FALKLAND ISLANDS
HOLDINGS PLC
ANNUAL REPORT
2016
Contents
Financial Highlights For The Year Ended 31 March 2016
Chairman’s Statement 2016
Managing Director’s Strategic 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 2016
Consolidated Statement Of Comprehensive Income For The Year Ended 31 March 2016
Consolidated Balance Sheet At 31 March 2016
Company Balance Sheet At 31 March 2016
Consolidated Cash Flow Statement For The Year Ended 31 March 2016
Company Cash Flow Statement For The Year Ended 31 March 2016
Consolidated Statement Of Changes In Shareholders’ Equity For The Year Ended 31 March 2016
Company Statement Of Changes In Shareholders’ Equity For The Year Ended 31 March 2016
Notes To The Financial Statements
Directors And Corporate Information
1
2
4
17
18
22
23
24
25
26
27
29
30
31
32
70
Financial Highlights
FOR THE YEAR ENDED 31 MARCH 2016
Turnover from continuing operations
Profit before tax
Underlying profit before tax*
ANNUAL REPORT 2016
1
2016
£m
2015
£m
Change
%
39.00
38.56
1.1
2.80
3.08
3.89
(28.1)
3.56
(13.5)
Diluted earnings per share before goodwill amortisation and non-trading items
19.2p
22.0p
(12.7)
Cash flow from operations
Net asset value per share
4.75
310p
6.38
(25.6)
295p
5.1
*Defined as profit before tax, amortisation and non-trading items.
Turnover (£m) from continuing operations
Underlying profit before tax* (£m)
34.11
35.60
38.26
38.56
39.00
3.23
3.29
3.65
3.56
3.08
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Diluted earnings per share (pence)
before goodwill amortisation and non-recurring items
Net assets (£m)
26.2
21.3
22.0
22.0
19.2
29.5
34.3
35.4
36.7
38.6
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2
Chairman’s Statement 2016
I am pleased to report that
the Group (Falkland Islands
Holdings or “FIH”) achieved a
satisfactory trading result for
the year to 31 March 2016,
with all 3 trading subsidiaries
contributing positively to the
overall result.
Group revenues were ahead by £0.4 million at £39.0 million,
an increase of 1.1% on the prior year (2015: £38.6 million).
Underlying pre-tax profits for the Group (before amortisation
and non-trading items) for the year to 31 March 2016 were
in line with the Board’s expectations, at £3.1 million, £0.5
million lower than in the prior year. After non-trading items
(restructuring costs, and asset write downs in the Falklands,
net of profits on the sale of shares in Falkland Oil & Gas) of
£0.3 million, compared to non-trading profits of £0.3 million
in the prior year, reported Profit Before Tax was £2.8 million
(2015: £3.9 million).
Diluted earnings per share based upon underlying profits
were 19.2p (2015: 22.0p). Reported earnings per share
which reflect the impact of non-trading items were lower at
17.9p (2015: 25.3p).
In line with our policy of reinvesting earnings and cash to
facilitate investment and acquisition led growth, the Board
is not recommending the payment of a final dividend.
At 31 March 2016, the Group’s financial position was
strong. Cash balances at the end of the year had increased
to £14.0 million (2015: £7.4 million) with bank borrowings
of £3.3 million (2015: £0.7 million). In addition to its strong
liquidity position, the Group’s healthy operating cash flow
(2016: £4.6 million) leaves FIH with significant additional
borrowing capacity to enable expansion through selective
earnings enhancing acquisitions without recourse to
funding from shareholders.
Operations
Performance from the Group’s 3 trading subsidiaries was
satisfactory, with record trading in the Falklands being offset
by weaker trading in the UK at Momart and Portsmouth
Harbour Ferry Company (“PHFC”).
In the Falklands, the offshore exploration drilling programme
continued almost to the end of the Group’s financial year
and this, together with a record squid catch in early 2015
and further growth in cruise ship passengers over the
Austral summer, created buoyant trading conditions which
helped the Falkland Islands Company (“FIC”) to deliver a
record trading performance. Revenue in the Falklands was
flat at £18.5 million and Operating Profits, before non-
trading items, boosted by buoyant property and vehicle
rental income, increased from £1.3 million to £1.6 million.
At Momart, the Group’s Fine Art handling business, profits
were depressed by the costs of further investment to
develop the company’s sales and marketing infrastructure
and financial reporting systems, coupled with a fiercely
competitive art market which saw a squeeze on margins.
Overall revenue increased by 3% to £16.3 million (2015:
£15.8 million) but Operating Profits, before non-trading
items, fell back to £0.5 million (2015: £1.2 million).
At PHFC, a decrease in passenger numbers of 3.3%
was largely offset by a tight control of costs and modest
fare increases in June 2015. However, increased interest
costs from the 10 year boat loan taken out to finance the
company’s latest ferry, “Harbour Spirit” saw pre-tax profits
from the Ferry fall from £0.8 million to £0.7 million.
Non Trading Items
In May 2015, the Group’s residual holding of 5 million FOGL
shares was sold at a profit of £0.4 million.
In the Falklands, falling oil prices saw the prospects of
an early move towards oil production recede and with
much quieter trading conditions in prospect for the
foreseeable future, restructuring costs were incurred to
reduce the company’s ongoing cost base. The Group’s
total restructuring costs, including £0.1 million at Momart,
amounted to £0.3 million (2015: £0.2 million). At the same
time the carrying values of specialist plant and machinery
owned by the Group’s construction Joint Venture “SAtCO”
were reviewed, resulting in write downs to the Group’s
investment of £0.3 million.
Outlook
The current suspension of exploration drilling in Falklands’
waters and the continued uncertainty over oil prices means
that the outlook for FIC in the near term is much quieter with
a return to the more modest trading levels seen prior to the
start of oil exploration activity over 10 years ago. However,
following recent modernisation, our Falklands’ business is
well invested and no further significant capital expenditure
is anticipated in the foreseeable future.
FALKLAND ISLANDS HOLDINGS PLC
3
Future Group Strategy
The low price of oil means that the development of proven oil
reserves in the Falklands will now be delayed and although
the board of FIH remains confident that oil production and
dramatic economic growth will ensue in the Falklands in
due course, the timing of this remains uncertain. However,
following the substantial capital and human investment in
FIC seen in the past few years, the company is well placed
to take full advantage of the growth that will ultimately
emerge.
With further growth in the Falklands now delayed, the
Group’s focus in the near term has shifted to developing
its UK operations through further investment in its existing
businesses and through the pursuit of high quality
acquisitions. This will be facilitated by the Group’s record
cash reserves of £14 million (£1.13 per share) and solid
existing earnings base which provides untapped borrowing
capacity. This strategy, to create a platform for sustainable
long term growth, is aimed at creating a larger quoted entity
with a wider appeal to investors that will in turn enhance
shareholder liquidity and the Group’s rating. A number of
opportunities were reviewed during the year and none were
progressed to completion as the Board has been prudent
in evaluating asking prices and in targeting only high quality,
low risk prospects. The Board’s focus in the coming year
will be to continue to develop its existing businesses whilst
seeking a high quality acquisition that will significantly
enhance the long term prospects for a sustained growth in
shareholder value.
Edmund Rowland
Chairman
June 14 2016
Increased tourism in the Falklands will be a long term
positive factor in the growth of the Islands’ economy but
the development of oil production in the Falklands is the key
to unlocking dramatic returns and this in turn will depend
on a sustained recovery in the oil price and an appetite by
the oil & gas industry to take advantage of the lowering cost
environment for offshore developments. Although the timing
of any oil development remains uncertain, in the interim FIC
will remain a profitable and cash generative business.
At Momart, the expansion of commercial art storage
facilities at Leyton is now imminent with opening expected
in summer 2016. The 33% increase in storage space, with
enhanced climate control and client viewing facilities, will
be a key driver of long term growth. In the short term, this
will lead to an increase in the company’s fixed cost base,
but all efforts will be made to ensure the new storage facility
achieves breakeven within the first year with subsequent
growth seeing an immediate contribution to bottom line
profitability.
Development of a more proactive sales and marketing
approach continues, aimed at creating a platform from
which to leverage Momart’s established reputation into
the commercial and private client market. This should see
a steady recovery in profitability in what remains a highly
competitive market.
For PHFC, cheap petrol prices and disruption caused by the
redevelopment of the public transport hub at Portsmouth
Harbour will continue to make journeys by car an attractive
alternative to crossing by ferry. In the near term therefore,
tight cost control will be essential in defending profitability
but the expansion of the Naval Dockyard to support the
arrival of the Royal Navy’s Queen Elizabeth class aircraft
carriers from 2017 and plans for redeveloping the waterfront
in Gosport should create more benign trading conditions in
the medium term.
With the return to “pre-oil” trading levels in the Falklands
next year and broadly stable albeit challenging trading
conditions for the Group’s UK businesses, overall profitability
is expected to be subdued in the near term.
ANNUAL REPORT 2016
FALKLAND ISLANDS HOLDINGS PLC
4
Managing Director’s Strategic Review
BUSINESS REVIEW
John Foster
Managing Director
Group Overview
I am pleased to report on another satisfactory year of
trading for the Group, with revenues ahead by £0.4 million
at £39.0 million (2015: £38.6 million) and underlying pre-tax
profits, as expected, a little lower at £3.1 million (2015: £3.6
million). Reported profits before tax after non trading items
(net expenses of £0.28 million) were £2.80 million (2015:
£3.89 million). Operating cash flow was strong and the
Group ended the year with record levels of cash of £14.0
million (2015: £7.4 million).
In the Falklands, FIC had a record year, taking full advantage
of the boost to the Falklands’ economy from the exploration
drilling programme which ran throughout the year, and
another exceptional squid catch in early 2015. In contrast,
Momart, the Group’s fine art handling and logistics
company, experienced challenging market conditions
and further strategic investment in sales and marketing
and management information systems saw a reduction in
profitability. At PHFC despite reduced passenger volumes,
revenues remained broadly stable but increased operating
and finance costs, linked to the company’s new ferry
Harbour Spirit, also saw profits lower than the prior year.
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
2016
£m
18.50
4.24
16.26
39.00
2015
£m
18.51
4.30
15.75
38.56
Change
%
-0.1
-1.3
3.2
1.1
Group underlying pre-tax profit*
Year ended 31 March
Falkland Islands Company
Portsmouth Harbour Ferry
Momart
Total Underlying
Pre Tax Profit *
Non trading items **
Reported Profit
Before Tax
2016
£m
1.94
0.68
0.46
3.08
2015
£m
1.56
0.79
1.21
3.56
-0.28
0.33
Change
%
24.5
-14.1
-62.1
-13.5
-
2.80
3.89
-28.1
* 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.
** Non trading items include profits on the sale of the
FOGL shares, restructuring costs, write downs on assets
in SAtCO, profit on the sale of a vessel and amortisation of
intangibles acquired on the purchase of Momart in 2008.
Group Revenue 2016
Underlying Operating Profit 2016
FIC
47%
Momart
42%
PHFC
11%
Group Revenue 2015
FIC
48%
Momart
41%
PHFC
11%
FIC
49%
PHFC
31%
Momart
14%
SAtCO
(Share of joint
venture)
6%
SAtCO
(Share of joint
venture)
5%
Underlying Operating Profit 2015
FIC
35%
Momart
33%
PHFC
27%
5
Falkland Islands Company (“FIC”)
In the year to 31 March 2016, the Falklands benefited from
the stimulus to the local economy from the offshore drilling
campaign which commenced in early 2015 and ran on until
February 2016 when the planned 6 well programme was
curtailed after the drilling of 4 wells due to operational issues
and the sharp fall in the price of oil. Trading profitability in
FIC had already increased by 39% in the prior year and
ratcheted up by a further 25% to a record £1.94 million in
the year to 31 March 2016 as demand for the company’s
local services was stimulated by the presence onshore of
oil support workers for the whole of the financial year. FIC
benefited in particular from increased corporate demand
for rented houses, hire vehicles and agency services for oil
exploration. In the wider economy, confidence was boosted
by another record squid catch in Spring 2015 and a further
increase in cruise ship activity over the austral summer
(November 2015 to March 2016). With a strong fiscal
revenue base, Falkland Island government expenditure
was maintained at record levels and this benign backdrop
saw consumer demand continue at the high levels seen
in the prior year, benefiting FIC’s broad spread of retail
and support service businesses. As a result, the pre-tax
contribution of the Group’s Falklands’ business moved to
record levels, with pre-tax profits increasing by £0.38 million
(+24.5%) to £1.94 million (2015: £1.56 million).
Oil developments
During the year, oil companies led by Premier Oil (“PMO”)
and Noble Energy commenced the long-awaited third
phase of exploration drilling, with 3 wells drilled in the
Northern Basin and a 4th deep water well (“Humpback”)
in the geologically separate basin to the South East of the
Islands.
