Falkland Islands Holdings plc
Annual Report 2011
Contents
1 Financial Highlights
2 Chairman’s Statement
4 Managing Director’s Business Review
10 Managing Director’s Financial Review
14 Board of Directors and Secretary
15 Directors’ Report
20 Independent Auditor’s Report
21 Consolidated Income Statement
22 Consolidated Statement of Comprehensive Income
23 Consolidated Balance Sheet
24 Company Balance Sheet
25 Consolidated Cash Flow Statement
26 Company Cash Flow Statement
27 Consolidated Statement of Changes in Shareholders’ Equity
27 Company Statement of Changes in Shareholders’ Equity
28 Notes to the Financial Statements
72 Directors and Corporate Information
Financial Highlights
FOR THE YEAR ENDED 31 MARCH 2011
FALKLAND ISLANDS HOLDINGS PLC
1
Turnover from continuing operations
Profit before tax
Underlying profit before tax*
Diluted earnings per share before amortisation and non-trading items
Dividend per share
Cash flow from operations
Net asset value per share
*Defined as profit before tax, amortisation and non-trading items.
2011
£m
31.84
2.33
2.73
20.6p
9.5p
0.82
332p
2010
£m
29.22
5.67
2.69
21.7p
9.0p
2.35
376p
Change
%
9.0
(59)
1.5
(5.1)
5.6
(65)
(12)
Turnover (£m)
from continuing operations
Underlying profit before tax* (£m)
32.25
31.84
29.22
2.69
2.73
2.31
2.01
1.65
15.62
17.21
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
Diluted earnings per share (pence)
before amortisation and non-trading items
Dividend per share (pence)
18.8
17.1
13.9
21.7
20.6
9.50
9.00
8.00
8.00
7.00
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
2
ANNUAL REPORT 2011
Chairman’s Statement
David Hudd
Chairman
I am pleased to report that, despite tough trading
conditions in the UK, the year ended 31 March 2011 saw
another encouraging performance from the Group, with
underlying pre-tax profits increasing for the sixth
consecutive year to a record level of £2.73 million.
intangibles and non-trading
Results
Underlying profits before tax (excluding amortisation,
impairment of
items)
increased by 1.5% to £2.73 million (2010: £2.69 million).
There were no sales of any Falkland Oil and Gas Limited
(“FOGL”) shares during the year (2010: profit of
£3.1 million) and, with the absence of non-trading
income, reported profits before tax were £2.3 million
(2010: £5.7 million). Underlying earnings per share were
20.9p (2010: 22.0p) and reported earnings per share,
after taking account of the amortisation of intangibles,
were 17.7p (2010: 58.2p). The effective tax rate on
underlying earnings has returned to a more normal level
(30.1%) after benefitting last year from a number of non-
recurring items.
Dividends
The Board is pleased to recommend a final dividend of
5.5p per share which, together with the Group’s interim
dividend of 4p per share, makes a total dividend for the
year of 9.5p per share, an increase of 5.6% (2010: 9.0p
per share).
If approved by shareholders at the Annual General
Meeting on 8 September 2011, the 5.5p per share final
dividend will be paid on 14 October 2011 to shareholders
on the register at the close of business on 16 September
2011.
Operations
All of the Group’s trading businesses were profitable in the
year. Trading at The Falkland Islands Company Limited
(“FIC”) was buoyant as the Group benefitted from the
recent expansion of its retail operations and the boost to
demand created by oil exploration. The revenue and
contribution from FIC rose to record levels despite
substantial increases in shipping costs from the UK. At
Momart, despite a modest growth in overall revenues, the
squeeze on museum budgets and related pricing pressure
saw a contraction in the core exhibition business, although
this was partially offset by growth in the commercial
gallery sector. The Group’s passenger ferry business at
Gosport performed well, maintaining revenue and
profitability despite a small decline in passenger numbers.
FOGL
The Group’s holding of 12 million FOGL shares was
unchanged during the year. At 31 March 2011, the
market value of the holding was £10.7 million (89.3p per
FOGL share) compared with £15.5 million at 31 March
2010 (129.5p per FOGL share).
Following the withdrawal of BHP Billiton in March 2011,
FOGL is the operator and now has an undivided interest in
its licences and has secured the necessary licence extensions
from the Falkland Islands’ Government. In April 2011,
FOGL raised £32 million and contracted the Leiv Eiriksson
deep water rig to drill two wells, with the first expected to
spud in the first quarter of 2012. FOGL is now funded for
a deep well on its Loligo prospect, which has mean
prospective resources of 4.7 billion barrels, and for a
second well on either Loligo (as an appraisal well), or on
one of its other high ranked prospects.
We were founder shareholders in FOGL in 2002 and since
then we have recouped our entire cost of investment and
have recycled over £3 million from share sales into our
trading businesses. We have undertaken to retain our
entire holding of 12 million shares through the current
drilling programme. Your Board will continue to manage
the affairs of the Group to maximise value and will be
developing
for alternative
strategies appropriate
exploration outcomes in the Falklands.
FALKLAND ISLANDS HOLDINGS PLC
3
In summary, current economic conditions in the UK
remain difficult but the Group’s businesses are well
established and we expect them to demonstrate continued
resilience in the current year. Whilst interest in the FOGL
drilling programme is likely to have greater influence on
the Group’s share price than the trading performance of
the Group, it is worth noting that if a commercial oil
discovery is confirmed by any one of the five companies
active in Falkland Islands’ waters, the prospects for FIC will
be transformed.
Trading in the year to date has been satisfactory and in
line with the Board’s expectations.
David Hudd
Chairman
23 June 2011
Assets
The Group’s balance sheet remains strong. At 31 March
2011, shareholders’ funds were £30.6 million (2010:
£34.2 million), cash balances were £2.1 million (2010:
£3.8 million) and total borrowings were reduced to
£4.2 million (2010: £5.3 million). Net assets per share at
31 March 2011, including intangibles, were 332p (2010:
376p per share).
Staff
On behalf of shareholders I would like to thank our
colleagues throughout the Group for their continued hard
work and commitment which has enabled us to produce a
good result.
Outlook
In the Falklands, with oil exploration continuing, general
economic confidence and demand should be maintained.
The four deep water wells due to be drilled in late 2011
and early 2012 should provide further stimulus to the
Falklands economy and our FIC business, although the
dramatic growth seen in the year ended 31 March 2011
is expected to moderate and rising inflation is putting
pressure on margins.
The UK market for exhibitions appears to be stabilising,
although competition for business is fierce and margins at
Momart are expected to remain under pressure in the
current year. The commercial gallery market is stronger
and further growth is anticipated. Momart’s market
leading position is intact and we remain confident about
its prospects for improvement.
The arrival of Portsmouth Harbour Ferry Company’s
(“PHFC”) new pontoon and landing stage at Gosport this
month provides a secure operating platform for the
foreseeable future. The pontoon is being leased from
Gosport Borough Council over a 50 year period with the
additional lease rental and depreciation costs being
recovered by increased fares. Even after these increases,
the ferry continues to offer compelling value for money,
convenience and reliability and will continue to provide
the Group with a good cash flow and income stream.
4
ANNUAL REPORT 2011
Managing Director’s Business Review
Underlying operating profits (before amortisation,
impairment of intangibles and non-trading items) were
impacted by the weaker UK economy and fell by 6.4% to
£2.9 million (2010: £3.1 million) as margins, in particular
at Momart, were squeezed. However, with net interest
costs reduced to just £0.2 million (2010: £0.4 million),
underlying pre-tax profits increased by 1.5% to
£2.73 million (2010: £2.69 million).
Review of operations
A summary of Group revenue and operating profit by
business is shown below:
Group revenue
Year ended 31 March
2011
£m
2010
£m
Change
%
Falkland Islands Company
14.92
12.43
20.0
Portsmouth Harbour Ferry
3.73
3.72
Momart
Total
13.19
13.07
31.84
29.22
0.3
0.9
9.0
John Foster
Managing Director
Group Overview
Despite subdued demand in the UK, Group revenues
increased by 9.0% to £31.8 million (2010: £29.2 million)
due principally to buoyant trading conditions in the
Falkland Islands. Oil exploration activity commenced in
Falklands’ waters in early 2010 and the additional
demand for local services and supplies allowed FIC to
benefit from the recent modernisation and expansion of
its retail operations. As a result revenue from FIC increased
by 20% in the year. In contrast in the UK, where demand
remained weaker, Momart and PHFC saw more restricted
revenue growth of just 0.9% and 0.3% respectively.
Group revenue
2011
Underlying operating profit
2011
Momart
41%
FIC
47%
PHFC
12%
2010
2010
Momart
44%
FIC
43%
PHFC
13%
Momart
18%
PHFC
27%
FIC
55%
Momart
31%
FIC
43%
PHFC
26%
FALKLAND ISLANDS HOLDINGS PLC
5
Underlying operating profit
Year ended 31 March
Falkland Islands Company
Portsmouth Harbour Ferry
Momart
Total
2011
£m
1.61
0.79
0.53
2.93
2010
£m
Change
%
1.38
0.80
0.95
3.13
16.7
(1.3)
(44.2)
(6.4)
Each of the Group’s businesses is reviewed in detail below:
Falkland Islands Company (“FIC”)
FIC produced very encouraging results, taking advantage
of the stimulus from oil exploration. Revenues grew
20% and operating profits increased 16.7% to a record
£1.61 million (2010: £1.38 million).
Operating results
Year ended 31 March
Revenues
Retail
Automotive
Freight
Property sales
Other services
2011
£m
2010
£m
Change
%
9.72
1.91
0.69
0.45
2.15
8.07
1.43
0.99
0.36
1.58
20.5
33.6
(30.3)
25.0
36.1
20.0
Total FIC revenue
14.92
12.43
Underlying FIC
operating profit
1.61
1.38
16.7
Underlying operating profit
margin (%)
10.8
11.1
(0.3)
The year under review started slowly with another poor
illex squid catch and low fishing licence revenues.
However, the arrival in Falkland waters of the Ocean
Guardian oil rig in February 2010 stimulated the economy
with local supplies and services in demand. In May 2010
confidence was lifted further when Rockhopper
Exploration PLC announced an oil discovery in the
North Falklands basin. The continuation of a drilling
programme throughout the year by Rockhopper and
Desire Petroleum together with seismic programmes
conducted by Falkland Oil and Gas Limited (”FOGL“),
Argos Resources and Borders & Southern generated
significant additional spending and created a positive
backdrop for trading.
Tourists outside the West Store in Stanley.
FIC revenues
2011
Property sales
3%
Other
services
19%
Automotive
13%
Retail
65%
2010
Property sales
3%
Other
services
21%
Automotive
12%
Retail
64%
6
ANNUAL REPORT 2011
Managing Director’s Business Review
CONTINUED
FIC‘s retail business benefitted from the increase in
demand; with a 50% increase in its selling space in
November 2009 and the introduction in November 2010
of a new Peacocks’ clothing offer within the West Store,
retail sales increased by over 20% compared to 2009/10
and margins were lifted by a wider product range,
improved sales mix and better availability.
Sales growth was most notable in FIC’s “warehouse” sales
to local businesses and oil rig suppliers which increased by
over 42% to £1.8 million. Retail supermarket sales from
the West Store, the main driver of retail volume, increased
by 16%, helped by Peacocks’ clothing sales, and the
tourist focussed Capstan gift shop saw its sales up by
12%. The year saw a further reduction in the number of
cruise ship visitors to the Falkland Islands, following the
sharp declines seen in the previous year. However, FIC’s
tourism and trips business, Penguin Travel, had a record
year benefitting from the strength of its relationship with
leading cruise line operator Holland & America Lines.
Growth was also seen at Right-Lines, FIC’s general store at
the MPA military base, where a modest extension of the
sales area saw revenues increase by 16%.
Increased construction activity boosted sales at FIC’s
builders merchant “Home Builder” which increased by an
encouraging 24% compared to the prior year.
The automotive business also had a better year with a
recovery in sales of fleet vehicles for the military and their
contractors and more used vehicle sales. We sold 78
vehicles (2010: 41) and sales rose by 33% to £1.9 million.
Falkland Island Shipping (formerly Darwin Shipping)
experienced sharply increased freight tariffs from the
Ministry of Defence for space on their Falklands supply
ships. This reduced the competitiveness of FIC’s third party
freight business and revenues from shipping freight fell by
over 30% with a commensurate reduction in contribution.
FIC’s fishing agency had a slightly better year with a
strong finish linked to a more promising illex catch in
March 2011. Agency revenues improved by 15% but
remained well below the levels seen in some previous
years.
FIC’s insurance broking operation once again made
progress and saw an increase in both revenue and
contribution in the year. Stevedoring activities benefitted
from oil exploration cargoes and revenue increased
by 39%.
During the year the conversion of the Upland Goose Hotel
into heritage seafront cottages at Marmont Row was
completed. Two of these properties were subsequently
sold with the sale of a third due to complete in July 2011.
One other older property on the edge of Stanley was sold
during the year, bringing total revenues from property
sales to £0.45 million (2010: £0.36 million). FIC has
retained nine of the twelve Marmont properties which are
all being rented to companies involved in oil exploration
thereby maximising rental income and capital appreciation.
Marmont Row heritage seafront cottages in Stanley.
FALKLAND ISLANDS HOLDINGS PLC
7
The annual fare increase became effective on 1st June
2010 with the standard daily adult return fare rising by
4.3% to £2.40 and the price for a book of 10 trip tickets
for regular travellers lifted by 5.2% to £10.00. At this level
ferry fares continued to offer excellent value for money
whilst still allowing the company to maintain its policy of
offering discounted ticket prices for seniors and children
under 16. The overall fare increases put through in June
2010 of 4.5% effectively offset the impact of the decline
in passenger numbers and resulted in revenues from ferry
fares rising 2.6% to £3.59 million.
Other revenue of £0.14 million (2010: £0.22 million) was
earned principally from PHFC’s programme of summer
leisure cruises in the Solent area. Revenues declined in the
year as demand for leisure trips weakened but they
produced a small positive contribution and form an
important part of the ferry company’s service to the
community.
Ferry overheads increased during the year with inflationary
rises in wages, salaries and fuel costs. As a result, PHFC’s
underlying operating profit decreased marginally by 1.3%
to £0.79 million (2010: £0.80 million).
New pontoon at Gosport, installed in June 2011.
Portsmouth Harbour Ferry Company (“PHFC” )
PHFC performed satisfactorily with stable revenues and
operating profits in difficult market conditions.
Operating results
Year ended 31 March
Revenues
Ferry fares
Other revenue
Total PHFC revenue
Underlying PHFC
operating profit
Underlying operating
profit margin (%)
2011
£m
2010
£m
Change
%
3.59
0.14
3.73
3.50
0.22
3.72
2.6
(36.4)
0.3
0.79
0.80
(1.3)
Passenger numbers (000s)
3,421
3,516
21.2
21.5
(0.3)
(2.7)
In line with the local economy the number of ferry
passengers continued to see a modest decline although
the year on year reduction slowed to 2.7% (2010: 4.2%).
As in the prior year, ferry travel at weekends linked to
discretionary retail and leisure activity was most affected
with an overall decline of 6.3%. However, daily commuting
remained relatively robust with the fall in the number of
weekday journeys restricted to just 1.6%.
During the year agreement was reached with Gosport
Borough Council (“GBC”) to replace the ageing pontoon
at Gosport with a modern structure. Local contractors,
Trant Construction, were appointed in summer 2010
using specialist pontoon fabricator Ravestein, in Holland.
8
ANNUAL REPORT 2011
Managing Director’s Business Review
CONTINUED
The new pontoon is scheduled for installation in June
2011. The initial cash cost was met by GBC and PHFC will
now lease the pontoon from them under a finance lease
for a period of 50 years as the sole ferry operator. Under
the new arrangements PHFC will be responsible for
maintenance, insure the pontoon and pay a quarterly
rental to the Council to cover the finance and capital
costs. The resultant increase in operating costs arising
from the new pontoon will be met by a one off increase
in fares from June 2011 with adult return fares increasing
by 12.5% (30p) to £2.70 and senior and child daily 10 trip
tickets up to £7.50 or 75p per crossing. Even after these
necessary fare increases, the Board believes that the ferry
still offers excellent value to passengers compared to
alternative modes of transport.
The ferry service was able to maintain its exceptional
record of reliability with over 99.9% of some 70,000 ferry
trips (operating 364 days per annum) departing on time.
This impressive level of reliability and the exemplary safety
record of the ferry service are founded on the very high
levels of commitment and expertise of the ferry’s staff
who are proud to be a part of the community they serve.
Momart
Operating results
Year ended 31 March
2011
£m
2010
£m
Change
%
Revenues
Museums and public
exhibitions
Commercial gallery services
Storage
6.67
5.00
1.52
7.73
3.86
1.48
Total Momart revenue
13.19
13.07
(13.7)
29.5
2.7
0.9
Underlying Momart
operating profit
Underlying operating profit
margin (%)
0.53
0.95
(44.2)
4.0
7.3
(3.3)
The Group’s art handling and logistics business, Momart,
had a more difficult year. Revenues in the first half were
lower by 7.6% although they improved in the second half,
increasing by 8.8% to produce a 0.9% increase in revenue
for the year as a whole. In a difficult trading environment
margins declined and operating profits fell back to just
£0.53 million (2010: £0.95 million). Management changes
have been made at Momart, the costs of which are
reflected in the results.
