ACORN PETROLEUM PLC. RIGHTS ISSUE Of 1,000,000,000. Ordinary Shares of 50 Kobo each. at 75 Kobo per share

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1 This document is important and should be read carefully. If you are in any doubt about its content or the action to take, kindly consult your Stockbroker, Accountant, Banker, Solicitor or any other professional adviser for guidance immediately. FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE RISK FACTORS ON PAGE 12 RC ACORN PETROLEUM PLC RIGHTS ISSUE Of 1,000,000,000 Ordinary Shares of 50 Kobo each at 75 Kobo per share On the basis of one (1) new Ordinary Share for every two (2) Ordinary Shares of 50 Kobo each held as at May 12, 2015 The Rights being offered in this document are tradable on NASD-OTC Market for the duration of the rights issue Payable in full on Acceptance ACCEPTANCE LIST OPENS: Monday, July 20, 2015 ACCEPTANCE LIST CLOSES: Friday, August 14, 2015 LEAD ISSUING HOUSE RC: JOINT ISSUING HOUSE Mainstreet Bank Capital Limited RC: This and the securities which it offers have been cleared and registered by the Securities & Exchange Commission. It is a civil wrong and a criminal offence under the Investments and Securities Act No 29 of 2007 to issue a which contains false or misleading information. Clearance and registration of this Rights Circular and the securities which it offers do not relieve the parties from any liability arising under the Act for false and misleading statements contained therein or for any omission of a material fact. This is dated July 7, 2015

2 TABLE OF CONTENTS Pages DEFINITIONS CORPORATE DIRECTORY. ABRIDGED TIMETABLE. SUMMARY OF THE ISSUE RIGHTS ISSUE DIRECTORS AND OTHER PARTIES TO THE ISSUE.. THE CHAIRMAN S LETTER Introduction. Purpose of the Issue and Use of Proceeds Overview of Acorn s Business Divisions and Operations. Corporate Strategy and future plans. Participation in the Rights Risks and Mitigating Factors. General Risk Disclosure Compliance with Code of Corporate Governance. Conclusion. FINANCIAL INFORMATION Letter from the Auditor s on Going Concern Status... Statement of Significant Accounting Policies. Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position. Statement of Cash flows.... UNAUDITED MANAGEMENT ACCOUNTS Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position. Statement of Cash flow Five-Year Financial Summary. STATUTORY AND GENERAL INFORMATION Incorporation and Share Capital History. Shareholding Structure Directors Beneficial Interests. Board of Directors and Key Management... Indebtedness... Corporate Governance Claims and Litigation.. Costs and Expenses Relationship between the Issuer and the Issuing Houses/Other Advisers... Off Balance Sheet Item... Material Contracts.. Declarations Research and Development Mergers and Acquisitions Consents. Documents Available for Inspection... PROVISIONAL ALLOTMENT LETTER... LETTER FROM THE ISSUING HOUSES RECEIVING AGENTS.. INSTRUCTIONS FOR COMPLETING ACCEPTANCE/RENUNCIATION. ACCEPTANCE/RENUNCIATION FORM... TABLE OF ENTITLEMENTS TO RIGHTS ISSUE SHARES Page 2

3 DEFINITIONS Abbreviation Name/Explanation Business Day CAC Any day other than a Saturday, Sunday or official Public holiday in Nigeria Corporate Affairs Commission CAMA Companies and Allied Matters Act Cap C20 LFN 2004 Company or Acorn CSCS Directors EBITDA FGN Gross Earnings Issuing Houses Joint Issuing House Lead Issuing House Acorn Petroleum PLC Central Securities Clearing System Limited The members of the Board of Directors of Acorn who as at the date of this document are those persons whose names are set out on page 9 of this Earnings Before Interest Taxes Depreciation and Amortization Federal Government of Nigeria Total earnings received for the financial reporting period/year APT Securities and Funds Limited and Mainstreet Bank Capital Limited Mainstreet Bank Capital Limited APT Securities and Funds Limited ISA Investments & Securities Act No. 29 of 2007 NASD-OTC Market An Over-the-Counter Market licensed by the Securities Exchange Commission. It provides a platform for trading the Rights and has no legal responsibility in respect of the Rights Issue. Parties Professional advisers engaged by the Company, whose roles will ensure the success of the Issue Qualification Date May 12, 2015 Receiving Agents Registrars Rights Issue SEC or Commission Shareholders DPR PPPRA PPMC PSF Scheme Any of the institutions listed on page 40 of this to whom shareholders may return their duly completed Acceptance/ Renunciation Forms together with payment. CardinalStone Registrars Limited This document which is issued in accordance with the Rules and Regulations of the Commission Issue by way of rights to existing shareholders of 1,000,000,000 ordinary shares of 50 kobo each at 75 Kobo per share on the basis of one (1) new ordinary shares for every two (2) ordinary share of 50 Kobo each held Securities & Exchange Commission; the Nigerian Capital Markets Apex Regulator Means the shareholders of the Company who qualify to participate in the Rights Issue Department of Petroleum Resources Petroleum Products Pricing Regulatory Agency Pipelines and Products Marketing Company Limited Nigerian Petroleum Subsidy Fund scheme Page 3