Results from the 3 Northern wells were particularly
encouraging, leading to increased resource estimates for
Premier’s Sea Lion field (increased to 520 mbbls) and the
nearby independent Isobel complex. In the South East
basin, results from drilling the large Humpback prospect
by Noble Energy and Falkland Oil & Gas in August 2015,
were less encouraging with no indication of commercially
exploitable hydrocarbons discovered. Following on from
this there was a further consolidation of the smaller oil
exploration companies in the Falklands with the absorption
of Falkland Oil and Gas (which had in turn recently merged
with Desire Petroleum) by Rockhopper Exploration plc. In
February 2016 “Operational issues” with the Eirik Raude
rig, led to the curtailment of the planned drilling programme
with only 4 wells completed; a further 2 wells had been
originally planned. Continued weakness in the oil price,
saw Noble Energy withdraw its operational team from the
Falklands in March 2016 and in May Premier Oil reported it
was “progressing cautiously” with detailed plans to develop
its Sea Lion and Isobel fields.
Although the very positive results from the Northern wells
have made the prospect of commercial oil production in
the Falklands ultimately more attractive and hence more
likely, the continued weakness of the oil price remains a
major stumbling block to moving towards commercial oil
production in the near term. On a positive note, related
downward pressure on the oil industry supply chain has
seen a continuing fall in field development costs and in May
2016, Premier Oil (“PMO”) reported it was targeting further
savings in order to make a development of the Sea Lion
field viable at $55 per barrel, (In May 2016, PMO estimate
project viability at $65 bbl). With a recovery in oil prices since
the sub-$30 lows in January 2016, the “project viability
gap” for Sea Lion has narrowed considerably but further
increases in the price of oil and the reliable prospect of a
sustained recovery in such prices will be essential before
commercial development of oil proceeds in the Falklands.
Despite the uncertainty over oil, with a further £1.2 million
invested in FIC in 2015-16 (and over £9 million invested by
the Group in the Falklands in the last 6 years) the business
infrastructure of FIC has been fully modernised and the
company is now well placed to take full advantage of an
eventual move to oil production in the medium term.
Trading
Overall revenue in FIC was unchanged at £18.5 million
(2015: £18.5 million).
FIC Revenues 2016
Retail
52%
FIC Revenues 2015
Retail
51%
Property
Rental
3%
Support &
Services 9%
Freight & Port
Services 5%
Property
Rental
2%
Support &
Services 9%
Freight & Port
Services 7%
FBS
10%
4x4
21%
FBS
14%
4x4
17%
ANNUAL REPORT 2016 FALKLAND ISLANDS HOLDINGS PLC
6
Managing Director’s Strategic Review
BUSINESS REVIEW - CONTINUED
FIC Operating results
Year ended 31 March
2016
£m
2015
£m
Change
%
Revenues
Retail
Falklands 4x4
Freight & Port
Services
Support services
FBS (property and
construction)
Property rental
9.66
3.93
0.90
1.63
1.81
0.57
Total FIC revenue
18.50
FIC underlying
operating profit
Share of results of
SAtCO JV
Net interest
income
FIC underlying
Profit Before Tax
FIC underlying
operating profit
margin
1.62
0.20
0.12
1.94
9.54
3.07
1.24
1.66
1.3
28.1
-27.6
-1.8
2.64
-31.5
0.36
18.51
1.31
59.2
-0.1
22.9
0.18
11.1
0.07
93.8
1.56
24.5
8.7%
7.1%
23.0
Total retail sales in FIC increased by 1.3% to a record £9.66
million (2015: £9.54 million).
FIC Retail sales achieved record levels with a particularly
encouraging 4.5% increase at the company’s flagship West
Store which accounts for over 60% of total retail sales and
has grown over 10% in the past 2 years. This was achieved
despite staff retention problems caused by the availability of
short term oil contracts for unskilled workers. Clothing and
Electrical sales were broadly flat but Grocery / Household
sales in the Foodhall increased by 6% as customers
responded to continuing improvements in the fresh food
and delicatessen offers.
Warehouse sales to local retailers and pubs (10% of West
Store sales) continued to come under pressure as direct
sourcing from the UK increased and sales declined by 8%
albeit much less than the 22% decline seen in 2014-15.
Sales at the Capstan gift shop increased by 8% as cruise
ship numbers rose to near pre-Crash levels of c.56,500
(2015: 50,000) and spend from transiting oil workers
continued to boost revenue. After a slow start to the year,
sales at FIC’s general store at the Mount Pleasant military
base (“West Store MPA”) picked up as refurbishment activity
at the military base commenced in late 2015 supported by
an increased establishment of civilian workers from the UK;
annual revenues at West Store MPA grew by 3.2%.
At Home Living, timing differences in government housing
completions saw demand for home furnishings decline
and sales fall back 31% to 2014 levels of £0.5 million. At
FIC’s Builder’s Merchant “Home Builder”, muted demand
and further disruption caused by the completion of a new
customer car park at the Crozier Place site, which prevented
vehicular access for 3 weeks, saw revenue decline by 4.1%.
The new car park at Crozier Place, offering much improved
access and off street parking for both Home Living and
Home Builder customers, was completed in February
2016. The attractions of the site were further enhanced by
construction of a new in-store family café in Home Living in
November 2015.
With a quieter year at Home Living and Home Builder
largely offsetting growth at the West Store, overall retail
performance was satisfactory with a similar contribution to
the prior year. Retail remains FIC’s most important business
unit accounting for 50% of revenue, 40% of the total
workforce and around a third of FIC’s overall contribution.
In FIC’s automotive business, Falklands 4x4, strong growth
in vehicle sales saw revenues increase by 28.1% to £3.93
million, eclipsing the former record set last year. Despite the
absence in recent years of sales to MoD which had previously
supported c 50 units pa, sales to local consumers picked
up strongly and in 2015-16, FIC’s vehicle sales increased
from 76 units in the prior year to 110, as revenue from
used vehicles increased and “new” sales were bolstered by
demand for the outgoing Defender for which FIC secured
its final factory delivery stock from Land Rover late in the
year. Strong corporate demand linked to oil exploration saw
the contribution from vehicle hire more than triple income in
the year, to record levels.
Revenues from third party freight and port services dropped
by 27.6% to £0.9 million (2015: £1.24 million) as the
exceptional volumes shipped in prior years to help prepare
the infrastructure for oil exploration reverted to more normal
levels.
Support Services income held up well at £1.63 million
(2015: £1.66 million) with revenues from Penguin Travel
rising strongly to over £0.5 million linked to the increase in
cruise ship visitors. Penguin Travel’s performance helped
offset lower revenues from the Fishing Agency where better
weather conditions on the high seas enabled foreign squid
fishing fleets to operate without calling on onshore Agency
support from Stanley. As in previous years there was
steady progress at FIC’s insurance agency.
The level of corporate demand for rental property which
had risen sharply in late 2014 continued throughout 2015-
16 as the exploration drilling programme commenced and
total property rental revenue increased to a record level of
£0.57 million (2015: £0.36 million) across FIC’s estate of 50
rental properties (which include 10 mobile homes rented
to staff).
7
Revenue from Falkland Building Services (FBS), which
focuses on building kit homes and small local construction
projects, fell back by 31.5% to £1.81 million (2015: £2.64
million) as the number of new houses completed for local
residents reduced from 16 last year to 12. There was also a
decrease in oil related construction activity with preparatory
infrastructure works being completed prior to the start of
drilling in Spring 2015. With the completion of the Temporary
Dock Facility for Noble Energy in the prior year, the level of
subcontracted labour provided by FIC reduced.
FBS also completed FIC’s new retail warehouse at Airport
road on the outskirts of Stanley. The project involved the
construction of 5,000sq ft of new chiller/freezer facilities and
a new ambient warehouse of 8,000sq ft; 6 metres in height
to the eaves. The facility was completed in November 2015
and will reduce ongoing operating costs, improve stock
control and free up the old warehouse and transit shed
sites in central Stanley for future redevelopment.
In its third year of operation, FIC’s joint venture, the
South Atlantic Construction Company, (“SAtCO”) saw
construction activity reduce sharply with the completion
of the Temporary Dock Facility (TDF) in December 2014.
Despite the lower level of construction activity, SAtCO’s
trading profitability improved with income from the renting
out of its 250 tonne crawler crane to Premier Oil which
facilitated the loading of rig support vessels operating from
the TDF. Crane rental produced income for SAtCO of £0.58
million in the year and a further £0.03 million of income was
generated from maintenance work for FIG. In the year to
31 March 2016 total SAtCO revenues were comparable
to the prior year at £0.61 million and its profit before tax
increased by 5% to £0.51 million (2015: £0.49 million). The
Group’s share of the after tax profits of SAtCO was £0.2
million (2015: £0.18 million).
At the end of the financial year, the premature cessation
of drilling and the completion of the current phase of oil
activity in the Falklands has necessitated a review of, and
provision against the carrying value of SAtCO’s operating
assets which comprise large construction machinery. With
the completion of exploration drilling and uncertainty over
the move towards oil production these large items of plant
and machinery are considered to have limited commercial
value in their current location in the Falklands and options
for transporting these assets back to the UK for early sale
are currently being explored. With the downturn in the
global oil industry the realisable value of these assets has
fallen sharply and accordingly a provision of £0.6 million has
been made in SAtCO’s accounts against the carrying value
of these assets. The Group’s share of the after tax cost of
this exceptional write down is £0.3 million.
The new Warehouse at Airport Road incorporating both frozen and chilled storage facilities
ANNUAL REPORT 2016
FALKLAND ISLANDS HOLDINGS PLC
8
Managing Director’s Strategic Review
BUSINESS REVIEW - CONTINUED
FIC Key Performance
Operational Drivers
Indicators and
Year ended 31 March
2016
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)
172
184
165
129
119
1,229 2,598 2,715 1,594
632
1.3% 3.0% -4.8% 3.0% -2.8%
50*
50*
36
32
33
93% 93% 82% 88% 83%
110
12
76
79
48
50
16
8
3
0
235.2 364.0 188.0
58.2
67.3
56.5
50.0
39.5
29.6
35.2
*Includes ten mobile homes rented to staff.
FIC ended the year with a headcount of 172, 12 lower than
in March 2015. FIC’s total establishment has grown by 53
since March 2012 due to a significant expansion in FBS (
+25 ), an increase in Falklands 4x4’s garage services repairs
team ( +10 ) a further 10 staff in Retail to provide additional
in-store services and the balance of 8 in administration.
While the timing of oil development remains uncertain, the
Falklands’ economy will be sustained (albeit at lower levels)
by the traditional areas of squid fishing and tourism ensuring
a healthy base level of profitability is maintained at FIC.
Portsmouth Harbour Ferry Company
(“PHFC”)
2015-16 saw another steady performance from PHFC
with total revenue decreasing by 1.3% reflecting a modest
decline in passenger numbers which more than offset
increases in ferry fares. Profit Before Tax after pontoon
lease and boat loan interest charges from the new ferry
vessel Harbour Spirit, was 14.1% lower at £0.68 million
(2015: £0.79 million).
The Spirit of Gosport
ANNUAL REPORT 2016
9
PHFC Operating results
Year ended 31 March
2016
£m
2015
£m
Change
%
Revenues
Ferry fares
Cruising and Other
revenue
Total PHFC revenue
PHFC underlying
operating profit
Boat loan & Pontoon
finance lease interest
PHFC underlying Profit
Before Tax
PHFC underlying
operating profit margin
Passengers carried
(000s)
4.09
0.15
4.24
1.03
4.13
0.17
4.30
1.03
-0.8
-13.1
-1.3
-0.4
-0.35
-0.24
45.8
0.68
0.79
-14.1
24.2%
24.0%
2,826
2,923
1.0
-3.3
There was a continued decline in ferry passenger numbers,
which reduced 3.3% over the year to 2.826 million (an
average of 7,800 passengers per day), from 2.923 million
in the prior year. After the effects of normal volatility caused
by weather there was a broad consistency in the rate of
decline between the first and second half of the year at
-3.3%, albeit the reduction was a little higher than in the
previous 2 years. (2015: 2.1%, 2014: 1.6%).
Ferry fares were increased by an average of 3% in June
2015, bringing the total cost of an adult return to £3.30,
although the price of Adult 10 Trip tickets for regular
customers was maintained (£1.45 per ferry journey), and
lower tariffs were also left unchanged for seniors and
children (£2.20/£2.10 return).
During the summer months a special “Bikes Go Free”
promotion (normal tariff £1.20 return) was run from 1st
June to 1st September to encourage long term cycle use
and this saw a welcome 2.5% increase in ferry travel by
cyclists in the 7 months after the promotion period ended,
paying-back the cost of the promotion in under 12 months.
Cyclists now account for over 10% of all ferry users.
Take up of the unlimited monthly ferry and car parking joint
ticket “Park & Float” ticket at £89 remained modest at
less than 1% of passenger traffic whereas the discounted
ticket for military personnel was more popular accounting
for 3.6% of passenger journeys in the year, a similar level
to 2014-15. Demand for the “new” Solent Go electronic
travel card increased following its introduction in August
2014 with this “Oyster card” for South Hampshire now
accounting for 2.4% of passenger journeys, up 7 fold on
the prior year.
In overall terms at under £1.50 per crossing for adults, (83p
for seniors and children) the ferry service still represents
excellent value compared to any alternative mode of
transport other than for groups travelling by car with free or
subsidised parking.
