorporation/
operations
EP Energy S.A.
Argentina
EPI Metals Limited
Hong Kong
Nominal value of
issued and fully paid
ordinary share/
registered capital
ARS298,583
HK$1
Principal activities
Petroleum exploration
and production
Metals transactions
and trading of
petroleum related
products
Have Result Investments Limited
British Virgin
Islands/Argentina
Petroleum exploration
and production
US$10,000
Attributable
proportion of
nominal value of
issued/registered
capital indirectly
held by the Company
100%
100%
100%
The above table lists the subsidiaries of the Group which, in the opinion of the Directors, principally affected the results or net assets of the Group. To give details
of other subsidiaries would, in the opinion of the Directors, result in particulars of excessive length.
None of the subsidiaries had any debt securities outstanding at the end of the year, or at any time during the year.
EPI (Holdings) Limited Annual Report 2013 81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
18 OTHER TAX RECOVERABLES
Total other tax recoverables
Less: Current portion
Non-current portion
Group
2013
HK$’000
2012
HK$’000
41,295
(12,753)
28,542
62,431
(13,553)
48,878
Pursuant to the relevant rules and regulation in Argentina, value-added tax on expenditure incurred in drilling and purchasing
property, plant and equipment relating to the petroleum exploration and production operation in Argentina can be used to offset
value-added tax arising from the future sales of petroleum. Management estimated the recoverable amount of the value-added
tax based on future revenue which the Group expects to be generated from sales of petroleum, with reference to the current
exploration and evaluation stages of the oil field and oil production from wells. During the year ended 31 December 2013, a
reversal of impairment loss on recoverable value-added tax expense of HK$660,000 (2012: impairment loss of HK$3,616,000)
was recognised in profit and loss (Note 8). The Directors of the Company expected that an amount of HK$28,542,000 (2012:
HK$48,878,000) will be recovered from the sales of petroleum after twelve months from the date of statement of financial position
and, accordingly, classified the amount as non-current assets.
19 FINANCIAL INSTRUMENTS BY CATEGORY
As at 31 December 2013
Assets as per consolidated statement of financial position
Trade and other receivables excluding prepayments
Held-for-trading investments
Cash and cash equivalents
Total
As at 31 December 2013
Liabilities as per consolidated statement of financial position
Borrowings
Convertible notes
Derivative financial liabilities
Trade and other payables excluding non-financial liabilities
Total
82
EPI (Holdings) Limited Annual Report 2013
Group
Held-for-
trading
Loans and
receivables
investments
HK$’000
HK$’000
Total
HK$’000
26,378
–
48,029
74,407
–
98
–
98
26,378
98
48,029
74,505
Group
Liabilities
at fair value Other financial
through
liabilities at
profit or loss amortised cost
HK$’000
HK$’000
–
–
58,903
–
275,000
84,054
–
33,187
Total
HK$’000
275,000
84,054
58,903
33,187
58,903
392,241
451,144
19 FINANCIAL INSTRUMENTS BY CATEGORY – CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
As at 31 December 2012
Assets as per consolidated statement of financial position
Trade and other receivables excluding prepayments
Held-for-trading investments
Cash and cash equivalents
Total
As at 31 December 2012
Liabilities as per consolidated statement of financial position
Borrowings
Convertible notes
Trade and other payables excluding non-financial liabilities
Total
As at 31 December 2013
Assets as per statement of financial position
Other receivables excluding prepayments
Amounts due from subsidiaries
Cash and cash equivalents
Total
Group
Held-for-
trading
Loans and
receivables
investments
HK$’000
HK$’000
Total
HK$’000
218,610
–
2,680
221,290
–
37
–
37
218,610
37
2,680
221,327
Group
Liabilities
at fair value
Other financial
through
liabilities at
profit or loss
amortised cost
HK$’000
HK$’000
Total
HK$’000
–
4,934
–
4,934
338,808
20,993
90,996
338,808
25,927
90,996
450,797
455,731
Company
Held-for-
trading
Loans and
receivables
investments
HK$’000
HK$’000
Total
HK$’000
596
715,539
21,179
737,314
–
–
–
–
596
715,539
21,179
737,314
EPI (Holdings) Limited Annual Report 2013 83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
19 FINANCIAL INSTRUMENTS BY CATEGORY – CONTINUED
Company
Liabilities
at fair value Other financial
through
liabilities at
profit or loss amortised cost
HK$’000
HK$’000
–
–
58,903
–
–
275,000
84,054
–
6,454
90,814
Total
HK$’000
275,000
84,054
58,903
6,454
90,814
As at 31 December 2013
Liabilities as per statement of financial position
Borrowings
Convertible notes
Derivative financial liabilities
Other payables excluding non-financial liabilities
Amount due to subsidiaries
Total
58,903
456,322
515,225
Company
Held-for-
trading
Loans and
receivables
investments
HK$’000
HK$’000
Total
HK$’000
5,611
1,138,759
143
1,144,513
–
–
–
–
5,611
1,138,759
143
1,144,513
Company
Liabilities
at fair value
Other financial
through
liabilities at
profit or loss
amortised cost
HK$’000
HK$’000
Total
HK$’000
–
4,934
–
–
338,808
338,808
20,993
30,691
90,986
25,927
30,691
90,986
4,934
481,478
486,412
As at 31 December 2012
Assets as per statement of financial position
Other receivables excluding prepayments
Amounts due from subsidiaries
Cash and cash equivalents
Total
As at 31 December 2012
Liabilities as per statement of financial position
Borrowings
Convertible notes
Other payables excluding non-financial liabilities
Amount due to subsidiaries
Total
84
EPI (Holdings) Limited Annual Report 2013
20 TRADE AND OTHER RECEIVABLES AND PREPAYMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
Trade receivables (Note (a))
Prepayments to a metal supplier
Amount due from a former director (Note (b))
Other receivables and prepayments (Note (c))
Group
Company
2013
2012
2013
2012
HK$’000
HK$’000
HK$’000
HK$’000
4,716
200,810
–
21,666
3,945
–
5,091
209,599
227,192
218,635
–
–
596
596
–
5,091
520
5,611
Notes:
(a)
The Group allows on average credit period of 30 to 60 days to its trade customers. At the discretion of the Directors, several major customers are allowed to
settle their balances beyond the normal credit terms up to 180 days. The trade receivables of HK$4,716,000 (2012: HK$3,945,000) were neither past due nor
impaired and aged within 30 days based on the invoice date.
Before accepting any new customer, the Group assesses the potential customer’s credit quality and defines credit limits by customer. Limits and credit quality
attributed to customers are reviewed regularly. Receivables that were neither past due nor impaired relate to customer for whom there was no recent history of
default.
