Company Registration No. 03896382 (England and Wales)
PROSPEX OIL AND GAS PLC
DIRECTORS' REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
PROSPEX OIL AND GAS PLC
COMPANY INFORMATION
Directors
Secretary
William Smith
Edward Dawson
Richard Mays
Gavin Burnell
Gerry Desler FCA
(Appointed 14 April 2015)
(Appointed 14 April 2015)
(Appointed 14 April 2015)
(Appointed 14 April 2015)
Company number
03896382
Registered office
Auditors
Bankers
Solicitors
Nominated Adviser and Joint Broker
Joint Broker
Registrars
Stonebridge House
Chelmsford Road
Hatfield Heath
Essex CM22 7BD
Adler Shine LLP
Chartered Accountants and Statutory Auditor
Aston House
Cornwall Avenue
London N3 1LF
Royal Bank of Scotland Plc
London Blackfriars Branch
36 - 37 New Bridge Street
London EC4V 6BJ
Nabarro LLP
Lacon House
Theobald's Road
London WC1X 8RW
W H Ireland Limited
24 Martin Lane
London EC4 0DR
Peterhouse Corporate Finance Limited
3rd Floor, New Liverpool House
London EC2M 7LD
Capita Registrars Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
PROSPEX OIL AND GAS PLC
CONTENTS
Chairman's report
Strategic report
Directors' report
Independent auditors' report
Consolidated statement of comprehensive income
Consolidated statement of financial position
Company statement of financial position
Consolidated statement of changes in equity
Company statement of changes in equity
Consolidated statement of cash flows
Company statement of cash flows
Page
1
2 - 4
5 - 7
8 - 9
10
11
12
13
14
15
16
Notes to the financial statements
17 - 39
PROSPEX OIL AND GAS PLC
CHAIRMAN'S REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
On 15 April 2015 the Company's shareholders approved a new direction for the Company and elected a new
Board of Directors. Concurrently, a new group of investors came forward to entrust the new management
and Board with stewardship of their investment. Thank you all for the opportunity.
As an investment company, in accordance with the Investing Policy, the Company is seeking companies and
projects in the natural resources and energy sectors which have potential for income, potential for growth, or
both. Since 15 April 2015, your Company and its advisors and consultants have been very active and have
initiated a number of reviews and evaluations of possible deals. This process is not a trivial exercise as it
involves identifying an appropriate opportunity which is financeable within the reasonable limits of the
Company, and undertaking a technical review, initially at a high level. These opportunities are graded
internally and the best ones merit further engagement with management of the prospective counter party.
The team is hard at work.
It is noteworthy that there are a number of deals which initially seem attractive at current world energy
pricing which we have under review. We continue to seek, review and negotiate on appropriate
transactions. It is the current intention of the Board to complete at least one significant transaction within the
next 12 months. All efforts are focused on finding the right combination of opportunity and price.
Regarding the financial statements of the Company for the year ended 31 December 2014, other than the
subsequent event note, we have no further comments. However, we wish to acknowledge the work of the
former Board and management of the Company. We are committed to increasing value for all shareholders.
On behalf of the Board, I would also like to extend thanks to the advisors and service providers who were
instrumental in allowing the reorganisation and the financing to go forward. These include Adler Shine LLP
(auditors), WH Ireland Limited (NOMAD and Joint Broker), Nabarro LLP (legal counsel) and in particular the
efforts of Peterhouse Corporate Finance Limited (Joint Brokers).
William Smith
Chairman
16 June 2015
- 1 -
PROSPEX OIL AND GAS PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
The directors present their strategic report for the year ended 31 December 2014.
Principal activities
The principal activity of the Group during the year ended 31 December 2014 was related to mineral
exploration for gold and precious metals. The Group operated in Kyrgyzstan in the year under review.
Strategy
Up until 15 April 2015, Prospex Oil and Gas plc was a gold exploration and development company quoted
on the AIM market of the London Stock Exchange. It focused on gold opportunities in Central Asia, in
particular Kyrgyzstan, where the Group’s Cholokkaindy project, on the highly prospective Tien Shan gold
belt, had numerous targets ready for drilling.