In travelling to and from Gosport to Portsmouth, the car
continues to be the only serious transport alternative to the
ferry. Car travel to Portsmouth, utilising the subsidised Park
& Ride scheme operated by Portsmouth City Council, with
dedicated buses departing every 10 minutes to Portsmouth
town centre, the Naval Dockyard and the Gunwharf Quays
shopping centre, continued to present a competitive
challenge during the year. With low prices being bolstered
by the introduction of £2.60 per vehicle tariff for regular
users and low petrol prices enhancing the economics of
car travel, the scheme was particularly attractive to families
in school holidays and at weekends and this had a direct,
adverse impact on ferry passenger volumes. Although
lower diesel prices saw a reduction in ferry fuel costs, the
savings were modest at less than 0.6% of revenue and did
not offset the negative effects of cheaper petrol/diesel for
cars.
In addition to the increased relative attraction of car travel,
the convenience of the ferry service was disrupted in the
year by commencement of the redevelopment of the
passenger interchange at Portsmouth Harbour (the “Hard”).
This will ultimately lead to improved connectivity between
ferry, bus, rail and taxi services at the interchange, however,
in the interim the relocation of bus stops and pedestrian
walkways during construction work (which commenced
in autumn 2015 and is scheduled to finish by the end of
2016), had an undoubted adverse effect on the overall
convenience and appeal of ferry travel.
In the year to 31 March 2016, weekday traffic was affected
more noticeably than at the weekends with an overall
decline of -3.6% compared to -2.5% at weekends. Core
commuter traffic held up well with a reduction of only
-2.2%, whereas weekday off peak passenger traffic, which
tends to be more discretionary in nature, declined by 5.7%.
Cruising income from corporate vessel hire was boosted by
the Americas Cup event in Portsmouth in July 2015 and in
February 2016 PHFC benefited from the sale of one of its
two older vessels, Portsmouth Queen which was sold to a
Thames river cruise operator for a nominal sum.
During the year PHFC’s third modern ferry vessel “Harbour
Spirit” with its improved passenger seating, increased
space for cycles and better facilities for the disabled, was
fully commissioned and came into service in July 2015.
With Harbour Spirit now in operation, PHFC has 3 modern
vessels and retains a fourth boat, the 1966 vintage, Gosport
Queen, as a back- up. With three new ferry vessels built
since 2001 and an estimated service life of over 30 years,
no further significant vessel expenditure is anticipated for
over 15 years.
FALKLAND ISLANDS HOLDINGS PLC
10
Managing Director’s Strategic Review
BUSINESS REVIEW - CONTINUED
Key Operating Metrics
Average fares per passenger journey increased by 2.8% to
£1.45 (2015 £1.41).
Ferry reliability was again outstanding with on-time
departures running at 99.8% (2015: 99.8%).
Looking ahead the outlook for passenger growth is more
positive with arrival of the Royal Navy’s new aircraft carriers
and expansion of the Naval Base expected to commence
in 2017. In addition in Spring 2016, Gosport Council
announced plans to redevelop the bus station complex at
the waterfront adjacent to the ferry terminal. The Council
has invited private sector tenders to bid for a mixed use
development with increased retail and leisure facilities
which increase the appeal of the Gosport waterfront /
ferry terminal area as a destination and thus enhance the
medium term outlook for passenger numbers.
Momart
Momart, the Group’s art handling and logistics business,
had a challenging year and despite overall revenue
increasing by 3.2% to £16.3 million (2015: £15.8 million),
increased overheads linked to investment in sales and
marketing and strengthening of finance and management
information systems, coupled with increased pressure on
margins saw underlying operating profit reduce by 62.9%
to £0.46 million from £1.24 million in 2015.
Net finance costs in the year were negligible as borrowings
were repaid.
Underlying Profit Before Tax before amortisation of
intangibles was £0.46 million (2015: £1.21 million)
Momart Operating results
PHFC Key Performance Indicators and
Operational Drivers
Year ended 31 March
2016
£m
2015
£m
Change
%
Year ended 31
March
Staff
Numbers
( FTE at 31
March )
Capital
Expenditure
£’000’s
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
Revenue
growth %
Average
yield per
passenger
journey
2016
2015
2014
2013
2012
Revenues
Museums and public
exhibitions
Galleries & Private
Clients
38
39
37
35
35
Storage
8.39
8.68
-3.4
5.82
2.05
5.21
1.86
15.75
11.8
10.1
3.2
Total Momart revenue
16.26
223
1,483
1,958
223
5,080
99.8% 99.8% 99.7% 99.5% 99.9%
2,046
2,123
2,169
2,230
2,497
-3.6% -2.1% -2.7% -10.7% -1.6%
780
800
817
803
831
-2.5% -2.1% 1.8% -3.4% -4.1%
2,826
2,923
2,986
3,033
3,328
-3.3% -2.1% -1.6% -8.9% -2.1%
-1.3% 4.3% 1.2% -1.9% 11.5%
£1.45
£1.41
£1.32
£1.28
£1.19
Momart underlying
operating profit
0.46
1.24
-62.9
Net Interest expense
-
-0.03
-
Momart underlying
Profit Before Tax
Momart underlying
operating profit
margin
0.46 1.21
-62.1
2.8%
7.9%
-64.0
Museum Exhibitions
After a slow start with Q1 sales down 19% on the prior
year, Exhibitions activity recovered strongly throughout the
remainder of the year. Revenue from large UK museum
exhibitions, which form the bedrock of Momart’s market-
leading reputation, accounted for more than half of total
Exhibition activity, and increased by 22% compared to the
prior year. During 2015-16 in the UK, Momart was involved
in the installation of a number of prestigious and popular
exhibitions including Jackson Pollock at Tate Liverpool,
World Goes Pop and Alexander Calder at Tate Modern,
Delacroix and Modernity at the National Gallery, Fabric of
India at the V&A, Egypt: Faith After the Pharaohs at the
British Museum, Ai Weiwei and Painting the Modern Garden
at the Royal Academy and Audrey Hepburn at the National
Portrait Gallery.
11
Royal Academy - Ai Weiwei.
Activity linked to smaller private and regional exhibitions was
less buoyant with sales flat year on year but UK margins
overall held up well compared to 2014-15. In contrast,
overseas contracts (revenue from overseas clients) which
typically involve high added value / high margin work
(specialist packing etc) fell back from the high levels seen
in the previous 2 years, declining by 23% (£1.7 million)
from £7.5 million to £5.8 million (see KPI table below). This
reduction in the level of overseas contracts was a key factor
in the overall decline in Momart’s profitability during the year.
By 31 March 2016, Momart’s order-bank of large UK
Exhibitions had increased to £4.47 million, an increase
of 37% compared to the prior year (2015: £3.26 million),
(see KPI table below). This healthy order book provides a
stronger platform for the coming year albeit the headline
revenue figure for Museum contracts provides only a
general guide to added value and margins with Museum
work vary considerably depending on the mix of jobs and in
particular the level of services that need to be outsourced
to overseas agents.
Galleries & Private Client Services
Gallery Services revenues, which include revenues from
private and corporate clients,increased by an encouraging
11.8% to £5.82 million (2015: £5.21 million), reflecting an
increased emphasis on proactive sales and marketing and
on business development. Revenue from galleries remained
the largest element and increased by 25% compared to
2014-15 as new relationships were developed with leading
international galleries especially those expanding their
presence in the growing London market. Activity with
private and corporate clients also increased although once
again, as with Exhibitions, the level of lucrative work from
overseas clients reduced. The mix of sales was also less
profitable with more work outsourced to overseas agents
and contractors compared to the previous year and this
together with competitive pressure on margins meant
that despite the 11.8% increase in revenue, overall gross
profitability from Galleries and Private Clients was essentially
unchanged compared to the prior year.
During the year, significant additional resources were
invested in sales and marketing and business development,
increasing overheads by £0.5 million compared to the
prior year. The benefits of this increased investment and
focus will flow through more fully in the coming year but
in the year ended 31 March 2016 this increase in costs,
together, with the fall in income from overseas contracts
noted above, were the prime factors responsible for the
£0.8 million decrease in Operating Profits.
Storage
Storage revenues increased by 10.1% to £2.05 million
(2015: £1.86 million), as 450 cubic metres of additional
space was taken on in response to market demand. The
buoyancy of demand for secure art storage is the key driver
of the decision to progress the expansion of Momart’s core
storage facilities at Leyton where a 33% increase in space
will be completed by August 2016. The additional space
will offer improved client visitor facilities, discrete dedicated
space for specific collections and enhanced viewing areas.
The facility will be rented from the current landlord on a long
lease coterminous with existing units on the Leyton site.
Fit out costs for racking, air conditioning and lifts totalling
c £1.5 million of capital expenditure will be incurred in the
year to March 2017. The new facility will add c £0.5 million
to annual operating costs and is targeted to reach break-
even within 8 months of opening.
ANNUAL REPORT 2016 FALKLAND ISLANDS HOLDINGS PLC
12
Managing Director’s Strategic Review
BUSINESS REVIEW - CONTINUED
Although the decline in profitability seen in the year to 31
March 2016 is disappointing, the increased focus and
structured approach to the market now being undertaken
has laid the foundations for a more sustainable platform
for long term growth in profitability which will enable the
company to take full advantage of its market leading
reputation and unmatched level of technical skill and
customer service.
Momart Key Performance Indicators and
Operational Drivers
Momart Revenues 2016
Museum
and public
exhibitions
52%
Commercial
Gallery
Services
36%
Storage
12%
Momart Revenues 2015
Year ended
31 March
Staff
Numbers
(FTE 31
March)
Capital
Expenditure
£’000’s
Warehouse
% fill vs
capacity
Exhibition
Order Book
31 March
2016
2015
2014
2013
2012
130.2
128.6
124.6
119.0
115.9
402
648
260
598
524
90.6% 91.2% 92.9% 94.2% 95.1%
£4.47m £3.26m £3.89m £3.83m £4.16m
Own labour
charged out £9.18m £9.07m £11.67m £9.02m £8.58m
Revenues
from
overseas
clients
£5.8m £7.5m £8.3m £4.6m £5.7m
Exhibitions
sales
growth
Gallery
Services
sales
growth
Storage
sales
growth
Total Sales
growth %
-3.4% -20.0% 20.4% 27.8% 5.7%
11.8% -6.5% 1.3% -12.7%
26%
10.1% 1.3% 2.6% 10.5% 6.6%
3.2% -13.7% 12.0% 8.9% 13.5%
Museum
and public
exhibitions
55%
Commercial
Gallery
Services
33%
Storage
12%
Non Trading Items – Total Cost £0.28 million (2015: Profit
£0.33 million)
• Profit on sale of FOGL shares - £0.39 million
(2015: £0.7 million)
In April 2015, the Group disposed of its remaining 5
million shares in Falkland Oil and Gas for £1.40 million,
an average share price of 28 pence generating a profit on
disposal of £0.39 million.
• Write Down of SATCO assets - £0.33 million
(2015: nil)
With the early conclusion of exploration activity in the
Falklands and the uncertainty over the future demand
for heavy duty construction plant and machinery in the
Islands, the carrying value of the assets owned by SAtCO
has been reviewed and options for disposal explored.
FIH’s after tax share of the provision against these assets
amounts to £0.3 million. The level of contribution from
SAtCO over the past 3 years and the amount of ancillary
work secured as a result of the Group’s investment in
this construction joint venture far outweighs the costs of
these write downs.
• Restructuring Costs - £0.26 million
(2015: £0.23 million)
During the year the Group incurred £0.26 million of
restructuring costs in relation to slimming down the
senior management teams in FIC and at Momart. These
changes will reduce ongoing costs without any adverse
effect on operational efficiency.
• Amortisation of Intangibles £0.14 million
(2015: £0.14 million)
13
Trading outlook
For the year ahead, we anticipate a quieter period in the
Falklands. The squid catch in Spring 2016 dropped back
from the exceptional levels seen in the previous two years
and in retailing, FIC’s principal competitor has pushed ahead
with a 33% expansion of its own supermarket which will
open in July 2016. Given these factors and the conclusion
of exploration drilling with a lack of any indication of when
oil activities will resume, FIC will face significant headwinds
in the coming year and profits at FIC are expected to revert
to the more normal “pre-oil” levels seen in prior years.
At PHFC, in the coming year the emphasis will be on
tight cost control, in the face of short term pressures on
passenger numbers caused by cheap petrol and physical
disruption caused by the reconfiguration of the passenger
interchange at the Portsmouth ferry terminal. In the longer
term, plans to expand the Portsmouth naval base and new
proposals to redevelop the harbour at Gosport should help
to reverse the decline seen in recent years.
At Momart, we anticipate a stabilising of the core trading
position as we see the benefit of the recent investment in
sales and marketing feed through to underpin continued
sales growth and shore up margins. Initially though, the
warehouse expansion will be a drag on profits, with an
increase in fixed costs not fully covered by new storage
revenue in the first year. Over the medium term however,
as Momart’s new facilities reach capacity, prospects for a
steady and sustained recovery in profitability are good.
John Foster
Managing Director
14 June 2016
ANNUAL REPORT 2016 FALKLAND ISLANDS HOLDINGS PLC
14
Managing Director’s Strategic Review
FINANCIAL REVIEW
Financial Review
Revenue and underlying operating profit
Group revenue rose 1.1% to £39.0 million, however
underlying operating profit decreased 12.3% to £3.30 million
in the year ended 31 March 2016 as the benefits of the oil
activity in the Falkland Islands was offset by a reduction in
profit at Momart. These variances are discussed in more
detail above in the Review of Operations.