Momart revenues
2011
Storage
12%
Commercial
gallery
services
38%
Museums
and public
exhibitions
50%
2010
Storage
11%
Commercial
gallery
services
30%
Museums
and public
exhibitions
59%
Exhibitions
As indicated in our interim announcement, the UK art
handling market saw a sharp reversal in the early part of
the financial year and Momart’s Exhibitions’ revenues fell
by over 30% in the first half as institutional budgets came
under pressure and fierce price competition developed in
the face of weaker demand. Pressure on margins
continued in the second half but sales volumes recovered,
helped in part by the large Gauguin exhibition at the Tate
Modern in October and others including the “Cult of
Beauty”, the travelling “Maharaja” exhibition at the V&A,
the Gossaert exhibition at the National Gallery and the
British Sculpture and Watteau exhibitions at the Royal
Academy. As a result Exhibition revenues in the second
half saw a modest 1.9% year on year increase to just over
£4 million, well ahead of the disappointing £2.6 million of
revenue seen in the first half. Despite this recovery, for the
year as a whole Exhibitions’ revenues fell by over 13%
and the associated squeeze on margins was largely
responsible for the overall decline in company profitability.
At £6.67 million, Exhibition sales in year were over 27%
below the record level of museum related revenues
experienced in 2008/9. The exhibitions market is expected
to remain stable in the near term, albeit with continuing
FALKLAND ISLANDS HOLDINGS PLC
9
FOGL
The Group owns a significant shareholding in AIM quoted
oil exploration company FOGL. Details of the Group’s
shareholding in FOGL are set out below:
Year ended 31 March
2011
2010
Number of shares held
12,000,000 12,000,000
FOGL share price
89.3p
129.5p
Market value of holding
£10.7m
£15.5m
Cost
£2.0m
£2.0m
During the year FOGL’s share price varied between a high
of 244p and low of 76p and at 31 March 2011 the
Group’s shareholding represented 8.2% of FOGL’s share
capital. Following a successful share placing by FOGL
in April 2011, to raise funding for its 2012 drilling
programme, FOGL’s
to
207.2 million shares and the Group’s unchanged holding
of 12 million shares represented an interest of 5.8% in the
enlarged share capital. Under IFRS, the investment is
shown at market value using the bid price.
share capital
increased
Trading outlook
We remain cautious about the immediate prospects for
the Group. In the UK the economic backdrop remains
problematic with generally weak consumer demand
exacerbated by on-going cuts in the budgets of
government funded institutions. Although the picture is
more encouraging in the Falkland Islands, after a step
change in 2010/11 the current year will see rising freight,
fuel and labour costs and this will put pressure on
margins. Continued strong growth will therefore depend
on further positive news on oil exploration.
The Group’s financial position remains strong with modest
borrowings of £4.2 million, low interest charges and a
healthy cash position.
We remain confident about the prospects for the Group
over the medium term and with the leading market
positions of the Group’s trading businesses we are well
placed to take full advantage of any growth in the UK
economy.
John Foster
Managing Director
23 June 2011
Momart was the contracted transport and logistics agency for the
Gauguin exhibition at Tate Modern in October 2010.
pressure on margins, with recovery anticipated in the
medium term.
Gallery Services
The commercial art market continued to grow through
the year. Linked to renewed confidence, particularly in
emerging markets, commercial activity grew strongly with
record auction sales seen in both India and Hong Kong.
This trend was confirmed once more by the continued
success in established markets of the major international
fairs including, Art Basel in June, Frieze in London in
October and Miami Basel in December.
The company’s commercial Gallery Services division was
again actively involved in a number of high profile
overseas exhibitions of Damien Hirst’s work and this was
complemented by increased activity with private collectors
and major UK commercial galleries such as White Cube
and Haunch of Venison.
Gallery Services’ sales grew strongly in the first half with
revenues ahead by 38%, helped by large commercial
exhibitions of Damien Hirst’s works in Berlin and Monaco.
In the second half growth continued albeit at a more
moderate rate with revenues ahead by over 21%, taking
annual revenues for the division to £5.0 million, an
increase of 29.5% on 2009/10.
Storage
Storage revenues increased by 2.7% in the year to
£1.52 million with a marked recovery seen in the second
half generated by activity in the commercial art market
and by large collectors. Storage revenue accounted for
11.5% of revenue in the year (2010: 11.3%).
10
ANNUAL REPORT 2011
Managing Director’s Financial Review
Summary income statement
Year ended 31 March
2011
£m
2010
£m
Change
%
Total revenue
31.84
29.22
Operating profit
2.93
3.13
9.0
(6.4)
Net financing costs
(0.20)
(0.45)
(55.6)
Underlying profit
before tax
Add / (deduct) non-trading
and exceptional items
Profit on the sale of FOGL
shares
Profit on the surrender of
lease
Revaluation of interest rate
collar
2.73
2.69
1.5
–
–
–
3.09
0.25
0.04
Amortisation of intangibles
(0.40)
(0.40)
(0.40)
2.98
Reported pre-tax profit
During the year there were no sales of any of the Group’s
shares in FOGL and there was no non-trading income
(2010: £3.3 million). After charging £0.4 million for the
amortisation of intangible assets (2010: £0.4 million)
reported profit before tax for the Group was £2.33 million
(2010: £5.67 million).
Taxation
The Group pays corporation tax on its UK earnings at the
standard rate of 28% while in the Falkland Islands the
Group pays tax at the rate of 25%. However, because of
double taxation arrangements, Falkland Islands earnings
are ultimately taxed at the UK rate of 28%. There is no
Capital Gains Tax in the Falkland Islands. For the year
ended 31 March 2011 due largely to the lower taxable
profits on property sales and a deferred tax asset being
recognised for the first time in 2010 in respect of share
based payments, the Group’s effective tax rate on its
underlying trading activities increased to 30.1% (2010:
26.2%).
Profit before tax as
reported
2.33
5.67
Earnings per share
Revenue and operating profit
These are discussed in detail in the Review of Operations
commencing on page 4.
Net financing costs
The Group’s net financing costs fell sharply to £0.20
million (2010: £0.45 million) as bank borrowings were
reduced and with the closing out of its interest rate collar
in the prior year, the Group was able to take full
advantage of lower bank interest rates.
Underlying pre-tax profit
With operating profit lower by just £0.2 million and
reduced financing costs, the Group’s underlying pre-tax
profits grew £0.04 million (1.5%) to a record level of
£2.73 million.
Underlying pre-tax profit excludes the amortisation of
intangible assets, and any non-trading items which in the
prior year included profit on sale of shares, profits from
the early surrender of a lease, and fair value movements
on derivative financial instruments. During the year there
were no exceptional non-trading items.
Year ended 31 March
Underlying profit
as above
2011
£m
2010
£m
Change
%
2.73
2.69
1.5
Tax thereon
(0.82)
(0.71)
(15.5)
Underlying profit after tax
1.91
1.98
(3.5)
Average number of shares
in issue (thousands)
Diluted EPS
9,237
9,147
20.6p
21.7p
1.0
(5.1)
With a small increase in the number of shares in issue and
a higher effective tax rate, fully diluted earnings per share
derived from underlying profits decreased by 5.1% to
20.6p (2010: 21.7p).
Balance sheet
The Group’s balance sheet had net assets as at 31 March
2011 of £30.6 million (2010: £34.2 million) borrowings of
£4.2 million (2010: £5.3 million) and cash balances of
£2.1 million (2010: £3.8 million).
The carrying value of intangible assets was reduced by
normal annual amortisation charges of £0.4 million to
£13.1 million as at 31 March 2011 (2010: £13.5 million).
FALKLAND ISLANDS HOLDINGS PLC
11
The net book value of property, plant and equipment was
unchanged at £7.5 million after capital expenditure of
£0.8 million and depreciation of £0.8 million in the year.
The Group’s investment properties comprise land and
commercial and residential properties in the Falkland
Islands held for rental. The net book value of the
properties at 31 March 2011 after the disposal and sale of
a small older property on the edge of Stanley was at
£1.0 million (2010: £1.1 million). The Directors estimate
that the fair value of the property portfolio at 31 March
2011 was £2.5 million. The Group also owns 670 acres of
land in Stanley which is included in investment properties
at its net book value of £0.7 million (2010: £0.7 million).
Due to the restricted market for freehold land in the
Falklands it is not possible to determine its fair value.
The Group’s holding of 12 million shares in FOGL is shown
under “Financial assets – available-for-sale equity securities”.
The Group’s shareholding remained unchanged during
the year and at 31 March 2011 represented 8.2% of
FOGL’s share capital. Under IFRS, the investment is shown
at market value which at 31 March 2011, with a FOGL
share price of 89.3 pence per share, amounted to £10.7
million (2010: £15.5 million). However, following a
successful share placing by FOGL in April 2011 to raise
funding for its 2012 drilling programme, FOGL’s share
capital increased to 207.2 million shares and the Group’s
shareholding represented 5.8% of the enlarged share
capital.
Deferred tax assets relating to future pension liabilities
decreased marginally to £0.55 million.
Non-property related inventories increased from
£3.5 million to £4.2 million at 31 March 2011. Of this
£0.3 million of the £4.2 million relates to work in progress
at Momart (2010: £0.4 million) and the balance of
£3.9 million represented stock held for resale in the
Group’s retail operations in the Falkland Islands, which
rose by £0.8 million due to increased trading activity and
additional retail selling space.
Property related inventories are shown at cost and
represent expenditure incurred to complete the conversion
of the former Upland Goose Hotel in Marmont Row back
into a terrace of heritage cottages on the waterfront in
Stanley. After final conversion work costing £0.3 million
and the sale of two properties with a net book value of
£0.3 million the total cost of completed properties at
31 March 2011 was unchanged at £1.2 million (2010:
£1.2 million).
Trade and other receivables balances increased from
£4.5 million to £5.8 million as at 31 March 2011 due
principally to an increase in sales on credit terms to
business customers in the Falkland Islands.
At 31 March 2011 the Group retained cash balances
on deposit with UK banks of £2.1 million (2010:
£3.8 million).
During the year the Group made loan repayments of
£1.1 million and at 31 March 2011 had bank borrowings
and finance leases outstanding of £4.2 million (2010:
£5.3 million). £1.1 million of these loans are due for
repayment in the coming year and are shown under
current liabilities.
Income tax payable within the next 12 months was
£0.6 million (2010: £0.7 million) reflecting the increase in
the Group’s taxable profits offset by increased payments
on account to HMRC during the year.
Trade and other payables increased from £8.2 million to
£8.3 million at 31 March 2011 reflecting increased trading
activity.
As at 31 March 2011 the liability due in respect of the
Group’s defined benefit pension schemes decreased to
£2.1 million (2010: £2.2 million). The scheme in the
Falkland Islands is unfunded and liabilities are met as they
fall due from operating cash flow. The net present value
of the liability due in respect of the Falkland Islands
scheme increased by £0.1 million in the year to
£2.1 million due principally to a reduction in long term
interest rates. At PHFC an enhanced cash offer was made
to eligible deferred members which resulted in a
permanent reduction of scheme liabilities of £0.15 million.
Following this buy out exercise, at 31 March 2011 the
scheme’s net deficit had been almost eliminated; net
liabilities were reduced by £0.2 million to £0.02 million.
The net deferred tax liabilities at 31 March 2011
decreased compared to the prior year to £1.4 million
(2010: £1.6 million).
Net assets per share decreased to 332p at 31 March 2011
(2010: 376p) reflecting a decrease in the carrying value of
the Group’s holding in FOGL.
Cash flows
The Group’s cash position was satisfactory throughout the
year. Bank loans outstanding were reduced by £1.1 million
to £4.0 million and after paying dividends of £0.8 million
(2010: £1.1 million) and corporation tax of £1.0 million
(2010: £0.7 million) the Group retained cash balances of
£2.1 million at year end.
12
ANNUAL REPORT 2011
Managing Director’s Financial Review
CONTINUED
Cash generation from operations remained healthy but
reduced by £1.6 million to £0.8 million in the year (2010:
£2.4 million). EBITDA decreased marginally, in line with the
£0.2 million reduction in underlying operating profit, but
working capital levels increased sharply in response to the
strong growth seen at FIC.
The Group’s Operating Cash Flow can be summarised as
follows:
Year ended 31 March
Underlying PBT
Depreciation
Interest payable
EBITDA
Share based payments
Increase in working capital
Tax paid
Other
Net cash flow from
operating activities
Proceeds from sale of shares in FOGL
Draw down of loan
Proceeds from shares issued under
option schemes
Less:
Dividends paid
Capital expenditure
Net bank interest paid
Loan repayments
Liquidation of financial derivative
Deferred consideration re Momart
Net outflows from financing etc.
Net cash flow
Cash balance b/fwd
Cash balance c/fwd
2011
£m
2010
£m
2.7
0.9
0.2
3.8
0.2
(2.0)
(1.0)
(0.2)
0.8
–
–
0.3
(0.8)
(0.8)
(0.1)
(1.1)
–
–
(2.5)
(1.7)
3.8
2.1
2.7
0.9
0.4
4.0
0.2
(1.4)
(0.7)
0.3
2.4
3.6
0.4
–
(1.1)
(1.4)
(0.3)
(0.8)
(0.4)
(1.6)
(1.6)
0.8
3.0
3.8
During the year the Group paid dividends of £0.8 million
and received £0.3 million from the proceeds of shares
issued following the exercise of share options. Investment
in fixed assets continued with £0.8 million of expenditure
to strengthen the Group’s operating base (2010: £1.4
million); £0.4 million was invested in Stanley with further
improvements to the West Store and FIC’s general store at
the MPA military base. At Momart two replacement
vehicles were acquired and at PHFC capital expenditure
was kept to a minimum in advance of the substantial
investment to come in the new pontoon. In addition to
fixed asset expenditure, final conversion works on
Marmont Row were completed at a cost of £0.3 million
and these properties are included in inventories as assets
held-for-sale.
With steadily reducing borrowings and low variable
interest rates, bank interest paid over the year decreased
to £0.1 million (2010: £0.3 million). Scheduled loan
repayments of £1.1 million were made during the year
and at 31 March 2011 total bank borrowings had reduced
to £4.0 million.
With net outflows from financing and investment of
£2.5 million (2010: £1.6 million) the Group’s net cash flow
for the year was an outflow of £1.7 million (2010: £0.8
million inflow) leaving cash balances of £2.1 million at
year end (2010: £3.8 million).
Business drivers, risk factors and key
performance indicators
Business drivers
The Group’s businesses are affected by general economic
conditions in their markets; inflation, employment levels,
interest rates and government spending programmes all
have an impact on demand for their services.
The Group’s businesses in the Falkland Islands and
Gosport have strong ties to the local communities they
serve and activity is linked in turn to the local demand for
their goods and services. In addition, demand is boosted
by tourist activity and both locations have benefited from
increasing tourist numbers in recent years. In the Falkland
Islands the strength of the economy is closely linked to the
fortunes of the fishing industry, in particular the success of
the unpredictable illex squid season which runs from
February to May, and more recently to oil exploration
activity. In the year ended 31 March 2011 the expansion
of oil exploration had a positive impact on the local
economy and this benefit is expected to continue in the
current year. If the programme proves unsuccessful this
stimulus will cease and activity will revert to more normal
levels whereas if commercial quantities of oil are found
the positive impact on the Falkland Islands economy will
be very significant.
At Momart activity in the art market is closely correlated
with the performance of the wider global economy albeit
with a time lag. In the commercial art market, levels of
disposable income among high net worth individuals are
a key driver and in the museums sector government
grants and corporate sponsorship are important sources
of funding in addition to public admissions revenue which
is on an increasing trend. Pressures on institutional budgets
FALKLAND ISLANDS HOLDINGS PLC
13
have increased as the full extent of government fiscal
problems both in the UK and overseas become clear. In
the longer term this may lead to the out-sourcing of
specialist services by museums and institutions but in the
near term a further reduction in the level of government
subsidised exhibitions seems likely.
Income generated from travelling international exhibitions
is an important source of revenue for museums and
galleries and is attractive as a means of informal diplomacy
for those nations with major cultural inventories although
in the near term privately sponsored exhibitions are likely
to prove more common than government funded activity.
The commercial art market is still continuing to develop
with the emergence of new buyers, patrons and artists in
the Middle East, Far East and Russia.
Risk factors
PHFC and FIC are both sensitive to changes in local
economic conditions. The level of local competition also
affects their performance. In the Falkland Islands, FIC
faces competition in almost every area of its operations
but due to the company’s long history and accumulated
expertise, in most sectors in which it operates FIC has a
leading market position. The situation is fluid and
maintaining leadership depends on continued innovation,
investment and a commitment to excellence in customer
service.