4 CORPORATE DIRECTORY Registered Office: Acorn Petroleum Plc Elephant House (5 th Floor) 214, Broad Street Marina, Lagos. Telephones: ; Address: Website: Abuja Office: Acorn Petroleum Plc House III BOI Estate Plot 2753, Thame Street Cadastral Zone A06 Abuja Telephones: Address: Website: Port Harcourt Office: Acorn Petroleum Plc Omagwa, Port-Harcourt Rivers State Nigeria Telephones: Address: Website: Page 4

5 ABRIDGED TIMETABLE The dates given below are indicative only. The timetable has been prepared on the assumption that certain key events for the Rights Issue will be achieved as stated. If not, then the dates surrounding key events in the timetable may be subject to adjustments. DATE ACTIVITY RESPONSIBILITY 20/07/2015 APPLICATION LIST OPENS All Parties 14/08/2015 APPLICATION LIST CLOSES All Parties 21/08/2015 Receiving Agents forward returns JIH/Receiving Agents 24/08/2015 Final Date for Return of Application Forms Offer Agents/Registrars 28/08/2015 Preparation of Allotment Basis/Range Analysis JIH/Registrars 04/09/ /09/2015 Approval of Allotment by Acorn Plc and Release of Balance of the Offer Proceeds Forward allotment proposal and draft newspaper announcement to the SEC Issuer/Receiving Banks/ Registrars JIH/FA 21/09/2015 Receive SEC's clearance of the allotment JIH/FA 23/09/2015 Disburse net issue proceeds to Issuer Receiving Banks 25/09/2015 Filing of Basis of Allotment with CAC Company Secretary 28/09/2015 Allotment Announcement JIH/FA 28/09/2015 Return excess/surplus monies JIH/Registrars 05/10/2015 Dispatch of Share Certificates Registrars 12/10/2015 Submit Issue summary report to SEC JIH Page 5

6 SUMMARY OF THE ISSUE The following information should be read in conjunction with the full text of this from which it was derived: 1. ISSUER: Acorn Petroleum Plc 2. LEAD ISSUING HOUSE: APT Securities and Funds Limited 3. JOINT ISSUING HOUSE: Mainstreet Bank Capital Limited 4. SHARE CAPITAL (AS AT THE DATE OF THE RIGHTS CIRCULAR): Authorized: N1,500,000,000 comprising 3,000,000,000 Ordinary Shares of 50 kobo each Issued and fully paid: N1,000,000,000 comprising 2,000,000,000 Ordinary Shares of 50 kobo each Now being issued: 1,000,000,000 Ordinary Shares of 50 kobo each by way of Rights Issue on the basis of One (1) new share for every Two (2) existing shares at 75 kobo per share 5. METHOD OF OFFER Offer by way of rights to existing shareholders 6. PURPOSE This Rights Issue is being undertaken as a strategic step to broaden capacity by investing in aviation infrastructures. 7. USE OF PROCEEDS The net issue proceeds of N728,552, after deducting the Issue cost estimated at N21,447, which represents 2.86% of the gross issue proceeds, would be utilized as follows: Activities =N= % Period (Months) Investment in Aviation Infrastructure in Lagos and Abuja* 728,552, Net Issue Proceeds 728,552, Estimated Cost of Offer 21,447, Immediately Total 750,000, % *These projects involve the expansion of the company s aviation business by constructing storage facilities (Depots) at the Murtala Mohammed International Airport and Nnamdi Azikwe International Airport in Lagos and Abuja respectively. This is in a bid to expand its aviation market operations into the two most strategic locations (Lagos and Abuja) for aviation business in the country thus, expanding its market share in the downstream sector. The overall projects cost of approximately N742million comprises a 180,000liter capacity storage facility at the Abuja International Airport (Depot Construction and Associated Cost Estimate of N294million respective) and a 1million liter capacity storage facility at the Murtala Mohammed International Airport Lagos (Depot Construction and Associated Cost Estimate = N448million). 8. ISSUE PRICE 9. PROVISIONAL ALLOTMENT: 75 kobo per share One (1) new Ordinary Share for every Two (2) Ordinary Shares held as at the Qualification Date. Page 6