Non-trading items
Non-trading items amounted to a net cost of £0.28 million
(2015: profit of £0.33 million), and comprise a £0.39 million
gain on the sale of 5,000,000 Falkland Oil and Gas shares
(2015: £0.71 million), and a £0.06 million profit on the sale
of “Portsmouth Queen”, which had been purchased by
Portsmouth Harbour Ferry Company in 1966. These non-
trading gains have been offset against:
• A £0.33 million impairment to the carrying value of plant &
machinery owned by SAtCO;
• £0.26 million of restructuring costs in relation to slimming
down the senior management teams in FIC and Momart;
and
• £0.14 million amortisation charge of intangible assets, in
relation to the net book value of Customer relationships
acquired within Momart in March 2008.
Net financing costs
The Group’s net financing costs remain relatively little
changed to the prior year at £0.2 million, with an increase
in bank interest payable from the bank loans drawn down
by the Ferry business following the acquisition of the £3.3
million vessel “Harbour Spirit” offset against the reduction
in the interest expense on the unfunded defined benefit
scheme in the Falklands and as the interest and amortised
loan fees ceased on the loan to acquire Momart, which was
fully repaid in the year to 31 March 2015.
Underlying pre-tax profit
As expected, the Group reported underlying pre-tax profits
of £3.08 million, 13.5% down on the prior year, (2015:
£3.56 million).
Reported pre-tax profit
After the non-trading items noted above, reported Profit
Before Tax for the Group decreased by 28.1% to £2.80
million (2015: £3.89 million).
Taxation
The Group pays corporation tax on its UK earnings at
20% and on earnings in the Falkland Islands at 26%. The
Falkland Islands Company Limited, which is resident in both
jurisdictions, has been granted a foreign branch exemption,
and as a result no longer pays UK corporation tax. As a
result FIC enjoys the full benefit of the tax deductibility in
the Falkland Islands of expenditure on commercial and
industrial buildings. The effective blended tax rate on
underlying profits is 22.7% (2015: 23.2%).
Earnings per share
Year ended 31 March
Underlying profit before
tax
Taxation on underlying
profit
Underlying profit after
tax
Diluted average number
of shares in issue
(thousands)
Effective underlying tax
rate
Diluted EPS on
underlying profit
Diluted EPS on
reported profit
2016
£m
3.08
2015
£m
Change
%
3.56
-13.5
(0.70)
(0.83)
-15.3
2.38
2.73
-13.0
12,384
12,446
-0.5
22.7% 23.2%
-2.0
19.2p
22.0p
-12.7
17.9p
25.3p
-29.2
Fully diluted Earnings per Share (“EPS”) derived from
underlying profits, fell to 19.2 pence (2015: 22.0 pence),
due to the fall in the underlying profit before tax.
Balance sheet
The Group’s Balance Sheet remains strong. Total net
assets increased to £38.6 million from £36.7 million in the
prior year.
Retained earnings, after corporation tax, increased by
£2.5 million to £18.8 million (2015: £16.3 million). Bank
borrowings increased to £3.3 million (2015: £0.7 million),
due to the drawdowns of loans in the Ferry business to
cover the cost of new vessel, which had been purchased in
the prior year, but because of the strong underlying cash
flows, the Group’s cash balances increased by £6.6 million
to £14.0 million (2015: £7.4 million).
The carrying value of intangible assets at £12.0 million has
reduced from the £12.2 million at 31 March 2015, due to
the amortisation charge.
The net book value of property, plant and equipment
increased by £0.3 million to £19.9 million (2015: £19.6
million) after capital investment of £1.8 million, including
£1.2 million in the Falkland Islands. This has been offset
against a £1.3 million depreciation charge in the year, a
£0.1 million disposal of a JCB in the Falklands, and £0.1
million of the hire fleet transferred to stock and sold through
Falklands 4x4.
15
Trade and other payables increased to £11.2 million from
£10.2 million at 31 March 2015, reflecting increased trading
activity.
At 31 March 2016, the liability due in respect of the Group’s
defined benefit pension scheme in the Falkland Islands was
£2.6 million (2015: £2.9 million). The decreased liability is
due principally to lower medium term interest rates used
to discount the scheme’s future liabilities. The pension
scheme in the Falklands, 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 Group’s deferred tax liabilities, excluding the pension
asset at 31 March 2016, were £2.1 million and increased
by £0.1 million from the prior year (2015: £2.0 million).
£1.9 million of this balance arises on property, plant and
equipment, and is principally due to accelerated capital
allowances on the new vessel in PHFC 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 temporary
difference arises, on which deferred tax is provided.
Net assets per share were 310 pence at 31 March 2016
(2015: 295p).
The Group owns
investment properties, comprising
commercial and residential properties in the Falkland
Islands held for rental, together with approximately 400
acres of land in and around Stanley. This includes 18 acres
for industrial development and 25 acres of prime mixed-use
land.
The Group owns 50 properties for rental, including 40
investment properties, which are mainly houses, in Stanley
and ten mobile homes, which are rented to staff. The
number of properties, which all are held at depreciated
cost, is unchanged from the prior year. The net book value
of the investment properties and undeveloped land of
£3.6 million (2015: £3.7 million) has been reviewed by the
Directors resident in the Falkland Islands and at 31 March
2016 the fair value of this property portfolio was estimated
at £7.0 million (2015: £7.3 million), an uplift of £3.4 million
on net book value.
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.
Deferred tax assets relating to future pension liabilities
decreased to £0.7 million (2015: £0.8 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 represent stock held for resale
in the Falkland Islands, increased by £0.8 million to £6.2
million at 31 March 2016 (2015: £5.4 million). The increase
largely relates to stock held in the Falkland Islands.
Trade and Other Receivables decreased by £0.5 million to
£4.9 million at 31 March 2016, due to the decreased activity
and improved debtor collection at Momart. Average debtor
days outstanding were 33.0 (2015: 36.0).
The Group’s cash balances increased to £14.0 million
(2015: £7.4 million).
Bank borrowings increased from £0.7 million to £3.3 million
as long term loans were drawn down to fund the acquisition
of Harbour Spirit.
Outstanding finance lease liabilities totalled £5.1 million
(2015: £5.1 million). £4.9 million (2015: £4.9 million) of the
finance lease balance is in respect of the 50 year lease from
Gosport Borough Council for the Gosport Pontoon.
Corporation tax due for payment within the next 12 months
is £0.2 million (2015: £0.03 million).
ANNUAL REPORT 2016 FALKLAND ISLANDS HOLDINGS PLC
16
Managing Director’s Strategic Review
FINANCIAL REVIEW - CONTINUED
Financing outflows
During the year the Group incurred £1.9 million of capital
expenditure (2015: £4.9 million); £1.2 million was invested
in Stanley, including £0.5 million on racking and general
preparation of the new warehouse and freezer facilities at
Airport Road, £0.3 million spend on tarmacking the new car
park at Crozier Place, which includes FIC’s newly expanded
Builders Merchant, Home Builder, and £0.1 million spend
on a new café, with a soft play area within Home Living. In
addition, £0.1 million was spent on replacement vehicles
for the hire vehicle fleet. At PHFC, £0.1 million was spent
on the Portsea pontoon, and £0.1 million was incurred to
complete and commission Harbour Spirit. At Momart, £0.2
million was spent on expanding the storage areas, including
the initial spend on the Unit 14 expansion at Leyton, and
£0.2 million was spent on the vehicle fleet.
Two further loans totalling £2.9 million, repayable over 10
years, were drawn down by PHFC to finance Harbour Spirit,
which had been purchased in the prior year. Scheduled
loan repayments of £0.8 million (2015: £1.4 million) were
made during the year, including £0.3 million of repayments
to Gosport Council on the 50 year pontoon finance lease,
£0.1 million of repayments on hire purchase leases for
trucks at Momart and £0.5 million of repayments on the
three PHFC loans.
John Foster
Managing Director
14 June 2016
Cash flows
Operating cash flow
Net cash flow from operating activities was £4.8 million
(2015: £6.4 million); a small decrease due to the lower level
of reductions in working capital in the current year.
The Group’s Operating Cash Flow can be summarised as
follows:
Year ended 31 March
2016
£m
2015
£m
Change
£m
Underlying profit before tax
Depreciation
Amortisation of computer
software
Net Interest payable
EBITDA
Share based payments
Decrease in working capital
Tax paid
Other
Net cash inflow from
operating activities
Financing and Investing
Activities
3.1
1.4
0.1
0.2
4.8
0.1
0.5
3.6
(0.5)
1.4
-
-
0.1
0.2
-
5.2
(0.4)
0.1
2.1
-
(1.6)
(0.3)
(0.3)
(0.8)
0.5
(0.2)
(0.1)
4.8
6.4
(1.6)
Sale of FOGL shares
1.4
2.3
(0.9)
Less:
Dividends paid
Capital expenditure
Net bank interest paid
Proceeds on sale of fixed
assets
Net cash in from Treasury
share movements
Loan repayments from
joint venture
Bank and other loan
repayments
-
(1.9)
(0.1)
0.1
0.1
0.4
(1.4)
(4.9)
-
-
-
1.4
3.0
(0.1)
0.1
0.1
0.2
0.2
(0.8)
(1.4)
0.6
Bank and Hire purchase loan
draw down
3.1
0.8
2.3
Increase in hire purchase
debtors
Net cash outflow from
financing and investing
activities
Net cash inflow
Cash balance b/fwd.
Cash balance c/fwd.
(0.5)
(0.3)
(0.2)
1.8
6.6
7.4
14.0
(4.7)
6.5
1.7
5.7
7.4
4.9
1.7
6.6
Board of Directors and Secretary
ANNUAL REPORT 2016
17
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, and he sits on the board of Banque Havilland
(Monaco) SAM.
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.
18
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 2016.
Results and dividend
The Group’s result for the year is set out in the Group Income Statement. The Group profit for the year after taxation amounted to
£2,222,000 (2015: £3,144,000). Basic earnings per share on underlying profits were 19.2 pence (2015: 22.1 pence).
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 greater
appeal for existing and prospective investors and will significantly increase 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, in line with the increased focus of investment and long term growth, dividend payments have been suspended and no
dividend payments were made during the year. During the prior year, to 31 March 2015, an interim dividend of 4.0p per share was
paid in January 2015.
Principal activities
The business of the Group during the year ended 31 March 2016 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 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 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’. 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.
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
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.
FALKLAND ISLANDS HOLDINGS PLC ANNUAL REPORT 2016
19
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. Details of
the Company’s executive share option scheme and employee ownership plan can be found in note 25.
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 2016.
Number of shares
Percentage of shares in issue
Blackfish Capital Management
Fidelity investments
Argos Argonaut Fund
Jerry Zucker Revocable Trust
Hargreaves Lansdown (Nominees)
2,815,180
1,099,114
499,636
465,000
411,226
22.6
8.8
4.0
3.7
3.3
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 2016 or 31 March 2015.
Charitable and political donations
Charitable donations made by the Group during the year amounted to £19,229 (2015: £28,030), largely to local community
charities in Gosport and the Falkland Islands. There were no political donations in the year (2015: 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 1 September 2016. The Notice of the Annual General Meeting and a description of the special business to be
put to the meeting are considered in a separate Circular to Shareholders which accompanies this document.
Details of Directors’ remuneration and emoluments
The remuneration of non-executive Directors consists only of annual fees for their services both as members of the Board and of
Committees on which they serve.
An analysis of the remuneration and taxable benefits in kind (excluding share options) provided for and received by each Director
during the year to 31 March 2016 and in the preceding year is as follows:
David Hudd
John Foster
Mike Killingley
Jeremy Brade
Edmund Rowland
Total
Salary
£’000
Bonuses
£’000
-
203
1
30
65
299
-
*35
-
-
-
35
2016
Total
£’000
-
238
1
30
65
334
2015
Total
£’000
307
263
**35
30
28
663
FALKLAND ISLANDS HOLDINGS PLC
20
Directors’ Report
CONTINUED
*The Managing Director’s bonus for the year is split 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. For the year ended 31 March 2016, John Foster has been
awarded a cash bonus of £35,000 and a further £35,000 of deferred shares, to be issued on 17 June 2016. These deferred shares
will be provided at no cost to him in three equal tranches over the next three years.
**Until date of resignation
None of the Directors of the Company receive any pension contributions or benefit from any Group pension scheme.
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 2016, the share options of executive Directors may be summarised as follows:
Date of grant
7 Aug 2007
15 Jul 2009
13 Aug 2012
10 June 2015
10 June 2015
10 June 2015
Total
Number
of options
27,517
44,550
76,700
7,548
7,547
7,547
171,409
Exercise price
Exercisable from
Expiry date
£3.30
£2.90
£4.04
£0.00
£0.00
£0.00
7 Aug 2010
15 Jul 2012
6 Aug 2017
14 Jul 2019
13 Aug 2015
12 Aug 2022
10 Jun 2016
10 Jun 2017
10 Jun 2018
10 Jun 2019
10 Jun 2019
10 Jun 2019
The mid-market price of the Company’s shares on 31 March 2016 was 201.00 pence and the range in the year was 201.00 pence
to 282.50 pence.
