FIH Group Plc
Annual Report 2015

Plain-text annual report

Contents Financial Highlights For The Year Ended 31 March 2015 Chairman’s Statement 2015 Managing Director’s Strategic Report Business Review Board Of Directors And Secretary Directors’ Report Independent Auditor’s Report To The Members Of Falkland Islands Holdings Plc Consolidated Income Statement For The Year Ended 31 March 2015 Consolidated Statement Of Comprehensive Income For The Year Ended 31 March 2015 Consolidated Balance Sheet At 31 March 2015 Company Balance Sheet At 31 March 2015 Consolidated Cash Flow Statement For The Year Ended 31 March 2015 Company Cash Flow Statement For The Year Ended 31 March 2015 Consolidated Statement Of Changes In Shareholders’ Equity For The Year Ended 31 March 2015 Company Statement Of Changes In Shareholders’ Equity For The Year Ended 31 March 2015 Notes To The Financial Statements Directors And Corporate Information 1 2 4 16 17 22 23 24 25 26 27 29 30 31 32 70 Financial Highlights FOR THE YEAR ENDED 31 MARCH 2015 Turnover from continuing operations Profit before tax Underlying profit before tax* 1 2015 £m 2014 £m Change % 38.56 38.26 0.8 3.89 3.56 3.40 14.4 3.65 -2.4 Diluted earnings per share before goodwill amortisation and non-trading items 22.0p 22.0p - Cash flow from operations Net asset value per share 6.38 295p 2.80 128.2 285p 3.5 *Defined as profit before tax, amortisation and non-trading items. Turnover (£m) from continuing operations Underlying profit before tax* (£m) 34.11 35.60 31.84 38.26 38.56 3.23 3.29 3.65 3.56 2.73 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Diluted earnings per share (pence) before goodwill amortisation and non-recurring items Net assets (£m) 26.2 20.6 21.3 22.0 22.0 30.6 29.5 34.3 35.4 36.7 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 ANNUAL REPORT 2015 2 Chairman’s Statement 2015 In my first annual report as Chairman I am pleased to report that the Group achieved an encouraging trading result for the year in line with the Board’s expectations. Reported pre-tax profits were ahead of the prior year by £0.5 million at £3.9 million and underlying pre-tax profits (before amortisation and non-trading items) were lower by 2.4% at £3.6 million (2014: £3.7 million). Diluted earnings per share based upon underlying profits were unchanged at 22.0p. Reported diluted earnings per share increased by 20% to 25.3p (2014: 21.1p). Operations A strong recovery in the Group’s Falkland’s business, including encouraging growth from its South Atlantic Construction Company (SAtCO) Joint Venture, meant that despite the anticipated return to more normal trading levels at Momart, following the string of exceptional overseas exhibitions which boosted results in the prior year, the Group achieved strong levels of operating profits overall at £3.8 million, which is broadly equivalent to the record levels achieved in the prior year (2014: £3.9 million). In the Falklands, activity was boosted by a record illex squid catch and preparations for the resumption of exploration drilling in Falkland’s waters which recommenced in spring 2015 with further discoveries at the Zebedee and Isobel Deep wells, a potential southern extension to the 2010 Sea Lion discovery. On the back of these positive developments the Falklands Islands Company (“FIC”) saw a welcome return to growth with revenue ahead by 16.5% to a record £18.5 million (2014: £15.9 million) and operating profits increasing by 34% to £1.3 million (2014: £1.0 million). Momart, the Group’s Fine Art handling business, saw activity return to more normal levels of trading. Revenue was lower by 14% at £15.8 million (2014: £18.3 million) and operating profit, before amortisation of the intangible assets, fell back, as expected, to £1.2 million from the record levels seen in the prior year (2014: £1.8 million). As previously announced, in line with our new policy of reinvesting earnings and cash to accelerate the growth of the Group, the Board is not recommending the payment of a final dividend. The Portsmouth Harbour Ferry Company (“PHFC”) saw operating profits unchanged at just over £1.0 million, with fare increases in June 2014 offsetting a small (2%) decrease in the number of passengers using the ferry. On 9 February 2015, David Hudd retired as Chairman after 13 years’ service, during which the Group saw significant growth. On behalf of the Board and our shareholders, I would like to express our grateful thanks to David for his enormous contribution and wish him a happy retirement. I would also like to thank Mike Killingley who retired on 13 April 2015 after 10 years’ service as a Non Executive Director. The Group’s financial position is strong and after capital expenditure of £4.7 million, cash balances at the end of the year were £7.4 million and bank borrowings £0.7 million. Net cash flow from operating activities before capital expenditure, and after the payment of tax, increased by £3.6 million to a record £6.4 million. This strong operating cash flow and healthy liquidity position (with net cash balances of £6.7 million) gives the Group significant untapped borrowing potential and the Board intends to make use of this to accelerate the Group’s growth through further investment in its existing businesses and through strategic acquisitions. Falkland Oil and Gas (FOGL) During the year the Group gradually divested its shares in FOGL with the sale of 7.8 million shares in March 2015 at a profit of £0.7 million and, following the year end, in April 2015, the Group’s residual holding of 5 million FOGL shares was sold at a profit of £0.4 million. Over the course of the 11 years since FOGL’s flotation in 2004, the Group generated over £8 million in cash proceeds and over £5 million in profit from its investment. The sale of shares in FOGL was implemented to augment the Group’s cash resources for further investment in its future growth. Outlook A continuing uplift in economic activity is anticipated in the Falklands in the first half of the new financial year, linked to the ongoing drilling campaign and further infrastructure investment by the Falkland Islands Government. Longer term sustainable growth will depend on a recovery in the oil price to a level at which oil companies can see reliable commercial returns. Although there is no guarantee that such a price recovery will occur in the near term, over a longer horizon your Board remains confident that oil FALKLAND ISLANDS HOLDINGS PLC3 development in the Islands will take place and that this will transform the prospects both for the Falklands and for FIC. At Momart, the planned expansion of commercial storage facilities will support growth, and this together with focussed investment in sales and marketing and further strengthening of the management team, is expected to produce renewed progress. At the same time Momart will seek to develop its existing international partnerships in order to increase its global reach and reputation. Targeted acquisitions to widen both the range of art related services and increase the geographical reach of the business are also being pursued. For PHFC, the successful delivery of its new vessel, “Harbour Spirit” will underpin its ferry service to local passengers over the long term. General economic recovery in the UK and the positive local impact of the Navy’s planned investment in infrastructure to support its expanding carrier fleet should also begin to drive steady growth at the ferry over the medium term. In the year to date, the Group’s trading performance is in line with our expectations and we anticipate a satisfactory year. In line with the strategy outlined in the Group’s pre-close trading update in April 2015, the Board is also seeking to accelerate growth and increase the scale of the Group by means of strategic acquisitions using available cash resources and borrowing capacity. Edmund Rowland Chairman 8 June 2015 ANNUAL REPORT 20154 Managing Director’s Strategic Report BUSINESS REVIEW John Foster Managing Director Group Overview I am pleased to report another good year of trading for the Group, with revenues ahead by 0.8% at £38.6 million (2014: £38.3 million) and a small but expected reduction in underlying pre-tax profits to £3.56 million (2014: £3.65 million), which remained ahead of underlying pre-tax profits in 2012-13 of £3.29 million. In the Falklands, FIC recovered strongly buoyed by a record squid catch and increased economic activity linked to the exploration drilling programme. At Momart, trading returned to more normal levels following a bumper performance in the prior year and at PHFC revenues and profits remained stable. Review of Operations Group revenue and underlying pre-tax profits are analysed below: Group revenue Year ended 31 March Falkland Islands Company Portsmouth Harbour Ferry Momart Total 2015 £m 18.51 4.30 15.75 38.56 2014 £m 15.88 4.12 18.26 38.26 Change % 16.5 4.3 -13.7 0.8 Group underlying pre-tax profit* Year ended 31 March Falkland Islands Company Portsmouth Harbour Ferry Momart Total 2015 £m 1.56 0.79 1.21 3.56 2014 £m 1.12 0.77 1.76 3.65 Change % 39.4 3.4 -31.5 -2.4 * Pre-tax profit before amortisation of intangibles and non–trading items but including the Group’s share of the contribution from SAtCO, the Group’s Joint Venture with Trant Construction in the Falkland Islands. Group Revenue 2015 Underlying Operating Profit 2015 Momart 41% FIC 48% PHFC 11% Momart 33% FIC 35% PHFC 27% SAtCO (Share of joint venture) 5% Group Revenue 2014 Underlying Operating Profit 2014 Momart 48% FIC 41% PHFC 11% Momart 48% FIC 25% PHFC 26% SAtCO (Share of joint venture) 1% FALKLAND ISLANDS HOLDINGS PLC5 Falkland Islands Company (“FIC”) The Falklands had a particularly busy year. Preparations for the 2015 offshore drilling campaign saw increased corporate demand for rented houses, hire vehicles and agency services and construction work related to the new temporary dock facility, which led to a welcome recovery in revenues. The record squid catch in the early part of the year also improved confidence and boosted government finances. At the same time, general retail activity picked up and demand for new kit homes boosted house building. As a result the pre-tax contribution of the Group’s Falklands business recovered strongly, with pre-tax profits increasing by £0.44 million (+39.4%) to £1.56 million (2014: £1.12 million). Oil developments During the year, oil companies led by Premier Oil (“Premier”) and Noble Energy progressed detailed preparations for the new round of exploration drilling, and in June 2014 the harsh environment rig, Eirik Raude, was contracted to drill six wells in Falklands’ waters. The distance from the UK supply base has meant resources have been introduced into Stanley to support the rig: 75 oil workers are based onshore to co-ordinate supplies and maintenance for the rig in addition to a 25 strong helicopter support team, which air lifts the circa 120 rig workers to the platform and provides Air Sea Rescue back-up. Offshore, rig workers operate in four week shifts with 50% rotating back to the UK every two weeks on a dedicated charter aircraft. The rig is supplied by Platform Support Vessels (PSVs) in addition to a number of Emergency Rescue and Response Vessels (ERRVs) operating from the new temporary floating dock facility commissioned by Noble Energy and Premier which was completed in late 2014 by FIC’s Joint Venture SAtCO. The fleet of support vessels has added a further 35 workers to oil exploration establishment. The overall economic impact of this activity is a key driver behind the growth in FIC in the year under review and is relatively modest in comparison to the much more extensive impact that any future oil production in the Islands would have. In strategic terms the 2015 exploration drilling programme will help establish the “ultimate resource potential” of the North Falklands basin and in the Southern and Eastern basin, the initial well planned at Humpback will give a strong indication of this geologically separate basin’s potential. In the context of determining “resource potential” the early positive results from the Zebedee and Isobel Deep wells announced by Premier in April and May 2015 were encouraging but the outcome of drilling on the remaining four wells over the course of the next four to five months remains critical in determining the extent of oil resources in Falkland’s waters. In parallel with the 2015 drilling programme, Premier has progressed its detailed planning for the development of the Sea Lion field in the North Falklands basin. The sharp fall in crude oil prices in late 2014 caused Premier to revisit its planning assumptions and since late 2014 Premier has been “engaging with its supply chain to capture lower costs” in order to offset the fall in oil prices. Premier is still progressing its Front End Engineering Design (FEED) plans for a phased development of Sea Lion and is planning to use a leased floating production storage and offloading unit (“FPSO”) which will reduce its planned capital expenditure compared to the previous Tension Leg Platform solution. Premier estimates that capital expenditure prior to first oil has now reduced to $1.8 billion and further savings are being sought. Premier has also announced that cost savings are expected in the areas of drilling, subsea and fabrication. Depending on its success in driving down production costs and its expectations on the trajectory of future oil prices, the Premier Board has announced that any decision to commit to the development of Sea Lion will not take place before mid-2016 at the earliest. Despite the current uncertainty on timing we remain optimistic that Sea Lion and other commercially significant oil reserves will be developed in Falkland’s waters in due course. The FIH Group has made capital investments of over £8 million in the Falklands in the last five years and FIC remains exceptionally well placed with a broadly based, modernised business infrastructure, strong property portfolio and an experienced team to take advantage of the exploitation of the Falkland’s oil reserves. FIC Revenues 2015 FBS 16% Retail 51% Support & Services 9% Freight & Port Services 7% Falklands 4x4 17% FIC Revenues 2014 Retail 58% FBS 9% Support & Services 8% Freight & Port Services 8% Falklands 4x4 17% ANNUAL REPORT 20156 Managing Director’s Strategic Report BUSINESS REVIEW - CONTINUED Trading Overall revenue in FIC increased by £2.63 million (+16.5%) to £18.51 million (2014: £15.88 million). 