Argentina continues to make a claim against the UK’s
sovereignty of the Falkland Islands and in early 2010
imposed restrictions on vessels heading to or from the
Falklands passing through Argentinian waters. However,
the British government has re-affirmed its sovereignty in
unequivocal terms and key trade and logistic links with
the UK are unaffected. The existing tension with Argentina
is not considered likely to lead to any significant threat to
the independence of the Falkland Islands in the foreseeable
future although Argentina’s continuing protests have set
back the development of further commercial links to the
Falkland Islands’ South American neighbours.
Although there is no other directly competing service to
PHFC, customers do have a choice and are able to travel
by car or public transport round the harbour. Maintaining
and promoting the relative attractions of using the ferry
whether for commuting to work, shopping or for tourism
is a key focus of PHFC’s strategy and we will continue to
work closely with local authorities and other public
transport providers to reinforce its position as a faster,
more cost effective, and environmentally friendly
alternative to travelling by car.
For Momart the physical security of artworks is of
paramount importance and the company goes to great
lengths to guard against the risk of theft or damage to the
works in its care. Beyond physical security and the
resulting risk to the company’s reputation, the risks faced
by Momart tend to be those global factors which could
impact the global art market. In particular the reduction in
the personal wealth of collectors and investors will be
likely to result in a contraction of personal or institutional
budgets which would lead to a reduction in the movement
and display of art. The emergence of new competitors
could also impact the business adversely. In addition,
because much of Momart’s business involves working
with overseas partners, volatility in the Sterling/Dollar and
Sterling/Euro exchange rates has a direct effect on its cost
base and profitability.
Key performance indicators
At Group level management attention is focussed on
revenue, costs and the contribution generated by each sub
group of businesses.
In the Falkland Islands businesses like-for-like revenue
growth is a key measure of performance, especially for the
retail outlets which account for 2/3rds of revenues. In
addition to sales trends, gross margins by product and
general costs are also kept under close review.
At PHFC, passenger numbers and the average fare yield
are monitored on a weekly basis. Other key concerns are
ferry reliability and passenger safety as well as a focus on
costs and net profitability.
At Momart, forward sales projections are monitored and
updated and these are an important predictive indicator
which facilitates forward planning. In addition, order
intake and the conversion rate in bidding for contracts are
reviewed on a regular basis. Direct costs and the gross
contribution of individual contracts are monitored closely
as are the level of indirect costs and the overall amount of
overtime being worked.
John Foster
Managing Director
23 June 2011
14
ANNUAL REPORT 2011
Board of Directors and Secretary
David Hudd (66) Chairman
David joined the Board on 4 March 2002 and is Chairman of the Nominations Committee. He is a Chartered Accountant
and was a partner in Price Waterhouse until 1982. Since then, he has been Chairman or Chief Executive of a number
of listed companies. He is non-executive Deputy Chairman of Falkland Oil and Gas Limited.
John Foster (53) Managing Director
John joined the Board on 26 January 2005. He is a Chartered Accountant and previously served as Finance Director for
software company Macro 4 plc and toy retailer, Hamleys plc. Prior to joining Hamleys, he spent three years in charge of
acquisitions and disposals at FTSE 250 company Ascot plc and before that worked for nine years as a venture capitalist
with a leading investment bank in the City.
Mike Killingley (60) Non-executive Director
Mike was appointed to the Board on 26 July 2005, having previously been appointed non-executive Chairman of the
Portsmouth Harbour Ferry Company Limited, following the Company’s successful bid. He is a Chartered Accountant and
was a partner of KPMG (and predecessor firms) from 1984 to 1998. He is currently non-executive Chairman of Beale
plc, a listed Company. He was previously non-executive Chairman of Southern Vectis plc and Conder Environmental plc,
both listed on AIM. He is Chairman of the Audit Committee and a member of the Remuneration Committee.
Jeremy Brade (49) Non-executive Director
Jeremy joined the Board on 9 September 2009. He is a Director and Private Equity Partner at J O Hambro Capital
Management Limited, where he has worked since 2001. Jeremy had previously been with the Foreign and
Commonwealth Office (FCO) where he served at the British High Commission in New Delhi and as the representative
of Cyrus Vance and Lord Owen at the International Conference on the Former Yugoslavia. Prior to joining the Diplomatic
Service, Jeremy was an Army Officer.
Mike Beck (36) Company Secretary
Mike was appointed Company Secretary on 21 June 2011. He is a Chartered Accountant.
Directors’ Report
FALKLAND ISLANDS HOLDINGS PLC
15
The Directors present their Annual Report and the financial statements for the Company and for the Group for the year ended
31 March 2011.
Results and dividend
The Group’s result for the year is set out in the consolidated income statement on page 21. The Group profit for the year after taxation
amounted to £1,620,000 (2010: £5,256,000). Basic earnings per share were 17.7p (2010: 58.2p). The Directors recommend a dividend
of 5.5p per share (2010: 5.0p) which, if approved by shareholders at the forthcoming Annual General Meeting, will be paid on
14 October 2011 to shareholders on the register at close of business on 16 September 2011. The proposed dividend has not been
included in creditors as it was not approved before the year end. Dividends paid during the year comprise a dividend of 5.0p per share
in respect of the year ended 31 March 2010 and an interim dividend of 4.0p per share in respect of the current year.
Principal activities and business review
The business of the Group during the year ended 31 March 2011 was general trading in the Falkland Islands, the operation of a ferry
across Portsmouth Harbour and the provision of international arts logistics and storage services. The principal activities of the Group are
discussed in more detail in the Business and Financial Reviews on pages 4 to 13 which should be considered as part of the Directors’
Report for the purposes of the requirements of the enhanced Directors’ Report guidance.
The principal activity of the Company is that of a holding company.
Directors
There have been no changes to the Board during the year.
Directors’ interests
The interests of the Directors in the issued shares and share options over the shares of the Company are set out below under the
heading “Directors’ interests in shares” on pages 17 and 18. During the year no Director had an interest in any significant contract
relating to the business of the Company or its subsidiaries other than his own service contract.
Health and safety
The Group is committed to the health, safety and welfare of its employees and third parties who may be affected by the Group’s
operations. The focus of the Group’s effort is to prevent accidents and incidents occurring by identifying risks and employing appropriate
control strategies. This is supplemented by a policy of investigating and recording all incidents.
Employees
The Board is aware of the importance of good relationships and communication with employees. Where appropriate, employees are
consulted about matters which affect the progress of the Group and which are of interest and concern to them as employees. Within
this framework, emphasis is placed on developing greater awareness of the financial and economic factors which affect the performance
of the Group. Employment policy and practices in the Group are based on non-discrimination and equal opportunity irrespective of age,
race, religion, sex, colour and marital status. In particular, the Group recognises its responsibilities towards disabled persons and does
not discriminate against them in terms of job offers, training or career development and prospects. If an existing employee were to
become disabled during the course of employment, every practical effort would be made to retain the employee’s services with
whatever retraining is appropriate. The Group’s pension arrangements for employees are summarised in note 24 on pages 54 to 59.
Share capital and substantial interests in shares
During the year 123,326 share options were exercised (2010: 91,300).
Further information about the Company’s share capital is given in note 26 on pages 61 to 63. Details of the Company’s executive share
option scheme and employee ownership plans can be found on pages 17 and 18 and in note 25 on pages 59 and 60.
16
ANNUAL REPORT 2011
Directors’ Report
CONTINUED
The Company has been notified of the following substantial interests in 3% or more of the issued ordinary shares of the Company as
at 31 March 2011:
L S Licht
Sir Harry Solomon
Dolphin Fund plc
Payments to suppliers
Number of shares
Percentage of shares in issue
750,000
333,677
387,109
8.13
3.62
4.20
The policy of the Company and each of its trading subsidiaries, in relation to all its suppliers, is to settle the terms of payment when
agreeing the terms of the transaction and to abide by those terms, provided that it is satisfied that the supplier has provided the goods
or services in accordance with agreed terms and conditions. The Group does not follow any code or standard payment practice. As a
holding company, the Company had no trade creditors at either 31 March 2011 or 31 March 2010.
Charitable and political donations
Charitable donations made by the Group during the year amounted to £17,223 (2010: £28,737), largely to local community charities
in Gosport and the Falkland Islands.
Disclosure of information to auditors
The Directors who held office at the date of this Directors’ Report confirm that, so far as they are each aware, there is no relevant audit
information of which the Company’s auditors are unaware; and each Director has taken all the steps that they ought to have taken as
a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that
information.
Auditors
A resolution proposing the re-appointment of KPMG Audit plc will be put to shareholders at the Annual General Meeting.
Annual General Meeting
The Company’s Annual General Meeting will be held at the London offices of Financial Dynamics, Holborn Gate, 26 Southampton
Buildings, London WC2A 1PB at 3.00pm on 8 September 2011. The Notice of the Annual General Meeting and a description of the
special business to be put to the meeting are considered in a separate circular to Shareholders which accompanies this document.
Details of Directors’ remuneration and emoluments
The remuneration of non-executive Directors consists only of annual fees for their services both as members of the Board and of
Committees on which they serve.
An analysis of the remuneration and taxable benefits in kind (excluding share options) provided for and received by each Director during
the year to 31 March 2011 and in the preceding year follows:
Salary
£’000
Bonuses
£’000
Benefits
£’000
Pensions
share options
£’000
£’000
Gains in
respect of
David Hudd
John Foster
Mike Killingley
Sir Harry Solomon
Jeremy Brade
100
163
35
–
30
328
20
80
–
–
–
100
–
–
–
–
–
–
–
26
–
–
–
26
4
4
–
–
–
8
2011
Total
£’000
124
273
35
–
30
462
2010
Total
£’000
363
268
35
15
14
695
FALKLAND ISLANDS HOLDINGS PLC
17
Directors’ interests in shares
As at 31 March 2011, the share options of executive Directors may be summarised as follows:
Opening balance
Total as at 31 March 2010
Issued in year
Exercised in year
Date of
grant
Number
of shares
D L Hudd
Number
of shares
J L Foster
Exercise
price
Exercisable
from
Expiry
date
10 Feb
2005
14 June
2005
5 July
2007
7 Aug
2007
15 July
2009
21 Dec
2010
2 Aug
2010
–
57,692
£5.20
49,411
14,117
£4.25
3,780
3,780
£2.50
–
27,517
£3.30
44,550
44,550
£2.90
10 Feb
2008
14 June
2008
1 Aug
2010
7 Aug
2010
15 July
2012
9 Feb
2015
13 June
2015
31 July
2017
6 Aug
2017
14 July
2019
97,741
20,000
147,656
20,000
£3.421/2
21 Dec
2013
20 Dec
2020
(3,780)
(3,780)
£2.50
Total as at 31 March 2011
113,961
163,876
The mid-market price of the Company’s shares on 31 March 2011 was 330p and the range in the year was 280p to 555p.
The Directors’ options extant at 31 March 2011 totalled 277,837 and represented 3.0% of the Company’s issued share capital.
Under the Company’s executive share option scheme, executive Directors and senior executives have been granted options to acquire
ordinary shares in the Company after a period of three years from the date of the grant. All outstanding options have been granted at
an option price of not less than market value at the date of the grant. The exercise of options is conditional upon the achievement of
certain performance conditions determined by the Remuneration Committee.
During September 2010 the Remuneration Committee undertook a review of the performance conditions attached to the options
granted to Mr Foster in August 2007. As stated in last year’s Directors’ Report, the condition attached to these options required that
compound annual growth (“CAGR”) in the share price of the Company should be at least 10% over the three years from the date of
grant. The Remuneration Committee review concluded that the performance of the Company’s share price over the three years
following the dates of grant had been unduly influenced by events concerning Falkland Oil and Gas Limited, in which the Company
has a substantial shareholding. As a consequence the Remuneration Committee concluded that the performance conditions attached
to these options would not, without alteration, achieve their intended purpose of providing appropriate incentive to Mr Foster. The
Remuneration Committee, which comprises the two non-executive directors of the Company therefore recommended to the Board
that, in view of the growth in earnings per share of over 78% achieved in the 3 years to 31 March 2010 the performance condition
applied to the options granted to Mr Foster on 7 August 2007 over 27,517 shares at £3.30 should be regarded as satisfied and that
these options should be regarded as vested. These recommendations have been adopted by the full Board (with the exception of the
Director affected) and the terms of these options have therefore been amended as stated above.
The options granted to Mr Hudd and Mr Foster in July 2009 may normally only be exercised subject to the satisfaction of performance
criteria relating to the growth in the Company’s total shareholder return (“TSR”) over the three year period commencing 19 July 2009
(the “Performance Period”) relative to the TSR growth of all companies in the FTSE AIM All-Share Index (the “Index”) over the same
period (the “TSR Condition”).
18
ANNUAL REPORT 2011
Directors’ Report
CONTINUED
The TSR Condition provides for the options to become exercisable as follows:
Percentage by which the Company’s TSR growth exceeds the
Index’s TSR growth during the Performance Period
Percentage of Option shares which become exercisable
20% or more
10%
Less than 10%
100%
10%
0%
More than 10% but less than 20%
Between 10% and 100% on a straight-line basis
The options granted to Mr Hudd and Mr Foster in December 2010 may only be exercised conditional upon the growth in earnings
per share over a period of three consecutive financial years (starting no earlier than the year in which the option is granted) being
greater than the increase in the United Kingdom Retail Price Index over that period plus 5% pa.
In addition to the share options set out above, the interests of the Directors, their immediate families and related trusts in the shares
of the Company were as shown below:
David Hudd
John Foster
Mike Killingley
Jeremy Brade
Ordinary shares
Ordinary shares
as at 31 March 2011
as at 31 March 2010
100,000
15,000
10,000
4,000
82,382
10,000
10,000
2,000
FALKLAND ISLANDS HOLDINGS PLC
19
Statement of Directors’ responsibilities in respect of the Directors’ Report and financial statements
The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law they
are required to prepare the Group financial statements in accordance with IFRSs as adopted by the European Union and applicable laws
and have elected to prepare the Company financial statements on the same basis.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and Company and of their profit or loss for that period.
In preparing each of the Group and Company financial statements, the Directors are required to:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
select suitable accounting policies and then apply them consistently;
make judgments and estimates that are reasonable and prudent;
state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company
will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They have a general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
Approved by the Board and signed on its behalf by:
Mike Beck
Secretary
23 June 2011
Kenburgh Court
133-137 South Street
Bishop’s Stortford
Hertfordshire
CM23 3HX
20
ANNUAL REPORT 2011
Independent Auditor’s Report to the
members of Falkland Islands Holdings plc
We have audited the financial statements of Falkland Islands Holdings plc for the year ended 31 March 2011 set out on pages 21 to
71. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting
Standards (“IFRSs”) as adopted by the EU and, as regards the Parent Company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them
in an Auditor’s Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of Directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set out on page 19, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an
opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s (“APB’s”) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the APB’s website at www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
(cid:129)
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March
2011 and of the Group’s profit for the year then ended;
(cid:129)
(cid:129)
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as
applied in accordance with the provisions of the Companies Act 2006; and
(cid:129)
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion:
(cid:129)
the details of the Directors’ Remuneration and emoluments which we were engaged to audit has been properly prepared in
accordance with schedule 8 to the Companies Act 2006 The Large and Medium-sized companies and Groups (Accounts and
Reports) Regulations 2008, as if those requirements were to apply to the Company; and
(cid:129)
the information given in the Directors’ Report for the financial period for which the financial statements are prepared is consistent
with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our
opinion:
(cid:129)
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received
from branches not visited by us; or
(cid:129)
the Parent Company financial statements and the details of the Directors’ remuneration are not in agreement with the accounting
records and returns; or
(cid:129)
certain disclosures of Directors’ remuneration specified by law are not made; or
(cid:129) we have not received all the information and explanations we require for our audit.