The carrying amount of trade and other receivables and prepayments are denominated in currencies:
ARS
US$
HK$
RMB
Group
2013
HK$’000
25,722
–
660
200,810
227,192
2012
HK$’000
11,607
200,984
6,044
–
218,635
Company
2013
HK$’000
2012
HK$’000
–
–
596
–
596
–
–
5,611
–
5,611
(b)
Amount due from a former director represented the advance from Wong Chi Wing, Joseph ("Mr. Wong"), who resigned as an executive director of the Company
on 20 December 2011, and he pledged certain assets as security. During the year ended 31 December 2013, Mr. Wong repaid the amount in full and the
pledged security was released accordingly.
Particulars of the amount due from a former director are as follows:
Former director
Terms
Balance at
31 December 2013
HK$’000
Balance at
1 January 2013
HK$’000
Maximum
amount
outstanding
during
the year
HK$’000
Wong Chi Wing, Joseph
Unsecured, interest-free and
repayable on demand
–
5,091
5,091
(c)
As at 31 December 2012, included in the balance was a receivable arising from metal sales contract amounting to HK$200,984,000. During the year ended 31
December 2013, an amount to the extent of HK$187,018,000 was received by the Group and the remaining balance of HK$13,966,000 (Note 8) was provided
for.
Movements in the Group’s allowance for impairment of other receivables are as follows:
At 1 January
Provision for impairment
At 31 December
2013
HK$’000
–
13,966
13,966
2012
HK$’000
–
–
–
(d)
(e)
The other classes within trade and other receivables do not contain impaired assets.
The maximum exposure to credit risk at the date of statement of financial position is the carrying value of each class of receivables mentioned above. As at 31
December 2013, the Group does not hold any collateral as security.
EPI (Holdings) Limited Annual Report 2013 85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
21 HELD-FOR-TRADING INVESTMENTS
Listed securities – held-for-trading at fair value
– Equity securities – Hong Kong
Group
2013
HK$’000
2012
HK$’000
98
37
Held-for-trading investments are presented within “operating activities” as part of changes in working capital in the consolidated
statement of cash flows (Note 31).
Changes in fair values of held-for-trading investments are recorded in “fair value (losses)/gains on financial instruments” in the
consolidated profit or loss (Note 9).
The fair value of all equity securities is based on their current bid prices in an active market.
22 CASH AND CASH EQUIVALENTS
Group
Company
2013
2012
2013
2012
HK$’000
HK$’000
HK$’000
HK$’000
Cash at banks and on hand
48,029
2,680
21,179
143
Bank balances carry interest at market rates which range from 0.01% to 1.25% (2012: 0.01% to 1.25%) per annum.
The carrying amount of cash and cash equivalents are denominated in currencies:
ARS
US$
HK$
Group
Company
2013
2012
2013
2012
HK$’000
HK$’000
HK$’000
HK$’000
9,267
16,402
22,360
48,029
2,351
208
121
2,680
11
62
21,106
21,179
–
97
46
143
86
EPI (Holdings) Limited Annual Report 2013
23 SHARE CAPITAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
Authorised:
Ordinary shares of HK$0.10 each
At 1 January, 31 December 2012 and 2013
Issued and fully paid:
Ordinary shares of HK$0.10 each
At 1 January 2012
Issue of new shares upon placement (Note (a))
Issue of new shares upon placements (Note (b))
Issue of share upon conversion of convertible notes (Note (c))
At 31 December 2012
Issue of new shares upon placement (Note (d))
Issue of new shares upon placement (Note (e))
Issue of share upon conversion of convertible notes (Note (f))
Issue of shares upon exercise of share options (Note (g))
At 31 December 2013
Number of Nominal value
ordinary
of ordinary
shares
’000
shares
HK$’000
10,000,000
1,000,000
2,150,878
215,088
330,000
360,000
289,500
33,000
36,000
28,950
3,130,378
313,038
125,000
650,000
124,500
140,000
12,500
65,000
12,450
14,000
4,169,878
416,988
Notes:
(a)
On 9 May 2012, the Company completed a placement of 330,000,000 ordinary shares of HK$0.10 each (the “First Subscription Shares”) at a subscription price
of HK$0.15 per share to City Wise Investment Limited (“City Wise"), a company controlled by Wu Shaozhang (“Mr. Wu”), a shareholder of the Company. The First
Subscription Shares were issued under the general mandate granted to the Directors of the Company on 29 September 2011. Accordingly, 330,000,000 shares
of HK$0.10 each were issued at a premium of HK$0.05 each. The premium on issue of shares of HK$16,500,000 was credited to the share premium account.
(b)
On 11 July 2012, the Company completed a placement of 250,000,000 ordinary shares of HK$0.10 each (the “Second Subscription Shares”) at a subscription
price of HK$0.155 per share to City Wise. The Second Subscription Shares were issued under the general mandate granted to the directors of the Company on
8 June 2012.
On 17 July 2012, the Company completed a placement of 110,000,000 ordinary shares of HK$0.10 each at a placing price of HK$0.155 per share to
independent third parties under the general mandate granted to the Directors of the Company on 8 June 2012.
Accordingly, 250,000,000 shares and 110,000,000 shares of HK$0.10 each were issued at a premium of HK$0.055 each on 11 July and 17 July 2012
respectively. The premium on issue of shares of HK$19,800,000 was credited to the share premium account.
(c)
(d)
(e)
(f)
(g)
During the year ended 31 December 2012, 289,500,000 shares of HK$0.10 each were issued upon conversion of 2011 convertible notes (“2011 CN”) with an
aggregate principal amount of HK$43,425,000.
On 1 March 2013, the Company completed a placement of 125,000,000 ordinary shares of HK$0.10 each (the “March 2013 Placing Shares”) at a placing price
of HK$0.18 per share to independent third parties. Accordingly, 125,000,000 shares of HK$0.10 each were issued at a premium of HK$0.08 each. The premium
on issue of shares of HK$10,000,000 was credited to the share premium account. The Company also issued unlisted warrants (“Warrants”), on the basis of 5
Warrants for each March 2013 Placing Share issued. Details of the Warrants are set out in Note 28.
On 27 August 2013, the Company completed a placement of 650,000,000 ordinary shares of HK$0.10 each at a placing price of HK$0.19 per share to
independent third parties. Accordingly, 650,000,000 shares of HK$0.10 each were issued at a premium of HK$0.09 each. The premium on issue of shares of
HK$58,500,000 was credited to the share premium account.
During the year ended 31 December 2013, 124,500,000 shares of HK$0.10 each were issued upon conversion of 2011 CN with an aggregate principal amount
of HK$18,675,000.