16 with the completion of the Crozier Place redevelopment which will provide both operations with improved customer access, parking and café amenities. FIC Operating results Year ended 31 March 2015 £m 2014 £m Change % Revenues Retail Falklands 4x4 Freight & Port Services Support services FBS (property and construction) Total FIC revenue FIC operating profit Underlying operating profit margin Share of results of SAtCO Joint venture Net interest income FIC Profit Before Tax 9.54 3.07 1.24 1.66 3.00 18.51 1.31 9.26 2.66 1.26 1.30 3.0 15.6 -1.7 28.1 1.40 113.5 15.88 16.5 0.98 34.3 7.1% 6.2% 15.2 0.18 0.07 1.56 0.04 400.0 0.10 -37.9 1.12 39.4 Total retail sales in FIC increased by 3.0% to £9.54 million (2014: £9.26 million). Despite this modest overall increase, retail sales in FIC’s flagship West Store, which accounts for 60% of FIC’s retail activity, increased by an encouraging 6.6% helped by a sharp increase in sales of BHS sourced clothing and an improved fresh food and delicatessen offer. The Capstan gift shop on Stanley’s waterfront also performed well with sales ahead by 7.5% compared to the prior year. In contrast lower margin Warehouse sales to local retailers and pubs declined by 22% as some larger operators switched to purchasing direct from the UK. Sales at Home Living FIC’s home furnishing store increased by 36.5% helped by continued growth in new house building however Home Builder had a quieter year, with sales restrained by preparations for a substantial expansion in the store with the conversion of warehousing into retail space to deliver a better presented and widened customer offer, including work and leisure wear, garden products and guns and ammunition as well as tools and building materials. The full benefits of this expansion will not be seen until 2015- Retail performance was also improved by the recruitment of an experienced retail executive from the UK, Kevin Ironside, who was instrumental in driving through improvement in gross margins and reductions in stockholding of £0.5 million. In the automotive business, Falklands 4x4, revenues grew by 15.6% to a record £3.07 million, with strong growth in maintenance and service revenues following the acquisition of local operator “Turbo Tim”. Total vehicle sales fell slightly from the prior year to 76 from 79 units (-4%). Revenues from third party freight and port services dropped marginally by 1.7% to £1.24 million (2014: £1.26 million) as price competition eroded increased volumes. However, Support Services revenues increased by 28.1% helped by another strong illex squid catch which boosted revenues at the Fishing Agency, a healthy increase in cruise ship passenger numbers which saw Penguin Travel income rise by 32% and further progress at the insurance agency. Revenue from Falkland Building Services (“FBS”) more than doubled to £3.0 million (2014: £1.4 million) as housing completions doubled from eight to sixteen. FBS also saw a sharp increase in the level of subcontracted labour it provided for work on the construction of the Temporary Dock Facility for Noble Energy and Premier and a Government contract to upgrade Moody Brook Road. Corporate demand for rental property rose sharply and total property rental revenue included within FBS increased to a record level of £0.36 million (2014: £0.22 million). FBS was also engaged on internal capital projects and expenditure of £2.1 million was incurred in the year to further modernise FIC’s business infrastructure to prepare it for the expected growth from oil development. Key projects included: • The construction of new warehouse/freezer facilities at Airport Road, East Stanley which will replace FIC’s aging retail warehouse facilities and make available a prime 2 acre site on the waterfront in central Stanley; • Refurbishment of the Company’s Head Office at Crozier place, with new office space for external tenants and car parking facilities for visitors to adjacent retail stores; • Completion of an enlarged Home Builder store, which includes a new mezzanine floor and garden centre department; and • £0.4 million spent on the purchase and installation of 10 mobile homes for staff rental, of which nine were occupied by 31 March 2015. FALKLAND ISLANDS HOLDINGS PLC7 In addition £0.5 million was invested in the investment property portfolio: • £0.3 million on the purchase of a four bed-roomed detached house for rental to corporate tenants; and • £0.2 million spent on finishing three houses in central Stanley, held for external rental FIC’s property rental portfolio now comprises 40 properties in central Stanley, which are available to let to corporate clients, private individuals and staff. With the construction of a Temporary Dock Facility capable of supporting both oil exploration and the more limited phased approach to the proposed development of Sea Lion, plans for a new deep water port at Port William in Stanley’s outer harbour have been put on hold. A revival of interest in these plans will depend upon further oil discoveries and a recovery in the oil price. In its second year of operation, FIC’s construction joint the South Atlantic Construction Company, venture, (“SAtCO”) made further progress winning additional infrastructure contracts from FIG and completing the construction of a new floating dock (TDF) in Stanley Harbour to support the 2015 exploration drilling programme. In addition SAtCO has leased its heavy lift crane to Premier and its associates for the duration of the current drilling programme. In the year to 31 March 2015 SAtCO increased its revenues from £0.1 million to £0.6 million and its profit before tax to £0.49 million (2014: £0.10 million). All staff involved in construction activities were contracted directly from parent companies FIC and Trant Construction and at 31 March 2015 SAtCO had no permanent employees. FIC Key Performance Operational Drivers Indicators and Year ended 31 March 2015 2014 2013 2012 Staff Numbers (FTE 31 March ) Capital Expenditure £’000 Retail Sales growth % Number of FIC rental properties Average occupancy during the year Number of vehicles sold Number of 3rd party houses sold iIlex squid catch in tonnes (000’s) Cruise ship passengers (000’s) 184 165 129 119 2,598 2,715 1,594 632 3.0% -4.8% 3.0% -2.8% 40 36 32 33 93% 82% 88% 83% 76 16 79 48 50 8 3 0 364.0 188.0 58.2 67.3 50.0 39.5 29.6 35.2 Temporary floating dock, this photo has been reproduced with the permission of Stephen Luxton ANNUAL REPORT 20158 Managing Director’s Strategic Report BUSINESS REVIEW - CONTINUED The latest addition to Gosport Ferry’s fleet Portsmouth Harbour Ferry Company (“PHFC”) 2014-15 saw another steady performance from PHFC with revenues increasing by 4.3% despite a 2.1% decline in passenger numbers. Profit before tax, after pontoon lease interest charges, was unchanged at £0.8 million. PHFC Operating results Year ended 31 March 2015 £m 2014 £m Change % Revenues Ferry fares Cruising and Other revenue Total PHFC revenue PHFC operating profit Pontoon finance lease interest PHFC Profit Before Tax Underlying operating profit margin Passengers carried (000s) 4.13 0.17 4.30 1.03 3.95 4.5% 0.17 0.6% 4.12 4.3% 1.01 1.9% (0.24) (0.24) -2.9% 0.79 0.77 3.4% 24.0% 24.6% -2.3% 2,923 2,986 -2.1% After increases in like for like passenger numbers in the first quarter, passenger volumes slipped into decline with the closure in summer 2014 of the BAE Systems shipyard in Portsmouth, which involved the loss of 1,000 jobs. A further adverse effect on passenger volumes came from the introduction of a heavily subsidised Park & Ride scheme by Portsmouth City Council in August 2014 which, coupled with cheaper fuel, encouraged increased car usage. Ferry fares increased by an average of 6% in June 2014, bringing the total cost of an adult return to £3.10. This above inflationary rise was introduced to cover the increased operating costs linked to the arrival of the new ferry. Discounted fares for regular customers were maintained (£1.45 per ferry journey for adults), and lower tariffs for seniors and children (£2.10 return), which reinforce the value for money and convenience offered by the ferry service compared to bus and car travel. Both weekend and weekday traffic declined by 2.1% compared to the prior year. To stimulate ferry usage a number of new fare offerings were introduced during the year, including discounted family fares over the Christmas holiday period with return fares for a family of 5 for £5. Additionally, in association with Gosport Borough Council, a joint ferry and car parking ticket was introduced in November 2014 offering return ferry travel and all day car-parking for regular users for less than £3 per day. From August 2014 a discounted ticket was also FALKLAND ISLANDS HOLDINGS PLC9 introduced for all military personnel in the Dockyard and at the same time PHFC joined the newly launched Solent Go electronic travel card scheme, which offers discounted travel across bus and ferry services throughout the Solent region. In March 2015 PHFC took delivery of a third modern ferry vessel “Harbour Spirit” which was built in Croatia at a cost of £3.2 million. The cost of the new vessel has been substantially financed by a 10 year bank loan, drawn down in April 2015. With improved passenger seating, increased space for cycles and better facilities for the disabled, Harbour Spirit will underpin PHFC’s service to passengers well into the middle of this century. Once fully commissioned, Harbour Spirit will replace one of PHFC’s 1966 vintage vessels, Portsmouth Queen and her sister ship Gosport Queen will be retained as a back-up. With three new ferry vessels built since 2002 and an estimated service life of over 30 years, no further significant vessel expenditure is anticipated for over 15 years. Average fares per passenger journey increased by 6.8% to £1.41 (2014: £1.32). Ferry reliability was again outstanding with on time departures running at 99.8% (2014: 99.7%). Looking ahead, the outlook for passenger growth is positive as the Naval Base expands to support the Royal Navy’s new aircraft carriers. The first of these, Queen Elizabeth II, is expected to arrive in Portsmouth in 2017. PHFC Key Performance Indicators and Operational Drivers Year ended 31 March 2015 2014 2013 2012 Staff Numbers ( FTE at 31 March ) Capital Expenditure £’000 Ferry Reliability ( on time departures) Number of weekday passengers (‘000s) % change on prior year Number of weekend passengers (‘000s) % change on prior year Total number of passengers (‘000’s) % change on prior year 39 37 35 35 1,483 1,958 223 5,080 99.8% 99.7% 99.5% 99.9% 2,123 2,169 2,230 2,497 -2.1% -2.7% -10.7% -1.6% 800 817 803 831 -2.1% 1.8% -3.4% -4.1% 2,923 2,986 3,033 3,328 -2.1% -1.6% -8.9% -2.1% Revenue growth % 4.3% 1.2% -1.9% 11.5% Average yield per passenger journey £1.41 £1.32 £1.28 £1.19 ANNUAL REPORT 201510 Managing Director’s Strategic Report FINANCIAL REVIEW Momart technicians de-installing artwork at the Royal Academy. Photography: Ben Quinton Momart Momart, the Group’s art handling and logistics business, saw a return to more normal levels of activity following the string of exceptional overseas exhibitions which boosted results in the prior year. Total revenue for the year decreased by 13.7% to £15.8 million (2014: £18.3 million) while underlying operating profit reduced by 32.1% to £1.24 million (2014: £1.83 million). Finance costs were reduced in the year as borrowings were repaid. Underlying profit before tax before amortisation of intangibles was £1.21 million (2014: £1.76 million). Momart Operating results Exhibitions After an exceptional year in 2013-14 which included an unusual sales mix of high added value contracts for overseas clients, Momart’s museum exhibition activity fell back to more normal levels and Exhibitions revenue of £8.7 million was comparable to the level seen in 2012- 13 of £9.0 million. This decline is not unusual, given the fragmented and irregular nature of client projects which vary significantly in both technical content and added value between years. There was also an adverse mix effect seen in the increase in work subcontracted to overseas agents from mainstream UK clients and at the same time a much lower level of specialist overseas work handled directly by Momart. Both changes contributed to lower margins and a decline in Exhibition profitability. 2015 £m 2014 £m Change % 8.68 10.86 -20.0 Although the order book of large exhibition contracts was lower at 31 March 2015, (down £0.6 million at £3.26 million) an inflow of contracts early in the new financial year saw this deficit eliminated. Year ended 31 March Revenues Museums and public exhibitions Commercial gallery services Storage 5.21 1.86 5.57 1.83 -6.5 1.3 -13.7 Total Momart revenue 15.75 18.26 Underlying Momart operating profit 1.24 1.83 -32.1 Net Interest expense (0.03) (0.07) -50.8% Underlying Pre Tax Profit Underlying operating profit margin 1.21 1.76 -31.5% 7.9% 10.0% -21.4 Despite the modest decline in underlying activity, Momart continued to be a market leader in the UK, and was involved in the installation of a number of prestigious and high profile exhibitions including Anselm Keifer and Rubens at the Royal Academy, Matisse at Tate Modern, Virginia Woolf at the National Portrait Gallery and Ming at the British Museum. Gallery Services Gallery Services revenues were 6.5% lower in 2014-15 at £5.21 million (2014: £5.57 million). Competition in the core UK market increased and the level of low added value work FALKLAND ISLANDS HOLDINGS PLC 11 from smaller galleries reduced. At the same time there was good progress with prestigious blue chip clients such as Christies, White Cube, Gagosian and Sadie Coles, and Momart continued to win healthy levels of work from world renowned UK artists, Damien Hirst and Antony Gormley. Storage Storage revenues increased by 1.3% to £1.86 million (2014: £1.83 million) despite work to create a dedicated new storage area for the Royal Academy which necessitated closure of a significant section of the warehouse during the last quarter of the financial year. Adjusting for this, Momart’s storage facilities once again operated at full capacity. The lack of storage space to offer to new commercial clients has proved an effective barrier to growth and accordingly detailed plans have been agreed with the company’s landlord to construct new facilities on the company’s existing East London site to increase capacity by 33% and to offer improved client reception and viewing facilities. Subject to the receipt of final planning permission this increased capacity is due to come on stream in early 2016. Momart Key Performance Indicators and Operational Drivers Momart Revenues 2015 Museum and public exhibitions 55% Commercial Gallery Services 33% Storage 12% Momart Revenues 2014 Commercial Gallery Services 31% Museum and public exhibitions 59% Storage 10% Year ended 31 March Staff Numbers (FTE 31 March) Capital Expenditure £’000 Warehouse % fill vs capacity Exhibition Order Book 31 March Own labour charged out Revenues from overseas clients Exhibitions sales growth Gallery Services sales growth Storage sales growth Total Sales growth % 2015 2014 2013 2012 128.6 124.6 119.0 115.9 FOGL investment Details of the Group’s shareholding in FOGL at 31 March 2015 are set out below: 648 260 598 524 31 March 91.2% 92.9% 94.2% 95.1% £3.26m £3.89m £3.83m £4.16m Number of shares held FOGL share price (bid price) Market value of holding Cost £9.07m £11.67m £9.02m £8.58m Book cost per share 2015 5,000,000 30.0p £1.5m £1.0m 20.0p £7.5m £8.3m £4.6m £5.7m (20.0%) 20.4% 27.8% 5.7% (6.5%) 1.3% (12.7)% 26% 1.3% 2.6% 10.5% 6.6% (13.7%) 12.0% 8.9% 13.5% In April 2015, the Group disposed of its remaining 5 million shares in Falkland Oil and Gas for £1.4 million, an average share price of 28 pence, generating a profit on disposal of £0.4 million. Trading outlook The medium term outlook for the Group remains positive and in the near term increased activity in the Falkland Islands linked to the 2015 drilling programme should ensure another strong trading performance in the new financial year. In the Falklands, we look forward to another year of progress. The remaining four exploration wells will be drilled in the first half of the new financial year and any further ANNUAL REPORT 2015 12 Managing Director’s Strategic Report FINANCIAL REVIEW - CONTINUED discoveries will add to business confidence. Falkland Government finances have been bolstered by the record squid catches of recent years and the increased taxation inflows linked to oil company operations. This incremental government income should allow increased spending on capital and infrastructure projects which in turn will further stimulate the economy. Despite the currently weakened oil price, the Board believes the longer term prospects for the development of oil production in the Falkland Islands remain very good and that FIC is well placed to fully benefit from the dramatic growth in the economy that would result. At PHFC, the recent arrival of a new modern ferry provides a solid foundation for the long term future of the business although in the near term the increased operating costs linked to the new vessel will place a drag on profits. information systems, At Momart, despite the quieter year seen in 2014-15, further improved management investment in increased storage space, a strengthened management team and more focussed marketing provide a strong platform from which to develop the business. In addition growth will be accelerated by selective acquisitions. Underlying growth prospects in this high quality business remain sound. With bank borrowings reduced to £0.7 million (2014: £1.0 million) and cash on hand of £7.4 million (2014: £5.7 million), together with significant further borrowing capacity, the Group has significant capacity