T M Widdas (Senior Statutory Auditor)
For and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
St Nicholas House
Park Row
Nottingham NG1 6FQ
23 June 2011
Consolidated Income Statement
FOR THE YEAR ENDED 31 MARCH 2011
FALKLAND ISLANDS HOLDINGS PLC
21
Before
Amortisation
amortisation
& non-trading
Before
Amortisation
amortisation
& non-trading
Notes
3
Revenue
Cost of sales
Gross profit
& non-trading
items
2011
£’000
31,841
(19,294)
12,547
Other administrative expenses
(9,627)
Amortisation of intangible
items
(note 5)
2011
£’000
Total
2011
£’000
& non-trading
items
2010
£’000
items
(note 5)
2010
£’000
–
–
–
–
31,841
29,224
(19,294)
(17,237)
12,547
11,987
(9,627)
(8,868)
–
–
–
–
Total
2010
£’000
29,224
(17,237)
11,987
(8,868)
assets
–
(398)
(398)
–
(398)
(398)
Operating expenses
(9,627)
(398)
(10,025)
(8,868)
(398)
(9,266)
Gain on disposal of
available-for-sale equity
securities
Compensation for early
vacation of leasehold premises
Other income
4
Other operating income
–
–
15
15
–
–
–
–
–
–
15
15
–
–
15
15
3,089
3,089
245
–
245
15
3,334
3,349
Operating profit
2,935
(398)
2,537
3,134
2,936
6,070
Finance income
Finance expense
8
Net financing costs
117
(324)
(207)
–
–
–
117
(324)
111
(557)
(207)
(446)
45
–
45
156
(557)
(401)
Profit / (loss) before tax
from continuing operations
2,728
(398)
2,330
2,688
2,981
5,669
9
Taxation
(821)
111
(710)
(705)
292
(413)
Profit / (loss) for the year
attributable to equity
holders of the Company
1,907
(287)
1,620
1,983
3,273
5,256
10
Earnings per share
Basic
Diluted
20.9p
20.6p
17.7p
17.5p
22.0p
21.7p
58.2p
57.5p
22
ANNUAL REPORT 2011
Consolidated Statement of Comprehensive Income
FOR THE YEAR ENDED 31 MARCH 2011
(Loss) / gain on valuation of available-for-sale equity securities
(4,832)
6,828
Transfer to the income statement on sale of available-for-sale equity securities
–
(1,683)
2011
£’000
2010
£’000
Share-based payments
Repurchase of equity interest
PHFC actuarial loss on pension scheme
FIC actuarial loss on pension scheme
Movement on deferred tax asset relating to pension schemes
Effect of tax rate changes on deferred tax asset relating to pension schemes
Other comprehensive (expense) / income
Profit for the year
Total comprehensive (expense) / income
207
–
(10)
(82)
24
(43)
240
(75)
(55)
(195)
124
–
(4,736)
5,184
1,620
5,256
(3,116)
10,440
Consolidated Balance Sheet
AS AT 31 MARCH 2011
Notes
11
12
13
15
Non-current assets
Intangible assets
Property, plant and equipment
Investment properties
Financial assets – available-for-sale equity securities
16 Non-current assets held-for-sale
17 Other financial assets
18 Deferred tax assets
Total non-current assets
Current assets
Trading inventories
Property inventories
Inventories
Trade and other receivables
19
20
17 Other financial assets
21 Cash and cash equivalents
Total current assets
TOTAL ASSETS
Current liabilities
22
Interest-bearing loans and borrowings
Income tax payable
23
Trade and other payables
Total current liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Employee benefits
22
24
18 Deferred tax liabilities
Total non-current liabilities
TOTAL LIABILITIES
Net assets
26 Capital and reserves
Equity share capital
Share premium account
Other reserves
Retained earnings
Financial assets fair value revaluation reserve
Total equity
FALKLAND ISLANDS HOLDINGS PLC
23
2011
£’000
2010
£’000
13,111
13,509
7,489
1,721
7,483
1,777
10,710
15,542
20
60
554
20
52
621
33,665
39,004
4,215
1,204
5,419
5,811
252
2,062
3,489
1,220
4,709
4,535
206
3,810
13,544
13,260
47,209
52,264
(1,058)
(569)
(8,334)
(1,218)
(683)
(8,219)
(9,961)
(10,120)
(3,104)
(2,130)
(1,413)
(6,647)
(4,055)
(2,237)
(1,615)
(7,907)
(16,608)
(18,027)
30,601
34,237
922
7,618
1,162
12,150
8,749
30,601
910
7,324
1,162
11,260
13,581
34,237
These financial statements were approved by the Board of Directors on 23 June 2011 and were signed on its behalf by:
J L Foster
Director
24
ANNUAL REPORT 2011
Company Balance Sheet
AS AT 31 MARCH 2011
Notes
Non-current assets
14
20
18
20
21
22
21
Financial assets – investments in subsidiaries
Other receivables
Deferred tax
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
TOTAL ASSETS
Current liabilities
Interest-bearing loans and borrowings
Bank overdraft
Income tax payable
23
Trade and other payables
Total current liabilities
Non-current liabilities
22
23
Interest-bearing loans and borrowings
Other payables
Total non-current liabilities
TOTAL LIABILITIES
Net assets
26
Capital and reserves
Called up share capital
Share premium account
Other reserves
Retained earnings
Total equity
2011
£’000
2010
£’000
31,426
31,297
4,042
2,916
8
–
35,476
34,213
30
–
30
15
360
375
35,506
34,588
(800)
(928)
(1,418)
(27)
(376)
–
70
(413)
(2,621)
(1,271)
(2,337)
(3,140)
(390)
(871)
(2,727)
(4,011)
(5,348)
(5,282)
30,158
29,306
922
7,618
6,910
910
7,324
6,910
14,708
14,162
30,158
29,306
These financial statements were approved by the Board of Directors on 23 June 2011 and were signed on its behalf by:
J L Foster
Director
Registered company number: 03416346
Consolidated Cash Flow Statement
FOR THE YEAR ENDED 31 MARCH 2011
FALKLAND ISLANDS HOLDINGS PLC
25
Notes
Cash flows from operating activities
Profit for the year
Adjusted for:
(i) Non-cash items:
Depreciation
Fixed asset impairment
Amortisation
Amortisation of loan fees
Notional interest charge on deferred consideration
Expected return on pension scheme assets
Interest cost on pension scheme liabilities
Net settlement gain recognised on pension transfers
Gain on remeasurement of derivative financial instruments
Settlement of equity interest
Equity-settled share-based payment expenses
Non-cash items adjustment
(ii) Other items:
Bank interest receivable
Bank interest payable
Gain on disposal of available-for-sale equity securities
Profit on disposal of investment property
Enhanced transfer value exercise payments
Income tax expense
Other adjustments
Operating cash flow before changes in working capital and provisions
Increase in trade and other receivables
Decrease / (increase) in property inventories
Increase in other inventories
Increase in trade and other payables
Decrease in provisions and employee benefits
Changes in working capital and provisions
Cash generated from operations
Income taxes paid
Net cash flow from operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of investment properties
Proceeds from the disposal of property, plant and equipment
Acquisition of subsidiary, net of cash acquired
Proceeds from the sale of available-for-sale equity securities
Interest received
Net cash flow from investing activities
Cash flow from financing activities:
Increase in other financial assets
Repayment of secured loans
Proceeds from new loans
Interest paid
Liquidation of financial derivative contracts
Proceeds from the issue of ordinary share capital
Dividends paid
Net cash flow from financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at start of year
21
Cash and cash equivalents at end of year
2011
£’000
2010
£’000
1,620
5,256
846
–
398
30
–
(29)
144
(10)
–
–
207
907
(30)
398
30
48
(17)
149
–
(45)
(75)
240
1,586
1,605
(4)
138
–
(80)
(140)
710
624
3,830
(1,276)
16
(726)
115
(134)
(2,005)
1,825
(1,008)
817
(815)
–
99
–
–
4
(712)
(54)
(1,141)
–
(138)
–
306
(826)
(1,853)
(1,748)
3,810
2,062
(16)
330
(3,089)
–
–
413
(2,362)
4,499
(111)
(581)
(919)
306
(137)
(1,442)
3,057
(708)
2,349
(1,358)
(55)
72
(1,621)
3,584
16
638
(41)
(755)
376
(330)
(361)
14
(1,084)
(2,181)
806
3,004
3,810
26
ANNUAL REPORT 2011
Company Cash Flow Statement
FOR THE YEAR ENDED 31 MARCH 2011
Notes
Cash flows from operating activities
Profit / (loss) for the year
Adjusted for:
Net financing costs
Amortisation of loan fees
Notional interest charge on deferred consideration
Loss on re-measurement of financial instruments
Equity-settled share-based payment expenses
Settlement of equity interest
Income tax credit / (expense)
2011
£’000
2010
£’000
1,165
(330)
102
30
–
–
78
–
19
286
30
48
(45)
46
(75)
(84)
Operating profit before changes in working capital and provisions
1,394
(124)
(Increase) / decrease in trade and other receivables
Decrease in trade and other payables
Increase in provisions
Cash generated from operations
Income taxes refunded / (paid)
Net cash flow from operating activities
Cash flows from investing activities:
Acquisition of subsidiary
Net cash flow from investing activities
Cash flow from financing activities:
Proceeds from new loan
Proceeds from inter-company borrowing
Repayment of inter-company borrowing
Repayment of secured loan
Interest paid
Liquidation of financial derivative contracts
Proceeds from the issue of ordinary share capital
Dividends paid
Net cash flow from financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at start of year
21
Cash and cash equivalents at end of year
(15)
(37)
–
1,342
70
1,412
–
–
–
–
(1,607)
(961)
(102)
–
306
4
–
168
48
(70)
(22)
(1,621)
(1,621)
242
3,648
–
(459)
(286)
(361)
14
(826)
(1,084)
(3,190)
1,714
(1,778)
360
(1,418)
71
289
360
Consolidated Statement of Changes in Shareholders’ Equity
FOR THE YEAR ENDED 31 MARCH 2011
FALKLAND ISLANDS HOLDINGS PLC
27
Shareholders’ funds at the beginning of the year
Profit for the year
Share-based payments
Change in fair value of available-for-sale financial assets
2011
£’000
2010
£’000
34,237
24,867
1,620
5,256
207
240
(4,832)
6,828
Transfer to the income statement on sale of available-for-sale equity securities
–
(1,683)
Actuarial loss on pension net of tax
Effect of tax rate changes on deferred tax asset relating to pension schemes
Repurchase of equity interest
Total comprehensive (expense) / income
Dividends paid
Proceeds from the issue of ordinary share capital
Shareholders’ funds at the end of the year
(68)
(43)
–
(126)
–
(75)
(3,116)
10,440
(826)
(1,084)
306
14
30,601
34,237
Company Statement of Changes in Shareholders’ Equity
FOR THE YEAR ENDED 31 MARCH 2011
Shareholders’ funds at the beginning of the year
Profit / (loss) for the year
Share-based payments
Repurchase of equity interest
Total comprehensive income / (expense)
Dividends paid
Proceeds from the issue of ordinary share capital
Shareholders’ funds at the end of the year
2011
£’000
2010
£’000
29,306
30,541
1,165
207
–
1,372
(330)
240
(75)
(165)
(826)
(1,084)
306
14
30,158
29,306
28
ANNUAL REPORT 2011
Notes to the Financial Statements
FOR THE YEAR ENDED 31 MARCH 2011
1 Accounting policies
General information
Falkland Islands Holdings plc (the “Company”) is a company incorporated and domiciled in the UK.
Reporting entity
The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”). The Parent
Company financial statements present information about the Company as a separate entity and not about its group.
Basis of preparation
Both the Parent Company financial statements and the Group financial statements have been prepared and approved by the Directors
in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRS”). On publishing the Parent
Company financial statements here together with the Group financial statements, the Company is taking advantage of the exemption
in s408 of the Companies Act 2006 not to present its individual income statement and related notes that form a part of these approved
financial statements.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these
consolidated financial statements.
The management and development of the Group’s property portfolio in the Falkland Islands is a significant part of the Group’s trading
activity. Accordingly, receipts from the disposal of investment property and property developments and rents received from its portfolio
of residential and commercial properties are reported as a trading activity within turnover. Associated gains and losses on the disposal
of rental properties and property developments are accordingly recognised within gross profit.
Judgements made by the Directors in the application of these accounting policies that have a significant effect on the financial
statements and estimates with a significant risk of material adjustment next year are discussed in note 31.
The financial statements are presented in pounds sterling, rounded to the nearest thousand. They are prepared on the historical cost
basis except that available-for-sale financial instruments and derivative financial instruments are stated at their fair value.
The Directors are responsible for ensuring that the Group has adequate financial resources to meet its projected liquidity requirements
and also for ensuring forecast earnings are sufficient to meet the covenants associated with the Group’s banking facilities.
As in prior years the Directors have reviewed the Group’s medium term forecasts and considered a number of possible trading scenarios
and are satisfied the Group’s existing resources (including committed banking facilities) are sufficient to meet its needs. As a consequence
the Directors believe the Group is well placed to manage its business risk.
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out
in the Managing Director’s Business Review and Financial Review on pages 4 to 13. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are also described in the Managing Director’s Financial Review. In addition, note 27 to the
financial statements includes the Group’s objectives, policies and processes for managing its capital; its financial risk management
objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Group has considerable financial resources. As a consequence, the Directors believe that the Group is well placed to manage its
business risks successfully despite the current uncertain economic outlook.
After making enquiries the Directors have a reasonable expectation that the Company and Group have adequate reserves to continue
in operational existence for the foreseeable future, and have continued to adopt the going concern basis in preparing the financial
statements.
Basis of consolidation
The consolidated financial statements comprise the financial statements of Falkland Islands Holdings plc and its subsidiaries (the
“Group”). A subsidiary is any entity Falkland Islands Holdings plc has the power to control the financial and operating policies of so as
to obtain benefits from its activities. The financial statements of subsidiaries are prepared for the same reporting period as the Parent
Company. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by
the Group.
FALKLAND ISLANDS HOLDINGS PLC
29
1 Accounting policies CONTINUED
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date
on which control is transferred out of the Group.
All intra-company balances and transactions, including unrealised profits arising from intra-group transactions, are eliminated in full in
preparing the consolidated financial statements. Unrealised losses are eliminated but only to the extent that there is no evidence of
impairment.
Investments in subsidiaries not classified as held-for-sale within the Company balance sheet are stated at cost.
Presentation of income statement
Due to the non-prescriptive nature under IFRS as to the format of the income statement, the format used by the Group is explained
below.
Operating profit is the pre-finance profit of continuing activities and acquisitions of the Group, and in order to achieve consistency and
comparability, is analysed to show separately the results of normal trading performance (“underlying profit”), individually significant
charges and credits and amortisation of intangible assets on acquisition. Such items arise because of their size or nature, and in 2011
comprise:
(cid:129)
Amortisation of intangible assets.
In 2010 such items comprised:
(cid:129) Gain on disposal of equity securities
(cid:129)
Compensation for early vacation of leasehold premises
(cid:129) Gain on liquidation of derivative financial instrument contracts
(cid:129)
Amortisation of intangible assets.
Foreign currencies
Transactions in foreign currencies are translated to the functional currencies of Group entities at exchange rates ruling at the dates of
the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the
relevant rates of exchange ruling at the balance sheet date and the gains or losses thereon are included in the income statement.
Non-monetary assets and liabilities are translated using the exchange rate at the date of the initial transaction.
Property, plant and equipment
Property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost comprises purchase
price and directly attributable expenses. Depreciation is charged to the income statement on a straight-line basis over the estimated
useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:
Freehold buildings
Long leasehold land and buildings
Vehicles, plant and equipment
Ships
20 – 50 years
50 years
4 – 10 years
15 – 30 years
The carrying value of assets and their useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. If an indication
of impairment exists, the assets are written down to their recoverable amount and the impairment is charged to the income statement
in the period in which it arises.
Freehold land and assets-in-construction are not depreciated.
30
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
1 Accounting policies CONTINUED
Investment properties
Investment properties are properties held either to earn rental income or for capital appreciation or for both. Investment properties are
stated at cost less any accumulated depreciation (calculated on useful economic lives in line with accounting policy, property, plant and
equipment above) and any impairment losses.
Intangible assets
Goodwill
Goodwill arises on the acquisition of subsidiaries.
Acquisitions prior to 1 April 2006
In respect to acquisitions prior to transition to IFRS, goodwill is recorded on the basis of deemed cost, which represents the amount
recorded under previous Generally Accepted Accounting Principles (“GAAP”) as at the date of transition. The classification and
accounting treatment of business combinations which occurred prior to transition has not been reconsidered in preparing the Group’s
opening IFRS balance sheet at 1 April 2006.
Acquisitions on or after 1 April 2006
Goodwill on acquisition is initially measured at cost, being the excess of the cost of the business combination over the acquirer’s interest
in the fair value of the identifiable assets, liabilities and contingent liabilities of the acquired business. Following initial recognition,
goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised but reviewed for impairment annually
or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such
lives are indefinite. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as
follows:
Trade name
Customer relationships
Non-compete agreements
Computer software
20 years
6 – 10 years
5 years
Acquired computer software is capitalised as an intangible asset on the basis of the cost incurred to acquire and bring the specific
software into use. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible
assets from the date that they are available for use. The estimated useful life of computer software is five years.
Impairment of non-financial assets
At each reporting date the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of
impairment exists or the asset requires annual impairment testing, the Group makes a formal estimate of the recoverable amount.
Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its
recoverable amount. Impairment losses are recognised in the income statement.
Recoverable amount is the greater of an asset’s or cash-generating unit’s fair value less cost to sell or value in use. It is determined for
an individual asset, unless the asset’s value in use cannot be estimated to be close to its fair value less costs to sell and it does not
generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount
is determined for the cash-generating unit to which the asset belongs.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and risks specific to the asset.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses are reversed if there has been a
change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
FALKLAND ISLANDS HOLDINGS PLC
31
1 Accounting policies CONTINUED
Finance income and expense
Net financing costs comprise interest payable, interest receivable, and foreign exchange gains and losses that are recognised in the
income statement.
Interest income and interest payable are recognised as a profit or loss as they accrue, using the effective interest method.
Financial instruments
Certain financial instruments held by the Group are classified as being available-for-sale and are stated at fair value, with any resultant
gain or loss being recognised directly in equity, except for impairment losses. When these items are derecognised, the cumulative gain
or loss previously recognised directly in equity is recognised in profit and loss.
Financial instruments classified as available-for-sale are initially recognised at fair value less directly attributable transaction costs.