7 SUMMARY OF THE ISSUE 10. PAYMENT: In full on acceptance. 11. MARKET CAPITALIZATION AT ISSUE PRICE Pre Issue: N1,500,000, Post Issue: N2,250,000, ACCEPTANCE LIST OPENS: July 20, ACCEPTANCE LIST CLOSES: August 14, FINANCIAL SUMMARY: (Extracted from the Company s Five(5) Years Annual Financial Statements) N 000 As at 31 December Turnover 10,058,916 18,229,855 20,407,889 26,453,140 18,827,248 Profit before taxation 827, ,911 (1,729,225) (10,018,174) (1,654,979) Profit after taxation 897,272 1,549,339 (3,624,350) (8,657,681) (1,100,784) Share capital 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 Net assets (960,440) (2,742,560) (4,505,836) (2,938,506) 1,430,827 Total assets 4,199,594 8,279,875 15,624,470 13,247,631 21,243,134 Basic earnings per share (138) (469) (63) (kobo) 15. STATUS: The ordinary shares being issued shall rank pari passu in all respects with the existing issued Ordinary Shares of the Company. 16. QUALIFICATION DATE: May 12, E-ALLOTMENT/SHARE CERTIFICATES The Share Certificates will be dispatched not later than 15 Business Days from the date of allotment. The CSCS accounts of successful subscribers will be credited not later than 15 Business Days from the date of allotment. Shareholders are thereby advised to update their mailing address and CSCS account details with the Registrar. 18. CLAIMS AND LITIGATION: The Company is, in its ordinary course of business, presently involved in Three (3) litigation matters and One (1) arbitration. Of the four (4) cases, the Company is the (i) Claimant with respect to a litigation suit, as well as in an arbitral proceedings; (ii) Defendant to Counter-Claim in respect of one (1) case; and (iii) Respondent in one (1) case in respect of which a decision had been delivered in its favour. The total amount claimed against the Company in the case instituted against it is approximately N264,000, (Two Hundred and Sixty-Four Million Naira). The total amount claimed by the Company in the case instituted by it and in the arbitral proceedings is approximately US$1,868, (One Million, Eight Hundred and Sixty-Eight Thousand, Three Hundred and One Dollar and Sixteen cents). Upon a careful review of the case files involving the Company, we, as Solicitors to the Issue are of the opinion that the contingent liability to which the Company will likely be exposed is the sum of N164,000, (One Hundred and Sixty- Four Million Naira). The Directors of the Company are also of the opinion that none of the aforementioned cases is likely to have any material adverse effect on the Company or the Rights Issue, and are not aware of any other pending and or threatened claims or litigation. Page 7

8 RIGHTS ISSUE Copies of this and the documents specified herein have been delivered to the Securities & Exchange Commission for Clearance and Registration. This is being issued in compliance with the provisions of the Investments and Securities Act No , the Rules and Regulations of the Commission, for the purpose of giving information to shareholders and the public with regard to the Rights Issue of 1,000,000,000 Ordinary Shares of 50 kobo each in Acorn Petroleum PLC by APT Securities and Funds Limited and Mainstreet Bank Capital Limited. The Directors of Acorn Petroleum PLC individually and collectively accept full responsibility for the accuracy of the information contained in this. The Directors have taken reasonable care to ensure that the facts contained herein are true and accurate in all respects and confirm, having made all reasonable enquiries that to the best of their knowledge and belief there are no material facts, the omission of which make any statement herein misleading or untrue. Lead Issuing House Joint Issuing Houses RC: Mainstreet Bank Capital Limited RC: On behalf of: RC: are authorized to receive acceptances for the Rights Issue of 1,000,000,000 Ordinary Shares of 50 kobo each at 75 kobo per Share On the basis of One (1) new ordinary share for every Two (2) ordinary shares of 50 kobo each held as at the close of business on May 12, 2015 for those Shareholders whose names appear on the Register of Members. The Acceptance List for the new shares now being issued will open on July 20, 2015 and close on August 14, 2015 SHARE CAPITAL AND RESERVE OF THE COMPANY AS AT 31 DECEMBER, 2013 (Extracted from the December 2013 Audited Financial Statements) Authorized Share Capital 3,000,000,000 Ordinary Shares of 50kobo each 1,500,000, Issued and fully paid 2,000,000,000 ordinary shares of 50kobo each 1,000,000, Equity Called-up Share Capital 1,000,000, Share Premium 1,370,431, Revaluation Reserve 648,448, General Reserve (3,979,319,000.00) TOTAL EQUITY (960,440,000.00) N Page 8