to exploit opportunities over the medium term, in line with its growth strategy. Summary income statement Year ended 31 March 2015 £m 2014 £m Change % Group revenue 38.56 38.26 0.8 Underlying Operating profit* 3.76 3.85 -2.3 Net financing costs (0.20) (0.20) -0.5 Underlying profit before tax Amortisation and Non-trading items Gain on sale of FOGL shares Termination payments Gain on transfer of the PHFC pension scheme Amortisation of intangibles Profit before tax as reported 3.56 3.65 -2.4 0.71 (0.24) - - - 0.06 - - - (0.14) (0.31) -53.7 3.89 3.40 14.4 *Underlying operating profit excludes amortisation and non-trading items but includes £0.18 million (2014: £0.04 million) of the Group’s share of the results of the SAtCO joint venture. Revenue and underlying operating profit Group revenue rose 0.8% to £38.56 million, however underlying operating profit decreased 2.3% to £3.76 million in the year ended 31 March 2015. These variances are discussed in more detail above in the Review of Operations. Non-trading items Non-trading items comprise a £0.71 million gain on the sale of 7,825,000 Falkland Oil and Gas shares, offset against £0.24 million of termination costs, relating to the retirement of the Chairman, David Hudd, and a fall in the amortisation charge to £0.14 million on the intangible assets (2014: £0.31 million) due to certain customer relationships, together with the five year Director service contracts, having been fully amortised in April 2014. Following a review of the useful life of the Momart brand name, which is now expected to have an indefinite useful life, amortisation ceased on 30 September 2013, therefore the prior year included a six month charge of £0.07 million, but no charge has been included in the current year. The prior year included a further gain of £0.06 million on the transfer of the Portsmouth Harbour Ferry pension scheme, which was transferred to Legal and General on 7 March 2013. Net financing costs The Group’s net financing costs remain relatively little changed to the prior year at £0.2 million, with the fall in interest income on reduced bank deposits being offset by a decrease in bank interest payable as £1.0 million of bank loans were repaid. In March 2015, a £0.7 million loan was drawn down secured against vessels in Portsmouth. Underlying pre-tax profit The Group reported underlying pre-tax profits of £3.56 million, slightly down on the prior year, (2014: £3.65 million). Reported pre-tax profit After the £0.7 million gain on the sale of 7,825,000 shares in Falkland Oil and Gas, and charges of £0.1 million for the amortisation of intangible assets (2014: £0.3 million), and the £0.2 million payment on the retirement of the former Chairman, reported Profit Before Tax for the Group increased by 14.4% to £3.89 million (2014: £3.40 million). Taxation The Group pays corporation tax on its UK earnings at 21% and on earnings in the Falkland Islands at 26%. The Falklands Islands Company Limited has been granted a foreign branch exemption, and as a result no longer pays FALKLAND ISLANDS HOLDINGS PLC13 UK corporation tax in respect of FIC and will gain the full benefit of the tax deductibility in the Falkland Islands of expenditure on commercial and industrial buildings. The effective tax rate on underlying profits is 23.2% (2014: 24.7%). Earnings per share Year ended 31 March Underlying profit before tax Taxation on underlying profit 2015 £m 3.56 2014 £m Change % 3.65 -2.4 (0.83) (0.90) -8.4 Underlying profit after tax 2.73 2.75 -0.4 Diluted average number of shares in issue (thousands) Effective underlying tax rate Diluted EPS on underlying profit 12,446 12,461 -0.1 23.2% 24.7% -6.2 22.0p 22.0p - Fully diluted Earnings per Share (“EPS”) derived from underlying profits, remained at 22.0 pence (2014: 22.0p), as the fall in the underlying profit before tax has been offset by a fall in the taxation on underlying profit, due to the tax rates on profits earned in the UK falling to 21% from 23% in the prior year. Balance sheet The Group’s Balance Sheet remains strong. Total net assets increased to £36.7 million from £35.4 million in the prior year. Retained earnings after the payment of tax and dividends increased by £1.5 million to £16.3 million (2014: £14.8 million). Bank borrowings were reduced to £0.7 million (2014: £1.0 million), due to repayment in the year of all liabilities at 31 March 2014, together with the drawdown of a £0.7 million loan in the Ferry business in March 2015, and the Group had cash balances of £7.4 million (2014: £5.7 million). The carrying value of intangible assets at £12.2 million has not fallen from the £12.2 million at 31 March 2014, due to investment in computer software offsetting the amortisation charge. The Group owns investment properties comprising commercial and residential properties in the Falkland Islands held for rental, together with approximately 400 acres in and around Stanley. This includes 18 acres for industrial development, 25 acres of prime mixed-use land and 300 acres which is adjacent to the site proposed for a new port. During the year, the net book value of investment property increased £0.3 million to £3.7 million (2014: £3.4 million) due to £0.5m of additions, offset against £0.2 million of depreciation. These properties are all situated in the Falkland Islands, and the £0.5 million additions include £0.3 million for the purchase of a four bedroomed property on Biggs Road, Stanley and further development of residential properties to increase the Group’s portfolio. The Group owns 40 investment properties, which are mainly houses, in Stanley. These are all held at depreciated cost. The net book value of these properties and undeveloped land of £3.7 million (2014: £3.4 million) has been reviewed by the Directors resident in the Falkland Islands and at 31 March 2015 the fair value of this property portfolio was estimated at £7.3 million (2014: £6.3 million). If oil development proceeds, the value of all these properties is expected to increase significantly. The Group’s residual 1.0% shareholding in FOGL was sold in April 2015 for proceeds of £1.4 million, resulting in a profit of £0.4 million. This transaction will be reported in the results for the year ending 31 March 2016. Deferred tax assets relating to future pension liabilities increased to £0.8 million (2014: £0.6 million). These assets now only include the deferred tax on the FIC unfunded scheme calculated by applying the 26% Falklands tax rate to the pension liability. Inventories, which largely represents stock held for resale in the Falkland Islands, decreased by £1.3 million to £5.4 million at 31 March 2015 (2014: £6.7 million). The decrease largely relates to stock held in the Falkland Islands, where better stock controls have been implemented during the year. Trade and Other Receivables decreased by £1.7 million to £5.3 million at 31 March 2015, due to the decreased activity and improved debtor collection at Momart. Average debtor days outstanding fell to 36.0 (2014: 47.0) due to new procedures introduced at Momart to speed up the collection of debtors. The net book value of property, plant and equipment increased by £3.0 million to £19.6 million (2014: £16.6 million) after capital investment of £4.1 million, including £2.1 million in the Falkland Islands. This has been offset against a £1.1 million depreciation charge in the year. Outstanding finance lease liabilities totalled £5.1 million (2014: £5.2 million). £4.9 million (2014: £4.9 million) of the finance leases balance is in respect of the 50 year lease from Gosport Borough Council for the Gosport Pontoon. ANNUAL REPORT 201514 Managing Director’s Strategic Report FINANCIAL REVIEW - CONTINUED Corporation tax due for payment within the next 12 months is £0.03 million (2014: £0.4 million). This is lower than the £0.8 million total charge for taxation on underlying profit, as £0.4 million of this charge relates to deferred tax. The £0.4 million current tax charge includes £0.1 million, which relates to adjustments to prior years, and has already been paid by 31 March 2015, and in addition £0.3 million of the 2015 tax charge had already been paid in instalments by 31 March 2015. The effective tax rate on underlying profits was 23.2% (2014: 24.7%) Trade and other payables decreased from £11.0 million to £10.2 million at 31 March 2015 as the prior year reflected increased trading activity at Momart at the year end, which has not been repeated in the March 2015 year. At 31 March 2015 the liability due in respect of the Group’s defined benefit pension schemes was £2.9 million (2014: £2.5 million). The increased liability is due principally to lower medium term interest rates used to discount the schemes future liabilities. The pension scheme in the Falkland Islands, which was closed to new entrants in 1988 and to further accrual in 2007, is unfunded and liabilities are met from operating cash flow. The net deferred tax liabilities, excluding the pension asset at 31 March 2015, were £2.0 million and increased £0.4 million from the prior year (2014: £1.6 million), largely due to the delivery of the new vessel for Portsmouth Harbour Ferry. £1.7 million of this balance arises on property, plant and equipment, and is principally due to the new vessel and also to properties in the Falklands, where capital allowances of 10% are available on the majority of the FIC properties. With such assets depreciated over 20-50 years a timing difference arises on which deferred tax is provided. Net assets per share were 295p at 31 March 2015 (2014: 285p). Cash flows Operating cash flow Net cash flow from operating activities increased from £2.8 million last year to £6.4 million, due to continued strong cash flow from trading and an increased focus on reducing working capital across the group. The Group’s Operating Cash Flow can be summarised as follows: Year ended 31 March 2015 £m 2014 £m Change £m Underlying profit before tax Depreciation Amortisation of computer software Net Interest payable EBITDA Share based payments Decrease / (increase) in work- ing capital Tax paid Other Net cash inflow from operating activities Financing and Investing Activities Sale of 7.825 million FOGL shares Less: Dividends paid Capital expenditure 3.6 1.4 - 0.2 5.2 0.1 2.1 (0.8) (0.2) 3.6 1.1 - 0.3 0.1 (0.1) 0.2 5.0 - (1.7) (0.8) - 0.2 0.1 3.8 - 0.3 (0.5) 6.4 2.8 3.6 2.3 - 2.3 (1.4) (4.9) (1.4) - (5.0) 0.1 Net bank interest received - 0.1 (0.1) Loan repayments from / (loan to) joint venture 0.2 (0.5) 0.7 Net cash outflow on sale & purchase of treasury shares - (0.1) 0.1 Bank and other loan repayments (1.4) (1.4) - Bank and Hire purchase loan draw down 0.8 - 0.8 Increase in hire purchase debtors Net cash outflow from financing and investing activities Net cash inflow / (outflow) Cash balance b/fwd Cash balance c/fwd (0.3) (0.2) (0.1) (4.7) (8.5) 3.8 1.7 5.7 7.4 (5.7) 7.4 11.4 (5.7) 5.7 1.7 FALKLAND ISLANDS HOLDINGS PLC15 Financing outflows During the year the Group paid dividends of £1.4 million (2014: £1.4 million) and made fixed asset investments of £4.7 million of expenditure to strengthen the Group’s operating base, including final payments of £1.3 million (2014: £1.8 million) in respect of the new vessel for Gosport ferry; £2.6 million was invested in Stanley with £0.5 million of expenditure on investment land and buildings, £0.7 million on plant and machinery, £0.3 million spend on the new Homebuilder/Garden Centre store, £0.4 million spent on the purchase of ten mobile homes for rental to staff, £0.1 million spend on finalising the refurbishment of the Stanley head office and £0.6 million building on the new retail warehouse and freezer facilities at Airport Road. Scheduled loan repayments of £1.4 million (2014: £1.4 million) were made, including £0.3 million of payments to Gosport Council on the 50 year pontoon finance lease, £0.1 million of repayments on hire purchase leases for trucks at Momart and £1.0 million of bank loan repayments which repaid all the bank loans outstanding at 31 March 2014. In March 2015, the Group drew down a further £0.7 million bank loan secured against the Spirit of Gosport and the Spirit of Portsmouth, which were delivered to PHFC in 2002 and 2005 respectively. John Foster Managing Director 8 June 2015 ANNUAL REPORT 201516 Board of Directors and Secretary Edmund Rowland Chairman Edmund was appointed to the Board on 16 April 2013, and became Chairman on 9 February 2015. He currently serves as a Director of Blackfish Capital Management, a specialist asset manager based in London and as Chief Executive Officer of Banque Havilland S.A (London Branch), previously having gained experience in London and Hong Kong, as an analyst and investment manager with BNP Paribas S.A and Blackfish. He has broad experience of principal investing in both equity and credit capital markets, with a focus on special situations. He sits on the board of Banque Havilland (Monaco) SAM and Certus Trust Limited. Edmund is a member of the Remuneration Committee. John Foster Managing Director John joined the Board in 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. Jeremy Brade Non-executive Director Jeremy joined the Board in 2009. He is a Director of Harwood Capital Management where he is the senior private equity partner. Jeremy has served on the boards of several private and publicly listed international companies. Formerly Jeremy was a diplomat in the Foreign and Commonwealth Office, and before that an Army officer. He is Chairman of the Remuneration Committee. Carol Bishop Company Secretary Carol Bishop joined the Company in December 2011. She is a Chartered Accountant and has previously worked for London Mining plc, an AIM listed company as Group Reporting manager. Prior to this she spent three years at Hanson plc and six years at the Peninsular and Oriental Steam Navigation Company. FALKLAND ISLANDS HOLDINGS PLC17 Directors’ Report The Directors present their annual report and the financial statements for the Company and for the Group for the year ended 31 March 2015. Results and dividend The Group’s result for the year is set out in the Group Income Statement on page 23. The Group profit for the year after taxation amounted to £3,144,000 (2014: £2,633,000). Basic earnings per share on underlying profits were 22.1p (2014: 22.2p). It is the Board’s considered view that the Group can best take full advantage of existing and emerging opportunities by maximising the reinvestment of profits and suspending dividend payments in order to accumulate resources to build a much more substantial group with greater critical mass in its respective markets. We believe this more focused long term approach will have more appeal for existing and prospective investors and offer much greater shareholder liquidity. The Board is confident that this new approach and focus will lead to more certain capital growth and greater overall returns for shareholders in the long term. Therefore dividend payments have been suspended in line with the increased focus of investment and long term growth. Dividends paid during the year comprise a dividend of 7.5p per share in respect of the previous year ended 31 March 2014 and an interim dividend of 4.0p per share in respect of the current year. Principal activities The business of the Group during the year ended 31 March 2015 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 Managing Director’s Strategic Report on pages 4 to 15 and 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 On 9 February 2015, the Chairman, David Hudd resigned from the Board and was succeeded on the same day by Edmund Rowland, the Non-Executive Deputy Chairman. On 13 April 2015, Mike Killingley, the Senior Non-Executive retired from the Board after ten years’ service. 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 19 and 20. 