The Group does not use derivative financial instruments for speculative purposes. Derivative financial instruments are initially measured
at fair value. Changes in the fair value of derivative financial instruments are recognised in the income statement as they arise. The
Group has not applied hedge accounting to its derivative financial instruments.
Employee share awards
The Group provides benefits to certain employees (including Directors) in the form of share-based payment transactions, whereby the
employee renders service in return for shares or rights over future shares (“equity settled transactions”). The cost of these equity settled
transactions with employees is measured by reference to an estimate of their fair value at the date on which they were granted using
an option input pricing model taking into account the terms and conditions upon which the options were granted. The amount
recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share
prices not achieving the threshold for vesting.
The cost of equity settled transactions is recognised, together with a corresponding increase in reserves, over the period in which the
performance conditions are fulfilled, ending on the date that the option vests.
Where the Company grants options over its own shares to the employees of subsidiaries, it recognises, in its individual financial
statements, an increase in the cost of investment in its subsidiaries equal to the equity settled share-based payment charge recognised
in its consolidated financial statements with the corresponding credit being recognised directly in equity.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost includes all costs incurred in bringing each product to its present
location and condition, as follows:
The cost of raw materials, consumables and goods for resale comprises purchase cost, on a first-in, first-out basis and where applicable
includes expenditure incurred in transportation to the Falkland Islands.
Work-in-progress and finished goods cost includes direct materials and labour plus attributable overheads based on a normal level
of activity.
Construction-in-progress and properties-held-for-sale relating to the Group’s property trading portfolio in the Falkland Islands are stated
at the lower of cost and net realisable value.
Net realisable value is estimated at selling price in the ordinary course of business less costs of disposal.
Revenue
Revenue is measured at the fair value of the consideration received or receivable and represents the amount receivable by the Group
for goods supplied and services rendered in the normal course of business, net of discounts and excluding VAT. Revenue principally
arises from retail sales, the provision of ferry services and the provision of storage and transportation services for fine art works. In the
Falkland Islands revenue also includes proceeds from property sales, property rental income, insurance commissions, revenues billed for
shipping and agency activities and port services.
Revenue from sale of goods is recognised at the point of sale or dispatch, whilst that of the ferry, fine art logistics and other services is
recognised when the service is provided. Revenue from property sales is recognised on completion.
32
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
1 Accounting policies CONTINUED
For fine art exhibition logistical work undertaken the amount of profit attributable to the stage of completion of a contract is recognised
when the outcome of the contract can be seen with reasonable certainty, typically upon successful opening. Turnover for such contracts
is stated at the cost appropriate to their stage of completion plus attributable profit, less amounts already recognised. Provision is made
for losses as soon as they are foreseeable.
Pensions
Defined contribution pension schemes
The Group operates three defined contribution schemes. The assets of the schemes are held separately from those of the Group in
independently administered funds. The amount charged to the income statement represents the contributions payable to the schemes
in respect to the accounting period.
Defined benefit pension schemes
The Group also operates two pension schemes providing benefits based on final pensionable pay, one of which is unfunded. The assets
of the funded scheme are held separately from those of the Group.
The Group’s net obligation in respect of each defined benefit pension plan is calculated by estimating the amount of future benefit that
employees have earned in return for their service in the current and prior periods; that benefit is discounted to its present value; and
any unrecognised past service costs and the fair value of the plan assets (at bid price) are deducted. The liability discount rate is the
yield at the balance sheet date on AA credit-rated bonds that have maturity dates approximating the terms of the Group’s obligations.
The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to
the Group, the asset recognised is limited to the net total of any unrecognised past service costs and the present value of any future
refunds from the plan or reductions in future contributions to the plan.
The current service cost and costs from settlements and curtailments are charged against operating profit.
Past service costs are spread over the period until the benefit increases vest. Interest charged on the scheme liabilities and the expected
return on scheme assets are included in other finance costs.
Actuarial gains and losses are recognised in full in the period in which they arise in the statement of comprehensive income.
Trade and other receivables
Trade receivables are carried at amortised cost, less provision for impairment. Any change in their value through impairment or reversal
of impairment is recognised in the income statement.
Trade and other payables
Trade and other payables are stated at their cost less payments made.
Dividends on funds presented within shareholders’ funds
Dividends unpaid at the balance sheet date are only recognised as liabilities at that date to the extent that they are appropriately
authorised and are no longer at the discretion of the Company.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash balances and call deposits with an original maturity of three months or
less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a
component of cash and cash equivalents for the purpose of the statement of cash flows.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less directly attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being
recognised in the income statement over the period of the borrowings on an effective interest basis.
Income tax
Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement,
except to the extent that it relates to items recognised directly in equity, in which case it is recognised directly in equity.
FALKLAND ISLANDS HOLDINGS PLC
33
1 Accounting policies CONTINUED
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary timing differences
are not recognised:
(cid:129) Goodwill not deductible for tax purposes; and
(cid:129)
Initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor
taxable profits.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the
temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realised.
Deferred tax is recognised at the tax rates that are expected to be applied to the temporary differences when they reverse, based on
rates that have been enacted or substantially enacted by the reporting date.
Leased assets
Leases in which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. All other leases
are classified as operating leases.
As lessee
Rentals in respect of all operating leases are charged to the income statement on a straight-line basis over the lease term.
As lessor
Assets under hire purchase agreements are shown in the balance sheet under current assets to the extent they are due within one year,
and under non-current assets to the extent that they are due after more than one year, and are stated at the value of the net investment
in the agreements. The income from such agreements is credited to the income statement each year so as to give a constant rate of
return on the funds invested.
Assets held for leasing out under operating leases are included in investment property (where they constitute land and buildings) or in
property, plant and equipment (where they do not constitute land and buildings) at cost less accumulated depreciation and impairment
losses. Rental income is recognised on a straight-line basis. Lease incentives granted are recognised as an integral part of the total rental
income.
Finance lease payments
Minimum lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance charge is
allocated to each period of the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Non-current assets held for sale and discontinued operations
Non-current assets and discontinued operations are classified as held for sale when their carrying values will be recovered principally
through sale. They are generally measured at the lower of carrying amount and fair value less costs to sell.
Provisions
Provisions are recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event,
and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation. If the effect is material, provisions are determined by discounting the expected cash flows at an
appropriate pre-tax risk free rate.
34
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
1 Accounting policies CONTINUED
New accounting standards and interpretations applied
During the year the Group has adopted the following standards:
Amendments to IFRS 2 Group cash-settled share based payments
Amendments to IAS 27(2008) Consolidated and Separate Financial Statements
Amendments to IFRS 3 (2008) Business Combinations
Amendments to IAS 39 Financial Instruments: Recognition and Measurement
IFRIC 17 Distributions of non-cash assets to owners
New accounting standards and interpretations not applied
During the year, the International Accounting Standards Board (“IASB”) and International Financial Reporting Interpretations Committee
(“IFRIC”) have issued the following standards and interpretations with potential application to the Group with an effective date after
the end of these financial statements:
International Accounting Standards (IAS/IFRS)
(accounting periods commencing on or after):
Effective date
Endorsed
Amendments to IFRS 3 (2008) Business Combinations
Amendments to IFRS 7 Financial Instruments Disclosures
Amendments to IFRS 7 Financial Instruments Disclosures, related to transfer of financial assets
IFRS 9 Financial Instruments
Amendments to IAS 1 Presentation of Financial Statements
IAS 24 Related Party Disclosures
Amendments to IAS 27 (2008) Consolidated and Separate Financial Statements
Amendments to IAS 34 Interim Financial Reporting
International Financial Reporting Interpretations Committee (IFRIC)
1 July 2010
1 January 2011
1 July 2011
1 January 2013
1 January 2011
1 January 2011
1 July 2010
1 January 2011
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
1 July 2010
The Directors do not anticipate that the adoption of the standards and interpretations listed above will have a material impact on the
Group’s or Company’s financial statements in the period of initial application, however additional disclosures will be required.
FALKLAND ISLANDS HOLDINGS PLC
35
2 Segmental information
Segment information is presented in respect of the Group’s business and geographical segments. The primary reporting format is
determined to be by business type: general trading in the Falkland Islands, the provision of ferry services and art logistics and storage.
The secondary reporting format is determined to be geographical.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis.
Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment and intangible assets
other than goodwill.
Primary reporting format – business
2011
Revenue
Segment operating profit before tax, amortisation
and non-trading items
Amortisation of intangible assets
Amortisation and non-trading items
Segment operating profit
Interest income
Interest expense
Segment profit before tax
Taxation
Segment profit after tax
Assets and liabilities
Segment assets
Segment liabilities
Unallocated assets and liabilities
Segment net assets
Other segmental information
Capital expenditure:
Property, plant, equipment
Depreciation – property, plant and equipment
Depreciation – investment properties
Amortisation
Underlying profit before tax
Segment operating profit before tax, amortisation and
non-trading items (as above)
Interest income
Interest expense
Underlying profit before tax
General
trading
Ferry
services
Art logistics
and storage
(Falklands)
(Portsmouth)
£’000
£’000
(UK)
£’000
To tal
£’000
14,921
3,734
13,186
31,841
1,613
–
–
1,613
88
(129)
1,572
(314)
1,258
790
–
–
790
29
(70)
749
(326)
423
532
(398)
(398)
134
–
(125)
9
(70)
(61)
12,856
(7,972)
8,029
(1,993)
12,268
(4,519)
4,884
6,036
7,749
419
326
37
–
1,613
88
(129)
1,572
69
215
–
–
790
29
(70)
749
327
268
–
398
532
–
(125)
407
2,935
(398)
(398)
2,537
117
(324)
2,330
(710)
1,620
33,153
(14,484)
11,932
30,601
815
809
37
398
2,935
117
(324)
2,728
36
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
2 Segmental information CONTINUED
2010
Revenue
Segment operating profit before tax, amortisation
and non-trading items
Amortisation of intangible assets
Compensation for early vacation of leasehold premises
Unallocated gain on disposal of available-for-sale equity securities
Amortisation and non-trading items
Segment operating profit
Gain on liquidation of financial derivative
Interest income
Interest expense
Segment profit before tax
Tax
Segment profit after tax
Assets and liabilities
Segment assets
Segment liabilities
Unallocated assets and liabilities
Segment net assets
Other segmental information
Capital expenditure:
Property, plant, equipment
Investment properties
Depreciation – property, plant and equipment
Depreciation – investment properties
Amortisation and goodwill impairment
Underlying profit before tax
Segment operating profit before tax, amortisation and
non-trading items (as above)
Interest income
Interest expense
Underlying profit before tax
General
trading
Ferry
services
Art logistics
and storage
(Falklands)
(Portsmouth)
£’000
£’000
(UK)
£’000
To tal
£’000
12,434
3,718
13,072
29,224
1,377
800
–
–
–
1,377
–
78
(138)
1,317
34
1,351
–
–
–
800
8
21
(85)
744
(246)
498
957
(398)
245
(153)
804
37
12
(334)
519
(201)
318
11,590
(8,084)
8,231
(2,583)
13,045
(5,270)
3,506
5,648
7,775
1,087
55
324
40
–
1,377
78
(138)
1,317
37
–
222
–
–
800
21
(85)
736
234
–
321
–
398
957
12
(334)
635
3,134
(398)
245
3,089
2,936
6,070
45
111
(557)
5,669
(413)
5,256
32,866
(15,937)
17,308
34,237
1,358
55
867
40
398
3,134
111
(557)
2,688
2 Segmental information CONTINUED
Secondary reporting format – geographic
2011
Revenue
Assets and liabilities
Segment assets
Other segment information
Capital expenditure
2010
Revenue
Assets and liabilities
Segment assets
Other segment information
Capital expenditure
3 Revenue
Sale of goods
Rendering of services
Property sales in the Falkland Islands
Total revenue
FALKLAND ISLANDS HOLDINGS PLC
37
United
Kingdom
£’000
Falkland
Islands
£’000
Total
£’000
16,920
14,921
31,841
20,297
12,856
33,153
396
419
815
United
Kingdom
£’000
Falkland
Islands
£’000
Total
£’000
16,790
12,434
29,224
21,276
11,590
32,866
271
1,142
1,413
2011
£’000
16,305
15,082
454
2010
£’000
14,214
14,651
359
31,841
29,224
38
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
4 Other operating income
Gain on disposal of available-for-sale equity securities
Compensation for early vacation of leasehold premises
Foreign exchange commission receivable
Net settlement gain on transfer of PHFC pension liability
Total other operating income
5 Amortisation and non-trading items
Gain on disposal of available-for-sale equity securities 1
Compensation for early vacation of leasehold premises 2
Gain on liquidation of derivative financial instrument 3
Amortisation charge on Momart intangible assets acquired
Amortisation and non-trading items (charge) / gain
Profit before tax as reported
Adjusted for: amortisation and non-trading items charge / (gain)
Underlying profit before tax
2010
1 Gain on disposal of available-for-sale equity securities
2011
£’000
–
–
5
10
15
2011
£’000
–
–
–
(398)
(398)
2,330
398
2,728
2010
£’000
3,089
245
15
–
3,349
2010
£’000
3,089
245
45
(398)
2,981
5,669
(2,981)
2,688
On 30 November 2010 the Group sold 3,000,000 Falkland Oil and Gas Limited shares, representing 20% of its holding at that date.
The sale generated proceeds of £3.6 million and a gain on disposal of £3.1 million.
2 Compensation for early vacation of leasehold premises
An agreement for the payment of compensation to Momart Limited for the early vacation of leasehold premises in April 2008 was
settled during the prior year with total compensation received of £245,000.
3 Gain on liquidation of derivative financial instrument
In January 2010 the Group elected to liquidate its base rate cap and floor contracts in respect to loans taken out in relation to a
ferry delivered in 2005 and the Momart acquisition in March 2008 at a cost of £352,000. IAS 39 had required these derivative
financial instruments to be recognised in the balance sheet at fair value as an asset or liability. At 31 March 2009 this gave rise to a
liability of £406,000. On liquidation after expensing arrangement fees the Group recognised a gain of £45,000 on termination of
the contracts during the prior year.
FALKLAND ISLANDS HOLDINGS PLC
39
6 Expenses and auditors’ remuneration
Included in profit are the following expenses / (income):
Group
Company
Direct operating expenses arising from investment properties
which generated rental income in the period
Depreciation
Amortisation of intangible assets
Foreign currency differences
Impairment loss / (gain) on trade and other receivables
Cost of inventories recognised as an expense
Operating lease payments
Auditors’ remuneration:
Audit of these financial statements
and amounts receivable by auditors and their associates in respect of:
Audit of subsidiaries’ financial statements pursuant to legislation
Other services relating to taxation
All other services
Total auditors’ remuneration
2011
£’000
82
846
398
(23)
134
2010
£’000
65
907
398
(38)
(48)
8,939
651
7,597
649
2011
£’000
2010
£’000
–
–
–
–
–
–
–
2011
£’000
26
61
23
–
110
–
–
–
–
–
–
–
2010
£’000
25
60
13
–
98
Amounts paid to the Company’s auditors and their associates in respect of services to the Company, other than the audit of the
Company’s financial statements, have not been disclosed as the information is required instead to be disclosed on a consolidated basis.
7 Staff numbers and cost
The average number of persons employed by the Group (including Directors) during the year, analysed by category, was as follows:
Ferry services
Falklands Islands: in Stanley
Falklands Islands: in UK
Art logistics and storage
Head office
Total average staff numbers
Number of employees
Number of employees
Group
Company
2011
2010
2011
2010
41
87
5
109
3
245
41
83
4
104
3
235
–
–
–
–
3
3
–
–
–
–
3
3
40
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
7 Staff numbers and cost CONTINUED
The aggregate payroll cost of these persons was as follows:
Wages and salaries
Share-based payments (see note 25)
Social security costs
Contributions to defined contribution plans
Total employment costs
Group
Company
2011
£’000
2010
£’000
7,477
7,471
207
655
337
240
650
357
8,676
8,718
2011
£’000
510
78
46
26
660
2010
£’000
546
46
71
25
688
Details of Directors’ remuneration are provided in the Directors’ Report, under the heading “Details of Directors’ Remuneration and
Emoluments” on page 16.