Following the general meeting held on 15 April 2015, the Company disposed of its entire interest in the
Cholokkaindy Licence by selling the entire issued share capital of Central Asia Resources Limited in
exchange for the Trivedi Capital Partners (I) LC reducing its loan from £580,000 to £nil. At the same time the
Company changed its name from Premier Gold Resources Plc to Prospex Oil and Gas plc.
Following the sale, the Company's new Investing Policy is to invest in and/or acquire companies and/or
projects within the natural resources and/or energy sector with potential for growth and/or income. The
Company may also directly apply for new exploration licences or invest in existing licences. It is anticipated
that the geographical focus will primarily be Europe. However, investments may also be considered in other
regions should the directors consider that valuable opportunities exist and returns can be achieved.
Business review
Following the early exploration success in 2012, no further exploration was possible in the Kyrgyz Republic
due to local groups holding up the work programmes illegally. Despite pressing the Kyrgyz authorities and
threatening legal action against the government to ensure safe access to the area, little progress was made
during 2014. Additionally, the necessary and anticipated funds for the work were not available to the
Company. As a result, the Company changed its strategy as detailed above.
A review of the development and performance of the Group, including important events, progress during the
year and likely future developments, can be found in the Chairman's Statement.
In summary:
- administrative expenses for the year fell to £615,022 (2013: £873,310);
- fair value loss on the derivative financial assets £168,188 (2013: £473,833);
- impairment charges against licence and exploration costs of £3,729,777 (2013: £nil);
- net loss after taxation was £4,580,445 (2013: £1,531,593);
- as at 31 December 2014, the Group had cash and cash equivalents of £22,734 (2013: £274,539);
Key performance indicators
The business Key Performance Indicators ('KPI') monitored by the Board are focussed on managing the
activities of the Group in the exploration and appraisal of mineral reserves. The financial KPI is to ensure
that there is adequate funding in place to cover the Group's exploration expenditure and holding company
costs.
Principal risks and uncertainties
The Board regularly reviews the risks to which the Group is exposed and seeks to minimise the effects of
these risks through careful monitoring of the risks on an ongoing basis.
The principal risks and uncertainties which the Group faced during the year ended 31 December 2014 were:
- 2 -
PROSPEX OIL AND GAS PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
Operational
In common with other businesses operating in minerals exploration, the Group's activities were speculative
and inherently subject to a high degree of risk.
The Group's operational work involved geological exploration and the implementation of geological work
programmes. Interpretation of the results of these programmes was dependent upon judgements and
assessments that by their very nature were speculative.
Work programmes involved drilling operations and other geological work that present significant engineering
challenges which are subject to unexpected operational problems. The actual cost of programmed
operations can vary significantly from planned levels as a result of such unexpected issues arising.
Political, economic, legal, regulatory and social
The Group operated in Kyrgyzstan which may be subject to political, economic and other uncertainties,
including but not limited to terrorism, war or unrest, changes in national laws and energy policies and
exposure to its legal system.
The Group assesses legal and political risks as part of its evaluation of potential projects. It actively monitors
legal and political developments in Kyrgyzstan where its operation is located. The Group actively engages in
dialogue with the local government and legal policy makers to discuss all key legal and regulatory
developments applicable to its operations.
Business strategy
Since the year end, the Company has changed its strstegy and faces different risks and uncertainties,
including:
The Group has only recent adopted a new Investing Policy to invest in and/or acquire companies and/or
projects within the natural resources and/or energy sector. The Company may also directly apply for new
exploration licenses or invest in existing licences.
There is a risk that the Company may be unable to complete an acquisition or acquisitions or otherwise
implement the Investing Policy within twelve months of becoming an investing company. The Directors will
seek to identify suitable acquisition targets and complete the necessary due diligence within the required
timeframe.