During the year ended 31 December 2013, the Company allotted and issued 140,000,000 shares of HK$0.10 each for cash at the exercise price of HK$0.141
per share as a result of the exercise of options under the share option scheme approved by the shareholders of the Company.
(h)
All shares issued by the Company in 2012 and 2013 rank pari passu in all respects with the existing shares.
EPI (Holdings) Limited Annual Report 2013 87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
24 SHARE OPTIONS
The Company’s share option scheme (the “Scheme”) was adopted for a period of 10 years commencing 6 November 2006
pursuant to an ordinary resolution passed at the special general meeting of the shareholders held on 6 November 2006 for the
purpose of providing incentives or rewards to selected employees and Directors for their contribution to the Group.
Under the Scheme, the Company may grant options to selected Directors and employees of the Company and its subsidiaries to
subscribe for shares in the Company. Additionally, the Company may, from time to time, grant share options to eligible suppliers,
customers, advisors and consultants to the Company and its subsidiaries at the discretion of the Board of Directors of the
Company.
The total number of shares in respect of which options may be granted under the Scheme is not permitted to exceed 10% of the
shares of the Company in issue at any point of time, without prior approval from the Company’s shareholders. The number of
shares issued and to be issued in respect of which options granted and may be granted to any individual in any one year is not
permitted to exceed 1% of the shares of the Company in issue at any point in time, without prior approval from the Company’s
shareholders. Options granted to substantial shareholders, independent non-executive directors, or any of their respective
associates (including a discretionary trust whose discretionary objects include substantial shareholders, independent non-
executive directors, or any of their respective associates) in excess of 0.1% of the Company’s share capital or with a value in
excess of HK$5,000,000 must be also approved by the Company’s shareholders.
The exercise price of the share options is determinable by the Directors, but may not be less than the highest of: (i) the Stock
Exchange closing price of the Company’s shares on the date of the offer of the share options which must be a business day; (ii)
the average Stock Exchange closing price of the Company’s shares for the five trading days immediately preceding the date of
the offer; and (iii) the nominal value of the Company’s shares.
As at 31 December 2013, options to subscribe for an aggregate of 703,000,000 shares (2012: 152,379,999 shares) of the
Company granted to the directors, certain employees and other participants pursuant to the Scheme remained outstanding.
88
EPI (Holdings) Limited Annual Report 2013
24 SHARE OPTIONS – CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
Details of the movements in the number of share options during the year ended 31 December 2013 under the Scheme are as
follows:
Option type
Date of grant
Employees:
A
B
C
N
Directors:
D
E
F
J
K
L
M
10 February 2010
10 February 2010
10 February 2010
25 November 2013
19 March 2010
19 March 2010
19 March 2010
11 April 2013
(Note 1)
30 July 2013
(Note 2)
30 July 2013
(Note 2)
30 July 2013
(Note 2)
Suppliers and others:
A
10 February 2010
B
C
G
H
I
N
O
10 February 2010
10 February 2010
11 October 2011
11 April 2013
11 April 2013
(Note 3)
25 November 2013
25 November 2013
Exercisable
period
(both dates
inclusive)
10 February 2010 –
9 February 2013
10 November 2010 –
9 February 2013
10 August 2011 –
9 February 2013
25 November 2013 –
24 November 2016
19 March 2010 –
9 February 2013
10 November 2010 –
9 February 2013
10 August 2011 –
9 February 2013
3 July 2013 –
10 April 2016
16 September 2013 –
29 July 2016
16 September 2014 –
29 July 2016
16 September 2015 –
29 July 2016
10 February 2010-
9 February 2013
10 November 2010-
9 February 2013
10 August 2011-
9 February 2013
11 October 2011 –
10 October 2013
11 April 2013 –
10 April 2016
11 April 2013 –
28 February 2014
25 November 2013 –
24 November 2016
25 February 2014 –
24 November 2016
Outstanding
at
1 January
2013
Granted
during
the year
Exercised
during
the year
Outstanding
Lapsed
at
during 31 December
2013
the year
Exercise
price
HK$
1.564
2,096,667
1.564
2,096,667
1.564
2,096,667
–
–
–
0.219
–
64,000,000
–
–
–
–
(2,096,667)
(2,096,667)
(2,096,667)
–
–
–
–
64,000,000
6,290,001
64,000,000
–
(6,290,001)
64,000,000
1.610
1.610
1.610
0.255
0.206
0.206
0.206
90,000
90,000
90,000
–
–
–
–
88,000,000
– 147,500,000
–
–
73,750,000
73,750,000
270,000 383,000,000
1.564
1,939,999
1.564
1,939,999
1.564
1,940,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(90,000)
(90,000)
(90,000)
–
–
–
–
88,000,000
– 147,500,000
–
–
73,750,000
73,750,000
(270,000) 383,000,000
(1,939,999)
(1,939,999)
(1,940,000)
–
–
–
–
0.141
140,000,000
–
(140,000,000)
–
0.255
0.255
0.219
0.219
– 128,000,000
–
–
–
32,000,000
32,000,000
64,000,000
–
–
–
–
128,000,000
–
–
–
32,000,000
32,000,000
64,000,000
145,819,998 256,000,000
(140,000,000)
(5,819,998) 256,000,000
152,379,999 703,000,000
(140,000,000)
(12,379,999) 703,000,000
EPI (Holdings) Limited Annual Report 2013 89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
24 SHARE OPTIONS – CONTINUED
Details of the movements in the number of share options during the year ended 31 December 2012 under the Scheme are as
follows:
Option type
Date of grant
(both dates inclusive)
price
HK$
2012
Exercisable period
Exercise
1 January
Outstanding
at
Granted
during
the year
Outstanding
Lapsed
at
during
31 December
the year
2012
Employees:
A
B
C
Directors:
D
E
F
10 February 2010
10 February 2010 –
1.564
2,096,667
9 February 2013
10 February 2010
10 November 2010 –
1.564
2,096,667
9 February 2013
10 February 2010
10 August 2011 –
1.564
2,096,667
9 February 2013
19 March 2010
19 March 2010 –
9 February 2013
6,290,001
1.610
90,000
19 March 2010
10 November 2010 –
1.610
90,000
9 February 2013
19 March 2010
10 August 2011 –
1.610
90,000
9 February 2013
270,000
Suppliers and others:
A
B
C
G
10 February 2010
10 February 2010 –
1.564
1,939,999
9 February 2013
10 February 2010
10 November 2010 –
1.564
1,939,999
9 February 2013
10 February 2010
10 August 2011 –
1.564
1,940,000
9 February 2013
11 October 2011
11 October 2011 –
0.141
140,000,000
10 October 2013
145,819,998
152,379,999
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,096,667
2,096,667
2,096,667
6,290,001
90,000
90,000
90,000
270,000
1,939,999
1,939,999
1,940,000
140,000,000
145,819,998
152,379,999
90
EPI (Holdings) Limited Annual Report 2013
24 SHARE OPTIONS – CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
Pursuant to the resolution of the Company passed on, 11 April, 3 July, 16 September and 25 November 2013, 160,000,000,
88,000,000, 295,000,000 and 160,000,000 share options were granted to directors and employees as well as certain consultants
of the Company, respectively under the Scheme.