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 57 to 59. Corporate Governance As an AIM company, Falkland Islands Holdings plc is not required to comply with the UK Corporate Governance Code (the ‘Code’) which applies only to fully listed UK companies and adherence to which requires the commitment of significant resources and cost. However high standards of Corporate Governance are a key priority of the Board and details of how the Company addresses key governance issues are set out in the Corporate Governance section of its website by reference to the 12 principles of Corporate Governance developed by the Quoted Companies Alliance. The Board has established Audit, Remuneration, Nominations, and AIM Rules Compliance Committees and the Company receives regular feedback from its external auditors on the state of its internal controls. The Board attaches great importance to providing shareholders with clear and transparent information on the Group’s activities, strategy and financial position. Details of ANNUAL REPORT 201518 Directors’ Report CONTINUED all shareholder communications are provided on the Group’s website. The Board holds regular meetings with larger shareholders and regards the annual general meeting as a good opportunity to communicate directly with shareholders via an open question and answer session. Share capital and substantial interests in shares During the year no share capital was issued. Further information about the Company’s share capital is given in note 26 on pages 61 and 62. Details of the Company’s executive share option scheme and employee ownership plan can be found on page 19 and in note 25 on page 60 and 61. The Company has been notified of the following interests in 3% or more of the issued ordinary shares of the Company as at 31 March 2015. Blackfish Capital Management Fidelity investments L S Licht Argos Argonaut Fund Number of shares Percentage of shares in issue net of shares held in Treasury 2,500,000 892,114 535,000 460,000 20.1 7.2 4.3 3.7 Payments to suppliers 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 2015 or 31 March 2014. Charitable and political donations Charitable donations made by the Group during the year amounted to £28,030 (2014: £23,709), largely to local community charities in Gosport and the Falkland Islands. There were no political donations in the year (2014: nil). Disclosure of information to auditor 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 auditor is 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 auditor is aware of that information. Auditor A resolution proposing the re-appointment of KPMG LLP 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 FTI Consulting, 200 Aldersgate, London, EC1A 4HD at 10.00 a.m. on 8 September 2015. 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. FALKLAND ISLANDS HOLDINGS PLC19 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 2015 and in the preceding year is as follows: David Hudd John Foster Mike Killingley Jeremy Brade Edmund Rowland Total Salary £’000 Termination payment £’000 Bonuses £’000 107 203 35 30 28 200 - - - - - *60 - - - 2015 Total £’000 307 263 35 30 28 2014 Total £’000 177 280 35 30 23 403 200 60 663 545 None of the Directors of the Company receive any pension contributions or benefit from any Group pension scheme. *The Remuneration Committee has decided to split the Managing Director’s bonus for the year into an equal split of deferred shares and cash, with the shares requiring a service condition to remain in employment for up to three years. Therefore for the year ended 31 March 2015, John Foster has been awarded a cash bonus of £60,000 and a further £60,000 of deferred shares, to be issued at the share price at the close of business on 9 June 2015. These deferred shares will be provided at no cost to him in three equal tranches over the next three years. The Executive Directors participate in annual performance related bonus arrangements. The Managing Director had the potential during the year of earning up to 100% of his salary. The bonuses are subject to the achievements of specified corporate and personal objectives. Directors’ interests in shares As at 31 March 2015, the share options of executive Directors may be summarised as follows: Date of grant 14 Jun 2005 7 Aug 2007 15 Jul 2009 13 Aug 2012 Total Number of options J L Foster 14,117 27,517 44,550 76,700 162,884 Exercise price Exercisable from Expiry date £4.25 14 Jun 2008 13 Jun 2015 £3.30 7 Aug 2010 6 Aug 2017 £2.90 15 Jul 2012 14 Jul 2019 £4.04 13 Aug 2015 12 Aug 2022 ANNUAL REPORT 201520 Directors’ Report CONTINUED The mid-market price of the Company’s shares on 31 March 2015 was 276.5 pence and the range in the year was 264.8 pence to 366.3 pence. The Directors’ options extant at 31 March 2015 totalled 162,884 and represented 1.3% of the Company’s issued share capital, in addition David Hudd has been granted a six month period from his retirement date in which to exercise his 154,966 options. The 409,348 remaining options are held by 48 other employees of the Group including subsidiary directors and senior management. 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 subject to various performance conditions, which have been determined by the remuneration committee after discussion with the Company’s advisors. 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 according to the register kept pursuant to the Companies Act 2006 were as shown below: David Hudd* John Foster* Mike Killingley Jeremy Brade Ordinary shares as at 31 March 2015 Ordinary shares as at 31 March 2014 n/a 61,867 30,000 15,000 116,199 61,153 30,000 15,000 Edmund Rowland **2,500,000 **2,500,000 *The shareholdings above include all Shares held in the Company’s share incentive plan in which the Directors have a beneficial interest. **Edmund Rowland is a Director of Blackfish Capital Management Limited, the fund manager of Blackfish Capital Alpha Fund SPC – Blackfish Talisman Fund which holds 2,500,000 shares. He does not hold any shares directly in the Company. Share Incentive Plan In November 2012, the Company implemented an HMRC approved Share Incentive Plan (SIP) available to employees of the Group, which enables UK and Falklands staff to acquire shares in the Company through monthly purchases of up to £150 per month or 10% of salary, whichever is lower. For every three shares purchased by the employee, the Company contributes one free matching share. These shares are placed in trust and if they are left in trust for at least five years, they can be removed free of UK income tax and national insurance contributions. During the years ended 31 March 2015 the Company purchased £600 of matching shares (2014: £500) for Mr D Hudd and £600 of matching shares (2014: £500) for Mr J Foster. FALKLAND ISLANDS HOLDINGS PLC21 Statement of Directors’ responsibilities in respect of the Annual Report, Directors’ Report, Strategic Report and the Financial Statements The Directors are responsible for preparing the Annual Report, Directors’ Report, Strategic Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange, they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the Parent 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: • select suitable accounting policies and then apply them consistently; • make judgements 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 Parent 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 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. The Directors confirm, to the best of their knowledge that: • these financial statements, prepared in accordance with IFRS, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation as a whole; and • the management report, which comprises the Chairman’s Statement and the Managing Director’s Strategic Report, includes a fair review of the development and performance of the business and of the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Approved by the Board and signed on its behalf by: Carol Bishop Company Secretary 8 June 2015 Kenburgh Court 133-137 South Street Bishop’s Stortford Hertfordshire CM23 3HX ANNUAL REPORT 201522 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 2015 which comprise the Group Income Statement, the Group Statement of Comprehensive Income, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, the Group and Parent Company Statements of Changes in Equity and the related notes. 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 auditor As explained more fully in the Directors’ Responsibilities Statement 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 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 Financial Reporting Council’s website at www.frc. org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: • 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 2015 and of the group’s profit for the year then ended; • 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 • 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 the information given in the Strategic Report and the Directors’ Report for the financial year 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: • 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 • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Wayne Cox Senior Statutory Auditor 8 June 2015 For and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants St Nicholas House, Park Row Nottingham, NG1 6FQ FALKLAND ISLANDS HOLDINGS PLC 23 Total 2014 £’000 38,263 (22,212) 16,051 (12,235) - - 64 Consolidated Income Statement FOR THE YEAR ENDED 31 MARCH 2015 Operating expenses (12,050) Notes 4 Revenue Cost of sales Gross profit Other administrative expenses Board restructuring costs 15 Gain on sale of FOGL shares Pension settlement profit 11 Amortisation of intangible assets Operating profit Share of results of Joint Venture Profit before net financing costs Finance income Finance expense Net financing costs Profit / (loss) before tax from continuing operations Taxation Profit / (loss) for the year attributable to equity holders of the company 8 9 10 Earnings per share Basic Diluted Before amortisation & non-trading items Amortisation & non-trading items 2015 £’000 2015 £’000 Before amortisation & non-trading items Amortisation & non-trading items 2014 £’000 2014 £’000 Total 2015 £’000 38,560 (22,927) 15,633 (12,050) - - - - 38,560 38,263 (22,927) (22,212) 15,633 16,051 (12,050) (12,235) - - - - (234) (234) 711 - 711 - (142) (142) - - - - - - - - - - 64 (307) (307) 335 335 - (11,715) (12,235) (243) (12,478) 3,918 180 3,816 (243) 3,573 36 - 36 3,583 180 3,763 335 4,098 3,852 (243) 3,609 187 (391) (204) 3,559 (825) - - 335 75 187 (391) (204) 3,894 (750) 220 (425) (205) - - 220 (425) (205) 3,647 (243) 3,404 (901) 130 (771) 2,734 410 3,144 2,746 (113) 2,633 22.1p 22.0p 25.4p 25.3p 22.2p 22.0p 21.3p 21.1p ANNUAL REPORT 2015 24 Consolidated Statement of Comprehensive Income FOR THE YEAR ENDED 31 MARCH 2015 Unrealised profit / (loss) on the revaluation of shares in Falkland Oil and Gas Transfer to the income statement on sale of shares in Falkland Oil and Gas Items which will ultimately be recycled to the income statement (Increase) / decrease in the FIC defined benefit pension liability Movement on deferred tax asset relating to pension schemes Items which will not ultimately be recycled to the income statement Other comprehensive expense Profit for the year Total comprehensive income 2015 £’000 225 (419) (194) (412) 107 (305) (499) 3,144 2,645 2014 £’000 (129) - (129) 135 (35) 100 (29) 2,633 2,604 FALKLAND ISLANDS HOLDINGS PLC Consolidated Balance Sheet AT 31 MARCH 2015 Notes 11 12 13 15 16 17 18 19 20 17 21 22 23 22 24 18 Non-current assets Intangible assets Property, plant and equipment Investment properties Shares held in Falkland Oil and Gas Limited Investment in Joint venture Loan to Joint venture Finance leases receivable Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Finance leases receivable Cash and cash equivalents Total current assets TOTAL ASSETS Current liabilities Interest-bearing loans and borrowings Income tax payable Trade and other payables Total current liabilities Non-current liabilities Interest-bearing loans and borrowings Employee benefits 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 reserve Total equity 25 2015 £’000 12,226 19,621 3,693 1,500 266 378 458 750 2014 £’000 12,238 16,609 3,396 3,270 86 529 342 645 38,892 37,115 5,391 5,308 647 7,435 18,781 57,673 (293) (27) (10,214) (10,534) (5,580) (2,884) (1,987) (10,451) (20,985) 36,688 1,243 17,447 1,162 16,344 492 36,688 6,692 7,041 503 5,715 19,951 57,066 (1,109) (419) (10,981) (12,509) (5,061) (2,480) (1,639) (9,180) (21,689) 35,377 1,243 17,447 1,162 14,839 686 35,377 These financial statements were approved by the Board of Directors on 8 June 2015 and were signed on its behalf by: J L Foster Director ANNUAL REPORT 201526 Company Balance Sheet AT 31 MARCH 2015 Notes 14 20 18 20 21 22 23 Non-current assets Investment in subsidiaries Loans to subsidiaries Deferred tax Total non-current assets Current assets Trade and other receivables Corporation tax receivable Cash and cash equivalents Total current assets TOTAL ASSETS Current liabilities Interest-bearing loans and borrowings Corporation tax payable Trade and other payables Total current liabilities Net assets 26 Capital and reserves Equity share capital Share premium account Other reserves Retained earnings Total equity 2015 £’000 28,249 1,813 6 30,068 12 27 9,379 9,418 39,486 - - (562) (562) 38,924 1,243 17,447 6,910 13,324 38,924 2014 £’000 29,004 1,952 4 30,960 19 - 9,280 9,299 40,259 (785) (48) (578) (1,411) 38,848 1,243 17,447 6,910 13,248 38,848 These financial statements were approved by the Board of Directors on 8 June 2015 and were signed on its behalf by: J L Foster Director Registered company number: 03416346 FALKLAND ISLANDS HOLDINGS PLCConsolidated Cash Flow Statement FOR THE YEAR ENDED 31 MARCH 2015 27 Cash flows from operating activities Profit for the year Adjusted for: (i) Non-cash items: Depreciation Depreciation of computer software Amortisation Profit on disposal of fixed assets Share of Joint Venture profit Amortisation of loan fees Past service cost of pension scheme Interest cost on pension scheme liabilities Equity-settled share-based payment expenses Non-cash items adjustment (ii) Other items: Bank interest receivable Bank interest payable Finance lease interest payable Gain on disposal of FOGL shares Pension settlement profit Corporation and deferred tax expense Other adjustments Operating cash flow before changes in working capital and provisions Decrease / (increase) in trade and other receivables Decrease / (increase) in inventories (Decrease) / increase in trade and other payables Decrease in provisions and employee benefits Changes in working capital and provisions Cash generated from operations Corporation taxes paid Net cash flow from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of computer software Proceeds from the disposal of property, plant & equipment Proceeds received from the sale of FOGL shares Cash received on transfer of pension scheme Acquisition of a business Loans to Joint Venture Interest received Net cash flow from investing activities 2015 £’000 3,144 1,387 39 142 - (180) 15 - 107 90 1,600 (15) 17 246 (711) - 750 287 5,031 1,733 1,406 (879) (115) 2,145 7,176 (792) 6,384 2014 £’000 2,633 1,116 117 307 (4) (36) 16 45 108 43 1,712 (99) 39 262 - (64) 771 909 5,254 (888) (1,593) 927 (122) (1,676) 3,578 (780) 2,798 (4,597) (4,933) (132) 86 2,287 - (215) 151 15 (2,405) (41) 21 - 46 - (529) 99 (5,337) ANNUAL REPORT 201528 Consolidated Cash Flow Statement CONTINUED FOR THE YEAR ENDED 31 MARCH 2015 (CONTINUED) Cash flow from financing activities Increase in finance leases receivable Repayment of secured loan Bank loan drawn down Interest paid Hire purchase loan drawn down Net cash flows from sale and purchase of Treasury shares Dividends paid Net cash flow from financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year 2015 £’000 (260) (1,391) 701 (17) 132 - (1,424) (2,259) 1,720 5,715 7,435 2014 £’000 (238) (1,396) - (39) - (66) (1,423) (3,162) (5,701) 11,416 5,715 FALKLAND ISLANDS HOLDINGS PLCCompany Cash Flow Statement FOR THE YEAR ENDED 31 MARCH 2015 Notes Cash flows from operating activities Profit for the year Adjusted for: Bank interest receivable Bank interest payable Amortisation of loan fees Equity-settled share-based payment expenses Impairment of investment in Erebus Reversal of loan impairment due to loan