Organisational
The Company is highly dependent on the Directors. Whilst the board will continue to ensure that the
Directors are appropriately incentivised, their services cannot be guaranteed, and the loss of their services
to the Company may have a material adverse effect on the performance of the Company and the Group. In
addition, the competition for qualified personnel in the oil and gas industry can be intense and there can be
no assurance that the Company will be able to attract and retain all personnel necessary in the required
jurisdictions for the future development and operation of its business.
Corporate governance
The board is committed to maintaining high standards of corporate governance. While Prospex Oil and Gas
plc does not formally comply with an official corporate governance code, the board has implemented
appropriate measures including the establishment of Audit and Remuneration Committees (detailed below)
to ensure that the company adheres to a standard which is practicable for a company of its size and stage.
- 3 -
PROSPEX OIL AND GAS PLC
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
Remuneration committee
The Remuneration Committee consists of William Smith, Gavin Burnell and Richard Mays who also chairs
the committee, and is responsible for making recommendations to the Board, within agreed terms of
reference, on the Company’s framework of executive remuneration and its cost. The Committee determines
the contract terms, remuneration and other benefits for any executive directors, including performance
related bonus schemes, pension rights and compensation payments. The Board itself determines the
remuneration of the non-executive directors.
Audit committee
The Audit Committee consists of Richard Mays, William Smith and Gavin Burnell, who also chairs the
committee, and provides a forum for reporting by the Company’s external auditors. The Committee is
responsible for reviewing a wide range of matters, including half-year and annual results before their
submission to the Board, and for monitoring the controls that are in force to ensure the integrity of
information reported to shareholders. The Committee advises the Board on the appointment of external
auditors and on their remuneration for both audit and non-audit work, and discusses the nature, scope and
results of the audit with the external auditors. The Committee keeps under review the cost effectiveness and
the independence and objectivity of the external auditors.
Edward Dawson
Chief Executive Officer
16 June 2015
- 4 -
PROSPEX OIL AND GAS PLC
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
The directors present their report and financial statements for the year ended 31 December 2014.
On 16 April 2015, the company changed its name from Premier Gold Resources Plc to Prospex Oil and Gas
plc.
Results and dividends
The results for the year are set out on page 10.
The directors do not recommend payment of an ordinary dividend.
Financial instruments
The company's financial risk management objectives and policies are set out in note 26 to the financial
statements.
Going concern
In common with many investment companies, the Company raises finance for its investments, as and when
required.
The Directors prepare annual budgets and cash flow projections that extend beyond 12 months from the date
of this report. These projections include the planned expenditure necessary to implement the Investment
Policy.
Directors
The following Directors held office during the period:
Colonel Robert Stewart
Richard Nolan
Dr Reza Tabrizi
Gerry Desler
Christian Schaffalitzky
Garth Earls
The following directors were appointed after the year end:
Edward Dawson
Richard Mays
William Smith
Gavin Burnell
(Resigned 14 October 2014)
(Resigned 14 April 2015)
(Resigned 19 June 2014)
(Resigned 14 April 2015)
(Resigned 14 April 2015)
(Resigned 14 April 2015)
(Appointed 14 April 2015)
(Appointed 14 April 2015)
(Appointed 14 April 2015)
(Appointed 14 April 2015)
Directors' interests
Share interests
The Directors of the Company held the following beneficial interests in the ordinary shares of the Company:
Colonel Robert Stewart (resigned 14 October 2014)
Richard Nolan
Dr Reza Tabrizi (resigned 19 June 2014)
Gerry Desler
Christian Schaffalitzky
Garth Earls
- 5 -
31 December 2014
1 January 2014
No. of shares
-
5,000,000
-
10,584,672
28,177,341
5,000,000
No. of shares
3,000,000
5,000,000
21,666,667
10,584,672
23,177,341
5,000,000
48,762,013
68,428,680
PROSPEX OIL AND GAS PLC
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
Share options
The Directors of the Company held share options granted under the Company share option scheme, as
indicated below. No share options were exercised during the year.