The closing price of the Company’s shares on the approval date on 11 April, 3 July, 16 September and 25 November 2013, the
respective dates of grant of the options, were HK$0.255, HK$0.243, HK$0.234 and HK$0.215, respectively.
The Binominal model has been used to estimate the fair value of the options. The variables and assumptions used in computing
the fair value of the share options are based on the independent professional valuer’s best estimate. The value of an option varies
with different variables of certain subjective assumptions. The estimated fair values of the options on their respective grant dates
are as follows:
Option type
Grant date
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
10 February 2010
10 February 2010
10 February 2010
19 March 2010
19 March 2010
19 March 2010
11 October 2011
11 April 2013
11 April 2013 (note 3)
11 April 2013 (note 1)
30 July 2013 (note 2)
30 July 2013 (note 2)
30 July 2013 (note 2)
25 November 2013
25 November 2013
Fair value
HK$
0.372
0.417
0.459
0.384
0.425
0.469
0.0469
0.096
0.096
0.084
0.093
0.095
0.098
0.077
0.077
The inputs into the model in respect of the share options granted during the year ended 31 December 2013 were as follows:
H
I
J
K
L
M
N
O
Option type
Share price on grant date (HK$)
Exercise price (HK$)
Expected volatility
Expected life (years)
Risk-free rate
0.255
0.255
60.22%
3.00
0.19%
0.255
0.255
60.22%
0.88
0.19%
0.243
0.255
58.03%
2.77
0.51%
0.234
0.206
58.19%
2.87
0.54%
0.234
0.206
58.19%
1.87
0.54%
0.234
0.206
58.19%
0.87
0.54%
0.215
0.219
57.77%
3.00
0.37%
0.215
0.219
57.77%
2.75
0.37%
Expected volatility was determined by using the historical volatility of the Company’s share price over the previous five years.
The fair value of the share options granted was HK$48,969,000 (2012: Nil), of which HK$32,239,000 (Note 7) was related
to services provided by the directors and employees of the Company and HK$16,730,000 (Note 11) was related to services
provided by the Group’s consultants for the year ended 31 December 2013. Share based arrangement with consultants were
measured at the fair value of related services rendered.
Note 1: Date of approval by shareholders was 3 July 2013.
Note 2: Date of approval by shareholders was 16 September 2013.
Note 3: The 32,000,000 share options were granted to one of the executive directors on 11 April 2013 and the Director resigned on 29 November 2013. According to the
Scheme, the outstanding number of share options held by the Director can be exercised within 3 months from the date of his resignation. These share options
were classified in the category of “other participants” as at 31 December 2013 in the above table.
EPI (Holdings) Limited Annual Report 2013 91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
25 RESERVES
Contributed
Share
Company
Share
premium
HK$’000
surplus
reserves
HK$’000
option Accumulated
reserves
HK$’000
losses
Total
HK$’000
HK$’000
Balance as at 1 January 2012
3,962,469
60,322
39,747
(385,776)
3,676,762
Loss for the year
Issue of shares upon placements
Share issue expenses
Issue of share upon conversion of
convertible notes
–
36,300
(4,528)
28,437
–
–
–
–
–
–
–
–
(3,391,664)
(3,391,664)
–
–
–
36,300
(4,528)
28,437
Balance as at 31 December 2012
4,022,678
60,322
39,747
(3,777,440)
345,307
Loss for the year
Issue of shares upon placements
Share issue expenses
Issue of shares upon conversion of
convertible notes
Issue of shares upon exercise of
share options
Recognition of equity settled share-based
payments
–
53,748
(5,006)
16,354
12,306
–
–
–
–
–
–
–
–
–
–
–
(6,566)
48,969
(676,022)
(676,022)
–
–
–
–
–
53,748
(5,006)
16,354
5,740
48,969
Balance as at 31 December 2013
4,100,080
60,322
82,150
(4,453,462)
(210,910)
26 BORROWINGS
Bank loan, secured (Note (a))
Other loans, secured (Note (b))
Other loans, unsecured (Note (c))
Less: non-current portion
Current portion
Group and Company
2013
HK$’000
273,000
2,000
–
275,000
(218,400)
2012
HK$’000
296,400
25,000
17,408
338,808
(273,000)
56,600
65,808
On 3 November 2011, the Company entered into a loan agreement with a bank for a term loan facility of US$40,000,000
(approximately HK$312,000,000) for the purpose of funding the project in connection with the petroleum exploration and
production in Argentina or to refinance any debt incurred by the Group for the purpose of this project.
Other loans represent short-term loans from independent third parties.
92
EPI (Holdings) Limited Annual Report 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
26 BORROWINGS – CONTINUED
As 31 December 2013, the Group's and the Company’s borrowings were repayable as follows:
Within 1 year
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Group and Company
Bank loan
Other loans
2013
2012
2013
2012
HK$’000
HK$’000
HK$’000
HK$’000
54,600
54,600
163,800
–
23,400
54,600
163,800
54,600
2,000
42,408
–
–
–
–
–
–
273,000
296,400
2,000
42,408
The carrying amounts of variable-rate borrowings approximate to their fair value and the carrying amount of fixed-rate borrowings
approximate to their fair value as the impact of discounting is not significant.
The carrying amounts of borrowings are denominated in the following currencies:
US$
HK$
Group and Company
2013
HK$’000
273,000
2,000
2012
HK$’000
296,400
42,408
275,000
338,808
The ranges of effective interest rate (which are also equal to contracted interest rates) on the Group's and Company’s borrowings
are as follows:
Fixed-rate borrowings
Variable-rate borrowings
Effective interest rate
Carrying amount
2013
2012
2013
2012
HK$’000
HK$’000
24%
24% to 31%
4.35%
4.53%
2,000
273,000
42,408
296,400
275,000
338,808
Notes:
(a)
(b)
The bank loan is secured by the share capital of certain subsidiaries of the Group and secured by the share capital and instruments of companies in which Mr. Wu (a
substantial shareholder of the Company) has financial interests.