The Directors’ options extant at 31 March 2016 totalled 171,409 and represented 1.4% of the Company’s issued share
capital. The 351,848 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:
John Foster*
Jeremy Brade
Edmund Rowland
Ordinary shares as at
31 March 2016
Ordinary shares as at
31 March 2015
*72,830
15,000
**2,815,180
*61,867
15,000
**2,500,000
*John Foster’s shareholding above includes all Shares held in the Company’s share incentive plan in which he has 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 2,815,180 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 year ended 31 March 2016 the Company purchased £600
of matching shares for Mr J Foster.
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, Strategic Report, Directors’ 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. Under
that law they have elected to prepare both the group and the parent company financial statements in accordance with IFRSs as
adopted by the EU and applicable law. 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 Parent Company and of their profit or loss for that period. In preparing each of the
Group and Parent 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 Parent
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Parent 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
14 June 2016
Kenburgh Court
133-137 South Street
Bishop’s Stortford
Hertfordshire
CM23 3HX
ANNUAL REPORT 2016 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 2016 set out on pages
23 to 69. 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 set out on page 21, 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
2016 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 matters 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.
Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the
Strategic report and the Directors’ report:
• we have not identified material misstatements in those reports; and
• in our opinion, those reports have been prepared in accordance with the Companies Act 2006.
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.
Craig Parkin
Senior Statutory Auditor
14 June 2016
For and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
St Nicholas House
Park Row
Nottingham
NG1 6FQ
FALKLAND ISLANDS HOLDINGS PLC Consolidated Income Statement
FOR THE YEAR ENDED 31 MARCH 2016
ANNUAL REPORT 2016
23
Notes
4
Revenue
Cost of sales
Gross profit
Other administrative
expenses
Restructuring costs
15
Gain on sale of FOGL shares
Gain on sale of vessel
11
Amortisation of intangible
assets
Before
amortisation
& non-trading
items
Amortisation
& non-trading
items
2016
£’000
2016
£’000
Before
amortisation
& non-trading
items
Amortisation
& non-trading
items
2015
£’000
2015
£’000
Total
2016
£’000
38,996
(23,497)
15,499
(12,398)
-
-
-
-
38,996
38,560
(23,497)
(22,927)
15,499
15,633
(12,398)
(12,050)
-
-
-
-
Total
2015
£’000
38,560
(22,927)
15,633
(12,050)
-
-
-
-
(261)
388
60
(261)
388
60
(136)
(136)
-
-
-
-
Operating expenses
(12,398)
Operating profit
3,101
51
51
(12,347)
(12,050)
3,152
3,583
200
(330)
(130)
180
3,301
(279)
3,022
3,763
335
4,098
Share of results of Joint
Venture
Profit before net financing
costs
Finance income
Finance expense
Net financing costs
233
(456)
(223)
-
-
-
233
(456)
(223)
8
9
Profit / (loss) before tax
from continuing operations
3,078
(279)
2,799
Taxation
(699)
122
(577)
Profit / (loss) for the year
attributable to equity
holders of the company
10
Earnings per share
2,379
(157)
2,222
Basic
Diluted
19.2p
19.2p
18.0p
17.9p
(234)
(234)
711
-
711
-
(142)
(142)
335
335
-
(11,715)
3,918
180
187
(391)
(204)
3,559
(825)
2,734
22.1p
22.0p
-
-
-
335
75
410
187
(391)
(204)
3,894
(750)
3,144
25.4p
25.3p
FALKLAND ISLANDS HOLDINGS PLC
24
Consolidated Statement of Comprehensive Income
FOR THE YEAR ENDED 31 MARCH 2016
Cash flow hedges - effective portion of changes in fair value
Unrealised profit on the revaluation of shares in Falkland Oil and Gas
Reclassification to profit or loss on sale of shares in Falkland Oil and Gas
Items that are or may be reclassified subsequently to profit or loss
Decrease / (Increase) 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
2016
£’000
(82)
-
(492)
(574)
215
(56)
159
(415)
2,222
1,807
2015
£’000
-
225
(419)
(194)
(412)
107
(305)
(499)
3,144
2,645
Consolidated Balance Sheet
AT 31 MARCH 2016
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
Hedging reserve
Financial assets fair value reserve
Total equity
ANNUAL REPORT 2016
25
2016
£’000
12,037
19,930
3,632
-
136
-
755
687
2015
£’000
12,226
19,621
3,693
1,500
266
378
458
750
37,177
38,892
6,241
4,853
810
14,037
25,941
63,118
(546)
(191)
(11,244)
(11,981)
(7,855)
(2,644)
(2,069)
(12,568)
(24,549)
38,569
1,243
17,447
1,162
18,799
(82)
-
38,569
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
These financial statements were approved by the Board of Directors on 14 June 2016 and were signed on its behalf by:
J L Foster
Director
Registered company number: 03416346
FALKLAND ISLANDS HOLDINGS PLC
26
Company Balance Sheet
AT 31 MARCH 2016
Notes
14
20
18
20
21
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
23
Trade and other payables
Total current liabilities
Net assets
26
Capital and reserves
Equity share capital
Share premium account
Other reserves
Hedging reserve
Retained earnings
Total equity
2016
£’000
28,164
3,465
9
31,638
15
46
11,761
11,822
43,460
(3,188)
(3,188)
40,272
1,243
17,447
6,910
(82)
14,754
40,272
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
These financial statements were approved by the Board of Directors on 14 June 2016 and were signed on its behalf by:
J L Foster
Director
Registered company number: 03416346
Consolidated Cash Flow Statement
FOR THE YEAR ENDED 31 MARCH 2016
ANNUAL REPORT 2016
27
Cash flows from operating activities
Profit for the year
Adjusted for:
(i) Non-cash items:
Depreciation
Depreciation of computer software
Amortisation
Gain on disposal of fixed assets
Share of Joint Venture loss, after impairment provision
Amortisation of loan fees
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
Corporation and deferred tax expense
Other adjustments
Operating cash flow before changes in working capital and provisions
Decrease in trade and other receivables
(Increase) / decrease in inventories
Increase / (decrease) 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
Acquisition of a business
Loans to Joint Venture
Interest received
Net cash flow from investing activities
2016
£’000
2,222
1,406
53
136
(49)
130
-
90
61
1,827
(27)
117
240
(388)
577
519
4,568
455
(742)
909
(115)
507
5,075
(324)
4,751
(1,854)
-
141
1,396
-
378
27
88
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
(4,597)
(132)
86
2,287
(215)
151
15
(2,405)
FALKLAND ISLANDS HOLDINGS PLC
28
Consolidated Cash Flow Statement CONTINUED
FOR THE YEAR ENDED 31 MARCH 2016
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
Cash outflow on purchase of Treasury shares
Proceeds from sale of Treasury shares
Dividends paid
Net cash flow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
2016
£’000
(460)
(760)
2,890
(117)
158
(681)
733
-
1,763
6,602
7,435
14,037
2015
£’000
(260)
(1,391)
701
(17)
132
-
-
(1,424)
(2,259)
1,720
5,715
7,435
ANNUAL REPORT 2016
29
Company Cash Flow Statement
FOR THE YEAR ENDED 31 MARCH 2016
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
14
Impairment of investment in Erebus
Reversal of loan impairment due to loan repayment in the year by Erebus
Corporation and deferred tax expense
2016
£’000
1,356
(25)
5
-
44
102
-
41
Operating cash flow before changes in working capital and provisions
1,523
(Increase) / decrease in trade and other receivables
Decrease 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
Cash outflow on purchase of Treasury shares
Proceeds from sale of Treasury shares
Dividends paid
Net cash flow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year
(3)
(4)
(7)
1,516
(59)
1,457
848
-
25
-
(681)
733
-
925
2,382
9,379
11,761
2015
£’000
1,410
(12)
10
15
55
790
(1,309)
(1)
958
7
(16)
(9)
949
(76)
873
1,448
(800)
12
(10)
-
-
(1,424)
(774)
99
9,280
9,379
FALKLAND ISLANDS HOLDINGS PLC
30
Consolidated Statement of Changes in Shareholders’ Equity
FOR THE YEAR ENDED 31 MARCH 2016
Equity
share
capital
£’000
Share
premium
account
£’000
Other
reserves
£’000
Retained
earnings
£’000
Financial
assets
fair value
reserve
£’000
Hedge
reserve
£’000
Total
equity
£’000
Balance at 1 April 2014
1,243
17,447
1,162
14,839
686
Profit for the year
Share based payments
Dividends
Transfer to the income statement on sale
of shares in FOGL
Change in fair value of shares in FOGL
Re-measurement of the defined benefit
pension liability, net of tax
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,144
90
(1,424)
-
-
-
-
-
(419)
225
(305)
-
Balance at 31 March 2015
1,243
17,447
1,162
16,344
492
Profit for the year
Share based payments
Cash flow hedges - effective portion of
changes in fair value
Transfer to the income statement on sale
of shares in FOGL
Re-measurement of the defined benefit
pension liability, net of tax
Purchase of Treasury shares
Sale of Treasury shares
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,222
61
-
-
159
(720)
733
Balance at 31 March 2016
1,243
17,447
1,162
18,799
-
-
-
(492)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(82)
-
-
-
-
35,377
3,144
90
(1,424)
(419)
225
(305)
36,688
2,222
61
(82)
(492)
159
(720)
733
(82)
38,569
Company Statement of Changes in Shareholders’ Equity
FOR THE YEAR ENDED 31 MARCH 2016
ANNUAL REPORT 2016
31
Equity
share
capital
£’000
Share
premium
account
£’000
Other
reserves
£’000
Hedge
Reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
Balance at 1 April 2014
Profit for the year
Share-based payments
Dividends
1,243
17,447
6,910
-
-
-
-
-
-
-
-
-
Balance at 31 March 2015
1,243
17,447
6,910
Profit for the year
Share based payments
Cash flow hedges - effective portion
of changes in fair value
Purchase of Treasury shares
Sale of Treasury shares
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(82)
-
-
13,248
38,848
1,410
90
(1,424)
13,324
1,356
61
-
(720)
733
1,410
90
(1,424)
38,924
1,356
61
(82)
(720)
733
Balance at 31 March 2016
1,243
17,447
6,910
(82)
14,754
40,272
A profit of £1,356,000 (2015: £1,410,000) 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.
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 31.
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 was 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 Falkland
Islands Holdings plc’s 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 impaired 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.
Such items arise because of their size or nature, and in 2016 comprise:
FALKLAND ISLANDS HOLDINGS PLC 33
1. Accounting Policies CONTINUED
• The impairment provision made against certain plant and machinery owned by SAtCO
• Restructuring costs
• The £60,000 gain on the sale of the Portsmouth Queen ferry
• The gain on the sale of 5,000,000 Falkland Oil and Gas Limited shares; and
• the amortisation of intangible assets
In 2015 these comprised:
• Restructuring costs
• The gain on the sale of 7,825,000 Falkland Oil and Gas Limited shares; 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. 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 joint venture partners’ 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 2016 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 was stated at fair value, with any resultant gain or loss recognised in other
comprehensive income and presented in the fair value reserve in equity, except for impairment losses. When these items were
derecognised, the cumulative gain or loss previously recognised directly in equity was 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. This is applied only to significant long term projects spanning the year end, however there were no such contracts at
the current or prior year end. 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 2016 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. Re-measurements 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
Rental 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
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.
Rental income is received from investment property rentals in the Falklands. This income from operating leases is 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. None of these lease agreements exceed a twelve month period.
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.
Cash-flow hedges
The effective portions of changes in the fair values of derivatives that are designated and qualify as cash-flow hedges are recognised
in equity. The gain or loss to any ineffective portion is recognised immediately in the income statement. Amounts accumulated in
the hedging reserve are recycled to the income statement in the periods when the hedged items will affect profit or less.
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
2016 did not have any material impact on the consolidated financial statements:
Amendments and revisions to IFRSs
Clarification of Acceptable Methods of Depreciation and Amortisation – Amendments to IAS 16 and IAS 38
Equity Method in Separate Financial Statements – Amendments to IAS
Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12
IFRS 9 Financial Instruments and additions to IFRS 9 (issued October 2010)
Accounting for Acquisitions of Interests in Joint Operations – Amendments to IFRS 11
Effective date
Periods beginning on or
after:
1 January 2016
1 January 2016
1 January 2017
Not yet endorsed
1 January 2016
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
Effective date
Periods beginning on or after:
1 February 2015
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.
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.