Colonel Robert Stewart (resigned 14 October 2014)
Richard Nolan
Dr Reza Tabrizi (resigned 19 June 2014)
Gerry Desler
Christian Schaffalitzky
Garth Earls
31 December 2014
No. of shares
-
10,000,000
-
14,000,000
10,000,000
10,000,000
1 January 2014
No. of shares
2,000,000
10,000,000
10,000,000
14,250,000
10,000,000
10,000,000
44,000,000
56,250,000
Directors' insurance
The Directors and officers of the Company are insured against any claims against them for any wrongful act in
their capacity as a Director, officer or employee of the Group, subject to the terms and conditions of the policy.
Substantial shareholdings
So far as the Directors are aware the parties who are directly or indirectly interested in 3% or more of the
nominal value of the Company's share capital are as follows:
Charles Fry
Number of ordinary
shares
1,639,344
% of issued share
capital
4.02%
The market value of the Company's shares at 31 December 2014 was 0.07p and the high and low share prices
during the period were 0.165p and 0.045p respectively.
Charitable donations
During the year the company made the following payments:
Charitable donations
2014
£
1,000
2013
£
-
Creditor payment policy
The company's current policy concerning the payment of trade creditors is to:
- settle the terms of payment with suppliers when agreeing the terms of each transaction;
- ensure that suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts;
and
- pay in accordance with the company's contractual and other legal obligations.
On average, trade creditors at the year end represented 56 days' purchases.
Auditors
In accordance with section 489 of the Companies Act 2006, a resolution proposing that Adler Shine LLP be
reappointed as auditors of the company will be put to the Annual General Meeting.
- 6 -
PROSPEX OIL AND GAS PLC
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
Statement of disclosure to auditor
So far as each person serving as a Director of the Company at the date this report is approved is aware, there
is no relevant audit information of which the Company's auditors are unaware. The Directors have taken all the
steps that they ought to have taken as directors in order to make themselves aware of any relevant audit
information and to establish that the Company's auditors are aware of that information.
Directors' responsibilities
The Directors are responsible for preparing the Directors' Report and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law, as
required by the AIM Rules of the London Stock exchange, the Directors have chosen to prepare financial
statements for the Group and the Company in accordance with International Financial Reporting Standards
('IFRSs') as adopted by the European Union.
International Accounting Standard 1 requires that financial statements present fairly for each financial year the
Company's financial position, financial performance and cash flows. This requires the faithful representation of
the effects of transactions, other events and conditions in accordance with the definitions and recognition
criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's
'Framework for the preparation of financial statements'. In virtually all circumstances, a fair presentation will be
achieved by compliance with all applicable IFRSs. In preparing these financial statements, the directors are
required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and accounting estimates that are reasonable and prudent;
- state whether applicable IFRSs have been followed, subject to any material departures disclosed and
explained in the financial statements;
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Company's transactions and disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
Website publication
Financial statements are published on the Group's website in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation
in other jurisdictions. The maintenance and integrity of the Group's website is the responsibility of the
Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements
contained therein.
This report was approved by the board of directors and signed on its behalf by:
Edward Dawson
Director
16 June 2015
- 7 -
PROSPEX OIL AND GAS PLC
INDEPENDENT AUDITORS' REPORT
TO THE MEMBERS OF PROSPEX OIL AND GAS PLC
We have audited the Group and Parent Company financial statements (the "financial statements") of Prospex
Oil and Gas plc for the year ended 31 December 2014 which comprise the Group Statement of
Comprehensive Income, the Group and Parent Company Statement of Financial Position, the Group and
Parent Company Statement of Cash Flows, the Group and Parent Company Statement of Changes in Equity
and the related notes. The financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
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 auditors' report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
Company and the Company's members as a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors' Responsibilities Statement set out on page 7, 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
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient
to give reasonable assurance that the financial statements are free from material misstatement, whether
caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to
the Group's and the Parent Company's circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall
presentation of the financial statements. In addition, we read all the financial and non-financial information in
the annual report and financial statements to identify material inconsistencies with the audited financial
statements and to identify any information that is materially incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the financial statements:
-
give a true and fair view of the state of the Group's and the Parent Company's affairs as at 31 December
2014 and of the Group's loss for the year then ended;
have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union; and
have been prepared in accordance with the requirements of the Companies Act 2006.