The other loans to the extent of HK$2,000,000 (2012: HK$25,000,000) is secured by the issued shares of the Company registered in the name of a shareholder
of the Company.
(c)
The other loans to the extent of HK$7,728,000 as at 31 December 2012 was guaranteed by Mr. Wu.
EPI (Holdings) Limited Annual Report 2013 93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
27 CONVERTIBLE NOTES
(a) On 2 September 2011, the Company completed a placing agreement pursuant to which the Company agreed to issue zero
coupon convertible notes in an aggregate principal amount of HK$62,100,000 (the “2011 CN”) which could be converted
into ordinary shares of HK$0.10 each of the Company at an initial conversion price of HK$0.15 per share (subject to anti-
dilutive adjustments) through the placing agent to not less than six independent placees.
The 2011 CN is denominated in HK$, maturing on the second anniversary of the issue date of 2 September 2011 (the “2011
Maturity Date”). The Company shall redeem all the 2011 CN on the 2011 Maturity Date at 130% of the principal amount
outstanding. With the holder’s agreement, the Company may at any time and from time to time purchase the outstanding
2011 CN at such price as may be agreed between the Company and the holders thereof. No interest is payable by the
Company unless the Company defaults in payment of any amount due under the 2011 CN in which event default interest at
the rate of 5% per annum is payable on the amount in default.
The holders of the 2011 CN shall, subject to certain conditions, have the right at any time during the conversion period
commencing from the day after the issue date of the 2011 CN up to and including the date which is 7 days prior to the
2011 Maturity Date to convert the whole or part of the principal amount outstanding (in minimum amount of HK$150,000
or whole multiple thereof) under the 2011 CN at an initial conversion price of HK$0.15 per share (subject to anti-dilutive
adjustments) into ordinary shares of the Company.
The 2011 CN contains two components, a liability component and a conversion option. The conversion option gives the
holders right at any time to convert the 2011 CN into ordinary shares of the Company. However, since the conversion
option would be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number
of the Company’s own equity instruments, the conversion option is accounted for as a derivative liability and it is measured
at fair value with subsequent changes in fair value recognised in profit or loss.
The fair value of the liability component upon the issuance of the 2011 CN was calculated at the present value of the
redemption amount, at 130% of the principal amount. The effective interest rate of the liability component is 23.41%.
The fair value of the conversion option was determined using binomial option pricing model, and the inputs into the model
at the relevant dates were as follows:
Conversion price
Share price
Expected volatility
Remaining life
Risk-free rate
Issue date of
2 September
31 December
2011
2012
HK$0.150
HK$0.119
41.868%
2 years
0.2190%
HK$0.150
HK$0.183
34.445%
0.64 year
0.0800%
During the year ended 31 December 2013, the remaining amount of the 2011 CN with an aggregate principal amount of
HK$18,675,000 (2012: HK$43,425,000) were converted by the holders into 124,500,000 (2012: 289,500,000) ordinary
shares at a conversion price of HK$0.15 per ordinary share. The weighted average share price at the date of conversion for
the 2011 CN during the year was HK$0.248 (2012: HK$0.186).
The total fair value of the 2011 CN at 2 September 2011 was HK$62,100,000. For the year ended 31 December 2013, no
gain (2012: a gain of HK$378,000) on derivative component of 2011 CN was recognised in the profit or loss.
94
EPI (Holdings) Limited Annual Report 2013
27 CONVERTIBLE NOTES – CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
(b) On 11 April 2013, the Company completed the subscription agreement pursuant to which the Company agreed to issue
8% convertible notes in an aggregate principal amount of HK$100,000,000 (the “2013 CN”) which could be converted into
ordinary shares of HK$0.10 each of the Company at an initial conversion price of HK$0.19 per share (subject to anti-dilutive
adjustments).
The 2013 CN is denominated in HK$, maturing on the second anniversary of the issue date of 11 April 2013 (the “2013
Maturity Date”). The Company shall redeem all the 2013 CN on the 2013 Maturity Date at 110% of the principal amount
outstanding. With the holder’s agreement, the Company may at any time and from time to time purchase the outstanding
2013 CN at such price as may be agreed between the Company and the holder thereof.
The holders of the 2013 CN shall, subject to certain conditions, have the right at any time during the conversion period
commencing from the day after the issue date of the 2013 CN up to and including the date which is 7 days prior to the
2013 Maturity Date convert the whole or part of the principal amount outstanding under the 2013 at an initial conversion
price of HK$0.19 per share (subject to anti-dilutive adjustments) into ordinary shares of the Company.
The 2013 CN contains two components, a liability component and a conversion option. The conversion option gives the
holders the right at any time to convert the 2013 CN into ordinary shares of the Company. However, since the conversion
option would be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number
of the Company’s own equity instruments, the conversion option is accounted for as a derivative liability and it is measured
at fair value with subsequent changes in fair value recognised at profit or loss.
The fair value of the liability component upon the issuance of the 2013 CN was calculated at the present value of the
redemption amount, at 110% of the principal amount.
The fair value of the conversion option was determined using the binomial option pricing model, and the inputs into the
model at the relevant dates were as follows:
Conversion price
Share price
Expected volatility
Remaining life
Risk-free rate
Issue date of
11 April 2013
31 December
2013
HK$0.190
HK$0.255
59.449%
2 years
0.420%
HK$0.190
HK$0.206
52.840%
1.28 years
0.424%
The liability component and the conversion options are included in "convertible notes" and "derivative financial liabilities" on
the statement of financial position respectively.
The fair value of the 2013 CN at 11 April 2013 amounted to HK$155,219,000. The difference between the fair value of
the 2013 CN and the cash consideration of HK$100,000,000 received to the extent of (i) HK$34,210,000 was recognised
in the profit or loss on the date of issuance as this portion represented the loss which the Company would have incurred
if the 2013 CN was fully converted on the date of issuance; and (ii) HK$21,009,000 was deferred and allocated between
the liability component and conversion option based on the relative fair values of these two components on the date of
issuance of the 2013 CN. The portion allocated to the liability component was recognised over the terms of 2013 CN using
effective interest method whereas the remaining portion allocated to the conversion option was amortised on a straight-
line method over the terms of 2013 CN. The effective interest rate of the liability component is 37.34%. As at 31 December
2013, the unamortised deferred losses amounted to HK$6,146,000 was included in conversion option.
The Company decided to issue 2013 CN, even though the fair value of 2013 CN was higher than the cash consideration,
because the Company required additional capital to finance its general working capital requirements and the potential
acquisition in the coming years.
During the year 2013, none of the 2013 CN was converted into the ordinary shares of the Company.