ANNUAL REPORT 2016 FALKLAND ISLANDS HOLDINGS PLC
38
Notes to the financial statements
CONTINUED
2. Segmental Information Analysis CONTINUED
2016
Revenue
Segment operating profit before
tax, amortisation & non-trading
items
Restructuring costs
Gain on sale of vessel
Gain on the sale of 5,000,000
FOGL shares
Amortisation
Segment operating profit
Share of result of joint venture
Impairment of Joint Venture fixed
assets
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
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
18,495
1,613
(178)
-
-
-
1,435
200
(330)
1,305
223
(99)
1,429
Ferry
Services
(Portsmouth)
£’000
4,244
1,028
-
60
-
-
1,088
-
-
1,088
3
(347)
744
Art logistics
and storage
(UK)
£’000
16,257
460
(83)
-
-
(136)
241
-
-
241
7
(10)
238
Unallocated
£’000
-
-
-
-
388
-
388
-
-
388
-
-
388
Total
£’000
38,996
3,101
(261)
60
388
(136)
3,152
200
(330)
3,022
233
(456)
2,799
33,150
(10,821)
22,329
16,323
(9,632)
6,691
13,630
(3,463)
10,167
15
(633)
(618)
63,118
(24,549)
38,569
1,213
16
1,229
581
71
-
652
-
1,613
200
1,813
223
(99)
1,937
223
-
223
440
-
-
440
-
1,028
-
1,028
3
(347)
684
402
-
402
314
-
53
367
136
460
-
460
7
(10)
457
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,838
16
1,854
1,335
71
53
1,459
136
3,101
200
3,301
233
(456)
3,078
ANNUAL REPORT 2016
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
Ferry
Services
(Portsmouth)
£’000
4,301
1,032
Art logistics
and storage
(UK)
£’000
15,753
1,239
-
-
-
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
-
-
-
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
-
-
(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
Unallocated
£’000
-
-
(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
FALKLAND ISLANDS HOLDINGS PLC
40
Notes to the financial statements
CONTINUED
2. Segmental Information Analysis (continued)
The £15,000 (2015: £1,512,000) unallocated assets above include £15,000 (2015: £12,000) of prepayments held in Falkland
Islands Holdings plc. At 31 March 2015, the unallocated assets also included the Group’s investment in Falkland Oil and Gas of
£1,500,000.
The £633,000 (2015: £519,000) unallocated liabilities above consist of accruals and tax balances held in Falkland Islands Holdings
plc.
3. Geographical analysis
The tables below analyse revenue and other information by geography:
2016
Revenue (by source)
Non-current segment assets, excluding deferred tax
Capital expenditure
2015
Revenue (by source)
Non-current segment assets, excluding deferred tax
and the investment in Falkland Oil and Gas Limited
Capital expenditure
United
Kingdom
£’000
20,501
24,374
625
United
Kingdom
£’000
20,054
24,692
2,131
4. Revenue
Sale of goods
Rendering of services
Total revenue
Falkland
Islands
£’000
18,495
12,116
1,229
Falkland
Islands
£’000
18,506
11,950
2,598
2016
£’000
12,653
26,343
38,996
Total
£’000
38,996
36,490
1,854
Total
£’000
38,560
36,642
4,729
2015
£’000
12,584
25,976
38,560
5. Non-trading items and amortisation of intangible assets acquired on purchase of
Momart
Profit before tax as reported
Reverse non-trading items:
Restructuring costs
Proceeds on the sale of Portsmouth Queen
Impairment of the joint venture fixed assets
Gain on the sale of 5,000,000 FOGL shares
Amortisation charge on Momart intangible assets acquired
Total non-trading items and amortisation
Underlying profit before tax
2016
£’000
2,799
261
(60)
330
(388)
136
279
3,078
2015
£’000
3,894
234
-
-
(711)
142
(335)
3,559
ANNUAL REPORT 2016
41
Tax on non-trading items
In the year ended 31 March 2016, a £122,000 tax credit has been included in the Group’s income statement in respect of the
£279,000 non-trading items, which includes a £71,000 deferred tax credit on the intangible assets purchased in Momart in 2008,
and the £63,000 income tax deductible on the £261,000 restructuring costs, offset against the £12,000 income tax payable on
the profit arising on the sale of Portsmouth Queen. No tax charge has arisen on the £388,000 (2015: £711,000) gain on the sale
of shares in Falkland Oil and Gas Limited. In the year ended 31 March 2015 the £75,000 tax credit arose on the £28,000 credit on
the amortisation of the intangible assets acquired on the purchase of Momart in 2008, and the tax deductible Board restructuring
costs.
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
2016
£’000
142
1,406
53
136
(2)
36
9,884
921
2015
£’000
142
1,387
39
142
(60)
16
9,853
864
Auditor’s remuneration
Audit of these financial statements
Other taxation services
Audit of subsidiaries’ financial statements pursuant to legislation
Other assurance services
Total auditor’s remuneration
2016
£’000
2015
£’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2016
£’000
2015
£’000
30
4
62
20
116
30
4
62
-
96
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
2016
38
172
5
129
4
348
2015
40
180
5
131
6
362
2016
2015
-
-
-
-
4
4
-
-
-
-
6
6
FALKLAND ISLANDS HOLDINGS PLC
42
Notes to the financial statements
CONTINUED
7. Staff numbers and cost CONTINUED
The aggregate payroll cost of these persons was as follows:
Wages and salaries
Share-based payments (see note 25)
Social security costs
Contributions to defined contribution plans
Total employment costs
Group
Company
2016
£’000
2015
£’000
10,804
11,307
61
916
301
90
901
274
12,082
12,572
2016
£’000
460
44
49
9
562
2015
£’000
761
55
72
9
897
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
2016
£’000
27
206
233
2016
£’000
(117)
(90)
-
(240)
(9)
(456)
2015
£’000
15
172
187
2015
£’000
(17)
(107)
(15)
(246)
(6)
(391)
ANNUAL REPORT 2016
43
2016
£’000
2015
£’000
370
118
488
230
(119)
(22)
89
577
2016
£’000
2,799
560
58
(78)
-
23
(108)
26
96
577
323
77
400
412
-
(62)
350
750
2015
£’000
3,894
818
124
(149)
(1)
13
(32)
(38)
15
750
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
Total tax expense
Reconciliation of the effective tax rate
Profit on ordinary activities before tax
Tax using the UK corporation tax rate of 20% (2015: 21%)
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
Deferred tax (expense) / credit recognised directly in other comprehensive income
2016
£’000
(56)
2015
£’000
107
Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and to 20% (effective from 1 April 2015)
were substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April
2020) were substantively enacted on 26 October 2015. These planned changes in the future rates of UK corporation tax will
reduce the company’s future current tax charge accordingly. The deferred tax assets and liabilities in the United Kingdom at 31
March 2016 have been calculated based on the rates substantively enacted at the balance sheet date.
An additional reduction to 17% (effective from 1 April 2020), was announced in the Budget on 16 March 2016. It has not yet been
possible to quantify the full anticipated effect of the announced reductions, although this will further reduce the Group’s deferred
tax liabilities and the Company’s deferred tax asset accordingly.
The deferred tax assets and liabilities in the Falkland Islands have been calculated at the Falklands’ tax rate of 26%.
FALKLAND ISLANDS HOLDINGS PLC
44
Notes to the financial statements
CONTINUED
10. Earnings per share
The calculation of basic earnings per share is based on profits on ordinary activities after taxation, and the weighted average
number of shares in issue in the period, excluding shares held 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
2016
£’000
2,222
2015
£’000
3,144
2016
Number
2015
Number
12,431,623 12,431,623
(31,725)
(18,381)
(28,016)
(28,016)
Average number of shares in issue excluding the ESOP and shares held in Treasury
12,371,882 12,385,226
Maximum dilution with regards to share options
Diluted weighted average number of shares
Basic earnings per share
Diluted earnings per share
11,830
60,871
12,383,712 12,446,097
2016
18.0p
17.9p
2015
25.4p
25.3p
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
2016
£’000
3,078
(699)
2,379
2015
£’000
3,559
(825)
2,734
22.7%
23.2%
Weighted average number of shares in issue excluding Treasury shares and the ESOP
(from above)
12,371,882 12,385,226
Diluted weighted average number of shares (from above)
12,383,712 12,446,097
Basic earnings per share on underlying profit
Diluted earnings per share on underlying profit
19.2p
19.2p
22.1p
22.0p
ANNUAL REPORT 2016
45
11. Intangible assets
Cost:
At 1 April 2014
Goodwill arising on acquisition of a
business
Additions
Disposals
At 31 March 2015 and 2016
Accumulated amortisation:
At 1 April 2014
Depreciation of computer software
Amortisation of other intangibles
for the year
Disposals
At 31 March 2015
Depreciation of computer software
Amortisation of other intangibles
for the year
At 31 March 2016
Net book value:
At 1 April 2014
At 31 March 2015
At 31 March 2016
Computer
Software
£’000
Customer
relationships
£’000
Brand names
£’000
Non-compete
agreements
£’000
Goodwill
£’000
Total
£’000
347
-
132
-
479
117
39
-
-
156
53
-
209
230
323
270
1,882
2,823
72
11,539
-
-
(608)
1,274
-
-
-
2,823
1,468
785
-
142
(608)
1,002
-
136
1,138
414
272
136
-
-
-
785
-
-
785
2,038
2,038
2,038
-
-
(72)
-
72
-
-
(72)
-
-
-
-
-
-
-
37
-
-
11,576
1,983
-
-
-
1,983
-
-
1,983
9,556
9,593
9,593
16,663
37
132
(680)
16,152
4,425
39
142
(680)
3,926
53
136
4,115
12,238
12,226
12,037
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.
The Momart brand is considered to be of future economic value to the Group with an estimated indefinite useful economic 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 2014
At 31 March 2015
At 31 March 2016
Art logistics and
storage
£’000
Ferry Services
(Portsmouth)
£’000
Falklands
Islands
£’000
5,577
5,577
5,577
3,979
3,979
3,979
-
37
37
Total
£’000
9,556
9,593
9,593
46
Notes to the financial statements
CONTINUED
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 (2015: 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.
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 13.5% (2015: 13.7%), and the cash flows of the Ferry Services have been discounted using a pre-tax discount
rate of 12.4% (2015: 12.4%). 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 (2015: £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 (2015: nil). The
key assumptions made in the estimation of future cash flows are in relation to revenue. Sensitivity analysis as at 31 March 2016 has
indicated that should the discount rate move by 0.3% this would result in an impairment charge being recognised in the financial
statements in respect of the investment in Momart International Limited.
FALKLAND ISLANDS HOLDINGS PLC ANNUAL REPORT 2016
47
12. Property, plant and equipment
Cost:
At 1 April 2014
Additions in year
Acquired on purchase of a business
Disposals
At 31 March 2015
Additions in year
Transfer to stock
Disposals
At 31 March 2016
Accumulated depreciation:
At 1 April 2014
Charge for the year
Disposals
At 31 March 2015
Charge for the year
Transfer to stock
Disposals
At 31 March 2016
Net book value:
At 1 April 2014
At 31 March 2015
At 31 March 2016
Freehold
Land &
buildings
£’000
Long leasehold
Land and
buildings
£’000
5,540
1,243
170
(9)
6,615
480
-
-
6,944
7,095
948
-
(50)
161
-
(19)
Group
Ships
£’000
5,358
1,344
-
-
6,702
109
-
-
7,842
7,237
6,811
1,719
119
(9)
865
202
-
1,829
1,067
152
-
(50)
231
-
(16)
1,232
146
-
1,378
229
-
-
1,931
1,282
1,607
3,821
5,115
5,911
5,750
6,028
5,955
4,126
5,324
5,204
Vehicles,
plant and
equipment
£’000
8,161
1,022
15
(585)
8,613
620
(202)
(1,225)
7,806
5,249
709
(499)
5,459
723
(94)
(1,142)
4,946
2,912
3,154
2,860
Total
£’000
25,674
4,089
185
(594)
29,354
1,838
(202)
(1,294)
29,696
9,065
1,176
(508)
9,733
1,335
(94)
(1,208)
9,766
16,609
19,621
19,930
The Company has no tangible fixed assets.
At 31 March 2016 the net carrying amount of leased long leasehold land and buildings and vehicles, plant and equipment was
£4,481,000 and £532,000 for the Gosport Pontoon and trucks at Momart respectively, (2015: £4,584,000 and £328,000). During
the year ending 31 March 2016, Momart acquired two sprinter vans and a truck on hire purchase, which cost £177,000 and were
funded by £158,000 of finance leases. During the year ending 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.
At 31 March 2016, the group had entered into contractual commitments of £412,000, including £345,000 for the Momart Storage
facility expansion, £32,000 for a truck at Momart and £35,000 for the pontoon refurbishment at Portsea. At 31 March 2015, the
Group had capital commitments totalling £141,000 for trucks at Momart.
At 31 March 2016, £79,000 has been included within long leasehold properties in respect of the construction of the storage facilities
for Momart. At 31 March 2015, £1,273,000 was included within Freehold properties above in respect of the new warehouse
under construction in the Falklands, and £79,000 was included within plant and machinery of assets under construction for ticket
vending machines for the Ferry.
FALKLAND ISLANDS HOLDINGS PLC
48
Notes to the financial statements
CONTINUED
13. Investment properties
Cost:
At 1 April 2014
Additions in year
Transferred on development of land
At 31 March 2015
Additions in year
Disposals
At 31 March 2016
Accumulated depreciation:
At 1 April 2014
Charge for the year
At 31 March 2015
Disposals
Charge for the year
At 31 March 2016
Net book value:
At 1 April 2014
At 31 March 2015
At 31 March 2016
Residential and
commercial
property
£’000
Group
Freehold
land
£’000
2,902
508
50
3,460
16
(9)
773
-
(50)
723
-
-
Total
£’000
3,675
508
-
4,183
16
(9)
3,467
723
4,190
279
211
490
(3)
71
558
2,623
2,970
2,909
-
-
-
-
-
773
723
723
279
211
490
(3)
71
558
3,396
3,693
3,632
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. 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 2016 the fair value of this property portfolio was estimated at £7.0 million (31 March 2015: £7.3 million) including
development land valued at £2.2 million (2015: £2.2 million).