-
-
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and the Directors' Report for the financial year for
which the financial statements are prepared is consistent with the financial statements.
- 8 -
PROSPEX OIL AND GAS PLC
INDEPENDENT AUDITORS' REPORT (CONTINUED)
TO THE MEMBERS OF PROSPEX OIL AND GAS PLC
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.
-
-
-
Christopher Taylor
(Senior Statutory Auditor)
for and on behalf of Adler Shine LLP
Chartered Accountants
Statutory Auditor
16 June 2015
Aston House
London
N3 1LF
- 9 -
PROSPEX OIL AND GAS PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2014
Notes
4
19
5
10
5
6
15
7
8
Administrative expenses
Share based payments
Operating loss
Loss on disposal of subsidiary
Impairment charges
Loss on ordinary activities after
impairment charges and before
interest
Finance income
Fair value loss on derivative financial
assets
Finance expense
Loss before income taxation
Income tax expense
Loss on ordinary activities after
taxation
Non-controlling interests
Loss for the year and total
comprehensive income attributable
to owners of the parent
2014
£
(615,023)
-
(615,023)
-
(3,729,777)
(4,344,800)
34
(168,188)
(67,491)
(4,580,445)
-
(4,580,445)
771,232
2013
£
(873,310)
(24,666)
(897,976)
(150,724)
-
(1,048,700)
190
(473,833)
(9,250)
(1,531,593)
-
(1,531,593)
52,771
(3,809,213)
(1,478,822)
Loss per share - basic and diluted
From continuing operations
9
(0.28)p
(0.14)p
The notes on pages 17 - 39 form an integral part of these financial statements.
- 10 -
PROSPEX OIL AND GAS PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2014
Notes
10
11
15
13
14
15
16
17
18
20
ASSETS
Non current assets
Intangible assets
Tangible assets
Derivative financial assets
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Net current liabilities
Net (liabilities)/assets
EQUITY
Share capital
Share premium account
Equity component - convertible loan note
Capital redemption reserve
Merger reserve
Profit and loss account
Foreign currency reserve
Non-controlling interests
Total (deficit)/equity
977
33,928
46,359
22,734
103,998
(365,873)
(479,784)
2014
£
-
10,355
-
10,355
(741,659)
(731,304)
2,304,398
6,063,208
100,216
43,333
2,416,667
(11,531,728)
39,467
(564,439)
(166,865)
(731,304)
Approved by the Board and authorised for issue on 16 June 2015
Edward Dawson
Director
Gavin Burnell
Director
Company Registration No. 03896382
The notes on pages 17 - 39 form an integral part of these financial statements.
- 11 -
-
16,445
236,250
274,539
527,234
(240,207)
(410,717)
2013
£
3,752,241
14,628
126,875
3,893,744
(123,690)
3,770,054
2,288,898
6,059,750
89,283
43,333
2,416,667
(7,722,515)
(3,874)
3,171,542
598,512
3,770,054
PROSPEX OIL AND GAS PLC
COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2014
ASSETS
Non current assets
Investments
Derivative financial assets
Current assets
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Net current liabilities
Net (liabilities)/assets
EQUITY
Share capital
Share premium account
Equity component - convertible loan note
Capital redemption reserve
Merger reserve
Profit and loss account
Notes
£
2014
£
£
2013
£
12
15
14
15
16
17
18
20
-
-
-
2,503,170
126,875
2,630,045
25,357
46,359
22,487
94,203
1,383,471
236,250
269,935
1,889,656
(338,233)
(479,784)
(209,557)
(410,717)
(723,814)
(723,814)
2,304,398
6,063,208
100,216
43,333
2,416,667
(11,651,636)
1,269,382
3,899,427
2,288,898
6,059,750
89,283
43,333
2,416,667
(6,998,504)
Total shareholders' (deficit)/equity
(723,814)
3,899,427
The financial statements were approved by the Board on 16 June 2015
Edward Dawson
Director
Company Registration No. 03896382
Gavin Burnell
Director
The notes on pages 17 - 39 form an integral part of the financial statements.