EPI (Holdings) Limited Annual Report 2013 95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
27 CONVERTIBLE NOTES – CONTINUED
(c)
The movements in the components of the 2011 CN and 2013 CN during the current and prior years are set out below:
2011 CN
2013 CN
Liability Conversion
Liability Conversion
component
component
Total component component
Total
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
At 1 January 2012
56,997
17,664
74,661
Gain on derivative components
recognised in profit and loss
–
(378)
(378)
Conversion during the year
(45,035)
(12,352)
(57,387)
Interest charge
9,031
–
9,031
At 31 December 2012
2013 CN at issue date
Deferred losses upon issuance
Transaction cost
Gain on derivative component
recognised in profit or loss
Amortisation of deferred loss
on conversion component
20,993
4,934
25,927
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Conversion during the year
(23,870)
(4,934)
(28,804)
Interest charge
Interest paid
At 31 December 2013
2,877
–
–
–
–
–
2,877
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
84,089
(11,382)
(1,896)
71,130
155,219
(9,627)
(1,604)
(21,009)
(3,500)
–
–
–
17,243
(4,000)
(25,229)
(25,229)
3,482
–
–
–
3,482
–
17,243
(4,000)
84,054
38,152
122,206
Liability component analysed for reporting purpose as:
Current liabilities (Note)
Non-current liabilities
Note:
Group and Company
2013
HK$’000
2012
HK$’000
8,000
76,054
84,054
25,927
–
25,927
As at 31 December 2013, the amount represented the coupon payments to be made in relation to the 2013 CN within the next twelve months from the date of
statement of financial position.
96
EPI (Holdings) Limited Annual Report 2013
28 DERIVATIVE FINANCIAL LIABILITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
Warrants (Note)
Conversion option of 2013 CN (Note 27)
Note:
Group and Company
2013
HK$’000
2012
HK$’000
20,751
38,152
58,903
–
–
–
As part of the placing agreement of March 2013 Placing Shares, the Company issued unlisted warrants (the “Warrants”) on the
basis of 5 Warrants of each of March 2013 Placing Shares issued, at no initial price. The exercise price of the Warrant was at
HK$0.20 each and could be exercised at any time for period of three years from the issue date.
On the date of issuance, the fair value of the 2013 Placing Shares and Warrants amounted to HK$24,125,000 and
HK$45,938,000, respectively. The difference between the aggregate fair value of the 2013 Placing Shares and the Warrants on
the date of issuance and the total cash consideration of HK$22,500,000 received was deferred and allocated between the 2013
Placing Shares and the Warrants based on the relative fair value of these two instruments on the date of issuance. The portion
to the extent of HK$31,186,000 allocated to the Warrants was recognised over the terms of the Warrants on a straight-line
method and the portion to the extent of HK$7,748,000 allocated to the 2013 Placing Shares is not re-measured subsequent to
initial recognition. As at 31 December 2013, the unamortised deferred losses amounted to HK$22,499,000 was included in the
Warrants.
The Company decided to issue the 2013 Placing Shares and Warrants, even though the fair value of the 2013 Placing Shares and
Warrants were higher than the cash consideration, because the Company was required to raise additional capital to finance its
general working capital requirements and the potential acquisition in the coming years.
The fair value of the Warrants was determined using the black-scholes model and the significant inputs are as follows.
Conversion price
Share price
Expected volatility
Remaining life
Risk-free rate
29 ASSETS RETIREMENT OBLIGATIONS
At 1 January
Adjustments
At 31 December
Issue date
as at 1 March
2013
31 December
2013
HK$0.200
HK$0.193
58.795%
3 years
0.251%
HK$0.200
HK$0.206
56.684%
2.16 years
0.375%
Group
2013
HK$’000
2012
HK$’000
2,854
(1,444)
1,410
1,730
1,124
2,854
In accordance with the relevant rules and regulations in Argentina, the Group is obliged to accrue the cost for land reclamation
and site closures for the Group’s existing developed oil and gas fields. The provision for asset retirement obligation has been
determined by the Directors based on their best estimates in accordance with the relevant rules and regulations.
EPI (Holdings) Limited Annual Report 2013 97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
30 TRADE AND OTHER PAYABLES
Group
Company
2013
2012
2013
2012
HK$’000
HK$’000
HK$’000
HK$’000
Trade payables (Note (a))
Payables arising from metals purchase contracts (Note (b))
Payables for acquisition of held-for-trading investments
as securities to a loan (Note (c))
Interest payable on borrowings
Other payables and accruals
3,050
–
–
2,021
33,719
34,447
16,781
16,115
3,053
25,120
–
–
–
2,021
21,683
38,790
95,516
23,704
Notes:
(a)
At 31 December 2012 and 2013, the ageing analysis of trade payables based on invoice date were as follows:
–
–
16,115
3,053
11,523
30,691
2012
HK$’000
11,574
15
38
22,820
34,447
Group
2013
HK$’000
3,050
–
–
–
3,050
0-30 days
31-60 days
61-90 days
Over 91 days
The average credit period on purchases of goods is 30 days.
The carrying amount of trade and other payables are denominated in currencies:
ARS
US$
HK$
Group
2013
HK$’000
9,521
95
29,174
38,790
2012
HK$’000
28,078
36,747
30,691
95,516
Company
2013
HK$’000
2012
HK$’000
–
–
23,704
23,704
–
–
30,691
30,691
(b)
(c)
As at 31 December 2012, the term of metals purchase transactions was based on cash on delivery and the payables were past due with aging of 30 days at the
end of the reporting period based on the invoice date. Such balance was settled during the year ended 31 December 2013.
The amount, which is interest-free and repayable on demand, represented the payable which arose from purchases of held-for-trading investments as securities
to a loan.
(d)
All of the other payables are unsecured, interest-free and expected to be settled within one year.