During the year to 31 March 2016, the Group received rental income of £565,000 (2015: £355,000) on these properties and from
the ten mobile homes rented to staff, which are held in long leasehold property.
At 31 March 2016 and 2015 no investment properties were under construction.
The Company does not own any investment properties.
ANNUAL REPORT 2016
49
14. Investment in subsidiaries
Country of
incorporation
Class of shares held
Ownership
at
31 March
2016
Ownership
at
31 March
2015
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.
At 1 April 2015
Impairment of investment in Erebus
Cost of share based payments capitalised into subsidiaries
At 31 March 2016
Company
2016
£’000
2015
£’000
28,249
29,004
(102)
17
(790)
35
28,164
28,249
The Company’s investment in Erebus Limited comprised 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 2016, this investment has been
impaired by £102,000 (2015: £790,000) due to the disposal of the 5,000,000 shares in Falkland Oil and Gas, and the resulting
fall in the investment.
FALKLAND ISLANDS HOLDINGS PLC
50
Notes to the financial statements
CONTINUED
15. Shares held in Falkland Oil and Gas Limited
In April 2015, the Group’s residual holding of 5,000,000 FOGL shares was sold for proceeds of £1.4 million, generating a profit of
£0.4 million for the Group.
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)
16. Investment in Joint Ventures
2015
1,500
30.0p
5,000,000
0.9%
1,008
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 were 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. During the year ended 31 March 2016, an impairment provision has been made against certain plant
and machinery owned by SAtCO as noted in the Managing Director’s Strategic Report. The net assets of SAtCO following the
impairment are shown below:
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
2016
£’000
-
1,269
(470)
(527)
272
136
Joint Venture’s results
Revenue
Cost of sales
Administrative expenses
Operating profit for the year
Impairment
Profit before taxation
Taxation
Joint Venture retained profit / (loss) for the year
Group share of retained profit / (loss) for the year
2016 Before
Impairment
£’000
2016
Impairment
£’000
2016 After
Impairment
£’000
616
(95)
(11)
510
-
510
(110)
400
200
-
-
-
-
(866)
(866)
206
(660)
(330)
616
(95)
(11)
510
(866)
(356)
96
(260)
(130)
2015
£’000
962
1,020
(390)
(1,060)
532
266
2015
£’000
591
(95)
(10)
486
-
486
(126)
360
180
There were no recognised gains or losses, other than the profits disclosed above for the year ended 31 March 2016 (2015: none).
£95,000 of depreciation was charged in the year ended 31 March 2016 (2015: £95.000).
The current assets balances above include £512,000 of cash (2015: £425,000). 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 £527,000 (2015: £907,000).
SAtCO had no contingent liabilities or capital commitments as at 31 March 2016 or 31 March 2015 and the Group had no
contingent liabilities or commitments in respect of its joint venture at 31 March 2016 or 31 March 2015.
ANNUAL REPORT 2016
51
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 Finance Lease debtors
Group
2016
£’000
2015
£’000
755
458
810
1,565
647
1,105
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 £133,000 (2015: £110,000).
The cost of assets acquired for the purpose of letting under hire purchase agreements by the Group during the year amounted to
£1,316,000 (2015: £881,000).
The aggregate rentals receivable during the year in respect of hire purchase agreements were £1,029,000 (2015: £793,000).
Gross investment in hire purchase leases
Present value of future lease payments due:
Within one year
Within two to five years
Total present value of future lease payments
Group
2016
£’000
1,698
810
755
1,565
2015
£’000
1,215
647
458
1,105
FALKLAND ISLANDS HOLDINGS PLC
52
Notes to the financial statements
CONTINUED
18. Deferred tax assets and liabilities
Recognised deferred tax assets and (liabilities)
Group
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
2016
£’000
(1,865)
(391)
28
39
-
120
(2,069)
687
(1,382)
2015
£’000
(1,669)
(462)
15
50
10
69
(1,987)
750
(1,237)
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.
Recognised deferred tax asset
Other temporary differences
Net tax asset
Company
2016
£’000
9
9
2015
£’000
6
6
Movement in deferred tax assets / (liabilities) in the year:
Group
Property, plant & equipment
Intangible assets
Inventories
Other financial liabilities
Share-based payments
Tax losses
Pension
Deferred tax movements
1 April
2015
£’000
Recognised
in income
£’000
Recognised
in equity
£’000
(1,669)
(462)
15
50
10
69
750
(1,237)
(196)
71
13
(11)
(10)
51
(7)
(89)
-
-
-
-
-
(56)
(56)
31 March
2016
£’000
(1,865)
(391)
28
39
-
120
687
(1,382)
ANNUAL REPORT 2016
53
Unrecognised deferred tax assets
Deferred tax assets of £113,000 (2015: £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
Other temporary difference
Deferred tax asset movements
1 April 2015
£’000
Recognised in
income
£’000
Recognised in
equity
£’000
31 March 2016
£’000
6
6
3
3
-
-
9
9
Movement in deferred tax assets / (liabilities) in the prior
year:
Group
Property, plant & equipment
Intangible assets
Inventories
Other financial liabilities
Share-based payments
Tax losses
Pension
Deferred tax movements
1 April 2014
£’000
Recognised in
income
£’000
Recognised in
equity
£’000
31 March 2015
£’000
(1,373)
(490)
62
75
27
60
645
(994)
(296)
28
(47)
(25)
(17)
9
(2)
(350)
-
-
-
-
-
-
(1,669)
(462)
15
50
10
69
107
107
750
(1,237)
Movement in deferred tax asset in the prior year:
Company
Other temporary difference
Deferred tax asset movements
1 April 2014
£’000
Recognised in
income
£’000
Recognised in
equity
£’000
31 March 2015
£’000
4
4
2
2
-
-
6
6
FALKLAND ISLANDS HOLDINGS PLC
54
Notes to the financial statements
CONTINUED
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
2016
£’000
912
606
4,723
6,241
2015
£’000
715
556
4,120
5,391
Company
2016
£’000
3,465
2015
£’000
1,813
Group
Company
2016
£’000
3,920
933
4,853
2015
£’000
4,512
796
5,308
2016
£’000
-
15
15
2015
£’000
-
12
12
Cash and other cash equivalents in the balance sheet
Group
Company
2016
£’000
14,037
2015
£’000
7,435
2016
£’000
11,761
2015
£’000
9,379
ANNUAL REPORT 2016
55
22. Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group’s interest bearing loans and borrowings, which are stated
at amortised cost. For more information regarding the maturity of the interest-bearing loans and lease liabilities and about the
Group and Company’s exposure to interest rate and foreign currency risk, see note 27.
Non-current liabilities
Secured bank loans
Lease liabilities
Total non-current interest bearing loans and lease liabilities
Current liabilities
Secured bank loans
Lease liabilities
Total current interest bearing loans and lease liabilities
Total liabilities
Secured bank loans
Lease liabilities
Total interest bearing loans and lease liabilities
Group
2016
£’000
2,863
4,992
7,855
401
145
546
3,264
*5,137
8,401
2015
£’000
598
4,982
5,580
137
156
293
735
5,138
5,873
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 cash
2016
£’000
384
333
914
2015
£’000
395
350
852
10,465
12,096
10,725
12,322
2016
£’000
239
233
678
5,809
6,959
2015
£’000
239
233
680
6,032
7,184
2016
£’000
145
100
236
4,656
*5,137
Cash balances (see note 21)
less: Total interest-bearing loans and borrowings
Net cash
Group
Company
2016
£’000
14,037
*(8,401)
5,636
2015
£’000
7,435
(5,873)
1,562
2016
£’000
11,761
-
11,761
2015
£’000
156
117
172
4,693
5,138
2015
£’000
9,379
-
9,379
*Included within lease liabilities is £4,828,000 (2015: £4,858,000) in respect of the long term lease liability for the Gosport pontoon,
with quarterly payments of £65,000 payable to Gosport Borough Council over the next forty-five years until 2061.
FALKLAND ISLANDS HOLDINGS PLC
56
Notes to the financial statements
CONTINUED
23. Trade and other payables
Current
Trade payables
Amounts owed to subsidiary undertakings
Other creditors, including taxation and social security
Interest rate swap liability
Accruals and deferred income
Total trade and other payables
24. Employee benefits: pension plans
Group
Company
2016
£’000
6,612
-
1,482
87
3,063
11,244
2015
£’000
5,398
-
1,368
-
3,448
10,214
2016
£’000
-
2,500
134
87
467
3,188
2015
£’000
-
-
109
-
453
562
The Group operates three defined contribution pension schemes. In addition, it also operates one unfunded defined benefit
pension scheme in the Falkland Islands, which has been closed to new members and to future accrual. During the year ended
31 March 2016, 18 pensioners (2015: 19) received benefits from this scheme, and there are three deferred members at 31 March
2016 (2015: three). The weighted average duration of the expected benefit payments from the Scheme is around 16 years (2015:
16 years).
Defined contribution schemes
The pension cost charge for the year represents contributions payable by the Group to the schemes and amounted to £301,000
(2015: £274,000). The Group anticipates paying contributions amounting to £284,000 during the year ending 31 March 2016.
There were outstanding contributions of £33,000 (2015: £75,000) due to pension schemes at 31 March 2016.
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
2016
£’000
(2,644)
687
(1,957)
2015
£’000
(2,884)
750
(2,134)
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 2016, 2015, 2014, 2013, and 2012 were prepared by a qualified independent
actuary, Lane Clark and Peacock LLP. The major assumptions used in the valuation were:
ANNUAL REPORT 2016
57
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
2016
2.3%
3.0%
3.4%
3.1%
22.4
24.6
2015
2.3%
3.0%
3.2%
3.0%
22.6
24.7
The assumptions used by the actuary are chosen from a range of possible actuarial assumptions which, due to the timescale
covered, may not necessarily be borne out in practice.
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 2016 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
2016
£’000
41
(17)
(111)
2015
£’000
46
(9)
(126)
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
2016
£’000
(2,644)
687
(1,957)
2015
£’000
2014
£’000
2013
£’000
2012
£’000
(2,884)
(2,480)
(2,584)
(2,411)
750
645
671
579
(2,134)
(1,835)
(1,913)
(1,832)
FALKLAND ISLANDS HOLDINGS PLC
58
Notes to the financial statements
CONTINUED
24. Employee benefits: pension plans CONTINUED
Movement in deficit during the year:
Deficit in scheme at beginning of the year
Pensions paid
Other finance cost
Re-measurement 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
Re-measurement of the defined benefit pension liability
2016
£’000
2015
£’000
(2,884)
(2,480)
115
(90)
215
115
(107)
(412)
(2,644)
(2,884)
2016
£’000
(90)
2016
£’000
26
189
215
2015
£’000
(107)
2015
£’000
76
(488)
(412)
History of experience gains and losses:
2016
2015
2014
2013
2012
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
26
(1.0%)
215
(8.1%)
115
76
20
(34)
(30)
(2.6%)
(0.8%)
1.3%
1.2%
(412)
135
(173)
(289)
14.3%
(5.4%)
6.7%
12.0%
115
122
111
98
ANNUAL REPORT 2016
59
25. Employee benefits: share based payments
The following options were outstanding at 31 March 2016:
Date of Issue
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
27 Jun 11
16 Dec 11
16 Dec 11
13 Aug 12
27 Nov 13
02 Dec 13
03 Sep 14
19 Jan 15
Number
27,517
12,500
3,781
57,719
44,550
10,000
15,500
33,500
6,390
10,017
8,264
125,363
11,327
76,700
29,810
9,523
13,154
5,000
500,615
Exercise
Price
pence
Share price
at grant date
pence
Fair value
per share
pence
Total fair
value
£
Earliest
Exercise
date
Latest
Exercise
date
330.0
319.0
365.0
207.5
290.0
290.0
390.0
342.5
313.0
302.5
302.5
267.5
267.5
404.0
369.0
367.5
353.5
272.5
332.5
340.0
375.0
207.5
290.0
290.0
397.5
337.5
313.0
303.5
303.5
261.5
261.5
404.0
369.0
367.5
353.5
272.5
73.0
119.0
131.0
56.0
72.0
72.0
145.0
124.0
106.0
94.0
94.0
68.0
68.0
92.0
109.0
109.0
100.0
63.0
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
32,076
15 Jul 12
14 Jul 19
7,200
15 Jul 12
31 Jan 17
22,475
9 Dec 12
8 Dec 19
41,540
21 Dec 13
20 Dec 20
6,773
28 Apr 14
27 Apr 21
9,416
7,768
27 Jun 14
30 Apr 16
27 Jun 14
26 Jun 21
85,247
16 Dec 14
15 Dec 21
7,702
16 Dec 14
30 Apr 16
70,564
13 Aug 15
12 Aug 22
32,493
27 Nov 16
26 Nov 23
10,380
31 Jan 16
31 Jul 16
13,154
03 Sep 17
02 Sep 24
3,150
19 Jan 18
18 Jan 25
422,176
The total number of options outstanding at 31 March 2016, excluding nil cost options, was 500,615 (2015: 727,198). 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
60
Notes to the financial statements
CONTINUED
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 years ending 31 March 2016 and 31 March 2015 no
options 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
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
(£)
2016
3.35
3.82
-
3.89
3.10
3.06
4.6
Number
of options
2016
727,198
(25,000)
-
(201,583)
500,615
452,651
Weighted
average
exercise price
(£)
2015
3.49
3.66
3.31
5.20
3.35
3.24
4.3
Number
of options
2015
774,896
(8,160)
18,154
(57,692)
727,198
593,011
The range of exercise prices of outstanding options at 31 March 2016 is from £2.075 (2015: £2.075) to £4.040 (2015: £4.250).