8 Finance income and expense
Bank interest receivable
Finance lease interest receivable
Expected return on pension scheme assets
Gain on liquidation of derivative financial instrument
Total financial income
Interest payable on bank loans
Interest cost on pension scheme liabilities
Amortisation of loan fees
Other interest payable
Interest attributable to deferred consideration payable
Total financial expense
Net financing cost
Bank interest receivable
Interest payable on bank loans
Net bank interest
Other financing charges (from above)
Net financing cost
2011
£’000
4
84
29
–
117
(138)
(144)
(30)
(12)
–
(324)
(207)
2011
£’000
4
(138)
(134)
(73)
(207)
2010
£’000
16
78
17
45
156
(330)
(149)
(30)
–
(48)
(557)
(401)
2010
£’000
16
(330)
(314)
(87)
(401)
9 Taxation
Recognised in the income statement
Current tax:
Current year
Adjustments for prior years
Current tax expense
Deferred tax:
Origination and reversal of temporary differences
Reduction in tax rate
Adjustments for prior years
Deferred tax credit
Total tax expense
Reconciliation of effective tax rate
Profit on ordinary activities before tax
Tax using the UK corporation tax rate of 28% (2010: 28%)
Expenses not deductible for tax purposes
Other timing differences
Non taxable income on disposals
Schedule 23 deduction
Marginal relief
Lower tax charges overseas
Reduction in deferred tax rate
Adjustments to tax charge in respect of prior years
Total tax expense
Tax recognised directly in equity
Current tax recognised directly in equity
Deferred tax recognised directly in equity
Total tax expense / (credit) recognised directly in equity
FALKLAND ISLANDS HOLDINGS PLC
41
2011
£’000
823
37
860
(75)
(39)
(36)
(150)
710
2011
£’000
2,330
652
134
10
13
(46)
(2)
(13)
(39)
1
710
2011
£’000
–
19
19
2010
£’000
852
(15)
837
(174)
(2)
(248)
(424)
413
2010
£’000
5,669
1,587
142
(57)
(915)
(60)
(6)
(15)
–
(263)
413
2010
£’000
–
(124)
(124)
42
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
10 Earnings per share
The calculation of basic earnings per share is based on profits on ordinary activities after taxation, and the weighted average number
of shares in issue in the period, excluding shares held under the Employee Share Ownership Plan (“ESOP”) (see note 26).
The calculation of diluted earnings per share is based on profits on ordinary activities after taxation, and the weighted average number
of shares in issue in the period, excluding shares held under the ESOP, adjusted to assume the full issue of share options outstanding,
to the extent that they are dilutive.
Profit on ordinary activities after taxation
Weighted average number of shares in issue
Less: shares held under the ESOP
Average number of shares in issue excluding the ESOP
Maximum dilution with regards to share options
Diluted weighted average number of shares
Basic earnings per share
Diluted earnings per share
2011
£’000
2010
£’000
1,620
5,256
2011
Number
2010
Number
9,176,612
9,068,770
(36,499)
(36,499)
9,140,113
9,032,271
96,931
114,328
9,237,044
9,146,599
2011
2010
17.7p
17.5p
58.2p
57.5p
To provide a comparison of earnings per share on underlying performance, the calculation below sets out basic and diluted earnings
per share based on profits before amortisation and non-trading items.
Earnings per share on underlying profit
Underlying profit before tax (see note 5)
Taxation
Profit after tax before non-trading items and amortisation
Weighted average number of shares in issue excluding ESOP (from above)
Diluted weighted average number of shares (from above)
Basic earnings per share on underlying profit
Diluted earnings per share on underlying profit
2011
£’000
2,728
(821)
1,907
2010
£’000
2,688
(705)
1,983
9,140,113
9,032,271
9,237,044
9,146,599
20.9p
20.6p
22.0p
21.7p
FALKLAND ISLANDS HOLDINGS PLC
43
11 Intangible assets
Cost:
As at 1 April 2009
Adjustments to fair value
As at 31 March 2010
Adjustments to fair value
As at 31 March 2011
Accumulated amortisation:
As at 1 April 2009
Amortisation for the year
As at 31 March 2010
Amortisation for the year
At 31 March 2011
Net book value:
As at 1 April 2009
As at 31 March 2010
As at 31 March 2011
Customer
relationships
£’000
Group
Non-compete
Agreements
£’000
Brand
names
£’000
1,882
2,823
–
–
1,882
2,823
–
–
1,882
2,823
260
243
503
243
746
1,622
1,379
1,136
151
141
292
141
433
2,672
2,531
2,390
72
–
72
–
72
15
14
29
14
43
57
43
29
Goodwill
£’000
Total
£’000
11,539
16,316
–
–
11,539
16,316
–
–
11,539
16,316
1,983
–
1,983
–
1,983
9,556
9,556
9,556
2,409
398
2,807
398
3,205
13,907
13,509
13,111
Amortisation and impairment charges are recognised in other administrative expenses in the income statement.
Customer relationships – are on-going relationships, both contractual and otherwise, with customers considered to be of future
economic benefit to the Group with estimated economic lives of 6 – 10 years.
Brand names – the Momart brand is considered to be of future economic value to the Group with an estimated useful economic life
of 20 years.
Non-compete agreements – are contractually binding agreements with senior Momart personnel not to compete with the Group for
five years in the event of their leaving the Group’s service.
Goodwill
Goodwill is allocated to the Group’s cash generating units (“CGUs”) which principally comprise its business segments. A segment level
summary of goodwill is shown below:
Brought forward as at 1 April 2009
Carried forward as at 31 March 2010
Balance as at 31 March 2011
Art logistics
and storage
£’000
5,577
5,577
5,577
Ferry
services
(Portsmouth)
£’000
3,979
3,979
3,979
Total
£’000
9,556
9,556
9,556
44
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
11 Intangible assets CONTINUED
Impairment
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. An
impairment test is a comparison of the carrying value of the assets of a CGU, based on a value-in-use calculation, to their recoverable
amounts. Where the recoverable amount is less than the carrying value an impairment results. During the year the goodwill for each
CGU was separately assessed and tested for impairment, with no impairment charges resulting (2010: nil).
As part of testing goodwill for impairment detailed forecasts of operating cash flows for the next five years are used, which are based
on approved budgets and plans by the Board of Falkland Islands Holdings plc. These forecasts represent the best estimate of future
performance of the CGUs based on past performance and expectations for the market development of the CGU.
A number of key assumptions are used as part of impairment testing. These key assumptions are made by management reflecting past
experience combined with their knowledge as to future performance and relevant external sources of information. Sensitivity analysis
as at 31 March 2011 has indicated that no reasonably foreseeable change in the key assumptions used in the impairment model would
result in a significant impairment charge being recorded in the financial statements.
Discount rates
Within impairment testing models cash flows of all CGUs are discounted using a pre tax discount rate of 14.1% (2010: 14.1%).
Management have determined that this rate is appropriate as the risk adjustment applied within the discount rate reflects the risks and
rewards inherent to each CGU, based on the industry and geographical location it is based within. Both Ferry Services and Art Logistics
and Storage have stable core revenue streams and are considered to have a similar risk profile.
Long term growth rates
Long term growth rates of 2% have been used for all CGUs as part of the impairment testing models. This growth rate does not exceed
the long term average growth rate for the UK, in which the CGUs operate.
Other assumptions
Other assumptions used within impairment testing models include an estimation of long term effective tax rate for the CGUs and the
terminal values of the CGUs.
The long-term effective rate of tax is consistent with the current UK tax rate.
The terminal value is calculated based on the Gordon Growth model.
Sensitivity to changes in assumptions
Using a discounted cash flow methodology necessarily involves making numerous estimates and assumptions regarding growth,
operating margins, tax rates, appropriate discount rates, capital expenditure levels and working capital requirements. These estimates
will likely differ from future actual results of operations and cash flows, and it is possible that these differences could be material. In
addition, judgements are applied by the Directors in determining the level of cash generating units and the criteria used to determine
which assets should be aggregated. A difference in testing levels could further affect whether an impairment is recorded and the extent
of impairment loss.
Assumptions specific to ferry services (Portsmouth)
Value in use was determined by discounting future cash flows in line with the other assumptions discussed above. Management have
forecast consistent growth in cash flows of 2% in both the short and long term. The value in use was determined to exceed the carrying
amount and no impairment has been recognised. It is not considered that a reasonably possible change in any of these assumptions
would generate a different impairment test outcome to the one included in this annual report.
Assumptions specific to arts logistics and storage (UK)
Value in use was determined by discounting future cash flows in line with the other assumptions as discussed above. Cash flows were
projected based on approved budgets and plans which foresee growth rates in excess of 10% over the forecast period. The long term
growth rate is projected to be 2% thereafter. The carrying value of the unit was determined to not be higher than its recoverable
amount and no impairment was recognised (2010: nil).
FALKLAND ISLANDS HOLDINGS PLC
45
12 Property, plant and equipment
Cost:
As at 1 April 2009
Additions in year
Transferred to freehold land
and buildings
Disposals
As at 31 March 2010
Additions in year
Disposals
As at 31 March 2011
Accumulated depreciation:
As at 1 April 2009
Charge for the year
Disposals
As at 31 March 2010
Charge for the year
Disposals
As at 31 March 2011
Net book value:
As at 1 April 2009
As at 31 March 2010
As at 31 March 2011
The Company has no tangible fixed assets.
Group
Long
leasehold
land and
buildings
£’000
942
22
–
–
Freehold
land and
buildings
£’000
3,301
652
43
–
Vehicles,
plant and
equipment
£’000
Total
£’000
4,392
660
12,062
1,358
––
–
(99)
Ships
£’000
3,384
24
–
(99)
3,996
964
3,309
5,052
13,321
179
(35)
–
–
–
–
636
–
815
(35)
4,140
964
3,309
5,688
14,101
1,590
76
–
1,666
40
(35)
1,671
1,711
2,330
2,469
93
122
–
215
100
–
315
849
749
649
593
143
(58)
678
133
–
811
2,753
5,029
526
–
867
(58)
3,279
5,838
536
–
809
(35)
3,815
6,612
2,791
2,631
2,498
1,639
1,773
1,873
7,033
7,483
7,489
Assets under
construction
£’000
43
–
(43)
–
–
–
–
–
–
–
–
–
–
–
43
–
–
46
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
13 Investment properties
As at 1 April 2009
Acquisitions
Disposals
As at 31 March 2010
Disposals
As at 31 March 2011
Accumulated depreciation:
As at 1 April 2009
Charge for the year
Disposals
As at 31 March 2010
Charge for the year
Disposals
As at 31 March 2011
Net book value:
As at 1 April 2009
As at 31 March 2010
As at 31 March 2011
Residential and
commercial
property
£’000
1,131
55
(20)
1,166
(65)
1,101
82
40
(13)
109
37
(46)
100
1,049
1,057
1,001
Group
Freehold
land
£’000
Total
£’000
720
1,851
–
–
720
–
720
–
–
–
–
–
–
–
55
(20)
1,886
(65)
1,821
82
40
(13)
109
37
(46)
100
720
720
720
1,769
1,777
1,721
Investment properties include residential and commercial property held for rental in the Falklands with a net book value of £1.0 million
(2010: £1.1 million) and a fair value of approximately £2.5 million at 31 March 2011 (2010: £2.5 million). This valuation was undertaken
by a Director of a subsidiary company who is resident in the Falkland Islands and is considered to have the relevant knowledge and
experience to undertake the valuation. The Group also owns 690 acres of freehold land, with an historic cost and net book value of
£0.7 million (2010: £0.7 million), for which it is not possible to determine fair value, due to the restricted and limited market for freehold
land in the Falkland Islands. Nonetheless the carrying value of land held at historic cost remains sufficiently low to enable Directors to
satisfy themselves that no impairment exists at the balance sheet date.
The Company does not own any investment properties.
FALKLAND ISLANDS HOLDINGS PLC
47
14 Investments in subsidiaries
The Group and Company have the following direct and indirect investments in subsidiaries:
Country of
incorporation
Class of
shares held
Ownership %
2011
2010
The Falkland Islands Company Limited
The Falkland Islands Trading Company Limited
Falkland Island Shipping Limited
UK
UK
Ordinary shares of £1
Preference shares of £10
Ordinary shares of £1
(formerly Darwin Shipping Limited)*
Falkland Islands
Ordinary shares of £1
The Portsmouth Harbour Ferry Company Limited
Portsea Harbour Company Limited*
Clarence Marine Engineering Limited*
Gosport Ferry Limited*
Momart International Limited
Momart Limited*
Dadart Limited
Erebus Limited*
UK
UK
UK
UK
UK
UK
UK
Ordinary shares of £1
Ordinary shares of £1
Ordinary shares of £1
Ordinary shares of £1
Ordinary shares of £1
Ordinary shares of £1
Ordinary shares of £1
Falkland Islands
Ordinary shares of £1
Preference shares of £1
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
* These investments are not held by the Company but are indirect investments held through a subsidiary of the Company.
Company investments in Group undertakings
Balance brought forward
Cost of share-based payments recognised in subsidiaries
Total investment in Group undertakings
Company
2011
£’000
2010
£’000
31,297
31,103
129
194
31,426
31,297
The Company’s investment in Erebus Limited comprises the Group’s shareholding in Falkland Oil and Gas Limited (see note 15) and a
£921,000 impairment charge was recognised to reflect the fair value of the shareholding as at 31 March 2009. The Company has
elected not to reverse any element of this impairment in the current or prior year.
48
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
15 Financial assets – available-for-sale equity securities
Non-current:
Available-for-sale equity securities
10,710
15,542
Falkland Oil and Gas Limited share price at 31 March
89.3p
129.5p
–
–
–
–
Group
Company
2011
£’000
2010
£’000
2011
£’000
2010
£’000
Available-for-sale financial assets comprise the Group’s holding of 12,000,000 ordinary shares in Falkland Oil and Gas Limited (“FOGL”)
which at 31 March 2011 represented an 8.2% interest (2010: 12 million shares; 8.2%).
The historic cost of the Group’s investment in FOGL is £1,963,000 (2010: £1,963,000) representing 16p per share.
16 Non-current assets held-for-sale
Non-current assets held-for-sale
Group
Company
2011
£’000
20
2010
£’000
20
2011
£’000
–
2010
£’000
–
Non-current assets held-for-sale comprise certain items of artwork accumulated by Momart International Limited prior to acquisition.
The assets were recognised at estimated fair value on acquisition and as a result no gain or loss arose on their being classified as
held-for-sale.
17 Other financial assets
Rents receivable relate to finance leases on the sale of vehicles and customer goods. No allowances for uncollectible minimum lease
payments have been deemed necessary. No contingent rents have been recognised as income in the period. No residual values accrue
to the benefit of the lessor.
Non-current:
Finance lease debtors due after more than one year
Current:
Finance lease debtors due within one year
Total other financial assets
Group
2011
£’000
2010
£’000
60
52
252
312
206
258
The difference between the gross investment in the hire purchase leases and the present value of future lease payments due represents
unearned finance income of £60,000 (2010: £52,000).
The cost of assets acquired for the purpose of letting under hire purchase agreements by the Group during the period amounted to
£434,000 (2010: £309,000).
The aggregate rentals receivable during the year in respect of hire purchase agreements were £415,000 (2010: £316,000).
FALKLAND ISLANDS HOLDINGS PLC
49
Group
2011
£’000
372
252
60
312
2010
£’000
310
206
52
258
Group
Assets
Liabilities
2011
£’000
32
–
113
119
39
554
857
2010
£’000
43
–
70
105
57
621
896
2011
£’000
721
995
–
–
–
–
2010
£’000
780
1,106
–
–
–
–
1,716
1,886
(857)
859
(896)
990
17 Other financial assets CONTINUED
Gross investment in hire purchase leases
Present value of future lease payments due:
within 1 year
after more than 1 year within 5 years
18 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Property, plant and equipment
Intangible assets
Inventories
Other financial liabilities
Share-based payments
Pension
Tax assets / liabilities
Net of tax assets
Net tax liabilities
The deferred tax asset of £554,000 (2010: £621,000) shown as a non-current asset in the balance sheet relates to the Group’s pension
scheme liabilities (see note 24). All other deferred tax assets are shown net against the non-current deferred tax liability shown in the
balance sheet.
Other temporary differences
Net tax asset
Company
Assets
Liabilities
2011
£’000
8
8
2010
£’000
–
–
2011
£’000
–
–
2010
£’000
–
–
50
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
18 Deferred tax assets and liabilities CONTINUED
Movement in deferred tax in the year
1 April
2010
£’000
737
1,106
(70)
(105)
(57)
(621)
990
Recognised
in income
£’000
(48)
(111)
(43)
(14)
18
48
(150)
Group
Recognised
Acquired in
business
31 March
in equity
combinations
£’000
£’000
–
–
–
–
–
19
19
–
–
–
–
–
–
–
2011
£’000
689
995
(113)
(119)
(39)
(554)
859
Property, plant and equipment
Intangible assets
Inventories
Other financial liabilities
Share-based payments
Pension
Deferred tax movements
Unrecognised deferred tax assets
A deferred tax asset of £158,000 (2010: £158,000) in respect of capital losses has not been recognised as it is not considered more
likely than not that there will be suitable taxable profits in the foreseeable future from which the underlying capital losses will reverse.
Other temporary differences
Deferred tax movements
Movement in deferred tax in the prior year
Property, plant and equipment
Intangible assets
Inventories
Other financial liabilities
Share-based payments
Pension
Deferred tax movements
Company
1 April
2010
£’000
–
–
Recognised
in income
£’000
8
8
Recognised
31 March
in equity
£’000
–
–
2011
£’000
8
8
1 April
2009
£’000
1,034
1,217
(52)
(145)
–
(516)
Recognised
in income
£’000
(297)
(111)
(18)
40
(57)
19
1,538
(424)
Group
Recognised
Acquired in
business
in equity
combinations
£’000
£’000
–
–
–
–
–
(124)
(124)
–
–
–
–
–
–
–
31 March
2010
£’000
737
1,106
(70)
(105)
(57)
(621)
990
FALKLAND ISLANDS HOLDINGS PLC
51
18 Deferred tax assets and liabilities CONTINUED
Other financial liabilities
Deferred tax movements
19 Inventories
Work-in-progress
Goods-in-transit
Goods for resale
Trading inventories
Construction-in-progress
Property held-for-sale
Property inventories
Total inventories
Goods-in-transit are retail provisions in transit to the Falkland Islands.