9 DIRECTORS AND OTHER PROFESSIONAL PARTIES TO THE ISSUE Mr. Kolapo Lawson (Chairman) Mr. Adedoyin Adeyinka (Managing Director/CEO) Elephant House (5 th Floor) Elephant House (5 th Floor) 214, Broad Street,Marina Lagos, Nigeria 214, Broad Street,Marina Lagos, Nigeria Mr. James Miner (Non- Executive) Mr. Ravindranath Magapu (Executive) Elephant House (5 th Floor) Elephant House (5 th Floor) 214, Broad Street,Marina Lagos, Nigeria 214, Broad Street,Marina Lagos, Nigeria Mrs. Adebola Adefope (Non- Executive) Mr. Abiola Kalesanwo (Executive) Elephant House (5 th Floor) Elephant House (5 th Floor) 214, Broad Street,Marina Lagos, Nigeria 214, Broad Street,Marina Lagos, Nigeria Prof. Ochapa Onazi (Non- Executive) Mrs. Mojisola Adeola Company Secretary Elephant House (5 th Floor) Elephant House (5 th Floor) 214, Broad Street, Marina Lagos, Nigeria 214, Broad Street,Marina Lagos, Nigeria PricewaterhouseCoopers 252E Muri Okunola Street Victoria Island, Lagos, Nigeria Auditors APT Securities and Funds Ltd Lead Issuing House Banwo & Ighodalo Solicitors to the Issue Church House(3 rd Floor) 98 Awolowo Road, 29, Marina South-West Ikoyi Lagos State Lagos State Mainstreet Bank Capital Ltd Joint Issuing House Access Bank Plc Receiving Bank 51/52 Broad Street Plot 999c Danmole Street, Lagos State Off Adeola Odeku/Idejo Street Victoria Island, Lagos State CardinalStone Registrars Ltd Registrar 358, Herbert Macaulay Road, Yaba Lagos. Page 9

10 THE CHAIRMAN S LETTER The following is the text of a letter received by APT Securities & Funds Limited and Mainstreet Bank Capital Limited from Mr. Kolapo Lawson, Chairman, Board of Directors of Acorn Petroleum Plc RC Elephant House, (5 th Floor) 214 Broad Street Lagos. Thursday, October 30, 2014 To: All Shareholders Dear Shareholders, ACORN PETROLEUM PLC ( THE COMPANY ): RIGHTS ISSUE OF 1,000,000,000 ORDINARY SHARES OF 50 KOBO EACH AT 75 KOBO PER SHARE ( THE ISSUE ) 1. INTRODUCTION By virtue of a special resolution passed at the annual general meeting ( AGM ) held on April 16, 2013, the shareholders of Acorn Petroleum Plc ( Acorn ) resolved that the Directors be authorized to raise additional capital of up to N20,000,000, (Twenty Billion Naira) or its equivalent in whatever currency available through the issuance of shares, convertible or non-convertible loans, notes, bonds, options and any other instrument, in such tranches, series or proportions, at such coupon or interest rates, within such maturity periods, to be undertaken by way of a public offering, private placement, rights issue, bonds offering or otherwise, either locally and or internationally and upon such terms and conditions as the Directors may at its discretion determine subject to obtaining the approvals of the relevant regulatory authorities. At the last AGM held on September 24, 2014, the Shareholders of the Acorn reiterated their earlier request that the Board of Directors ( Board ) should undertake the rights issue within the shortest possible time at an issue price to be determined by the Board which must not be higher than N1.00. Accordingly, the Board has passed the necessary resolutions by virtue of a Written Resolution dated October 28, 2014, authorizing the issue of 1,000,000,000 ordinary shares of 50 kobo each, on the basis of one (1) Ordinary share for every two (2) Ordinary shares held by existing shareholders. The new shares being issued by way of rights shall rank pari-passu with the existing issued share capital of the company. It is my pleasure to inform you that the approval for the registration of the shares to be issued has been obtained from the Securities & Exchange Commission ( SEC ) and all other arrangements for the rights issue have now been concluded. These new shares will be offered at 75 kobo per share to those shareholders whose names appeared in the Register of Members at the close of business on May 12, The acceptance list for the Rights Issue is expected to open on July 20, 2015 and close on August 14, With the injection of additional capital your company will invest in the required infrastructure that will enable us to expand our aviation operations, thereby maximizing potentials and consolidating our current line of business (downstream). 2. PURPOSE OF THE ISSUE AND USE OF PROCEEDS The Rights Issue is an integral step for Acorn in achieving our set objectives towards the execution of our strategic expansion plans and organic growth; adequate capital expenditure on growth driving infrastructure and improving the financial position of our company. The net issue proceeds, estimated at N728,552,500 after deducting the total cost of the Issue, estimated at N21,447,500 (representing 2.86% of the Issue Proceeds), will be applied as follows: Page 10