98
EPI (Holdings) Limited Annual Report 2013
31 CASH USED IN OPERATIONS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
Loss for the year
Income tax charge recognised in profit or loss
Adjustments for:
– Depreciation and depletion of property, plant and equipment
– Impairment loss of property, plant and equipment (Note 8)
– Loss/(gain) on disposal of property, plant and equipment
– Impairment loss of exploration and evaluation assets (Note 8)
– Impairment loss of other receivables (Note 8)
– (Reversal of impairment loss)/Impairment loss of other tax recoverable (Note 8)
– Gain on disposal of available-for-sale investments
– Fair value loss/(gain) on derivative component of convertible notes (Note 9)
– Fair value loss on warrants (Note 9)
– Share-based payments (Note 24)
– Interest income
– Interest expense
– (Gain)/loss on held-for-trading investments (Note 9)
Changes in working capital:
– Increase in trade and other receivables and prepayments
– Decrease in other tax recoverable
– Decrease in trade and other payables
Cash used in operations
32 JOINT OPERATIONS
Group
2013
HK$’000
2012
HK$’000
(679,171)
(3,352,040)
–
10,351
27,443
51,111
164
442,197
13,966
(660)
–
12,464
5,999
48,969
–
43,757
(61)
(22,523)
21,796
(57,138)
37,374
132,906
(962)
3,130,106
–
3,616
(1,566)
(378)
–
–
(6,370)
34,925
15
(48,024)
9,490
(2,546)
(91,687)
(53,103)
Chañares entered into a joint venture agreement (“JV Agreement”) with a third party (“Third Party”) on 14 November 2007 in
connection with the development of incremental hydrocarbon production in the “Puesto Pozo Cercado” area and “Chañares
Herrados” area (“Areas”), through the investments made by the Third Party. Under the JV Agreement, it was established that the
hydrocarbon obtained from the wells drilled within the scope of the JV Agreement, as well as any other benefits obtained from the
exploration and production of the works performed thereunder, shall be distributed in the following proportion: 28% for Chañares
and 72% for the Third Party.
A subsidiary of the Group, Have Result Investments Limited ("Have Result") entered into an agreement for the Assignment of
Rights, Investment and Technical Cooperation with the Third Party dated 24 November 2007, as amended and/or supplemented
by (i) a deed of undertaking executed by the Third Party on 12 December 2007; (ii) a supplementary deed of undertaking
executed by the Third Party on 28 December 2007; and (iii) a document entitled “Amendment to Contract of Assignment of
Rights, Investment and Technical Cooperation” executed by and between the Third Party and Have Result, dated 19 December
2008 (the “Assignment Agreement”). Under the Assignment Agreement, the Third Party assigned in favour of Have Result 51% of
its rights on the future production as a consequence of new drillings and the operation of new wells in the Areas. The incremental
hydrocarbon production derived from the new wells in the Areas will first cover the operating costs and thereafter is shared by
the proportion of 51% to Have Result, 21% to the Third Party and 28% to Chañares. As from the date the wells drilled under the
terms of the Assignment Agreement go into production, the Third Party shall also reimburse Have Result for 21% of the aggregate
investments made by Have Result in the Areas.
EPI (Holdings) Limited Annual Report 2013 99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
32 JOINT OPERATIONS – CONTINUED
On 2 December 2010, Have Result sent a letter to the Third Party stating and confirming the termination of the JV Agreement
(“Termination”). As advised by the Argentina legal advisers of the Company, notwithstanding the Termination, Have Result remains
entitled to a 51% right in the production from the five existing wells drilled by Have Result in the Areas (the “Existing Wells”),
provided that Have Result continues to pay the relevant operating costs as required by the production allocated to it.
Another subsidiary of the Group, Southstart Limited ("Southstart") and Chañares entered into a new joint venture agreement
("New JV Agreement") on 2 December 2010. Pursuant to which EP Energy S.A. ("EP Energy"), a wholly-owned subsidiary of
Southstart is entitled to share of 72% of hydrocarbon production from the wells drilled by EP Energy in the current and future
years until the end of the Concessions period and paid US$6,000,000 (equivalent to approximately HK$46,800,000) to Chañares
in consideration for the oil exploration and production right in the Areas during the current term of the Concessions.
Pursuant to the New JV Agreement, the total consideration for the oil exploration and production right is subject to adjustment
with reference to whether or not Chañares can obtain the extension of the term of Concessions (the “Extension”) by 31
December 2011. On 14 July 2011, the Company was informed by Chañares that the Executive of the Province of Mendoza
has issued a Decree pursuant to which Chañares obtained an extension of 10 years from the date of expiry of the original term
of the Concessions until 2027 (Note 15). EP Energy paid an aggregate amount of US$4,000,000 (equivalent to approximately
HK$31,200,000) to Chañares in consideration for the oil exploration and production right in the Areas during the extended term
of the Concessions. A sum of US$1,404,000 (equivalent to approximately HK$10,952,000) was paid in 2011 and the remaining
balance of US$2,596,000 (equivalent to approximately HK$20,248,000) was paid in 2012.
According to the New JV Agreement, EP Energy is obliged to drill a minimum of five production wells per year during the five
consecutive years from 2012, and two production wells per year for the following years until the seventh year before the expiration
of the extended term of the Concessions. Failure to meet the minimum drilling requirements may render the New JV Agreement to
be terminated and EP Energy will be forfeited its rights to continue drilling but it will not be forfeited any right in respect of the wells
already drilled.
On 5 June 2012, EP Energy, Have Result and Chañares entered into an operation agreement (“the Operation Agreement”).
Pursuant to the Operation Agreement, Chañares agreed to release EP Energy from the above commitment. EP Energy, however,
retains the right to drill and invest in the Areas during the life of the Concessions awarded with respect to the Areas and any
extension thereof. If five or more new wells are drilled by EP Energy in a year, EP Energy shall be entitled to 72% and Chañares
shall be entitled to 28% of the hydrocarbon production of the new wells; and if less than five new wells are drilled by EP Energy in
a year, EP Energy shall be entitled to 65% and Chañares shall be entitled to 35% of the hydrocarbon production of the new wells.
The Operation Agreement confirms that the hydrocarbon production of the existing five wells drilled by EP Energy shall continue
to be distributed in accordance with the New JV Agreement (i.e., 72% to EP Energy and 28% to Chañares). On the other hand,
Chañares becomes entitled to be associated with third parties for carrying out any work or drilling any wells in the Areas.
The Operation Agreement reconfirms that Have Result has the right to receive 51% of the hydrocarbon production obtained from
the Existing Wells until the termination of the Concessions held in respect of the Areas and any extension thereof. Have Result
agreed that part of the proceeds from previous production of the Existing Wells, as well as the future production from the Existing
Wells up to 31 December 2013, shall be reinvested in the Areas, including workover of the Existing Wells.