In addition to the options above, 22,642 nil cost options were granted to John Foster on 10 June 2015. These outstanding
options are noted below:
Date of Issue
10 Jun 15
10 Jun 15
10 Jun 15
Number
7,548
7,547
7,547
22,642
Exercise
Price
pence
Share price
at grant date
pence
Fair value
per share
pence
Total
fair
value
Earliest
Exercise
Latest
Exercise
-
-
-
265.0
265.0
265.0
265.0
265.0
265.0
20,002
10 Jun 16
10 Jun 19
20,000
10 Jun 17
10 Jun 19
20,000
10 Jun 18
10 Jun 19
60,002
Total share based payment expense recognised in the year
2016
£’000
61
2015
£’000
90
ANNUAL REPORT 2016
61
26. Capital and reserves
Share capital
In issue at the start and end of the year
Allotted, called up and fully paid Ordinary shares of 10p each
Ordinary Shares
2016
2015
12,431,623
12,431,623
2016
£’000
1,243
2015
£’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 2016 the plan held 28,016 (2015: 28,016)
ordinary shares at a cost of £55,005 (2015: £55,005). The market value of the shares at 31 March 2016 was £56,312 (2015:
£77,464). Shares held in the ESOP are entitled to receive a nominal 0.01p per share in each dividend payment.
Treasury shares
Following shareholder approval, received on 12 January 2016, the Company’s share capital underwent a reorganisation, as a
result of which the number of shareholders was reduced from 2,136 to 758. The existing ordinary shares were consolidated
into ordinary shares of £100 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 13 January 2016. The 297,505 new ordinary shares representing the fractional
entitlements purchased by the Company were taken into Treasury.
On 2 February 2016, these 297,505 shares held in Treasury along with the 18,381 shares held in Treasury since August 2013,
were sold for 231.95 pence each. 315,180 shares were sold to Blackfish Capital Management Limited, who now holds 2,815,180
shares in the Company. Edmund Rowland, the Chairman of the Company, is also a director of Blackfish Capital Management
Limited. Following this sale, there are now no shares held in Treasury.
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: None (2015: 7.5p) per qualifying ordinary share
Interim: None (2015: 4.0p) per qualifying ordinary share
2016
£’000
-
-
-
2015
£’000
929
495
1,424
FALKLAND ISLANDS HOLDINGS PLC
62
Notes to the financial statements
CONTINUED
27. Financial instruments
(i) Fair values of financial instruments
Investments in equity securities
The fair value of the investment in Falkland Oil and Gas Limited was 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.
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
Interest rate swap liability
Financial liabilities at amortised cost
Interest-bearing borrowings at amortised cost
Group
Company
2016
£’000
-
14,037
1,565
3,920
19,522
(87)
(11,157)
(8,401)
2015
£’000
1,500
7,435
1,105
4,512
13,052
-
(10,214)
(5,873)
2016
£’000
-
11,761
-
15
11,776
(87)
(3,188)
-
2015
£’000
-
9,379
-
12
9,391
-
(562)
-
Available for sale financial assets are valued using a level 1 methodology. The interest rate swap has been valued using a level 2
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.
ANNUAL REPORT 2016
63
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 £19,522,000 (2015: £13,052,000) being the total
trade receivables, hire purchase debtors and cash and cash equivalents in the balance sheet. The credit risk on cash balances
and the interest rate swap 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
Total trade receivables
Group
2016
£’000
980
401
345
1,687
507
3,920
The Company has no trade debtors
Credit quality of financial assets and impairment losses
Group
Not past due
Past due 0-30
days
Past due 31-120
days
More than 120
days
Gross
2016
£’000
2,932
619
133
445
4,129
Impairment
2016
£’000
-
-
-
(209)
(209)
Net
2016
£’000
2,932
619
133
236
Gross
2015
£’000
3,473
633
228
399
3,920
4,733
Impairment
2015
£’000
-
-
-
(221)
(221)
2015
£’000
1,488
414
433
1,696
481
4,512
Net
2015
£’000
3,473
633
228
178
4,512
FALKLAND ISLANDS HOLDINGS PLC
64
Notes to the financial statements
CONTINUED
27. Financial instruments CONTINUED
The movement in the allowances for impairment in respect of trade receivables during the year was:
Balance at 1 April 2015
Impairment loss recognised
Impairment loss reversed
Cash received
Utilisation of provision (debts written off)
Balance at 31 March 2016
Group
2016
£’000
221
69
(33)
(30)
(18)
209
2015
£’000
257
44
(28)
(14)
(38)
221
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 £0.7 million. In April 2015, a further loan of £2.4 million
was drawn down, to be repaid over ten years, which has been secured against Harbour Spirit, the new vessel. In June 2015,
the Group drew down a further £0.5 million to be repaid over ten years, which has been secured against the net assets of
Falkland Islands Holdings plc and the net assets of all its UK subsidiaries. All payments due during the year with respect to these
agreements were met as they fell due.
The Company had no bank loans at the start or end of the year.
The Group manages its cash balances centrally at head office and prepares rolling cash flow forecasts to ensure funds are
available to meet its secured and unsecured commitments as and when they fall due.
Liquidity risk – Group
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effects
of netting agreements:
2016
Non-derivative financial liabilities
Secured bank loans
Finance leases
Interest rate swap liability
Trade and other payables
Carrying
amount
Contractual
cash flows 1 yearor less
1 to 2 years
2 to 5 years
5 years and
over
£’000
£’000
£’000
£’000
£’000
£’000
3,264
5,137
87
11,157
19,645
3,684
12,096
146
11,157
27,083
494
384
43
11,157
12,078
494
333
37
-
864
2,696
914
66
-
-
10,465
-
-
3,676
10,465
ANNUAL REPORT 2016
65
2015
Non-derivative financial liabilities
Secured bank loans
Finance leases
Trade and other payables
Carrying
amount
Contractual
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
The contractual cash flows for finance leases in the years ended 31 March 2016 and 31 March 2015 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 2061.
Liquidity risk – Company
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the effects
of netting agreements:
2016
Non-derivative financial liabilities
Interest rate swap liability
Trade and other payables
Carrying
amount
Contractual
cash flows 1 year or less
1 to 2 years
2 to 5 years
5 years and
over
£’000
£’000
£’000
£’000
£’000
£’000
87
601
688
146
601
747
43
601
644
37
-
37
66
-
66
-
-
-
2015
Non-derivative financial liabilities
Trade and other payables
Carrying
amount
Contractual
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
-
-
-
-
-
-
(iv) Market Risk
Financial risk management
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the
Group’s income or the value of its holdings of financial instruments.
FALKLAND ISLANDS HOLDINGS PLC
66
Notes to the financial statements
CONTINUED
27. Financial instruments CONTINUED
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.
31 March 2016
Cash and cash equivalents
Trade and other receivables
Trade payables and other payables
Balance sheet exposure
Group
USD
£’000
Other
£’000
Total
Balance
sheet
exposure
£’000
GBP
£’000
Total
£’000
204
-
(62)
142
4
-
(69)
(65)
282
13,755
14,037
-
4,853
4,853
(304)
(10,940)
(11,244)
(22)
7,668
7,646
EUR
£’000
74
-
(173)
(99)
31 March 2015
EUR
£’000
USD
£’000
Other
£’000
Total
Balance
sheet
exposure
£’000
GBP
£’000
Total
£’000
Group
Cash and cash equivalents
Trade and other receivables
Trade payables and other payables
Balance sheet exposure
15
-
(315)
(300)
102
38
(197)
(57)
4
-
(48)
(44)
121
38
(560)
(401)
7,314
5,270
7,435
5,308
(9,654)
(10,214)
2,930
2,529
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 2015.
EUR
USD
Equity
Profit or Loss
2016
£’000
2015
£’000
2016
£’000
2015
£’000
10
(14)
30
6
10
(14)
30
6
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.
ANNUAL REPORT 2016
67
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
Effect of Interest rate swap liability
Financial liabilities
Group
Company
2016
£’000
2015
£’000
2016
£’000
2015
£’000
1,565
(5,137)
(3,572)
(87)
(3,264)
(3,351)
1,105
(5,138)
(4,033)
-
(735)
(735)
-
-
-
(87)
-
(87)
-
-
-
-
-
-
At 31 March 2016, the group had three bank loans:
(i) £0.6 million repayable over five years, which has been secured against two vessels in Portsmouth. Interest is payable on this
loan at 2.8% over the Bank of England base rate;
(ii) £2.2 million repayable over ten years, with interest charged at 2.6% above the bank of England base rate; and
(iii) £0.5 million repayable over ten years, with interest charged at 1.75% above the Bank of England base rate.
The interest payable on these loans has been hedged by one interest swap, taken out in October 2015 with a notional value of
£3.6 million, with interest payable at the difference between 1.325% and the Bank of England Base rate. This interest rate swap
notional value will decrease at £36,250 per month over five years until September 2020 when it will expire.
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 2015.
Equity
Interest rate swap liability
Variable rate financial liabilities
Profit or Loss
Interest rate swap liability
Variable rate financial liabilities
Group
Company
2016
£’000
34
(33)
34
(33)
2015
£’000
2016
£’000
2015
£’000
-
(7)
-
(7)
34
-
34
-
-
-
-
-
Market risk – equity price risk
The Group no longer has an exposure to equity price risk since the sale of the shares in Falkland Oil and Gas Limited in April 2015
(see note 15).
(v) Capital Management
The Group’s objectives when managing capital, which comprises equity and reserves at 31 March 2016 of £38,569,000 (2015:
£36,688,000) 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.
FALKLAND ISLANDS HOLDINGS PLC
68
Notes to the financial statements
CONTINUED
28. Operating leases
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
Group
2016
£’000
910
3,785
8,895
2015
£’000
841
3,104
7,402
13,590
11,347
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 £921,000 was recognised as an expense in the income statement of operating leases (2015: £864,000).
The Company had no operating lease commitments.
29. Capital commitments
At 31 March 2016, the group had entered into contractual commitments of £412,000, including £345,000 for the Momart Storage
facility expansion at Unit 14 in Leyton, £32,000 for a truck at Momart and £35,000 for the pontoon refurbishment at Portsea. At
31 March 2015, the Group had capital commitments of £141,000 for trucks 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 23.4% (2015: 21.0%) of the voting shares of the Company at
31 March 2016.
The compensation of key management personnel (including Directors) is as follows:
Key management emoluments including social security costs
Termination payments, including social security costs
Company contributions to defined contribution pension plans
Share-related awards
Total key management personnel compensation
Group
Company
2016
£’000
1,194
146
82
52
1,474
2015
£’000
1,504
217
81
69
1,871
2016
£’000
382
-
-
39
421
2015
£’000
480
217
-
52
749
In the year ended 31 March 2016, the £378,000 loan due from the Group’s joint venture, SAtCO, was repaid. This loan had arisen
in December 2013, when the Group made a loan of £529,000 to 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. £151,000 of this loan had already been repaid in the year
ended 31 March 2015.
All staff involved in construction activities were contracted directly from parent companies FIC and Trant Construction and at 31
March 2016 and 2015 SAtCO had no permanent employees.
FALKLAND
ISLANDS
HOLDINGS PLC
KENBURGH COURT
133-137 SOUTH STREET
BISHOP’S STORTFORD
HERTS, CM23 3HX
Tel: 01279 461630
69
31. Accounting estimates and judgements
The preparation of financial statements in conformity with adopted IFRS requires management to make judgements, estimates
and assumptions that effect the application of policies and reported amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based upon historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of the judgements as to asset and liability carrying values
which are not readily apparent from other sources. Actual results may vary from these estimates, and 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 liability (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.
ANNUAL REPORT 2016 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 Bell and Dyson LLP
50 Broadway,
Westminster,
London SW1H 0BL
Auditor
KPMG LLP
St. Nicholas House,
31 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
Kevin Ironside
Director
Telephone: 00 500 27600
Email: fic@horizon.co.fk
Website: www.the-falkland-islands-co.
com
The Portsmouth Harbour
Ferry Company
Jeremy Clarke
Director and General Manager
Telephone: 02392 524551
Email: admin@gosportferry.co.uk
Website: www.gosportferry.co.uk
Momart Limited
Kenneth Burgon
Director
Peter Brayshaw
Commercial and Financial Director
Telephone: 020 7426 3000
Email: enquiries@momart.co.uk
Website: www.momart.com
FALKLAND ISLANDS HOLDINGS PLC