11 THE CHAIRMAN S LETTER Activities =N= % Period (Months) Investment in Aviation Infrastructures in Lagos and Abuja 728,552, Net Issue Proceeds 728,552, Estimated Cost of Offer 21,447, Immediately Total 750,000, OVERVIEW OF ACORN S BUSINESS DIVISIONS AND OPERATIONS From being a petroleum products marketer in 1981 when it commenced operation, Acorn has evolved into a fullfledged player in the downstream sector with business activities in supply, trading, storage, marketing and distribution of petroleum products. The Company is also involved in the manufacture and distribution of lubricants. Acorn s vision is to position its brand to become synonymous with the leader in the downstream oil and gas sector of the West African region as it evolves into an integrated player in the oil and gas value chain. The Company s operations are structured along the lines of the following divisions; Bulk Trading: Acorn engages in bulk trading of refined petroleum products which it either sourced locally or by way of import. Due to its status as an importer of petroleum products, Acorn supplies other major marketers and independent marketers. Retail Marketing and Distribution: The Company has a distribution network of outlets across the country for the purpose of retailing petrol, diesel, kerosene and other petroleum products. Its retail outlets are strategically located within close proximity to its target markets. Acorn currently has a retail network of 14 outlets/stations spread across Nigeria consisting of 4 company-owned stations, and 10 leased from third parties. Out of the 14 stations, 11 are operated by dealers while 3 are managed by the Company itself. Aviation Fuel Marketing: Through its operations in major airports and airfields in Nigeria, the Company provides Jet A1, in line with international quality standards, to its customers. Acorn presently operates at the Port Harcourt and Warri airports and has secured regulatory approval to commence operations at the Lagos and Abuja airports. Acorn acts as fuel supplier to major customers such as Aero Contractors, Bristow, Dana Air, Caverton amongst others. Acorn is the 3rd largest supplier of aviation fuel at the Port Harcourt airport, with a 16% market share. The market share distribution at the Port Harcourt airport is shown below Source: Fedetral Aviation Authority of Nigeria (FAAN) 2014 Lubricant Manufacturing and Distribution: The Company manufactures and distributes the Acorn brand of lubricants. Our lubricant brands cover a diverse variety of both retail and industrial range of products including Ultra, Racer, Deluxe, Rally, Locco, Hydra, Gear and Drive (in their different variants and grades) to mention a few, and are already gaining wide acceptance as the lubricants of choice in the market. Page 11

12 THE CHAIRMAN S LETTER Storage and Terminal Operations Division: The Company operates a 27 million litre capacity petroleum products storage facility in Ibafon, Apapa Lagos. Acorn s tank farm is a key asset which, due to its strategic location and accessibility, currently serves several independent marketers and bulk traders in the downstream industry. It is served by the Ibru Jetty which has a draft of 6 meters and can berth vessels of up to 15,000 DWT. This facility is certified by relevant agencies to store PMS, Jet A1, DPK, AGO and LPFO. The Company operates the facility in conformity with high Health, Safety and Environment ( HSE ) standards. 4. CORPORATE STRATEGY AND FUTURE PLANS Our company s vision is to deliver sustainable wealth maximization to all stakeholders in our core competencies. In order to realize our strategic objectives, your company is making every effort to identify and utilize every investment opportunity that will drive us further in actualizing our strategic objectives. The Board and Management of your company with the assistance of external facilitators embarked on a strategy review process a couple of months ago. This was borne out of the fact that our Industry is changing and with the impending passage of the PIB, indigenous companies like ours can access tremendous opportunities for growth. The strategic intent at the end of the exercise envisions a company that is shielded from the issues around regulated products and one that can diversify revenue base to other sectors of the oil and gas industry within a specified period. A 7 year strategy and business plan has been drawn which would be actualized as follows: Strengthening and consolidating the existing line of business to maximize returns; and In the medium term, procuring a performing upstream asset, either by participating in the marginal field rounds or purchasing same from a divesting IOC. This is crucial because we believe that we cannot afford not to play in the upstream sector, which returns very high margins on investments. 5. PARTICIPATION IN THE RIGHTS ISSUE The contains a summary of the financial and general information relating to the Company. It also contains a Provisional Allotment Letter detailing full instructions for acceptance, payment and renunciation of your Rights. It is recommended that Shareholders take up their Rights in full to ensure that they continue to enjoy the full benefits of their investment in the Company. 6. RISK FACTORS AND MITIGANTS a) Financing and capital expenditure risk The development and expansion of Acorn's business and operations is likely to continue to involve significant capital expenditure. This will inevitably require that the Company continues to have access to the required funding. The Company's ability to continue ongoing operations and also implement planned expansion is dependent on its ability to raise the required funding at the right pricing and terms. In order to mitigate against this risk, the Company will continue to improve its internal financial management system and strengthen its corporate governance structure to ensure that resources are efficiently allocated and that growth is sustainable. b) Interest rate and Leverage risk Acorn currently maintains long term debt in its capital structure and is thus exposed to the leverage risk of not generating enough cash flows to meet the required debt service obligations. The Company is also subject to certain financial and other restrictive covenants under the terms of its indebtedness that may limit its ability to borrow. This is being mitigated by the Company s proposed recapitalization exercise in order to raise the right amount of equity to enable the Company achieve its optimum capital structure. c) Credit risk The Company is exposed to the risk of delayed payments as well as payment defaults from trade debtor as well as delayed payments from the PPPRA. In order to mitigate this risk, the Company will implement a functional credit control system to ensure only qualified and credit -worthy customers are granted the right amount of trade credit. Page 12