- 12 -
PROSPEX OIL AND GAS PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2014
Share
capital
-
Share
premium
Retained
earnings
Foreign
currency
reserve
Capital
redemption
reserve
Merger
reserve
Non
controlling
interests
Convertible
loan note
Total
Balance at 1 January 2013
Changes in equity for 2013
Total comprehensive income for the
year
On disposal of subsidiaries
Issue of shares
Costs in respect of shares issued
Convertible loan note - equity
component
Equity-settled share-based payments
Currency translation differences on
foreign currency net investments
Balance at 31 December 2013
Changes in equity in 2014
Total comprehensive income for the
year
Issue of shares
Costs in respect of shares issued
Convertible loan note - equity
component
Currency translation differences on
foreign currency net investments
18
19
20
18
£
-
-
-
-
-
-
£
4,692,349
(1,531,593)
54,210
485,000
(20,750)
£
£
£
£
£
£
£
1,951,415
5,932,983
(6,268,359)
26,230
43,333
2,416,667
590,080
-
-
337,483
-
-
-
147,517
(20,750)
(1,478,822)
-
-
-
-
-
-
-
-
-
(52,771)
54,210
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24,666
-
(30,104)
-
-
89,283
-
89,283
24,666
6,993
-
(23,111)
2,288,898
6,059,750
(7,722,515)
(3,874)
43,333
2,416,667
598,512
89,283
3,770,054
-
15,500
-
-
7,750
(4,292)
(3,809,213)
-
-
-
-
-
-
-
-
-
-
-
-
43,341
-
-
-
-
-
-
-
-
-
-
(771,232)
-
-
-
5,855
-
-
-
(4,580,445)
23,250
(4,292)
10,933
-
10,933
49,196
Balance at 31 December 2014
2,304,398
6,063,208
(11,531,728)
39,467
43,333
2,416,667
(166,865)
100,216
(731,304)
The merger reserve has been created as a result of the acquisition of the whole of the issued share capital of Central Asia Resources Limited ('CAR') by the Company in
exchange for shares in the Company and the nominal value. It represents the difference between the fair value of the share capital issued by the Company and the nominal
- 13 -
value.
PROSPEX OIL AND GAS PLC
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2014
Balance at 1 January 2013
Changes in equity for 2013
Total comprehensive income for the
year
Issue of shares
Costs in respect of shares issued
Equity-settled share-based payments
Convertible loan note - equity component
Balance at 31 December 2013
Changes in equity in 2014
Total comprehensive income for the
year
Issue of shares
Costs in respect of shares issued
Convertible loan note - equity component
19
18
20
18
-
Share capital
Share
premium
Retained
earnings
Capital
redemption
reserve
Merger
reserve
Convertible
loan note
Total
£
£
£
£
£
1,951,415
5,932,983
(5,964,841)
43,333
2,416,667
-
337,483
-
-
-
-
147,517
(20,750)
-
-
(1,058,329)
-
-
24,666
-
-
-
-
-
-
-
-
-
-
-
£
-
-
-
-
-
89,283
£
4,379,557
(1,058,329)
485,000
(20,750)
24,666
89,283
2,288,898
6,059,750
(6,998,504)
43,333
2,416,667
89,283
3,899,427
-
15,500
-
-
-
7,750
(4,292)
-
(4,653,132)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,933
(4,653,132)
23,250
(4,292)
10,933
Balance at 31 December 2014
2,304,398
6,063,208
(11,651,636)
43,333
2,416,667
100,216
(723,814)
The merger reserve has been created as a result of the acquisition of the whole of the issued share capital of Central Asia Resources Limited ('CAR') by the Company
in exchange for shares in the Company. It represents the difference between the fair value of the share capital issued by the Company and nominal value.
