Additional Information about the Pro Forma Consolidated Interim Financial Statements as at March 31, 2017
Tel Aviv, July 19, 2017. Delek Group (TASE: DLEKG, US ADR: DGRLY) (“the Company”)
- The Board of Directors of the Company is pleased to submit the Company's pro forma consolidated interim financial statements as at March 31, 2017 and for the three months then ended (“the Pro Forma Statements”) and additional information about the Pro Forma Statements.
This report should be read together with the Directors' Report on the State of the Company’s Affairs, which was included in the Group's financial statements as at March 31, 2017 as released to the public on May 28, 2017.
- As described in Note 1 to the Pro Forma Statements, on March 14, 2017, DKL Investments Limited, a wholly-owned foreign subsidiary of the Company (“DKL”) submitted an offer to acquire the entire share capital of Ithaca Energy Inc. (“Ithaca” or “the Acquired Company”) not currently held by DKL (80%) for CAD 1.95 per share ("the Offer"), further to the agreement signed with Ithaca in February 2017 for publication of the Offer.
The Offer was open for acceptance until April 20, 2017, and after it was accepted for the most part, it was extended for a mandatory period until May 3, 2017. The Offer (including the extension period) was accepted by the holders of 318,833,909 ordinary shares and DKL acquired their shares for a total consideration of CAD 622 million (approximately NIS 1,685 million). Following the sale, DKL held 400,699,334 ordinary shares of Ithaca, representing 94.2% of its ordinary share capital. On May 12, 2017, DKL announced that, in accordance with the terms of the Offer, it intends to carry out a compulsory acquisition of the remaining ordinary shares of Ithaca that were not held by DKL, so that following the acquisition, DKL will hold the entire share capital of Ithaca, at the price per share set out in the Offer and for a total consideration of CAD 48 million (approximately NIS 125 million). The compulsory acquisition was completed on June 5, 2017, after which Ithaca's shares were delisted from the AIM in London and the Toronto Stock Exchange.
- In accordance with IFRS 3 regarding a step acquisition, the Group’s investment in Ithaca shares prior to the offer will be measured at fair value and the difference between the fair value and its carrying amount will be recognized in the statement of income. At this stage, the difference (profit), net of transaction costs, is estimated at NIS 156 million.
- The Pro Forma Statements were prepared on the basis of the Company's consolidated interim financial statements and the retroactive consolidation of Ithaca's financial statements for all relevant reporting periods, based on the assumptions set out in Note 3 to the Pro Forma Statements.
It should be noted that the Company has not yet completed the valuation of Ithaca's assets and liabilities. Subsequent to completion of the valuation, the information about Ithaca's assets and liabilities as included in the Pro Forma Statements and regarding the profit from the gain of control in the step acquisition may change.
- Ithaca is an independent oil and gas operator in the North Sea, which owns producing oil assets and assets under development. In accordance with the Company's policy regarding the determination of operating segments, which are based mainly on investments in each investee, the Company regards Ithaca's activity as a separate operating segment. In view of the above, following the acquisition of Ithaca, the Company will operate in the following operating segments: oil and gas exploration and production in Israel and its surroundings, development and production of gas and oil assets in the North Sea, fuel operations in Israel, automotive and spare parts and others.
Key figures about Ithaca's contribution to the pro forma operating results of the Company in each of the periods included in the Pro Forma Statements (millions of USD):
| ||1-3/2017 ||1-3/2016 || ||2016 |
|Revenues from sale of oil and gas ||37 ||33 || ||144 |
|Gross profit (loss) ||7 ||(11) || ||(2) |
|Profit (loss) before tax ||4 ||(17) || ||(84) |
|Net profit (loss) ||11 ||18 || ||(54) |
|Average BOEPD (thousands) ||9.3 ||8.9 || ||9.3 |
The fluctuations in Ithaca's income and profitability are mainly due to fluctuations in oil and gas prices and changes in the volume of production (including completion of the development of the reservoirs and the beginning of their production). Ithaca has hedging contracts on oil and gas prices and exchange rates to take advantage of the preferred prices and to reduce exposure to fluctuations in these factors. However, these contracts can cause volatility in net income due to unrealized profits or losses following fluctuations in oil and gas prices and exchange rates. In addition, in 2016, Ithaca's net income from the cancellation of the tax on oil revenues was affected, resulting in the recognition of a one-time tax benefit in the first quarter of 2016.
It should also be noted that the consolidation of Ithaca's financial statements, including the reconciliations set out in Note 3 to the Pro Forma Statements, resulted in an increase of NIS 25 million in the net profit attributable to the Company's shareholders in the first quarter of 2017 (in the first quarter of 2016, an increase of NIS 43 million, and in 2016, a decrease of NIS 261 million).
Since the pro forma information is inherently based on various assessments and estimates, and due to the changes in Ithaca’s operations, the reported pro forma information is not necessarily an indication of Ithaca's contribution to the representative and/or future results of the Group subsequent to acquisition of the operations.
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