13 THE CHAIRMAN S LETTER d) Business and operational risk The Company is exposed to risks associated with normal business operations including but not limited to loss of assets through misappropriation, theft or fraud, accidents, loss of key staff, labour disruptions, etc. In reducing their chances of occurrence, the company has implemented appropriate processes, and policies built around a core strategy formulated and being effectively deployed by a crop of seasoned professionals and continuously improved upon via intensive periodic reviews and revisions. e) Regulatory Risk The regulatory environment in the oil and gas sector in Nigeria is consistently subject to significant change some of which may have negative consequences for the Company s business. The Company s operations depend on authorizations and/or licenses by government regulatory agencies including the DPR, PPPRA, and PPMC whose terms and conditions for issuance may change from time to time. The Company s existing operations and growth plans could be adversely affected by the adoption of, or failure to adopt, certain regulations and reforms. In order to mitigate this risk, the Company maintains stringent control in-line with stipulated regulation and maintains relationships with the relevant regulatory bodies. In addition, the Company maintains a proactive stance regarding government regulations. f) Price and Currency risk The Company is exposed to volatility in oil prices as a result of the strong correlation between its business and global level of petroleum products. In addition, imported products are typically subject to volatility due to exchange rate fluctuation. This inevitably affects the net margin to the company. With regards to Premium Motor Spirit ( PMS ), the price risk is mitigated by the PSF scheme administered by the PPPRA, while pricing for other products is arrived at through rigorous and tested means to ensure that the company attains maximum profitability while staying competitive enough. Acorn adopts hedging as an approach in order to manage currency risks. 7. GENERAL RISK DISCLOSURE It is advisable that shareholders should consult their advisers if in any doubt as to the nature of this investment and its suitability in relation to their risks and returns profile. The value of any securities traded (whether listed or not) is subject to investment risks, prone to price fluctuations and any individual security may experience upward or downward movements. There is an inherent risk that losses may be incurred rather than a profit made as a result of buying and selling securities. Past or historical performance is not a guide to future performance. Certain types of investments may not be suitable for all investors. However, Acorn takes all these risks seriously and has put in place strategic and operational plans that will aid in adequately responding to the outlook of the market environment in a timely manner in order to mitigate these risks as much as possible. 8. COMPLIANCE WITH CODE OF CORPORATE GOVERNANCE Acorn is fully committed to implementing best practice Corporate Governance standards and is dedicated to the protection and promotion of shareholders interest, guide the Board and Management to direct and manage the affairs of the Company effectively and efficiently. In achieving this objective of managing the affairs of the Company effectively and efficiently, the Board has created committees to assist in discharging its function. The committees and the composition of each committee is detailed below: Audit Committee Finance & Strategy Governance & Nomination Engr. Rufus Iyiola (Chairman) Mr. James Miner (Chairman) Mr. Kolapo Lawson (Chairman) Mr. Emmanuel Oladosu Mr. Adedoyin Adeyinka Mr. Adedoyin Adeyinka Mr. Osato Aideyan Mrs. Adebola Adefope Prof. Ochapa Onazi Mr. James Miner Mr. Abiola Kalesanwo Mr. Ravindranath Magapu Mr. Ravindranath Magapu Mrs. Adebola Adefope Page 13

14 THE CHAIRMAN S LETTER The Board is committed to its Corporate Governance charter, the provisions of the Companies and Allied Matters Act, the Code of Corporate Governance issued by the SEC as well as international corporate governance best practice. The directors have rich and varied backgrounds in their respective professional endeavor CONCLUSION Finally, the Board and Management of Acorn believe that with the future of the Company presenting both vast opportunities and significant challenges, we are confident that with the right blend of human competencies and capital resources our Company will continue to achieve sustainable growth levels in areas of our business. The Company will continue to exist as a going concern and strategically positioned to harness the growth opportunities in the downstream and upstream sectors of Nigerian Oil and Gas Industry. I therefore encourage you to take up your Rights in full to ensure that you continue to reap the benefits of your investment in the Company and as a mark of your belief in the future prospects. Yours faithfully, Kolapo Lawson Chairman FRC/2013/ICAN/ Page 14