The Company has no inventories.
Company
1 April
2009
£’000
122
122
Recognised
in income
£’000
(122)
(122)
Recognised
31 March
Group
in equity
£’000
–
–
2011
£’000
250
646
3,319
4,215
–
1,204
1,204
5,419
2010
£’000
–
–
2010
£’000
403
614
2,472
3,489
91
1,129
1,220
4,709
52
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
20 Trade and other receivables
Non-current:
Amount owed by subsidiary undertakings
–
–
4,042
2,916
Group
Company
2011
£’000
2010
£’000
2011
£’000
2010
£’000
Current:
Trade and other receivables
Income tax
Prepayments and accrued income
Trade and other receivables
21 Cash and cash equivalents / bank overdrafts
Group
Company
2011
£’000
2010
£’000
2011
£’000
2010
£’000
4,368
64
1,379
5,811
3,265
–
1,270
4,535
–
–
30
30
–
–
15
15
Group
Company
2011
£’000
2010
£’000
2011
£’000
2010
£’000
Cash and cash equivalents in the balance sheet and
cash flow statement
2,062
3,810
(1,418)
360
FALKLAND ISLANDS HOLDINGS PLC
53
22 Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group and Company’s interest-bearing loans and borrowings, which
are stated at amortised cost. For more information regarding the maturity of the Group and Company’s interest-bearing loans and
borrowings and about the Group and Company’s exposure to interest rate and foreign currency risk, see note 27.
Non-current liabilities:
Secured bank loans
Finance lease liabilities
Total non-current interest-bearing loans and borrowings
Current liabilities:
Secured bank loans
Finance lease liabilities
Total current interest-bearing loans and borrowings
Net debt
Total interest-bearing loans and borrowings
Less: cash balances (see note 21)
Net debt
Finance lease liabilities
Future minimum lease payments due:
within one year
After more than one year but within five years
Total minimum lease payments due
Group
Company
2011
£’000
2010
£’000
2011
£’000
2010
£’000
2,971
133
3,104
1,000
58
1,058
3,974
81
4,055
1,128
90
1,218
2,337
3,140
–
–
2,337
3,140
800
–
800
928
–
928
Group
Company
2011
£’000
4,162
(2,062)
2,100
2010
£’000
5,273
(3,810)
1,463
2011
£’000
3,137
1,418
4,555
2010
£’000
4,068
(360)
3,708
Group
Company
2011
£’000
58
133
191
2010
£’000
90
81
171
2011
£’000
2010
£’000
–
–
–
–
–
–
54
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
23 Trade and other payables
Non-current:
Amount owed to subsidiary undertakings
–
–
390
871
Group
Company
2011
£’000
2010
£’000
2011
£’000
2010
£’000
Current:
Trade payables
Other creditors, including taxation and social security
Accruals and deferred income
Total trade and other payables
Group
Company
2011
£’000
2010
£’000
5,349
753
2,232
8,334
5,437
1,068
1,714
8,219
2011
£’000
–
59
317
376
2010
£’000
–
57
356
413
24 Employee benefits: pension plans
The Group operates three defined contribution pension schemes. In addition it also operates two defined benefit pension schemes,
both of which have been closed to new members and to future accrual.
Defined contribution schemes
The Group operates three defined contribution pension schemes. The pension cost charge for the year represents contributions payable
by the Group to the schemes and amounted to £337,000 (2010: £357,000). The Group anticipates paying contributions amounting to
£247,000 during the year ending 31 March 2012.
There were no outstanding or prepaid contributions at either the beginning or end of the financial year.
Defined benefit pension schemes
A summary of the fair value of the net pension schemes deficit is set out below:
Pension scheme deficit:
Falkland Islands Company Limited Scheme
Portsmouth Harbour Ferry Company Limited Scheme
Deferred tax
Net pension scheme deficit
2011
£’000
2010
£’000
(2,107)
(23)
(2,130)
554
(2,013)
(224)
(2,237)
621
(1,576)
(1,616)
Following the announcement by the United Kingdom Government on 8 July 2010 of their intention to use CPI rather than RPI to
calculate statutory minimum increases in both deferred pensions and pensions in payment, the Company has given due consideration,
including discussions with its legal advisors as to the impact of this change and has concluded that it has no impact on the liability at
31 March 2011.
FALKLAND ISLANDS HOLDINGS PLC
55
24 Employee benefits: pension plans CONTINUED
Falkland Islands Company Limited Scheme
The Falkland Islands Company Limited operates a defined benefit pension scheme for certain employees which is unfunded and was
closed to new members in 1988. This scheme was closed to further accrual on 31 March 2007. Benefits are payable on retirement at
the normal retirement age.
The latest full actuarial valuation was carried out at 31 March 2005 and was updated for IAS 19 purposes to 31 March 2011 by a
qualified independent actuary, Lane Clark & Peacock LLP. The major assumptions used in this valuation were:
Rate of increase in salaries
Rate of increase in pensions in payment and deferred pensions
Discount rate applied to scheme liabilities
Inflation assumption
2011
2010
2.6%
3.0%
5.5%
3.5%
2.7%
3.0%
5.6%
3.7%
The assumptions used by the actuary are chosen from a range of possible actuarial assumptions which, due to the timescale covered,
may not necessarily be borne out in practice.
Scheme liabilities
The present value of the scheme’s liabilities, which are derived from cash flow projections over long periods and thus inherently
uncertain, were:
Value at
2011
£’000
Value at
2010
£’000
Value at
2009
£’000
Value at
2008
£’000
Value at
2007
£’000
Present value of scheme liabilities
(2,107)
(2,013)
(1,797)
(1,863)
(2,136)
Related deferred tax asset
Net pension liability
548
558
449
465
534
(1,559)
(1,455)
(1,348)
(1,398)
(1,602)
Movement in deficit during the year:
Deficit in scheme at beginning of the year
Pensions paid
Other finance costs
Actuarial loss
Deficit in scheme at end of the year
2011
£’000
2010
£’000
(2,013)
(1,797)
98
(110)
(82)
98
(119)
(195)
(2,107)
(2,013)
56
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
24 Employee benefits: pension plans CONTINUED
Analysis of amounts included in other finance costs:
Interest on pension scheme liabilities
Analysis of amount recognised in statement of comprehensive income:
Experience (losses) / gains arising on scheme liabilities
Changes in assumptions underlying the present value of scheme liabilities
Actuarial gain recognised in statement of comprehensive income
History of experience gains and losses:
2011
£’000
(110)
2011
£’000
(7)
(75)
(82)
2010
£’000
(119)
2010
£’000
89
(284)
(195)
2011
2010
2009
2008
2007
Experience (losses) / gains on scheme liabilities:
Amount (£’000)
(7)
89
(2)
(18)
(3)
Percentage of year end present value of
scheme liabilities
(0.3%)
4.4%
0.1%
1.0%
0.1%
Total amount recognised in statement of
comprehensive income:
Amount (£’000)
Percentage of year end present value of
(82)
(195)
50
301
118
scheme liabilities
(3.9%)
9.7%
(2.8%)
(16.2%)
(5.5%)
Portsmouth Harbour Ferry Company Plc (1975) Retirement Fund
This Company operated a defined benefit scheme. The scheme has been closed for many years and none of the current employees are
earning benefits under the scheme. Actuarial reports for IAS 19 purposes as at 31 March 2011 and 31 March 2010 were prepared by
a qualified independent actuary, Alexander Forbes Limited.
24 Employee benefits: pension plans CONTINUED
The major assumptions used in the valuations were:
Rate of increase in pensions in payment and deferred pensions
Discount rate applied to scheme liabilities
Inflation assumption
FALKLAND ISLANDS HOLDINGS PLC
57
2011
2010
3.5%
5.5%
3.5%
3.7%
5.6%
3.7%
The assumptions used by the actuary are chosen from a range of possible actuarial assumptions which, due to the timescale covered,
may not necessarily be borne out in practice.
Scheme assets
The fair value of the scheme’s assets, which are not intended to be realised in the short term and may be subject to significant change
before they are realised, and the present value of the scheme’s liabilities, which are derived from cash flow projections over long periods
and thus inherently uncertain, were:
Equities
Fixed interest
Other
Total market value of assets
Present value of scheme liabilities
Deficit in the scheme
Related deferred tax asset
Net pension liability
Value at
2011
£’000
Value at
2010
£’000
Value at
2009
£’000
Value at
2008
£’000
Value at
2007
£’000
301
101
30
432
(455)
(23)
6
(17)
328
64
18
410
(634)
(224)
63
(161)
185
50
18
253
(492)
(239)
67
(172)
207
37
36
280
(477)
(197)
54
(143)
156
20
34
210
(591)
(381)
114
(267)
The expected rates of return on the assets in the scheme were:
Equities
Fixed interest
Other
Long term
Long term
rate of return
rate of return
2011
2010
7.2%
5.5%
4.0%
7.4%
5.6%
4.2%
58
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
24 Employee benefits: pension plans CONTINUED
Movement in deficit during the year:
Projected benefit obligations:
Projected benefit obligations at beginning of the year
Interest thereon
Distributions
Settlement gain
Experience loss
Projected benefit obligations at end of the year
Plan assets:
Plan assets at beginning of the year
Distributions
Contributions
Return on assets
Actuarial (loss) / gain
Plan assets at end of the year
Deficit in scheme at end of the year
Analysis of amounts included in other finance costs:
Expected return on pension scheme assets
Interest on pension scheme liabilities
Included in other finance costs
Analysis of amount recognised in statement of comprehensive income:
Actual return less expected return on scheme assets
Changes in assumptions underlying the present value of scheme liabilities
Actuarial loss recognised in statement of comprehensive income
2011
£’000
(634)
(34)
65
150
(2)
(455)
410
(65)
66
29
(8)
432
(23)
2011
£’000
29
(34)
(5)
2011
£’000
(8)
(2)
(10)
2010
£’000
(493)
(30)
30
–
(141)
(634)
254
(30)
83
17
86
410
(224)
2010
£’000
17
(30)
(13)
2010
£’000
86
(141)
(55)
FALKLAND ISLANDS HOLDINGS PLC
59
24 Employee benefits: pension plans CONTINUED
History of experience gains and losses:
2011
2010
2009
2008
2007
Difference between the expected and actual return
on scheme assets:
Amount (£’000)
(8)
86
(99)
3
Percentage of year end scheme assets
(1.9%)
21.0%
39.0%
15.8%
Experience gains and losses on scheme liabilities:
Amount (£’000)
Percentage of year end present value of
scheme liabilities
Total amount recognised in statement of
comprehensive income:
Amount (£’000)
Percentage of year end present value of
–
–
–
–
(1)
0.2%
–
–
(4)
1.0%
–
–
(10)
(55)
(86)
147
61
scheme liabilities
2.2%
8.7%
17.4%
773.7%
(17.1%)
25 Employee benefits: share-based payments
Costs arising under IFRS 2 in respect of options issued to Directors and employees, are charged to the income statement and credited
to retained earnings.
The following options were outstanding at 31 March 2011:
Date of issue
27 Jul 01
10 Feb 05
14 Jun 05
14 Jun 05
18 Jun 07
7 Aug 07
4 Dec 07
3 Apr 08
Number
5,000
57,692
52,500
63,528
10,000
27,517
55,000
7,562
30 Jul 08 (SAYE)
136,940
8 Apr 09
15 Jul 09
9 Dec 09
21 Dec 10
93,353
104,100
26,000
121,898
761,090
Exercise
price
£
1.391/2
5.20
4.25
4.25
3.09
3.30
3.19
3.65
3.531/4
2.071/2
2.90
3.90
3.421/2
Share
price at
grant date
£
Fair
value per
share
£
Total fair
value
£
Earliest
exercise
date
Latest
exercise
date
Not valued for IFRS 2 purposes
27 Jul 04
26 Jul 11
5.20
4.25
4.25
2.821/2
3.321/2
3.40
3.75
4.00
2.071/2
2.90
3.971/2
3.371/2
2.47
1.66
2.14
0.82
0.73
1.19
1.31
1.35
0.56
0.72
1.45
1.24
142,499
10 Feb 08
9 Feb 15
87,150
14 Jun 08
13 Jun 15
135,950
14 Jun 08
13 Jun 15
8,200
18 Jun 10
17 Jun 17
20,087
65,450
9,906
7 Aug 10
6 Aug 17
4 Dec 10
3 Dec 17
3 Apr 11
2 Apr 18
184,869
30 Jul 11
29 Jul 18
52,278
74,952
37,700
8 Apr 12
7 Apr 19
15 Jul 12
14 Jul 19
9 Dec 12
8 Dec 19
151,154
21 Dec 13
20 Dec 20
970,195
60
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
25 Employee benefits: share-based payments CONTINUED
The fair values of the options are estimated at the date of grant using appropriate option pricing models and are charged to the profit
and loss account over the expected life of the options. The following table gives the assumptions made in determining the fair value
of the options subject to the provisions of IFRS 2 currently in issue. Expected volatility is determined by reference to past performance
of the Company’s share price.
Expected volatility (%)
Risk-free interest rate (%)
Expected life of options (years)
Dividend yield (%)
Share price at grant date (£)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of options (years)
Dividend yield (%)
Share price at grant date (£)
18 Jun 07
5 Jul 07
7 Aug 07
4 Dec 07
3 Apr 08
31
5.60
6.5
2.50
40
5.70
3.0
2.30
33
5.30
6.5
2.10
2.821/2
3.021/2
3.321/2
33
4.50
6.5
2.10
3.40
34
4.20
6.5
2.10
3.75
30 Jul 08
8 Apr 09
15 Jul 09
9 Dec 09
21 Dec 10
35
4.80
3.0
2.00
4.00
37
2.90
6.5
3.90
2.071/2
38
3.40
6.5
2.80
2.90
40
3.14
6.5
2.00
44
2.90
6.5
2.40
3.971/2
3.371/2
Share options issued without share price conditions attached have been valued using the Black-Scholes model. Share price options
issued with share price conditions attached have been valued using a Monte Carlo simulation model making explicit allowance for share
price targets.
During the year ended 31 March 2011 123,236 options (2010: 91,300) were exercised over ordinary shares. Options issued prior to
6 November 2002 are not subject to the provisions of IFRS 2.
The number and weighted average exercise prices of share options are as follows:
Weighted
average
exercise
price (£)
2011
Number of
options
2011
Weighted
average
exercise
price (£)
2010
Outstanding at the beginning of the year
3.24
827,833
Forfeited during the year
Exercised during the year
Granted during the year
Lapsed during the year
Outstanding at the year end
Vested options exerciseable at the year end
–
2.49
3.43
3.18
3.40
4.05
–
(123,236)
121,898
(65,405)
761,090
271,237
3.16
3.65
1.80
2.70
3.00
3.24
4.24
Number of
options
2010
890,943
(64,438)
(91,300)
229,453
(136,825)
827,833
203,720
FALKLAND ISLANDS HOLDINGS PLC
61
26 Capital and reserves
Reconciliation of movement in capital and reserves – Group
Financial
assets fair
value
revaluation
reserve
£’000
Called up
share
capital
£’000
Share
premium
account
£’000
Other
reserves
£’000
Balance as at 1 April 2009
906
8,436
7,206
1,162
Profit for the year
Share-based payments
Dividends
Issue of shares
Premium on shares issued in the year,
net of expenses
Transfer to profit and loss on disposal
of available-for-sale financial assets
Change in fair value of available-for-
sale financial assets
Actuarial loss on pension, net of tax
Repurchase of equity interest
–
–
–
4
–
–
–
–
–
–
–
–
–
–
(1,683)
6,828
–
–
–
–
–
–
10
–
–
–
108
–
–
–
–
–
–
–
–
–
Balance as at 31 March 2010
910
13,581
7,324
1,162
Profit for the year
Share-based payments
Dividends
Issue of shares
Premium on shares issued in the year,
net of expenses
Change in fair value of available-for-
sale financial assets
Actuarial loss on pension, net of tax
Effect of tax rate changes on deferred
tax asset relating to pension schemes
–
–
–
12
–
–
–
–
–
–
–
–
–
(4,832)
–
–
–
–
–
–
294
–
–
–
–
–
–
–
–
–
–
–
Retained
earnings
£’000
7,157
5,256
240
Total
equity
£’000
24,867
5,256
240
(1,084)
(1,084)
–
–
–
–
(126)
(183)
11,260
1,620
207
(826)
–
–
–
(68)
(43)
4
10
(1,683)
6,828
(126)
(75)
34,237
1,620
207
(826)
12
294
(4,832)
(68)
(43)
Balance as at 31 March 2011
922
8,749
7,618
1,162
12,150
30,601
62
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
26 Capital and reserves CONTINUED
Reconciliation of movement in capital and reserves – Company
Balance as at 1 April 2009
Loss for the year
Share-based payments
Dividends
Issue of shares
Premium on shares issued in the year,
net of expenses
Repurchase of equity interest
Called up
share
capital
£’000
906
–
–
–
4
–
–
Share
premium
account
£’000
Other
reserves
£’000
Retained
earnings
£’000
Total
equity
£’000
7,206
6,910
15,519
30,541
–
–
–
–
10
108
–
–
–
–
–
–
(330)
240
(330)
240
(1,084)
(1,084)
–
–
(183)
14,162
1,165
207
(826)
–
–
4
10
(75)
29,306
1,165
207
(826)
12
294
Balance as at 31 March 2010
910
7,324
6,910
Profit for the year
Share-based payments
Dividends
Issue of shares
Premium on shares issued in the year,
net of expenses
Balance as at 31 March 2011
–
–
–
12
–
922
–
–
–
–
294
7,618
–
–
–
–
–
6,910
14,708
30,158
A profit of £1,165,000 (2010 loss: £330,000) has been dealt with in the accounts of the Parent Company. As permitted by Section 408
of the Companies Act 2006, the Company has not presented its individual income statement.