- 14 -
PROSPEX OIL AND GAS PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2014
Cash flows from operating activities
Operating loss
Depreciation of property, plant and equipment
Amortisation of intangible assets
Increase in inventories
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Equity-settled share based payments
Other movement
Net cash used in operating activities
Investing activities
Finance income
Finance expense
Net cash (outflow)/inflow investing
activities
Capital expenditure
Payments to acquire intangible assets
Payments to acquire tangible assets
Net cash outflow for capital
expenditure
Acquisitions and disposals
Cash on disposal of subsidiary
undertaking
Net cash inflow/(outflow) for
acquisitions and disposals
Financing activities
Issue of share capital
Proceeds received from issue of
derivative financial asset
Cost of share issue
Convertible unsecured loan notes
Net cash generated from financing
activities
Net (decrease)/increase in cash and
cash equivalents in year
Cash and cash equivalents at
beginning of the year
Cash and cash equivalents at end of the year
£
2014
£
£
2013
£
(615,023)
2,946
-
(977)
(17,483)
87,308
-
85,516
(457,713)
(897,976)
4,649
77
-
53,244
34,251
24,666
10,723
(770,366)
34
(5,883)
190
(1,233)
(5,849)
(1,043)
(12,333)
(196)
(51,479)
-
-
-
148,578
(4,292)
80,000
(12,529)
(51,479)
(9,955)
-
(9,955)
225,000
221,275
(20,750)
500,000
224,286
925,525
(251,805)
274,539
22,734
92,682
181,857
274,539
The notes on pages 17 - 39 form an integral part of these financial statements.
- 15 -
PROSPEX OIL AND GAS PLC
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2014
Cash flows from operating activities
Operating loss
Increase in trade and other receivables
Increase in trade and other payables
Equity-settled share based payments
Net cash used in operating activities
Investing activities
Finance income
Finance expense
£
2014
£
£
2013
£
(452,055)
(104,147)
90,318
-
(465,884)
(683,399)
(283,682)
9,601
24,666
(932,814)
34
(5,884)
107,960
(1,040)
Net cash inflow investing activities
(5,850)
106,920
Financing activities
Issue of share capital
Proceeds received from issue of
derivative financial asset
Cost of share issue
Convertible unsecured loan notes
Net cash generated from financing
activities
Net (decrease)/increase in cash and
cash equivalents in the year
Cash and cash equivalents at
beginning of the year
Cash and cash equivalents at end of the year
-
148,578
(4,292)
80,000
225,000
221,275
(20,750)
500,000
224,286
925,525
(247,448)
269,935
22,487
99,631
170,304
269,935
The notes on pages 17 - 39 form an integral part of these financial statements.
- 16 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
1
Accounting policies and basis of preparation
1.1 General information
Prospex Oil and Gas plc (formerly Premier Gold Resources Plc) is incorporated in England and Wales and
is quoted on the AIM Market of the London Stock Exchange Plc. The address of its registered office is
Stonebridge House, Chelmsford Road, Hatfield Heath, Essex CM22 7BD. The registered number of the
company is 03896382.
These financial statements are presented in pounds sterling because that is the currency of the primary
economic environment in which the company operates.
1.2 Going concern
During the year ended 31 December 2014, the Group incurred a loss of £3,809,213 and had net liabilities of
£731,304 at the year end. Since the year end, the Directors proposal for a Company Voluntary Arrangement
("CVA") was approved by creditors and members. The Company also completed a settlement deed with
Tridevi Capital Partner (I) LP ("Tridevi"), disposing of the entire issued share capital of Central Asia
Resource Limited ("CAR"), the Company's wholly owned subsidiary, to Tridevi in full and final settlement of
the outstanding loan of approximately £580,000 under the Convertible Loan Agreement. The Company also
raised £1,076,150 (before expenses) through the issue of 35,283,591 New Ordinary Shares to advance the
Company's Investing Policy, of which £50,000 has been transferred to the Company in order to enable it to
make an improved offer of settlement to the unsecured Creditors of the Company under the CVA. As a
result of the above, the directors are of the opinion that the financial statements should be prepared on a
going concern basis.