15 FINANCIAL INFORMATION Letter from the Auditor s on Going Concern Status Page 15

16 FINANCIAL INFORMATION Statement of Significant Accounting Policies (a) Statement of compliance The financial statements of the Company as at period ended 31 December 2013 have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board. These are the Company s first financial statements prepared in accordance with IFRSs and IFRS 1 First time adoption of International Financial Reporting Standards has been adopted. The Company has consistently applied the accounting policies used in the preparation of its opening IFRS statement of financial position at January 1, 2012 throughout all periods presented, as if these policies had always been in effect. Note 34 discloses the impact of the transition to IFRS on the Company s reported financial position, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Company s financial statements for the year ended December 31, 2012 prepared under Nigerian GAAP. (b) Basis of measurement The financial statements of Acorn Petroleum Plc have been prepared on historical cost basis except for actuarial valuation of staff gratuity. Comparatives Where necessary, certain comparative figures have been adjusted to conform with changes in presentation in the current year. Re-grouping of certain previous year figures has been done where ever necessary. (c) Functional currency and translation of foreign currencies I Functional and presentation currency Items included in the financial statements of the entity are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The financial statements are presented in Naira (NGN), which is the Company s functional and presentation currency. ii Transactions and balances in the Company Foreign currency transactions are translated into the functional currency of the entity using the exchange rates prevailing at the dates of the transactions or the date of 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 recognized in the statement of comprehensive income. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the statement of comprehensive income within finance income or costs. All other foreign exchange gains and losses are presented in the statement of comprehensive income within other (expenses)/income - net. iii Group Companies a. The results and financial statements of all group entities that have a currency different from the reporting currency are translated into the reporting currency as follows: b. Assets and liabilities for each financial position items presented are translated at the closing rate at the reporting date except for share capital and pre-acquisition reserves, which are translated at their historical rates. c. Income and expenses are translated at average exchange rates (unless this average is not reasonable approximation of the cumulative of the rates prevailing on the transaction in which case income and expenses are translated at the dates of the transactions); and d. All exchange differences on consolidation are recognised in translation reserves. e. On consolidation, exchange differences arising from the translation of the investment in foreign entities are taken to currency translation reserve in equity. When a foreign operation is sold, such exchange is recognized in the statement of comprehensive income as part of the gain or loss on sale. f. Goodwill and other adjustments (e.g. previously unrecognised deferred tax assets) arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. (d) New and amended standards and interpretations (i) New standards, amendments and interpretations issued but not effective for the financial year beginning 1 January 2013 and not early adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013, and have not been applied in preparing these financial statements. None of these is expected to have a significant effect on the financial statements of the Company, except the following set out below Page 16

17 FINANCIAL INFORMATION IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010 and is effective 1 January It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Company is yet to assess the full impact of adopting IFRS 9. The Company will also consider the impact of the remaining phases of IFRS 9 when completed by the Board. IFRS14 is permitted, but not required, to be applied where an entity conducts rate-regulated activities and has recognised amounts in its previous GAAP financial statements that meet the definition of regulatory deferral account balances ( sometimes referred to as regulatory assets and regulatory liabilities ) and it should be applied by first-time adopter of IFRS. Effective for an entity s first annual IFRS financial statements for periods beginning on or after 1 January The Company will no longer be a first-timer adopter of IFRS by the time the standard is effective and therefore no impact on its activities. IFRIC 21, Levies, sets out the accounting for an obligation to pay a levy that is not income tax. The interpretation addresses what the obligating event is that gives rise to pay a levy and when should a liability be recognised. The Company is not currently subjected to significant levies so the impact on the Company is not material. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company. (ii) Early adoption of standards The Company did not early adopt any standards. (e) 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 Board of Directors that makes strategic decisions. A segment is a distinguishable component of the Company that is engaged either in providing related products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and returns that are different from those of other segments. The Company s primary format for segment reporting is based on business segments. The business segments are determined by management based on the Company s internal reporting structure. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. (f) Revenue recognition Revenue represents the fair value of the consideration received or receivable for sales of goods and services, in the ordinary course of the Company s activities and is stated net of value-added tax (VAT), rebates and discounts. The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that future benefits will flow to the entity and when specific criteria have been met for each of the Company s activities as described below: i Sale of goods: Revenue from goods sold is recognised when persuasive evidence exists that the significant risks and rewards of ownership have been transferred to the buyer, recovery of consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Revenue from sales of goods is recognized at the fair value of consideration received or receivable, after deducting sales taxes, excise duties and similar levies, when the significant risks and rewards of ownership have been transferred. ii Revenue from services Revenue from services represents throughput charges on refined petroleum products stored by the Company on behalf of customers. Lease incentives granted are recognised as an integral part of the total income, over the term of the lease. Revenue from services are recognised in the period in which the services are rendered, by reference to the stage of completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: Page 17