repayment in the year by Erebus (1,309) Corporation and deferred tax expense Operating cash flow before changes in working capital and provisions Decrease in trade and other receivables (Decrease) / increase in trade and other payables Changes in working capital and provisions Cash generated from operations Corporation taxes paid Net cash flow from operating activities Cash flow from financing activities Repayment of inter-company borrowing Repayment of secured loan Interest received Interest paid Net cash flows from sale and purchase of Treasury shares Dividends paid Net cash flow from financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents at end of year (1) 958 7 (16) (9) 949 (76) 873 1,448 (800) 12 (10) - (1,424) (774) 99 9,280 9,379 29 2015 £’000 2014 £’000 1,410 1,632 (12) 10 15 55 790 (95) 26 16 7 129 - 72 1,787 2 57 59 1,846 (75) 1,771 (825) (800) 95 (26) (66) (1,423) (3,045) (1,274) 10,554 9,280 ANNUAL REPORT 201530 Consolidated Statement of Changes in Shareholders’ Equity FOR THE YEAR ENDED 31 MARCH 2015 Balance at 1 April 2013 Profit for the year Share-based payments Net Treasury share movements Dividends Change in fair value of shares in Falkland Oil and Gas Limited Remeasurement of the defined benefit pension liability, net of tax Balance at 31 March 2014 Profit for the year Share based payments Dividends Transfer to the income statement on sale of shares in Falkland Oil and Gas Limited Change in fair value of shares in Falkland Oil and Gas Limited Remeasurement of the defined benefit pension liability, net of tax Equity share capital £’000 Share premium account £’000 Other reserves £’000 Retained earnings £’000 Financial assets fair value reserve £’000 Total equity £’000 1,243 17,447 1,162 13,612 815 34,279 - - - - - - - - - - - - - - - 2,633 43 (126) (1,423) - - - 2,633 43 (126) (1,423) - (129) (129) 100 - 100 1,243 17,447 1,162 14,839 686 35,377 - - - - - - - - - - - - - - - - - - 3,144 90 (1,424) - - - - - (419) 225 3,144 90 (1,424) (419) 225 (305) - (305) Balance at 31 March 2015 1,243 17,447 1,162 16,344 492 36,688 FALKLAND ISLANDS HOLDINGS PLCCompany Statement of Changes in Shareholders’ Equity FOR THE YEAR ENDED 31 MARCH 2015 31 Equity share capital £’000 Share premium account £’000 Other reserves £’000 Retained earnings £’000 Total equity £’000 Balance at 1 April 2013 Profit for the year Share-based payments Net Treasury share movements Dividends Balance at 31 March 2014 Profit for the year Share based payments Dividends 1,243 17,447 6,910 13,122 - - - - - - - - - 1,632 43 (126) (1,423) 1,243 17,447 6,910 13,248 - - - - - - - - - 1,410 90 (1,424) (1,424) 38,722 1,632 43 (126) (1,423) 38,848 1,410 90 Balance at 31 March 2015 1,243 17,447 6,910 13,324 38,924 A profit of £1,410,000 (2014: profit: £1,632,000) 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 own profit and loss account. ANNUAL REPORT 201532 Notes to the financial statements 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. 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 32. The financial statements are presented in pounds sterling, rounded to the nearest thousand. They are prepared on the historical cost basis, except for the investment in Falkland Oil and Gas limited, which is stated at 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 Strategic Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are also described in the Managing Director’s Strategic Report. 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. After making enquiries the Directors have a reasonable expectation that the Company and Group have adequate facilities 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. Control is determined by Falklands Islands Holdings exposure or rights, to variable returns from its involvement with the subsidiary and the ability to affect those returns. 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. 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. Investments in subsidiaries 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, changes in the fair value of financial instruments and amortisation of intangible assets on acquisition. FALKLAND ISLANDS HOLDINGS PLC33 1 Accounting Policies CONTINUED Such items arise because of their size or nature, and in 2015 comprise: • Restructuring costs: • The gain on the sale of 7,825,000 Falkland Oil and Gas Limited; and • the amortisation of intangible assets In 2014 these comprised: • The net settlement profit on the disposal of the liabilities in the PHFC pension scheme; and • the 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, except for trucks owned by Momart, which are depreciated on a 33.3% reducing balance basis. 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 under construction are not depreciated. 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, as stated under property, plant and equipment above) and any impairment losses. Joint Ventures Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement and requiring the venturers’ unanimous consent for strategic financial and operating decisions. Falkland Islands Holdings plc has joint control over an investee when it has exposure or rights to variable returns from its involvement with the joint venture and has the ability to affect those returns through its joint power over the entity. Jointly controlled entities are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The consolidated financial statements include the Group’s share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee. Intangible assets Goodwill Goodwill arises on the acquisition of subsidiaries and businesses. ANNUAL REPORT 201534 Notes to the financial statements CONTINUED 1 Accounting Policies CONTINUED 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. 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. 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 indefinite life 6 - 10 years 5 years In the year ended 31 March 2014, the Directors reviewed the life of the brand name at Momart and after considerations of its strong reputation in a niche market and its history of stable earnings and cash flow, which is expected to continue into the foreseeable future, determined that its useful life is indefinite, and amortisation ceased from 1 October 2013. Computer software 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 seven years. Impairment of non-financial assets At each reporting date the Group assesses whether there is any indication that an asset may be impaired. Goodwill and intangible assets with indefinite lives are tested for impairment, at least annually. 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 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 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. Finance income and expense Net financing costs comprise interest payable and interest receivable which 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 classified as available-for-sale The investment in Falkland Oil and Gas Limited is stated at fair value, with any resultant gain or loss being recognised in other comprehensive income and presented in the fair value reserve in equity, except for impairment losses. When these items are derecognised, the cumulative gain or loss previously recognised directly in equity is recycled to the profit and loss. Financial instruments classified as available-for-sale are initially recognised at fair value less directly attributable transaction costs. FALKLAND ISLANDS HOLDINGS PLC35 Employee share awards The Group provides benefits to certain employees (including Directors) in the form of share-based payment transactions, whereby the recipient 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 for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of share options that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market performance vesting conditions, the grant date fair value of the share-based payments is measured to reflect such conditions and there is no true up for differences between expected and actual outcomes. 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 weighted average 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 is 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, which approximates to the point when significant risks and rewards are transferred to the buyer, 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. For fine art exhibition logistical work undertaken, where the costs incurred and the costs to complete the transaction can be measured reliably, the amount of profit attributable to the stage of completion of a contract is recognised on the basis of the incurred percentage of anticipated cost, which in the opinion of the Directors, is the most appropriate proxy for the stage of completion. 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 has one pension scheme providing benefits based on final pensionable pay, which is unfunded and closed to further accrual. The Group’s net obligation in respect of the 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 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 benefit recognised is limited to the present value of any reductions in future contributions to the plan. ANNUAL REPORT 201536 Notes to the financial statements CONTINUED 1 Accounting Policies CONTINUED The current service cost and costs from settlements and curtailments are charged against operating profit. Past service costs are recognised immediately within profit and loss. The net interest cost on the defined benefit liability for the period is determined by applying the discount rate used to measure the defined benefit obligation at the end of the period to the net defined benefit liability at the beginning of the period. It takes into account any changes in the net defined benefit liability during the period as a result of contributions and benefit payments. Remeasurements of the defined benefit pension liability 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 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 or in other comprehensive income. 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: • Goodwill not deductible for tax purposes; and • Initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profits. • Temporary differences related to investments in subsidiaries, to the extent that it is probable that they will not reverse in the foreseeable future. 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. Lease incentives granted are recognised as an integral part of the total rental income. FALKLAND ISLANDS HOLDINGS PLC37 1 Accounting Policies CONTINUED 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. 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. New, amended and revised IFRSs and International Financial Reporting Interpretations Committee pronouncements (“IFRICs”) The following IFRSs and amendments and revisions to IFRSs which were effective for the first time in the year ended 31 March 2015 did not have any material impact on the consolidated financial statements: New IFRSs IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities IAS 27 Separate Financial Statements IAS 28 Investments in Associates and Joint Ventures Amendments and revisions to IFRSs IAS 32 Financial Instruments: Presentation Effective date Periods beginning on or after: 1 January 2014 1 January 2014 1 January 2014 1 January 2014 1 January 2014 Effective date Periods beginning on or after: 1 January 2014 The following amendments and revisions to IFRSs, have been adopted by the EU, and were available for early adoption but have not yet been applied in the preparation of the consolidated financial statements: Amendments and revisions to IFRSs IAS 19 Defined Benefit Plans: Employee Contributions Various Improvements to IFRSs – minor amendments Effective date Periods beginning on or after: 1 February 2015 various The Directors do not anticipate that the adoption of these new IFRSs and amendments and revisions to IFRSs will have a material impact on the consolidated financial statements in the period of initial application. ANNUAL REPORT 201538 Notes to the financial statements CONTINUED 2. Segmental Information Analysis The Group is organised into three operating segments, and information on these segments is reported to the chief operating decision maker (‘CODM’) for the purposes of resource allocation and assessment of performance. The CODM has been identified as the Board of Directors. The operating segments offer different products and services and are determined by business type: goods and essential services in the Falkland Islands, the provision of ferry services and art logistics and storage. 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 and any other assets purchased through the acquisition of a business. FALKLAND ISLANDS HOLDINGS PLC39 2 Segmental Information Analysis CONTINUED 2015 Revenue Segment operating profit before tax, amortisation & non-trading items Board restructuring costs Gain on the sale of 7,825,000 FOGL shares Amortisation Segment operating profit Share of result of joint venture Profit before net financing costs Interest income Interest expense Segment profit before tax Assets and liabilities Segment assets Segment liabilities Segment net assets Other segment information Capital expenditure: Property, plant and equipment Investment properties Computer software Total Capital Expenditure Depreciation: Property, plant and equipment Investment properties Computer software Total Depreciation Amortisation of intangible assets on acquisition of Momart Underlying profit before tax Segment operating profit Share of results of joint venture Underlying profit before net financing costs Interest income Interest expense Underlying profit before tax General trading (Falklands) £’000 18,506 1,312 - - - 1,312 180 1,492 177 (113) 1,556 26,439 (9,737) 16,702 2,090 508 - 2,598 541 211 - 752 - 1,312 180 1,492 177 (113) 1,556 Ferry Services (Portsmouth) £’000 Art logistics and storage (UK) £’000 Unallocated £’000 4,301 1,032 - - - 1,032 - 1,032 3 (239) 796 15,937 (7,277) 8,660 1,483 - - 1,483 349 - - 349 - 1,032 - 1,032 3 (239) 796 15,753 1,239 - - (142) 1,097 - 1,097 7 (39) 1,065 13,785 (3,452) 10,333 516 - 132 648 286 - 39 325 142 1,239 - 1,239 7 (39) 1,207 - - (234) 711 - 477 - 477 - - 477 1,512 (519) 993 - - - - - - - - - - - - - - - Total £’000 38,560 3,583 (234) 711 (142) 3,918 180 4,098 187 (391) 3,894 57,673 (20,985) 36,688 4,089 508 132 4,729 1,176 211 39 1,426 142 3,583 180 3,763 187 (391) 3,559 Unallocated Assets and Liabilities The £1,512,000 (2014: £3,293,000) unallocated assets above include the Group’s investment in Falkland Oil and Gas of £1,500,000 (2014: £3,270,000), together with £12,000 (2014: £23,000) of prepayments held in Falkland Islands Holdings plc. The £519,000 (2014: £595,000) unallocated liabilities above consist of accruals and tax balances held in Falkland Islands Holdings plc. ANNUAL REPORT 2015 40 Notes to the financial statements CONTINUED 2 Segmental Information Analysis CONTINUED 2014 Revenue Segment operating profit before tax, amortisation & non-trading items Pension settlement profit Amortisation Segment operating profit Share of result of joint venture Profit before net financing costs Interest income Interest expense Segment profit before tax Assets and liabilities Segment assets Segment liabilities Segment net assets Other segment information Capital expenditure: Property, plant and equipment Investment properties Computer software Total Capital Expenditure Depreciation: Property, plant and equipment Investment properties Computer software Total Depreciation Amortisation of intangible assets on acquisition of Momart Underlying profit before tax Segment operating profit Share of results of joint venture Underlying profit before net financing costs Interest income Interest expense Underlying profit before tax General trading (Falklands) £’000 Ferry Services (Portsmouth) £’000 Art logistics and storage (UK) £’000 Unallocated £’000 15,881 4,124 18,258 977 1,013 1,826 - - 977 36 1,013 211 (108) 1,116 24,432 (8,950) 15,482 2,057 658 - 2,715 429 48 - 477 - 977 36 1,013 211 (108) 1,116 - - 1,013 - 1,013 3 (246) 770 