Share capital
In issue as at 1 April
Issued for cash
In issue as at 31 March – fully paid
Allotted, called up and fully paid
Ordinary shares of 10p each
Ordinary shares
2011
2010
9,097,178
9,060,796
123,236
36,382
9,220,414
9,097,178
2011
£’000
2010
£’000
922
910
FALKLAND ISLANDS HOLDINGS PLC
63
26 Capital and reserve CONTINUED
By special resolution at an Annual General Meeting on 9 September 2010 the Company adopted new articles of association principally
to take account of the various changes in company law brought in by the Companies Act 2006. As a consequence the Company no
longer has an authorised share capital.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
meetings of the Company.
On 31 March 2000, an Employee Share Ownership Plan was established. At 31 March 2011 the plan held 36,499 (2010: 36,499)
ordinary shares at a cost of £68,542 (2010: £68,542). The market value of the shares at 31 March 2011 was £120,446
(2010: £122,418). Shares held in the ESOP have had their rights to dividends waived, as in prior years.
There were 136,940 (2010: 227,081) share options outstanding under the Company’s Saving Related Share Option Scheme (“Save As
You Earn”) at 31 March 2011.
For more information on share options please see note 25.
Dividends
The following dividends were recognised in the year:
Final: 5.0p (2010 Final: 8.0p) per qualifying ordinary share
Interim: 4.0p (2010 Interim: 4.0p) per qualifying ordinary share
2011
£’000
459
367
826
2010
£’000
723
361
1,084
After the balance sheet date a final dividend of 5.5p (£507,000) per qualifying ordinary share (2010: 5.0p, £459,000) was proposed by
the Directors. The dividend has not been provided for.
64
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
27 Financial instruments
(i) Fair values of financial instruments
Investments in equity securities
The fair value of available-for-sale financial assets is determined by reference to their quoted bid price at the balance sheet date.
Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of
interest at the balance sheet date if the effect is material.
Trade and other payables
The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of
interest at the balance sheet date if the effect is material.
Cash and cash equivalents
The fair value of cash and cash equivalents is estimated as its carrying amount where the cash is repayable on demand. Where it is not
repayable on demand then the fair value is estimated at the present value of future cash flows, discounted at the market rate of interest
at the balance sheet date.
Interest-bearing borrowings
Fair value, which after initial recognition is determined for disclosure purposes only, is calculated based on the present value of future
principal and interest cash flows, discounted at the market rate of interest at the balance sheet date.
IAS 39 categories and fair values
The fair values of financial assets and financial liabilities are not materially different to the carrying values shown in the consolidated
balance sheet and Company balance sheet.
The following table shows the carrying value for each category of financial instrument:
Group
Company
2011
£’000
2010
£’000
Available-for-sale financial assets at fair value
10,710
15,542
Financial liabilities at amortised cost
Interest-bearing borrowings at amortised cost
Trade and other receivables
(8,334)
(4,162)
5,811
(8,219)
(5,273)
4,535
2011
£’000
–
(377)
(3,137)
30
2010
£’000
–
(414)
(4,068)
15
(ii) Credit risk
Financial risk management
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers and investment securities.
Group
The Group’s credit risk is primarily attributable to its trade receivables. The maximum credit risk exposure of the Group comprises the
amounts presented in the balance sheet, which are stated net of provisions for doubtful debt. A provision is made where there is an
identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of future cash flows.
Management has credit policies in place to manage risk on an ongoing basis. These include the use of customer specific credit limits.
Company
The majority of the Company’s receivables are with subsidiaries. The Company does not consider these counter-parties to be a
significant credit risk.
FALKLAND ISLANDS HOLDINGS PLC
65
27 Financial instruments CONTINUED
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. Therefore, the maximum exposure to credit risk at the
balance sheet date was £6,742,000 (2010: £8,828,000) being the total trade receivables, other financial assets and cash and cash
equivalents in the balance sheet.
The maximum exposure to credit risk for trade receivables at the balance sheet date by geographic region was:
Falkland Islands
Europe
North America
United Kingdom
Other
Trade receivables
The Company has no trade receivables.
Credit quality of financial assets and impairment losses
Group
Not past due
Past due 0 – 30 days
Past due 31 – 120 days
More than 120 days
Gross
2011
£’000
Impairment
2011
£’000
2,686
848
518
575
4,627
–
–
–
(259)
(259)
Group
Company
2011
£’000
2010
£’000
2011
£’000
2010
£’000
2,034
1,413
592
441
1,190
111
4,368
Net
2011
£’000
2,686
848
518
316
187
261
1,232
172
3,265
Gross
2010
£’000
1,735
1,194
263
198
4,368
3,390
–
–
–
–
–
–
Impairment
2010
£’000
–
–
–
(125)
(125)
–
–
–
–
–
–
Net
2010
£’000
1,735
1,194
263
73
3,265
The movement in the allowances for impairment in respect of trade receivables during the year was:
Balance as at 1 April 2010
Impairment loss recognised
Impairment loss reversed
Balance as at 31 March 2011
Group
Company
2011
£’000
125
238
(104)
259
2010
£’000
173
–
(48)
125
2011
£’000
2010
£’000
–
–
–
–
–
–
–
–
The allowance account for trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the
amount owing is possible; at that point the amounts considered irrecoverable are written off against the trade receivables directly.
No further analysis has been provided for cash and cash equivalents, trade receivables from Group companies, other receivables and
other financial assets as there is limited exposure to credit risk and no provisions for impairment have been recognised.
66
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
27 Financial instruments CONTINUED
(iii) Liquidity risk
Financial risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
Group and Company
At the beginning of the period the Group had outstanding bank loans of £5.1 million. All payments due during the year with respect
to these agreements were met as they fell due. The Group continues to maintain a £2.0 million Revolving Credit facility to fund working
capital requirements which was undrawn at the year end.
The Group manages its cash balances centrally at head office and prepares rolling cash flow forecasts to ensure funds are available to
meet its secured and unsecured commitments as and when they fall due.
Liquidity risk – Group
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effects of
netting agreements:
2011
Non-derivative financial instruments:
Secured bank loans
Finance leases
Trade and other payables
Carrying
amount
£’000
3,971
191
8,334
Contractual
cash flows
1 year or less
1 to 2 years
2 to 5 years
£’000
£’000
£’000
£’000
5 years
and over
£’000
4,147
191
8,334
1,058
58
8,334
9,450
1,038
2,051
133
–
–
–
1,171
2,051
12,496
12,672
2010
Non-derivative financial instruments:
Secured bank loans
Finance leases
Trade and other payables
Carrying
amount
£’000
5,102
171
8,219
Contractual
cash flows
1 year or less
1 to 2 years
2 to 5 years
£’000
£’000
£’000
£’000
5,596
171
8,219
1,347
81
8,219
9,647
1,147
2,192
90
–
–
–
1,237
2,192
13,492
13,986
–
–
–
–
5 years
and over
£’000
910
–
–
910
FALKLAND ISLANDS HOLDINGS PLC
67
27 Financial instruments CONTINUED
Liquidity risk – Company
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effects of
netting agreements:
Carrying
amount
£’000
3,137
376
3,513
Carrying
amount
£’000
4,068
413
4,481
Contractual
cash flows
1 year or less
1 to 2 years
2 to 5 years
£’000
£’000
£’000
£’000
3,314
376
3,690
858
376
1,234
838
–
838
1,618
–
1,618
Contractual
cash flows
1 year or less
1 to 2 years
2 to 5 years
£’000
£’000
£’000
£’000
4,591
413
5,004
1,119
413
1,532
919
–
919
1,736
–
1,736
5 years
and over
£’000
–
–
–
5 years
and over
£’000
817
–
817
2011
Non-derivative financial instruments:
Secured bank loans
Trade and other payables
2010
Non-derivative financial instruments:
Secured bank loans
Trade and other payables
(iv) Market risk
Financial risk management
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the
Group’s income or the value of its holdings of financial instruments.
Market risk – Foreign currency risk
The Group has exposure to foreign currency risk arising from trade and other payables which are denominated in foreign currencies.
The Group is not, however, exposed to any significant transactional foreign currency risk. The Group’s exposure to foreign currency risk
is as follows and is based on carrying amounts for monetary financial instruments.
As at 31 March 2011
Cash and cash equivalents
Trade and other payables
Balance sheet exposure
As at 31 March 2010
Cash and cash equivalents
Trade and other payables
Balance sheet exposure
The Company has no exposure to foreign currency risk.
EUR
£’000
48
(347)
(299)
EUR
£’000
179
(385)
(206)
Group
Group
USD
£’000
90
(274)
(184)
USD
£’000
204
(336)
(132)
Other
£’000
1
(85)
(84)
Other
£’000
1
(161)
(160)
Total
£’000
139
(706)
(567)
Total
£’000
384
(882)
(498)
68
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
27 Financial instruments CONTINUED
Sensitivity analysis
Group
A 10% weakening of the following currencies against pound sterling at 31 March would have increased / (decreased) equity and profit
or loss by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied
to risk exposures existing at that date.
This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant and is performed
on the same basis for the year ended 31 March 2010.
EUR
USD
Equity
Profit or loss
2011
£’000
40
36
2010
£’000
56
54
2011
£’000
40
36
2010
£’000
56
54
A 10% strengthening of the above currencies against pound sterling at 31 March would have had the equal but opposite effect on the
above currencies to the amounts shown above, on the basis that all other variables remain constant.
Market risk – interest rate risk
Profile
At the balance sheet date the interest rate profile for the Group’s interest-bearing financial instruments was:
Fixed rate financial instruments:
Finance leases receivable
Finance leases payable
Variable rate financial instruments:
Financial liabilities
Group
Company
2011
£’000
312
(191)
121
2010
£’000
258
(171)
87
2011
£’000
2010
£’000
–
–
–
–
–
–
(3,971)
(3,971)
(5,102)
(5,102)
(3,137)
(3,137)
(4,068)
(4,068)
The Group has a loan of £0.8 million (2010: £1.0 million) in respect of the ferry delivered in 2005. The loan is repayable over a 10 year
period from June 2005 and bears interest at 1.4% above the Bank of England base rate. The loan was previously hedged with a base
rate cap of 6.5% and a base rate floor of 4.25%. On 13 January 2010 the Group liquidated this base rate cap and floor at a cost of
£68,000.
The Group has a further loan of £3.2 million (2010: £4.1 million) in respect of the acquisition of Momart International Limited. The loan
is repayable over five years from June 2010 and bears interest at 2.0% above the Bank of England base rate. The loan was previously
hedged with a base rate cap of 6.25% and a base rate floor of 4.25%. On 13 January 2010 the Group liquidated this base rate cap
and base rate floor at a cost of £284,000.
FALKLAND ISLANDS HOLDINGS PLC
69
27 Financial instruments CONTINUED
Sensitivity analysis
An increase of 100 basis points in interest rates at the balance sheet date would have increased / (decreased) equity and profit or loss
by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to
risk exposures existing at that date.
This analysis assumes that all other variables, in particular foreign currency rates, remain constant and considers the effect of financial
instruments with variable interest rates and financial instruments at fair value through profit or loss or available-for-sale with fixed
interest rates. The analysis is performed on the same basis for 31 March 2010.
Equity:
Increase
Decrease
Profit or loss:
Increase
Decrease
Market risk – equity price risk
Group
Company
2011
£’000
2010
£’000
2011
£’000
2010
£’000
–
(40)
–
(40)
–
(51)
–
(51)
–
(31)
–
(31)
–
(41)
–
(41)
The Group’s and Company’s exposure to equity price risk arises from its investments in equity securities which are classified in the
balance sheet as available-for-sale equity securities (see note 15).
Sensitivity analysis
The Group’s available-for-sale financial assets comprise its investment in FOGL. During the year ended 31 March 2011 FOGL shares
traded on the AIM market of the London Stock Exchange at an average price of 126.24p with a high of 244.00p and a low of 76.00p.
Based upon this share price history the value of available-for-sale financial assets held at the balance sheet date could have varied
between a low of £9,120,000 (2010: £7,602,000) and a high of £29,280,000 (2010: £21,270,000).
(v) Capital Management
The Group’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can continue to
provide returns to shareholders and benefits to other stakeholders.
70
ANNUAL REPORT 2011
Notes to the Financial Statements
CONTINUED
28 Operating leases
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
Group
2011
£’000
651
2,464
6,225
9,340
2010
£’000
664
2,512
4,038
7,214
The Group leases three office premises and a number of storage warehouses under operating leases. Office leases typically run for a
period of 3 years, with an option to renew the lease after that date. Warehouse leases typically run for a period of 25 years, with an
option to renew the lease after that date.
Group
During the year £651,000 was recognised as an expense in the income statement in respect of operating leases (2010: £649,000).
The Company had no operating lease commitments.
29 Capital commitments
At the end of the year the Group had no capital commitments not provided for in these financial statements.
30 Related parties
The Group has a related party relationship with its subsidiaries (see note 14) and with its Directors and executive officers.
Directors of the Company and their immediate relatives control 1.4% per cent of the voting shares of the Company.
The compensation of key management personnel (including Directors) is as follows:
Group
Company
2011
£’000
2010
£’000
Key management emoluments including social security costs
1,266
1,282
Company contributions to defined contribution pension plans
Share-related awards
229
95
209
79
Total key management personnel compensation
1,590
1,570
2011
£’000
531
26
50
607
2010
£’000
573
25
49
647
FALKLAND ISLANDS HOLDINGS PLC
71
31 Accounting estimates and judgements
The preparation of financial statements in conformity with adopted IFRS requires management to make judgements, estimates and
assumptions that effect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates
and associated assumptions are based upon historical experience and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of the judgements as to asset and liability carrying values which are not readily
apparent from other sources. Actual results may vary from these estimates, and taken into account in periodic reviews of the application
of such estimates and assumptions.
Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period,
or in the period of revision and future periods if the revision affects both current and future periods.
Actuarial assumptions have been used to value the defined benefit pension liabilities. Management have selected these assumptions
from a range of possible options following consultations with independent actuarial advisors.
Impairment tests have been undertaken with respect to intangible assets (see note 11 for further details) using commercial judgement
and a number of assumptions and estimates have been made to support their carrying amounts. In determining the fair value of
intangible assets recognised on the acquisition of Momart International Limited management acted after consultation with independent
intangible asset valuation advisors.
72
ANNUAL REPORT 2011
Directors and Corporate Information
Directors
David Hudd Chairman
Registered Office
Kenburgh Court,
John Foster Managing Director
133-137 South Street,
Bishop’s Stortford,
Hertfordshire CM23 3HX
Telephone: 01279 461630
Fax: 01279 461631
Email: admin@fihplc.com
Registered number 03416346
Website: www.fihplc.com
Auditor
KPMG Audit Plc
St. Nicholas House, Park Row,
Nottingham NG1 6FQ
Financial PR
Financial Dynamics
Holborn Gate,
26 Southampton Buildings,
London WC2A 1PB
Mike Killingley*
Jeremy Brade*
*Non-executive Directors
Company Secretary
Mike Beck
Corporate Information
Stockbroker and Nominated Adviser
Altium
30 St. James’s Square,
London SW1Y 4AL
Solicitors
Bircham Bell and Dyson LLP
50 Broadway,
Westminster,
London SW1H 0BL
Banker
HSBC Bank plc
18 North Street,
Bishop’s Stortford,
Hertfordshire CM23 2LP
Registrar
Capita Registrars
The Registry, 34 Beckenham Road,
Beckenham,
Kent BR3 4TU
Senior Staff
Senior Staff
Senior Staff
in the Falkland Islands
at Portsmouth Harbour Ferry Company
at Momart Limited
Roger Spink Director and General Manager
Keith Edwards Director and General Manager
Kenneth Burgon Director
Telephone: 00 500 27600
Email: fic@horizon.co.uk
Telephone: 023 9252 4551
Anna Maris Director
Email: admin@gosportferry.co.uk
Telephone: 020 7426 3000
Website: www.the-falkland-islands-co.com
Website: www.gosportferry.co.uk
Email: enquiries@momart.co.uk
Website: www.momart.co.uk
www.fihplc.com