18 FINANCIAL INFORMATION - the amount of revenue can be measured reliably; - it is probable that the economic benefits associated with the transaction will flow to the entity; - the stage of completion of the transaction at the reporting date can be measured reliably; and - the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. (g) Property, plant and equipment I. Recognition and measurement All categories of property, plant and equipment are initially recorded at cost. Buildings and freehold land are subsequently shown at fair value, based on valuations by external independent valuers, less subsequent depreciation. Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Increases in the carrying amount arising on revaluation are credited to other comprehensive income and shown as a component of other reserves in shareholders equity. Decreases that offset previous increases of the same asset are charged in other comprehensive income and debited against other reserves directly in equity; all other decreases are charged to the income statement. Revaluation surplus is recovered on disposal. In the event of a disposal, the whole of the revaluation surplus is transferred to general reserve from revaluation reserves. ii. Subsequent cost The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred. iii. Depreciation Leased assets are depreciated over the shorter of the lease term and their useful lives. Depreciation begins when an asset is available for use and ceases at the earlier of the date that the asset is derecognized. All items of property, plant and equipment (except land) are subsequently depreciated irrespective of whether revalued or carried at cost. Freehold land is not depreciated. Depreciation on other assets is charged to the profit or loss on a straight-line basis to write down their cost or revalued amounts to their residual values over their estimated useful lives as follows: Assets category Depreciation rate (%) Land over the unexpired lease period Leasehold improvement over the unexpired lease period Tanks 4-5 Building 5 Plant and equipment 20 Furniture, fittings and equipment 20 Computer equipment Motor vehicle 25 Where the cost of a part of an item of property, plant and equipment is significant when compared to the total cost, that part is depreciated separately based on the pattern which reflects how economic benefits are consumed. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset s carrying amount is written down immediately to its estimated recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposal of property, plant and equipment are determined by comparing proceeds with carrying amount and are recognised within other income/expenses in the statement of comprehensive income. Property, plant and equipment under construction is not depreciated until they are available for use. iv. De-recognition An item of property and equipment is derecognised on disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive income in the year the asset is derecognised. Page 18

19 FINANCIAL INFORMATION v. Impairment The carrying value of the assets is reviewed at each statement of financial position date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. An impairment loss is recognised whenever the carrying value of an asset exceeds its recoverable amount. Impairment losses are recognized in the statement of comprehensive income except where they relate to previously revalued assets, in which case, they are recognised directly against any revaluation surplus to the extent that an amount is included in the revaluation reserve account for the related assets, with any remaining loss recognised in the statement of comprehensive income. Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up are included in profit or loss when the compensation becomes receivable. (h) Intangible assets An intangible asset is recognised if, it is probable that the expected future economic benefits. That are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably. The cost of an intangible asset with a finite useful life is amortized to the statement of comprehensive income on a straight line basis over its estimated useful life. Amortization begins when the asset is available for use. Amortization ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized. After initial recognition, intangible assets with finite useful lives are carried at cost less any accumulated amortization and impairment losses. The estimated useful lives for intangible assets which consist mainly of computer software is 2 years. Subsequent expenditure on intangible assets with finite useful life is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. (I) Inventory Inventories are stated at the lower of cost and net realizable value. Cost of stocks is determined using weighted average cost method and includes expenditures incurred in acquiring the stocks, and other costs incurred in bringing them to their existing location and condition. Net realisable value is based on estimated normal selling price less further costs expected to be incurred to completion and disposal. (j) Financial instruments Financial assets The company classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its financial assets at initial recognition. i. 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 maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Company's loans and receivables comprise of trade and other receivables and cash and cash equivalents (refer to notes 17 and 19). Recognition and measurement Financial assets are initially recognised at fair value plus transaction costs. Loans and receivables are carried at amortized cost using the effective interest method. Impairment of financial assets Assets carried at amortized costs The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset is impaired. A financial asset 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 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 reorganization, 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. Page 19

20 FINANCIAL INFORMATION 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 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 profit or loss. As a practical expedient, the Company may measure impairment using an impairment model that incorporates critical estimates such as the loss given default, the probability of default and the aged analysis of debtors in determining collective impairment. 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 profit or loss. Financial liabilities The Company classifies financial liabilities at amortised cost. These are recognised initially at fair value inclusive of directly attributable transaction costs. Financial liabilities at amortised cost; These include trade payables, dividend payable, intercompany payables and other financial liabilities (other payables) (see notes 21, 24 and 25). Recognition and measurement These are initially recognized at the amount required to be paid, less, when material, a discount to reduce the payables to fair value. Subsequently, they are measured at amortised cost using the effective interest method. Derecognition of financial assets and financial liabilities All financial assets and financial liabilities are initially measured at fair value. Financial assets and liabilities are derecognised when the rights to receive cash flows from the investments or settle obligations have expired or have been transferred and the company has transferred substantially all risks and rewards of ownership. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the 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. Income and expenses are presented on a net basis only when permitted under IFRSs, or for gains and losses arising from a group of similar transactions such as in the entity s trading activities. (k) Receivables Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment. A provision for impairment of receivables is established when there is objective evidence that the company will not be able to collect all the amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that debtor will enter bankruptcy and default or delinquencies in payment are the indicators that trade receivable is impaired. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the profit or loss within administrative costs. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against administrative costs in the profit or loss. The amount of the provision is the difference between the carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. (l) Payables Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. (m) Cash and cash equivalents Cash and cash equivalents comprise deposits with banks and highly liquid financial assets with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value and are used by the Company in the management of short-term commitments. For the purposes of the statement of cash flows, bank overdrafts are classified as part of cash and cash equivalents. (n) Share capital Ordinary shares are classified as equity. Share issue costs net of tax are charged to the share premium account. (o) Revaluation reserve Property, plant and equipment carried at revalued amounts, are revalued periodically as dictated by prevailing economic Page 20