14,809 (6,541) 8,268 1,958 - - 1,958 332 - - 332 - 1,013 - 1,013 3 (246) 770 - (307) 1,519 - 1,519 6 (71) 1,454 14,532 (5,603) 8,929 260 - 41 301 307 - 117 424 307 1,826 - 1,826 6 (71) 1,761 Total £’000 38,263 3,816 64 (307) 3,573 36 3,609 220 (425) 3,404 - - 64 - 64 - 64 - - 64 3,293 (595) 2,698 57,066 (21,689) 35,377 - - - - - - - - - - - - - - 4,275 658 41 4,974 1,068 48 117 1,233 307 3,816 36 3,852 220 (425) 3,647 FALKLAND ISLANDS HOLDINGS PLC 41 3. Geographical analysis The tables below analyse revenue and other information by geography: 2015 Revenue (by source) Assets and Liabilities Non-current segment assets, excluding deferred tax and the investment in Falkland Oil and Gas Limited Capital expenditure 2014 Revenue (by source) Assets and Liabilities Non-current segment assets, excluding deferred tax and the investment in Falkland Oil and Gas Limited Capital expenditure 4. Revenue Sale of goods Rendering of services Total revenue United Kingdom £’000 20,054 24,692 2,131 Falkland Islands £’000 18,506 11,950 2,598 United Kingdom £’000 22,382 Falkland Islands £’000 15,881 23,377 2,259 9,823 2,715 2015 £’000 12,584 25,976 38,560 Total £’000 38,560 36,642 4,729 Total £’000 38,263 33,200 4,974 2014 £’000 11,701 26,562 38,263 5. Amortisation of intangible assets acquired on purchase of Momart, and non-trading items Amortisation charge on Momart intangible assets acquired Profit before tax as reported Board restructuring costs Gain on the sale of 7,825,000 FOGL shares Amortisation Net settlement profit on the transfer of the PHFC pension scheme Total amortisation and non-trading items Underlying profit before tax 2015 £’000 (142) 3,894 234 (711) 142 - (335) 3,559 2014 £’000 (307) 3,404 - - 307 (64) 243 3,647 A £75,000 tax credit has been included in the Group’s income statement in respect of the £335,000 non-trading items for the year ending 31 March 2015. This has been calculated as the £28,000 credit on the amortisation of the non-trading intangible assets, and the tax deductibility at 21% of the £234,000 Board restructuring costs, excluding the accelerated charge for share options, which the Remuneration Committee deemed to vest on the date of retirement. No tax charge has arisen on the £711,000 gain on the sale of the 7,825,000 shares in Falkland Oil and Gas Limited. ANNUAL REPORT 201542 Notes to the financial statements CONTINUED 6. Expenses and auditor’s remuneration The following expenses / (incomes) have been included in the profit and loss Group Company Direct operating expenses of rental properties Depreciation Depreciation of computer software Amortisation of intangible assets Foreign currency differences Impairment loss on trade and other receivables Cost of inventories recognised as an expense Operating lease payments Auditor’s remuneration Audit of these financial statements Other taxation services Audit of subsidiaries’ financial statements pursuant to legislation Total auditor’s remuneration 2015 £’000 142 1,237 39 142 (60) 16 9,853 864 2014 £’000 131 1,116 117 307 (50) (44) 9,025 822 2015 £’000 2014 £’000 - - - - - - - - - - - - - - - - 2015 £’000 2014 £’000 30 4 62 96 25 4 61 90 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 Falkland Islands; in Stanley in UK Art logistics & storage Head office Total average staff numbers Number of employees Group Number of employees Company 2015 £’000 2014 £’000 2015 £’000 2014 £’000 40 180 5 131 6 362 38 142 5 121 5 311 - - - - 6 6 - - - - 5 5 FALKLAND ISLANDS HOLDINGS PLC43 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 2015 £’000 2014 £’000 11,307 10,490 90 901 274 43 910 243 12,572 11,686 2015 £’000 761 55 72 9 897 2014 £’000 638 7 80 8 733 Details of audited Directors’ remuneration are provided in the Directors’ Report, under the heading ‘Details of Directors’ Remuneration and Emoluments and Directors’ interests in shares’. 8. Finance income and expense Bank interest receivable Finance lease interest receivable Total financial income Interest payable on bank loans Net interest cost on the FIC defined benefit pension scheme liabilities Amortisation of loan fees Finance lease interest payable Unwinding of deferred consideration payable Total finance expense 2015 £’000 15 172 187 2015 £’000 (17) (107) (15) (246) (6) (391) 2014 £’000 99 121 220 2014 £’000 (39) (108) (16) (262) - (425) ANNUAL REPORT 201544 Notes to the financial statements CONTINUED 9. Taxation Recognised in the income statement Current tax expense Current year Adjustments for prior years Current tax expense Deferred tax expense Origination and reversal of temporary differences Reduction in tax rate Adjustments for prior years Deferred tax expense / (credit) Total tax expense Reconciliation of the effective tax rate Profit on ordinary activities before tax Tax using the UK corporation tax rate of 21% (2014: 23%) Expenses not deductible for tax purposes Gain on disposal of investment Marginal relief Effect of higher tax rate overseas Difference in the rate of deferred tax Income from joint ventures Adjustments to tax charge in respect of previous periods Total tax expense Tax recognised directly in other comprehensive income 2015 £’000 2014 £’000 323 77 400 412 - (62) 350 750 2015 £’000 3,894 818 124 (149) (1) 13 (32) (38) 15 750 801 34 835 47 (136) 25 (64) 771 2014 £’000 3,404 783 78 - - (5) (136) (8) 59 771 Deferred tax credit / (expense) recognised directly in other comprehensive income 2015 £’000 107 2014 £’000 (35) Reductions in the UK corporation tax rate from 23% to 21% (effective 1 April 2014) and to 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. This will reduce the company’s future current tax charge accordingly. The deferred tax assets and liabilities in the United Kingdom at 31 March 2015 have been calculated based on the rate of 20% substantively enacted at the balance sheet date. The deferred tax assets and liabilities in the Falkland Islands have been calculated at the Falklands tax rate of 26%. FALKLAND ISLANDS HOLDINGS PLC45 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 in Treasury and 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 in Treasury Less: shares held under the ESOP 2015 £’000 3,144 2014 £’000 2,633 2015 Number 2014 Number 12,431,623 12,431,623 (18,381) (28,016) (12,764) (37,785) Average number of shares in issue excluding the ESOP and shares held in Treasury 12,385,226 12,381,074 Maximum dilution with regards to share options Diluted weighted average number of shares Basic earnings per share Diluted earnings per share 60,871 79,911 12,446,097 12,460,985 2015 25.4p 25.3p 2014 21.3p 21.1p To provide a comparison of earnings per share on underlying performance, the calculation below sets out basic and diluted earnings per share based on underlying profits. Earnings per share on underlying profit Underlying profit before tax (see note 5) Taxation Underlying profit after tax Effective tax rate 2015 £’000 3,559 (825) 2,734 2014 £’000 3,647 (901) 2,746 23.2% 24.7% Weighted average number of shares in issue excluding Treasury share and the ESOP (from above) 12,385,226 12,381,074 Diluted weighted average number of shares (from above) 12,446,097 12,460,985 Basic earnings per share on underlying profit Diluted earnings per share on underlying profit 22.1p 22.0p 22.2p 22.0p ANNUAL REPORT 201546 Notes to the financial statements CONTINUED 11 Intangible assets Cost: At 1 April 2013 Additions Transfer from plant and machinery At 31 March 2014 Goodwill arising on acquisition of a business (note 31) Additions Disposals At 31 March 2015 Accumulated amortisation: At 1 April 2013 Depreciation of computer software Amortisation for the year At 31 March 2014 Depreciation of computer software Amortisation of other intangibles for the year Disposals At 31 March 2015 Net book value: At 1 April 2013 At 31 March 2014 At 31 March 2015 Computer Software £’000 Customer relationships £’000 Brand names £’000 Non-compete agreements £’000 Goodwill £’000 Total £’000 - 41 306 347 - 132 - 479 - 117 117 39 - - 156 - 230 323 1,882 2,823 - - - - 1,882 2,823 - - (608) 1,274 1,232 - 236 1,468 - 142 (608) 1,002 650 414 272 - - - 2,823 715 - 70 785 - - - 785 2,108 2,038 2,038 72 - - 72 - - (72) - 71 - 1 72 - - (72) - 1 - - 11,539 16,316 - - 41 306 11,539 16,663 37 - - 11,576 1,983 - - 1,983 - - - 1,983 9,556 9,556 9,593 37 132 (680) 16,152 4,001 117 307 4,425 39 142 (680) 3,926 12,315 12,238 12,226 Amortisation and impairment charges are recognised in operating expenses in the income statement. Customer relationships are ongoing 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. Prior to 1 October 2013, the Momart brand name was amortised over 20 years, however following a review of the economic life, the brand name has been determined to have an indefinite life. It is reviewed annually for impairment as part of the art logistics and storage review. Non-compete agreements are contractual 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: At 1 April 2013 At 31 March 2014 At 31 March 2015 Art logistics and storage £’000 Ferry Services (Ports-mouth) £’000 Falklands Islands £’000 5,577 5,577 5,577 3,979 3,979 3,979 - - 37 Total £’000 9,556 9,556 9,593 FALKLAND ISLANDS HOLDINGS PLC 47 11 Intangible assets CONTINUED Impairment The Group tests material goodwill annually for impairment or more frequently if there are indications that goodwill and / or indefinite life assets 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 and indefinite life intangibles for each CGU was separately assessed and tested for impairment, with no impairment charges resulting (2014: nil). As part of testing goodwill and indefinite life intangibles for impairment, 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 2015 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, the cash flows of the Art Logistics and Storage CGU have been discounted using a pre-tax discount rate of 13.7% (2014: 13.7%), and the cash flows of the Ferry Services have been discounted using a pre-tax discount rate of 12.4% (2014: 12.5%). Management have determined that each 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. Long term growth rates Long term growth rates of 2% over up to fifty years 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. For both Ferry Services and Art Logistics and Storage, the future cash flows are based on the latest budgets and business plans, which take account of known business conditions, and are therefore consistent with past experience. Other assumptions Other assumptions used within impairment testing models include an estimation of long term effective tax rate for the CGUs. The long-term effective rate of tax assumption is consistent with current tax rates. 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 (2014: £nil). 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. The key assumptions made in the estimation of future cash flows are the passenger numbers and the average revenue per passenger. 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 over the forecast period, with a long term growth rate of 2%. The carrying value of the unit was determined to not be higher than its recoverable amount and no impairment was recognised (2014: nil). 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. The key assumptions made in the estimation of future cash flows are in relation to revenue. ANNUAL REPORT 201548 Notes to the financial statements CONTINUED 12 Property, plant and equipment Cost: At 1 April 2013 Additions in year Transfer to computer software Disposals At 31 March 2014 Additions in year Acquired on purchase of a business (note 31) Disposals At 31 March 2015 Accumulated depreciation: At 1 April 2013 Charge for the year Disposals At 31 March 2014 Charge for the year Disposals At 31 March 2015 Net book value: At 1 April 2013 At 31 March 2014 At 31 March 2015 Freehold Land & buildings £’000 Long leasehold Land and buildings £’000 4,344 1,336 - (140) 5,540 1,243 170 (9) 6,449 166 - - 6,615 480 - - Group Ships £’000 3,533 1,825 - - 5,358 1,344 - - 6,944 7,095 6,702 Vehicles, plant and equipment £’000 7,674 948 (306) (155) 8,161 1,022 15 (585) 8,613 1,762 95 (138) 1,719 119 (9) 669 196 - 865 202 - 1,092 4,752 140 - 637 (140) 1,232 5,249 - - 855 (499) 1,829 1,067 1,232 5,605 2,582 3,821 5,115 5,780 5,750 6,028 2,441 4,126 5,470 2,922 2,912 3,008 Total £’000 22,000 4,275 (306) (295) 25,674 4,089 185 (594) 29,354 8,275 1,068 (278) 9,065 1,176 (508) 9,733 13,725 16,609 19,621 The Company has no tangible fixed assets. At 31 March 2015 the net carrying amount of leased long leasehold land and buildings and vehicles, plant and equipment was £4,584,000 and £328,000 for the Gosport Pontoon and trucks at Momart respectively, (2014: £4,683,000 and £302,000). During the year to 31 March 2015 the Group acquired one truck for Momart, which was purchased for £175,000, and financed with a £132,000 finance lease, and ten mobile homes for staff rentals were purchased by FIC at a total cost of £366,000 and installed on land leased from the Falkland Islands government. During the year to 31 March 2014 the Group acquired no leased assets At 31 March 2015, the group had entered into contractual commitments of £141,000 for trucks at Momart. At 31 March 2014 the Group had a capital commitment of £130,000 to purchase a truck at Momart and a commitment of £837,000 for the acquisition of the new vessel for Portsmouth. £1,273,000 has been included within Freehold properties above in respect of the new warehouse under construction in the Falklands, and £79,000 has been included within plant and machinery of assets under construction for ticket vending machines for the Ferry. At March 2014 £1,873,000 of assets under construction was included in the cost of ships in respect of the new vessel, which was delivered in 31 March 2015. FALKLAND ISLANDS HOLDINGS PLC49 Group Residential and commercial property £’000 Freehold land £’000 Total £’000 2,244 658 2,902 508 50 3,460 231 48 279 211 490 2,013 2,623 2,970 773 - 773 - (50) 723 - - - - - 773 773 723 3,017 658 3,675 508 - 4,183 231 48 279 211 490 2,786 3,396 3,693 13 Investment properties Cost: At 1 April 2013 Additions in year At 31 March 2014 Additions in year Transferred on development of land At 31 March 2015 Accumulated depreciation: At 1 April 2013 Charge for the year At 31 March 2014 Charge for the year At 31 March 2015 Net book value: At 1 April 2013 At 31 March 2014 At 31 March 2015 The investment properties comprise residential and commercial property held for rental in the Falkland Islands. Investment properties include 400 acres, including 70 acres of land in Stanley, 58 acres of which have planning permission. In addition, the Group has 300 acres of land at Fairy Cove, adjacent to the site of the possible deep water port at Port William. These investment properties held by FIC have been reviewed by a Director of FIC who is resident in the Falkland Islands and is considered to have the relevant knowledge and experience to undertake the valuation. At 31 March 2015 the fair value of this property portfolio was estimated at £7.3 million (31 March 2014: £6.3 million) including development land valued at £2.2 million (2014: £2.2 million). As oil development proceeds, the value of these properties is expected to increase significantly. During the year to 31 March 2015, the Group received rental income of £355,000 (2014: £221,000) on these properties. At 31 March 2015 no investment properties were under construction (2014: £199,000). The Company does not own any investment properties. ANNUAL REPORT 201550 Notes to the financial statements CONTINUED 14 Investment in subsidiaries Country of incorporation Class of shares held Ownership at 31 March 2015 Ownership at 31 March 2014 The Falkland Islands Company Limited UK Ordinary shares of £1 100% 100% Preference shares of £10 100% 100% The Falkland Islands Trading Company Limited UK Ordinary shares of £1 100% 100% Falkland Islands Shipping Limited* Falkland Islands Ordinary shares of £1 100% 100% Erebus Limited* Falkland Islands Ordinary shares of £1 100% 100% Paget Limited* Falkland Islands Ordinary shares of £1 100% 100% Preference shares of £1 100% 100% The Portsmouth Harbour Ferry Company