100
EPI (Holdings) Limited Annual Report 2013
32 JOINT OPERATIONS – CONTINUED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
The aggregate amounts of assets and liabilities, revenue and expenses recognised in the consolidated financial statements in
relation to the Group’s interest in the joint operations are as follows:
Assets
Liabilities
Revenue
Expenses
33 FINANCIAL GUARANTEE
2013
HK$’000
423,246
11,026
89,853
187,811
2012
HK$’000
538,787
50,908
80,854
208,693
As at 31 December 2013 and 2012, the Company gave indemnities to two non-controlling shareholders of companies controlled
by Mr. Wu, indemnifying them against any loss they may sustain in case of any action or claim against those companies pursuant
to the guarantee provided in respect of bank loan and that the total amount payable will not exceed an aggregate amount of up
to US$13,000,000 (approximately HK$101,140,000). (see Note 26)
34 OPERATING LEASE COMMITMENTS
The future aggregate minimum lease payments under non-cancellable operating leases are due as follows:
No later than 1 year
Later than 1 year and no later than 5 years
Group
Company
2013
2012
2013
2012
HK$’000
HK$’000
HK$’000
HK$’000
2,306
1,490
3,796
1,892
1,367
3,259
1,995
1,339
3,334
1,200
800
2,000
EPI (Holdings) Limited Annual Report 2013 101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2013
35 RELATED PARTY TRANSACTIONS
The shares of the Company are widely held, and the Company has no ultimate controlling party.
Saved as disclosed elsewhere in these consolidated financial statements, the following transactions were carried out with related
parties:
(a) Compensation of key management personnel
The remuneration of Directors and other members of key management during the year were as follows:
Short-term employee benefits
Post-employment benefits
Share-based payments
2013
HK$’000
2012
HK$’000
7,450
54
30,538
38,042
5,211
41
–
5,252
36 EVENTS AFTER THE DATE OF STATEMENT OF FINANCIAL POSITION
The following events took place subsequent to 31 December 2013:
(a) On 10 January 2014, the Company entered into a confidential letter of intent with three independent third parties (the
“Possible Vendors”) with respect to a proposed acquisition of the entire interest in those private oil and gas properties in
the United States of America and certain related assets held by the Possible Vendors and others through specific corporate
and partnership structures. The letter of intent does not create legal binding obligations on the parties to proceed with the
transaction and contemplates, subject to the parties entering into definitive agreements, a transaction involving a proposed
consideration of approximately US$1.8 billion (approximately HK$14.0 billion). As at the date of these consolidated financial
statements authorised for issue, the transaction is still under negotiation.
(b) On 11 March 2014, the Company and a placing agent entered into a placing agreement, pursuant to which the placing
agent has conditionally agreed to procure not less than six independent placees on a best effort basis to subscribe for up
to 1,100,000,000 initial placing shares at a placing price during the placing period, and the Company has also granted the
over-allotment option to the placing agent to require the Company to issue up to 100,000,000 over allotment shares to
the placees at the placing price at completion. The placing price shall be based on the higher of (i) 90% of the arithmetic
average closing price per share for the five consecutive trading days immediately preceding the date of the special general
meeting of the Company; or (ii) HK$0.22 per placing share. As at the date of these consolidated financial statements
authorised for issue, this transaction is subject to further approval by the shareholders of the Company in the special
general meeting to be held on 7 April 2014.
102
EPI (Holdings) Limited Annual Report 2013
FIVE YEAR FINANCIAL SUMMARY
For the year ended 31 December 2013
Year ended 31 December
2013
2012
2011
2010
2009
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
89,853
86,682
619,800
937,258
945,929
RESULTS
Revenue
Loss before income tax
Income tax (expense)/credit
(679,171)
(3,341,689)
(225,679)
(289,518)
(21,616)
–
(10,351)
7,942
–
291
Loss for the year
from continuing operations
(679,171)
(3,352,040)
(217,737)
(289,518)
(21,325)
Profit for the year
from discontinued operations
–
–
–
890
41,639
(Loss)/profit for the year
(679,171)
(3,352,040)
(217,737)
(288,628)
20,314
At 31 December
2013
2012
2011
2010
2009
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
ASSETS AND LIABILITIES
Total assets
Total liabilities
676,343
1,136,707
4,525,191
4,377,434
4,565,772
(458,157)
(463,105)
(606,250)
(325,399)
(588,887)
Equity attributable to owners of the Company
218,186
673,602
3,918,941
4,052,035
3,976,885
Note: During the year ended 31 December 2010, the Group discontinued the consumer electronics operations.
During the year ended 31 December 2009, the Group discontinued the production of copper anode operations. The results for the years ended 31 December 2009 as
presented in the above table have been re-presented to include the results of such discontinued operations under “profit (loss) for the year from discontinued operations”.
EPI (Holdings) Limited Annual Report 2013 103
CORPORATE INFORMATION
NON-EXECUTIVE CHAIRMAN
REGISTERED OFFICE
Mr. Ho King Fung, Eric
EXECUTIVE DIRECTORS
Mr. Tse Kwok Fai, Sammy (Chief Executive Officer)
Mr. Chan Chi Hung, Anthony
INDEPENDENT NON-EXECUTIVE DIRECTORS
Clarendon House
2 Church Street
Hamilton HM 11
Bermuda
PRINCIPAL PLACE OF BUSINESS
IN HONG KONG
Mr. Qian Zhi Hui
Mr. Teoh Chun Ming
Mr. Zhu Tiansheng
COMPANY SECRETARY
Mr. Cheng Sing Wai
PRINCIPAL SHARE REGISTRAR
Butterfield Fulcrum Group (Bermuda) Limited
26 Burnaby Street
Hamilton HM11
Bermuda
Room 1108-09, 11/F
Harbour Centre
25 Harbour Road
Wanchai, Hong Kong
Telephone: (852) 2616 3689
Fax: (852) 2481 2902
SOLICITORS
ReedSmith Richards Butler
Vincent T.K. Cheung, Yap & Co.
AUDITOR
PricewaterhouseCoopers
BRANCH SHARE REGISTRAR
SHARE INFORMATION
Tricor Tengis Limited
Level 22, Hopewell Centre
183 Queen’s Road East
Hong Kong
AUDIT COMMITTEE
Mr. Teoh Chun Ming (Chairman)
Mr. Qian Zhi Hui
Mr. Zhu Tiansheng
Place of listing: Main Board of The Stock Exchange of
Hong Kong Limited
Stock Code: 0689
Board lot: 10,000 shares
Financial year end: 31 December
Number of Shares at 31 December 2013: 4,169,877,588
Closing price per Share as at 31 December 2013: HK$0.206
Market capitalization at 31 December 2013: HK$859 million
WEBSITE ADDRESS
REMUNERATION COMMITTEE
www.epiholdings.com
Mr. Qian Zhi Hui (Chairman)
Mr. Tse Kwok Fai, Sammy
Mr. Zhu Tiansheng
NOMINATION COMMITTEE
Mr. Qian Zhi Hui (Chairman)
Mr. Tse Kwok Fai, Sammy
Mr. Zhu Tiansheng
104
EPI (Holdings) Limited Annual Report 2013
Stock Code : 0689
A Hong Kong Listed Company (Stock Code : 0689)
(Incorporated in Bermuda with limited liability)
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Annual Report 2013