Limited Portsea Harbour Company Limited* Clarence Marine Engineering Limited* Gosport Ferry Limited* Momart International Limited Momart Limited* Dadart Limited* UK UK UK UK UK UK UK Ordinary shares of £1 100% 100% Ordinary shares of £1 100% 100% Ordinary shares of £1 100% 100% Ordinary shares of £1 100% 100% Ordinary shares of £1 100% 100% Ordinary shares of £1 100% 100% Ordinary shares of £1 100% 100% *These investments are not held by the Company but are indirect investments held through a subsidiary of the Company. Balance brought forward Impairment of investment in Erebus Cost of share based payments capitalised into subsidiaries Total investments in Group undertaking Company 2015 £’000 2014 £’000 29,004 29,097 (790) 35 (129) 36 28,249 29,004 The Company’s investment in Erebus Limited comprises the Group’s shareholding in Falkland Oil and Gas Limited (see Note 15). The Company’s investment in Erebus is held at impaired cost, and in the year to 31 March 2015, this investment has been impaired by £790,000 due to the disposal of the 7,825,000 shares in Falkland Oil and Gas, and the resulting fall in the investment, however this loss has been offset by the £1,309,000 reversal of an impairment of a loan due from Erebus to Falkland Islands Holdings plc, as this was repaid in the year from the proceeds received on the disposal. FALKLAND ISLANDS HOLDINGS PLC51 15 Shares held in Falkland Oil and Gas Limited Fair value of shares held in Falkland Oil and Gas Limited £’000 Falkland Oil and Gas Limited share price at 31 March Shareholding at 31 March (number of shares) Group interest in Falkland Oil and Gas Limited Historic cost of shareholding to the Group (£’000) Historic cost per share to the Group 16. Investment in Joint Ventures 2015 £’000 1,500 30.0p 2014 £’000 3,270 25.5p 5,000,000 12,825,000 0.9% 1,008 20p 2.4% 2,586 20p The Group has one joint venture (South Atlantic Construction Company Limited, “SAtCO” ), which was set up in June 2012, with Trant Construction to bid for the larger infrastructure contracts which are expected to be generated by oil activity. Both Trant Construction and the Falkland Islands Company contributed £50,000 of ordinary share capital. SAtCO is registered and operates in the Falkland Islands. Joint Venture’s balance sheet Fixed assets Current assets Liabilities due in less than one year Liabilities due in greater than one year Net assets of SAtCO Group share of net assets Joint Venture’s results Revenue Cost of sales Administrative expenses Operating profit for the year Taxation Group share of results for the year Group share of results for the year 2015 £’000 962 1,020 (390) 2014 £’000 1,056 586 (384) (1,060) (1,086) 532 266 2015 £’000 591 (95) (10) 486 (126) 360 180 172 86 2014 £’000 108 - (8) 100 (28) 72 36 There were no recognised gains or losses, other than the profits disclosed above for the year ended 31 March 2015 (2014: none). £95,000 of depreciation was charged in the year ended 31 March 2015 (2014: none). The current assets balances above include £425,000 of cash (2014: £241,000). The liabilities due in less than one year are all trade payables. The liabilities due in greater than one year include loans to the parent companies of £907,000 (2014: £1,058,000). SAtCO had no contingent liabilities or capital commitments as at 31 March 2015 or 31 March 2014 and the Group had no contingent liabilities or commitments in respect of its joint venture at 31 March 2015 or 31 March 2014. ANNUAL REPORT 2015 52 Notes to the financial statements CONTINUED 17 Finance leases receivable Finance lease receivables relate to finance leases on the sale of vehicles and customer goods. No allowances for uncollectable 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 2015 £’000 458 647 1,105 2014 £’000 342 503 845 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 £110,000 (2014: £84,000). The cost of assets acquired for the purpose of letting under hire purchase agreements by the Group during the year amounted to £881,000 (2014: £868,000). The aggregate rentals receivable during the year in respect of hire purchase agreements were £793,000 (2014: £700,000). Gross investment in hire purchase leases Present value of future lease payments due: Within one year Within two to five years Group 2015 £’000 1,215 647 458 1,105 2014 £’000 930 503 342 845 FALKLAND ISLANDS HOLDINGS PLC53 18 Deferred tax assets and liabilities Recognised deferred tax assets and (liabilities) Property, plant & equipment Intangible assets Inventories Other financial liabilities Share-based payments Tax losses Total net deferred tax liabilities Deferred tax asset arising on the defined benefit pension liabilities Net tax liabilities Group 2015 £’000 (1,669) (462) 15 50 10 69 (1,987) 750 (1,237) 2014 £’000 (1,373) (490) 62 75 27 60 (1,639) 645 (994) The deferred tax asset on the defined benefit pension scheme (see note 24) arises under the Falkland Islands tax regime and has been presented on the face of the consolidated balance sheet as a non-current asset as it is expected to be realised over a relatively long period of time. 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 Movement in deferred tax in the year Property, plant & equipment Intangible assets Inventories Other financial liabilities Share-based payments Tax losses Pension Deferred tax movements Company 2015 £’000 6 6 2014 £’000 4 4 31 March 2015 £’000 (1,669) (462) 15 50 10 69 - - - - - - 107 107 750 (1,237) Group 1 April 2014 £’000 Recognised in income £’000 Recognised in equity £’000 (1,373) (490) 62 75 27 60 645 (994) (296) 28 (47) (25) (17) 9 (2) (350) ANNUAL REPORT 201554 Notes to the financial statements CONTINUED 18 Deferred tax assets and liabilities CONTINUED Unrecognised deferred tax assets Deferred tax assets of £113,000 (2014: £113,000) in respect of capital losses have not been recognised as it is not considered probable that there will be suitable chargeable gains in the foreseeable future from which the underlying capital losses will reverse. Movement in deferred tax in the year Company 1 April 2014 £’000 Recognised in income £’000 Recognised in equity £’000 31 March 2015 £’000 Other temporary difference Deferred tax asset movements 4 4 Movement in deferred tax in the prior year Property, plant & equipment Intangible assets Inventories Other financial liabilities Share-based payments Tax losses Pension Deferred tax movements - - 6 6 2 2 Group 1 April 2013 £’000 Recognised in income £’000 Recognised in equity £’000 31 March 2014 £’000 (1,254) (635) 96 54 45 - 671 (1,023) (119) 145 (34) 21 (18) 60 9 64 - - - - - - (35) (35) (1,373) (490) 62 75 27 60 645 (994) Movement in deferred tax in the prior year Company Other temporary difference Deferred tax asset movements 1 April 2013 £’000 Recognised in income £’000 Recognised in equity £’000 31 March 2014 £’000 4 4 - - - - 4 4 FALKLAND ISLANDS HOLDINGS PLC55 19 Inventories Work in progress Goods in transit Goods for resale Total Inventories Goods in transit are retail goods in transit to the Falkland Islands. The Company has no inventories. 20 Trade and other receivables Non-current Amount owed by subsidiary undertakings Current Trade and other receivables Prepayments and accrued income Total trade and other receivables 21 Cash and cash equivalents Group 2015 £’000 715 556 4,120 5,391 2014 £’000 852 1,492 4,348 6,692 Company 2015 £’000 1,813 2014 £’000 1,952 Group Company 2015 £’000 4,512 796 5,308 2014 £’000 5,601 1,440 7,041 2015 £’000 - 12 12 2014 £’000 - 19 19 Cash and other cash equivalents in the balance sheet Group Company 2015 £’000 7,435 2014 £’000 5,715 2015 £’000 9,379 2014 £’000 9,280 ANNUAL REPORT 201556 Notes to the financial statements CONTINUED 22 Interest-bearing loans and borrowings This note provides information about the contractual terms of the Group and the 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 Total liabilities Secured bank loans Finance lease liabilities Total interest bearing loans and borrowings Group Company 2015 £’000 598 4,982 5,580 137 156 293 735 5,138 5,873 2014 £’000 34 5,027 5,061 985 124 1,109 1,019 5,151 6,170 2015 £’000 2014 £’000 - - - - - - - - - - - - 785 - 785 785 - 785 Finance lease liabilities Future minimum lease payments Interest Present value of minimum lease payments Less than one year Between one and two years Between two and five years More than five years Total Net debt 2015 £’000 395 350 852 2014 £’000 366 366 850 10,725 12,322 10,985 12,567 2015 £’000 239 233 680 6,032 7,184 2014 £’000 242 235 684 6,255 7,416 2015 £’000 156 117 172 4,693 5,138 2014 £’000 124 131 166 4,730 5,151 Total interest-bearing loans and borrowings less: cash balances (see note 21) Net (cash) / debt Group Company 2015 £’000 5,873 (7,435) (1,562) 2014 £’000 6,170 (5,715) 455 2015 £’000 - (9,379) (9,379) 2014 £’000 785 (9,280) (8,495) FALKLAND ISLANDS HOLDINGS PLC57 23 Trade and other payables Current Trade payables Other creditors, including taxation and social security Accruals and deferred income Total trade and other payables 24 Employee benefits: pension plans Group Company 2015 £’000 5,398 1,368 3,448 2014 £’000 6,817 756 3,408 10,214 10,981 2015 £’000 - 109 453 562 2014 £’000 - 172 406 578 The Group operates three defined contribution pension schemes. In addition it also operated two defined benefit pension schemes, both of which have been closed to new members and to future accrual. In March 2013 the Group transferred all liabilities in respect of the Portsmouth Harbour defined benefit scheme to Legal and General. The FIC unfunded defined benefit pension scheme had 19 pensioners (2014: 20) receiving benefits from this scheme, and three deferred members (2014: three). The weighted average duration of the expected benefit payments from the Scheme is around 16 years (2014: 15). Defined contribution schemes The pension cost charge for the year represents contributions payable by the Group to the schemes and amounted to £274,000 (2014: £243,000). The Group anticipates paying contributions amounting to £290,000 during the year ending 31 March 2015. There were £75,000 outstanding contributions due to pension schemes at 31 March 2015. Defined benefit pension schemes A summary of the fair value of the net pension scheme deficit is set out below: Pension scheme deficit: The Falkland Islands Company Limited Scheme Deferred tax asset Net pension scheme deficit Group 2015 £’000 (2,884) 750 (2,134) 2014 £’000 (2,480) 645 (1,835) ANNUAL REPORT 201558 Notes to the financial statements CONTINUED 24 Employee benefits: pension plans CONTINUED The 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. Actuarial reports for IAS 19 purposes as at 31 March 2015, 2014, 2013, 2012 and 2011 were prepared by a qualified independent actuary, Lane Clark and Peacock LLP. The major assumptions used in the 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 Average longevity at age 65 for male current and deferred pensioners (years) at accounting date Average longevity at age 65 for male current and deferred pensioners (years) 20 years after accounting date 2015 2.3% 3.0% 3.2% 3.0% 22.6 24.7 2014 2.6% 3.0% 4.3% 3.4% 22.4 24.6 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. Sensitivity Analysis The calculation of the defined benefit liability is sensitive to the assumptions set out above. The following table summarises how the impact of the defined benefit liability at 31 March 2015 would have increased / (decreased) as a result of a change in the respective assumptions by 0.1% Discount rate +/- 0.1% Inflation assumption +/- 0.1% Life expectancy +/- one year Effect on obligation 2015 £’000 46 (9) (126) 2014 £’000 38 (8) (100) These sensitivities have been calculated to show the movement in the defined benefit obligation in isolation, and assume no other changes in market conditions at the accounting date. Scheme liabilities The present values of the scheme’s liabilities, which are derived from cash flow projections over long periods and thus inherently uncertain, were: Present value of scheme liabilities Related deferred tax assets Net pension liability Value at 2015 £’000 (2,884) 750 (2,134) 2014 £’000 2013 £’000 2012 £’000 2011 £’000 (2,480) (2,584) (2,411) (2,107) 645 671 579 548 (1,835) (1,913) (1,832) (1,559) FALKLAND ISLANDS HOLDINGS PLC59 24 Employee benefits: pension plans CONTINUED Movement in deficit during the year: Deficit in scheme at beginning of the year Pensions paid Past service cost Other finance cost Remeasurement of the defined benefit pension liability Deficit in scheme at the end of the year Analysis of amounts included in other finance costs Interest on pension scheme liabilities Analysis of amounts recognised in statement of comprehensive income: Experience gains arising on scheme liabilities Changes in assumptions underlying the present value of scheme liabilities Remeasurement of the defined benefit pension liability 2015 £’000 (2,480) 115 - (107) (412) 2014 £’000 (2,584) 122 (45) (108) 135 (2,884) (2,480) 2015 £’000 (107) 2015 £’000 76 (488) (412) 2014 £’000 (108) 2014 £’000 20 115 135 History of experience gains and losses: 2015 2014 2013 2012 2011 Experience gains / (losses) arising 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 scheme liabilities Payment to pensioners 76 (2.6%) (412) 14.3% 115 20 (34) (30) (7) (0.8%) 1.3% 1.2% 0.3% 135 (173) (289) (82) (5.4%) 6.7% 12.0% 3.9% 122 111 98 98 ANNUAL REPORT 201560 Notes to the financial statements CONTINUED 25 Employee benefits: share based payments The following options were outstanding at 31 March 2015 Date of Issue 14 June 05 14 June 05 14 June 05 7 Aug 07 4 Dec 07 3 Apr 08 8 Apr 09 15 Jul 09 15 Jul 09 9 Dec 09 21 Dec 10 28 Apr 11 27 Jun 11 16 Dec 11 13 Aug 12 13 Aug 12 27 Nov 13 2 Dec 13 3 Sep 14 19 Jan 15 Exercise Price Share price at grant date Fair value per share Total fair value Earliest Exercise Latest Exercise Number 42,500 14,117 49,411 27,517 12,500 3,781 57,719 43,674 54,550 21,500 41,000 6,390 18,281 138,190 61,881 76,700 29,810 9,523 13,154 5,000 727,198 pence 425.0 425.0 425.0 330.0 319.0 365.0 207.5 290.0 290.0 390.0 342.5 313.0 302.5 267.5 404.0 404.0 369.0 367.5 353.5 272.5 pence 425.0 425.0 425.0 332.5 340.0 375.0 207.5 290.0 290.0 397.5 337.5 313.0 303.5 261.5 404.0 404.0 369.0 367.5 353.5 272.5 pence 166.0 214.0 214.0 73.0 119.0 131.0 56.0 72.0 72.0 145.0 124.0 106.0 94.0 68.0 92.0 92.0 109.0 109.0 100.0 63.0 £ date date 70,550 14 Jun 08 13 Jun 15 30,210 14 Jun 08 13 Jun 15 105,740 14 Jun 08 13 Jun 15 20,087 7 Aug 10 6 Aug 17 14,875 4 Dec 10 3 Dec 17 4,953 3 Apr 11 2 Apr 18 32,323 8 Apr 12 7 Apr 19 31,445 15 Jul 12 4 Aug 15 39,276 15 Jul 12 14 Jul 19 31,175 9 Dec 12 8 Dec 19 50,840 21 Dec 13 20 Dec 20 6,773 28 Apr 14 27 Apr 21 17,184 27 Jun 14 26 Jun 21 93,969 16 Dec 14 15 Dec 21 56,931 9 Feb 15 4 Aug 15 70,564 13 Aug 15 12 Aug 22 32,493 27 Nov 16 26 Nov 23 10,380 02 Dec 16 1 Dec 23 13,154 3 Sep 17 2 Sep 24 3,150 19 Jan 18 18 Jan 25 736,072 The total number of options outstanding at 31 March 2015 was 727,198 (2014: 774,896). A reconciliation of the movement in options is shown below. 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 unvested options. Expected volatility is determined by reference to past performance of the Company’s share price. All options are granted with the condition that the employee remains in employment for three years. Certain option grants also have conditions attached in that increases in earnings per share on underlying profits over the vesting period must exceed the UK Retail price index increase, and options granted to directors of the Company have a condition that the Group’s total shareholder return increase must exceed that of the FTSE AIM All-Share Index over the three year period. Expected Volatility (%) Risk free interest rate (%) Expected life of options (years) Dividend yield (%) Share price at grant date (pence) 27 Nov 13 2 Dec 13 3 Sep 14 19 Jan 15 39 2.09 6.5 3.12 39 2.19 6.5 3.13 38 2.07 6.5 3.25 37 1.23 6.5 4.22 369.0 367.5 353.5 272.5 FALKLAND ISLANDS HOLDINGS PLC61 25 Employee benefits: share based payments (continued) All share options are equity settled. 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 end 31 March 2015 no options (2014: 28,915) were exercised over ordinary shares. The number and weighted average exercise prices of share options are as follows: Outstanding at the beginning of the year Forfeited during the year Exercised during the year Granted during the year Lapsed during the year Outstanding at the year end Vested options exercisable at the year end Weighted average life of outstanding options (years) Weighted average exercise price (£) Number of options Weighted average exercise price (£) Number of options 2015 774,896 (8,160) - 18,154 (57,692) 727,198 593,011 2015 3.49 3.66 - 3.31 5.20 3.35 3.24 4.3 2014 861,344 (96,866) (28,915) 39,333 - 774,896 431,621 2014 3.43 3.45 2.08 3.69 - 3.49 3.59 5.6 The range of exercise prices of outstanding options at 31 March 2015 is from £2.075 (2014: £2.075) to £4.250 (2014: £5.25). Total share based payment expense recognised in the year 26 Capital and reserves Share capital Shares in issue at the start and end of the year Allotted, called up and fully paid Ordinary shares of 10p each 2015 £’000 90 2014 £’000 43 Ordinary Shares 2015 2014 12,431,623 12,431,623 2015 £’000 1,243 2014 £’000 1,243 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 2015 the plan held 28,016 (2014: 28,016) ordinary shares at a cost of £55,005 (2014: £55,005). The market value of the shares at 31 March 2015 was £77,464 (2014: £87,970). Shares held in the ESOP receive a nominal 0.01p per share in each dividend payment, as in prior years. ANNUAL REPORT 201562 Notes to the financial statements CONTINUED 26 Capital and reserves (continued) Treasury shares Following shareholder approval, received at the Company’s Annual General Meeting on 20 August 2013, the Company’s share capital underwent a reorganisation, as a result of which the number of shareholders was reduced from 6,324 to 2,294. The existing ordinary shares were consolidated into ordinary shares of £10 each (“Consolidated Shares”), and the Company purchased the fractional entitlements of Small Shareholders (being those with less than 1 Consolidated Share) created by this consolidation. Following this purchase by the Company, the Consolidated Shares (including those purchased by the Company) were sub-divided into new ordinary shares of 10p each which were admitted to trading on 21 August 2013. The 88,381 new ordinary shares representing the fractional entitlements purchased by the Company were taken into Treasury. On 27 August 2013, 70,000 of the shares held in Treasury were sold for 372.5 pence each. Following this sale, the Company holds 18,381 shares in Treasury. There have been no further movements in the Treasury shares since this date. For more information on share options please see note 25. The other reserves in the Group comprise largely of merger relief arising in connection with the acquisition of Momart International Limited. These have been offset by a recognised impairment of Momart in the year ended 31 March 2009. Dividends The following dividends were recognised in the period Final: 7.5p (2014: Final: 7.5p) per qualifying ordinary share Interim: 4.0p (2014: Final: 4.0p) per qualifying ordinary share 27 Financial instruments (i) Fair values of financial instruments 2015 £’000 929 495 1,424 2014 £’000 928 495 1,423 Investments in equity securities The fair value of the investment in Falkland Oil and Gas Limited is determined by reference to its 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 The fair value of interest-bearing borrowings, 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. FALKLAND ISLANDS HOLDINGS PLC63 27. Financial instruments (continued) The following table shows the carrying value, which is equal to fair value for each category of financial instrument: Investment in Falkland Oil and Gas Limited Cash and cash equivalents Hire purchase debtors Trade and other receivables Total assets exposed to credit risk Financial liabilities at amortised cost Interest-bearing borrowings at amortised cost Group Company 2015 £’000 1,500 7,435 1,105 4,512 13,052 (10,214) (5,873) 2014 £’000 3,270 5,715 845 5,601 12,161 (10,981) (6,170) 2015 £’000 - 9,379 - 12 9,391 (562) - 2014 £’000 - 9,280 - 19 9,299 (578) (785) Available for sale financial assets are valued using a level 1 methodology. All other financial instruments are based on level 3 methodology. (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 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 on-going 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. Exposure to credit risk The carrying amount of financial assets, other than available for sale financial assets represents the maximum credit exposure. Therefore, the maximum exposure to credit risk at the balance sheet date was £13,052,000 (2014: £12,161,000) being the total trade receivables, hire purchase debtors and cash and cash equivalents in the balance sheet. The credit risk on cash balances is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. 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 Group 2015 £’000 1,488 414 433 1,696 481 4,512 2014 £’000 1,540 1,254 383 1,966 458 5,601 ANNUAL REPORT 201564 Notes to the financial statements CONTINUED The Company has no trade debtors Credit quality of financial assets and impairment losses Group Gross Impairment Not past due Past due 0-30 days Past due 31-120 days More than 120 days 2015 £’000 3,473 633 228 399 4,733 2015 £’000 (221) (221) Net 2015 £’000 3,473 633 228 178 Gross Impairment 2014 £’000 3,751 1,237 385 485 4,512 5,858 The movement in the allowances for impairment in respect of trade receivables during the year was: Balance at 1 April 2014 Impairment loss recognised Impairment loss reverse Cash received Utilisation of provision (debts written off) Balance at 31 March 2015 2014 £’000 (257) (257) Group 2015 £’000 257 44 (28) (14) (38) 221 Net 2014 £’000 3,751 1,237 385 228 5,601 2014 £’000 402 85 (100) - (130) 257 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. (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. At the beginning of the period the Group had outstanding bank loans of £1.0 million. All payments during the year with respect to these agreements were met as they fell due, and these facilities were repaid in full in the year to 31 March 2015. In March 2015, a further bank loan of £0.7 million was drawn down. 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. FALKLAND ISLANDS HOLDINGS PLC65 27 Financial instruments CONTINUED Liquidity risk – Group The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effects of netting agreements: 2015 Non-derivative financial instruments Secured bank loans Finance leases Trade and other payables Carrying amount Contract-ual cash flows 1 year or less 1 to 2 years 2 to 5 years 5 years and over £’000 £’000 £’000 £’000 £’000 £’000 735 5,138 10,214 16,087 799 12,322 10,214 23,335 160 395 10,214 10,769 160 350 - 510 479 852 - - 10,725 - 1,331 10,725 2014 Non-derivative financial instruments Secured bank loans Finance leases Trade and other payables Carrying amount Contract-ual cash flows 1 year or less 1 to 2 years 2 to 5 years 5 years and over £’000 £’000 £’000 £’000 £’000 £’000 1,019 5,151 10,981 17,151 1,045 12,567 10,981 24,593 1,010 366 10,981 12,357 35 366 - 401 - 850 - 850 - 10,985 - 10,985 The contractual cash flows for finance leases in the years ended 31 March 2015 and 31 March 2014 are significantly higher than the liability at the year end, as the finance lease for the Gosport pontoon with Gosport Borough Council is a 50 year finance lease with quarterly payments of £65,000 until June 2061. Liquidity risk – Company The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effects of netting agreements: 2015 Non-derivative financial instruments Trade and other payables Carrying amount Contract-ual cash flows 1 year or less 1 to 2 years 2 to 5 years 5 years and over £’000 £’000 £’000 £’000 £’000 £’000 562 562 562 562 562 562 - - - - - - 2014 Non-derivative financial instruments Secured bank loans Trade and other payables Carrying amount Contract-ual cash flows 1 year or less 1 to 2 years 2 to 5 years 5 years and over £’000 £’000 £’000 £’000 £’000 £’000 785 578 810 578 810 578 1,363 1,388 1,388 - - - - - - - - - ANNUAL REPORT 201566 Notes to the financial statements CONTINUED 27 Financial instruments CONTINUED (iv) Market Risk Financial risk management Market risk is the risk that changes in market prices, such as foreign exchange, 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. Group 31 March 2015 EUR £’000 USD £’000 Other £’000 Cash and cash equivalents Trade and other receivables 15 - 102 38 4 - Total Balance sheet exposure £’000 121 38 GBP £’000 7,314 5,270 Total £’000 7,435 5,308 Trade payables and other payables (315) (197) (48) (560) (9,654) (10,214) 31 March 2014 EUR £’000 USD £’000 Other £’000 Total Balance sheet exposure £’000 GBP £’000 Total £’000 Group Cash and cash equivalents Trade payables and other payables 15 (414) 211 (344) 1 (193) 227 (951) 5,488 5,715 (10,030) (10,981) The Company has no exposure to foreign currency risk. 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 year ended 31 March 2014. EUR USD Equity Profit or Loss 2015 £’000 2014 £’000 2015 £’000 2014 £’000 30 6 40 13 30 6 40 13 FALKLAND ISLANDS HOLDINGS PLC67 27 Financial instruments CONTINUED A 10% strengthening of the above currencies against pound sterling at 31 March would have 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 At the balance sheet date the interest rate profile for the Group’s interest-bearing financial instruments was: Fixed rate financial instruments Finance lease receivable Finance lease payable Variable rate financial instruments Financial liabilities Group Company 2015 £’000 2014 £’000 2015 £’000 2014 £’000 1,105 (5,138) (4,033) (735) (735) 845 (5,151) (4,306) (1,019) (1,019) - - - - - - - - (785) (785) The Group has drawn down a loan of £0.7 million in March 2015 secured against the two ferries delivered in 2005 and 2002. This loan is repayable over 5 years at a rate of 2.8% above the Bank of England base rate. On draw down of this loan, the remaining £34,000 of the £0.4 million loan against the Spirit of Portsmouth at 31 March 2014 was extinguished. The Group also had a loan of £0.8 million at 31 March 2014 in respect of the acquisition of Momart International Limited, which was repayable over five years from June 2008 bearing interest at 1.5% above the Bank of England base rate. This loan has been fully repaid in the year ended 31 March 2015. 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 has 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 2014. Equity Decrease Profit or Loss Decrease Group 2015 £’000 (7) (7) 2014 £’000 (10) (10) Company 2015 £’000 2014 £’000 - - (8) (8) Market risk – equity price risk 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 shares held in Falkland Oil and Gas Limited (see note 15). Sensitivity analysis The Group’s available-for-sale financial asset comprises its investment in FOGL. During the year ended 31 March 2015 FOGL shares traded on the AIM market of the London Stock Exchange at an average price of 26.25p with a high of 36.5p and a low of 17.25p. Based upon this share price history the value of the 5 million shares (2014: 12,825,000 shares) held at the balance sheet date could have varied between a low of £863,000 (2014: £3,046,000) and a high of £1,825,000 (2014: £4,008,000). ANNUAL REPORT 201568 Notes to the financial statements CONTINUED 27 Financial instruments CONTINUED (v) Capital Management The Group’s objectives when managing capital, which comprises equity and reserves at 31 March 2015 of £36,688,000 (2014: £35,377,000) are to safeguard its ability to continue as a going concern, so that it can continue to provide returns to shareholders and benefits to our other stakeholders. 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 2015 £’000 841 3,104 7,402 11,347 2014 £’000 720 3,107 7,984 11,811 The Group leases three office premises and a number of storage warehouses under operating leases. Office leases typically run for a period of 3-10 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. During the year £864,000 was recognised as an expense in the income statement of operating leases (2014: £822,000). 29 Capital commitments At the end of the year the Group had capital commitments of £141,000, in respect of trucks at Momart which have not been provided for in these financial statements. At 31 March 2014, the Group had capital commitments of £967,000: £837,000 due to the Boatyard for Gosport Ferry, and £130,000 for a new truck at Momart. 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 controlled 21.0% (2014: 21.9%) of the voting shares of the Company at 31 March 2015. The compensation of key management personnel (including Directors) is as follows: Group Company Key management emoluments including social security costs Termination payments, including social security costs Company contributions to defined contribution pension plans Share-related awards 2015 £’000 1,504 217 81 69 2014 £’000 1,627 - 82 58 Total key management personnel compensation 1,871 1,767 2015 £’000 480 217 - 52 749 2014 £’000 575 - - 4 579 In December 2013, the Group made a loan of £529,000 to its joint venture, SAtCO for the purchase of a 250 tonne crawler crane and heavy duty forklift to service the needs of the oil industry in the Falklands. In the year ended 31 March 2015, £151,000 of this loan was repaid. All staff involved in construction activities were contracted directly from parent companies FIC and Trant Construction and at 31 March 2015 and 2014 SAtCO had no permanent employees. FALKLAND ISLANDS HOLDINGS PLC69 31 Acquisition of a business On 1 August 2014, the Group acquired the trade and assets of a small business in the Falkland Islands, with assets acquired, as presented below: Property, plant and equipment Stock Net identifiable assets Goodwill on acquisition Total consideration Less deferred consideration Initial cash out flow on acquisition Pre-acquisition carrying amounts £’000 Fair value adjustments £’000 Recognised value on acquisition £’000 185 105 290 - - - 185 105 290 37 327 (112) 215 The goodwill arising represents the synergies with FIC’s own automotive business. 32 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 are 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 (see note 24). 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. 33 Post balance sheet events In April 2015, the Group’s residual holding of 5 million FOGL shares was sold for proceeds of £1.4 million, generating a profit of £0.4 million for the Group. In April 2015, the Group drew down a loan of £2,390,000 against Harbour Spirit, the new vessel delivered in March 2015, to be repaid in monthly instalments over ten years at a margin of 2.6% over the Bank of England base rate. ANNUAL REPORT 201570 Directors and Corporate Information Directors Edmund Rowland Chairman John Foster Managing Director Jeremy Brade* *Non-executive Director Company Secretary Carol Bishop Registered Office Kenburgh Court, 133-137 South Street, Bishop’s Stortford, Hertfordshire CM23 3HX T: 01279 461630 F: 01279 461631 E: admin@fihplc.com W: www.fihplc.com Registered number 03416346 Corporate Information Stockbroker and Nominated Adviser W.H. Ireland Limited 24 Martin Lane, London EC4R 0DR Solicitors Bircham Dyson Bell LLP 50 Broadway, Westminster, London SW1H 0BL Auditor KPMG Audit LLP St. Nicholas House, Park Row, Nottingham NG1 6FQ Registrar Capita Asset Services The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU Financial PR FTI Consulting 200 Aldersgate London EC1A 4HD The Falkland Islands Company Roger Spink Director and General Manager Telephone: 00 500 27600 Email: info@fic.co.fk www.the-falkland-islands-co.com The Portsmouth Harbour Ferry Company Keith Edwards Director and General Manager Telephone: 02392 524551 Email: admin@gosportferry.co.uk www.gosportferry.co.uk Momart Limited Kenneth Burgon Director Peter Brayshaw Commercial and Financial Director Telephone: 020 7426 3000 Email: enquiries@momart.co.uk www.momart.co.uk FALKLAND ISLANDS HOLDINGS PLC 

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