1.3 Basis of preparation
The Group financial statements have been prepared in accordance with International Financial Reporting
Standards as adopted by the European Union, (IFRSs) and International Financial Reporting Interpretations
Committee ('IFRIC') interpretations issued by the International Accounting Standards Board (IASB) as
adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies
reporting under IFRS.
The Group financial statements have been prepared under the historical cost convention or fair value where
appropriate.
1.4 Parent company profit and loss account
A separate profit and loss account for the parent company, Prospex Oil and Gas plc, has been omitted
under the provisions of Section 408 of the Companies Act 2006. The loss dealt with in the financial
statements of the parent company was £4,653,132 (2013: £1,058,329).
1.5 Basis of consolidation
The Group financial statements consolidate the financial statements of the Company and all its subsidiaries
('the Group'). Subsidiaries include all entities over which the Group has the power to govern financial and
operating policies. The existence and effect of potential voting rights that are currently exercisable or
convertible are considered when assessing whether the Group controls another entity. Subsidiaries are
consolidated from the date on which control commences until the date that control ceases. Intra-group
balances and any unrealised gains and losses on income or expenses arising from intra-group transactions,
are eliminated in preparing the consolidated financial statements.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the
Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the
original business combination and their share of changes in equity since the date of the combination.
- 17 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
1
Accounting policies
1.6 Business combination
(continued)
The Group adopts the acquisition method in accounting for the acquisition of subsidiaries. On acquisition
the cost is measured at the fair value of the assets given, plus equity instruments issued and liabilities
incurred or assumed at the date of exchange. The assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured at their fair value at the date of acquisition. Any excess
of the fair value of the consideration over the fair value of the identifiable net assets acquired is recorded as
goodwill.
Any deficiency of the fair value of the consideration below the fair value of identifiable net assets acquired is
credited to the income statement in the period of the acquisition.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting
policies used into line with those used by the Group.
1.7 Goodwill
Goodwill on acquisition of subsidiaries represents the excess of the cost of acquisition over the fair value of
the Group's share of the net identifiable net assets and contingent liabilities acquired. Identifiable assets
are those which can be sold separately or which arise from legal rights regardless of whether those rights
are separable. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not
amortised but tested annually, or when trigger events occur, for impairment and is carried at cost less
accumulated impairment losses.
Goodwill is initially recognised at fair value. Any negative goodwill is credited to the income statement in the
year of acquisition. If an undertaking is subsequently sold, the amount of goodwill carried on the balance
sheet at the date of disposal is charged to the income statement in the period of disposal as part of the gain
or loss on disposal.
1.8 Exploration and evaluation development costs
Capitalisation
Certain costs (other than payments to acquire the legal right to explore and costs which are directly
attributable to those payments) incurred prior to acquiring the rights to explore are charged directly to the
income statement. All costs incurred after the rights to explore an area have been obtained, such as
geological and geophysical costs and other direct costs of exploration and appraisal are accumulated and
capitalised as intangible exploration and evaluation ("E&E") assets. These costs are only carried forward to
the extent that they are expected to be recouped through the successful development of the areas or where
activities in the areas have not yet reached a stage which permits reasonable assessment of the existence
of economically recoverable reserves.
E&E costs are not amortised prior to the conclusion of appraisal activities.
At completion of appraisal activities, if technical feasibility is demonstrated and commercial reserves are
discovered, then, following development sanction, the carrying value of the relevant E&E asset will be
reclassified as a development and production ("D&P") asset, but only after the carrying value of the relevant
E&E asset has been assessed for impairment, and where appropriate, its carrying value adjusted. If after
completion of appraisal activities in the area, it is not possible to determine technical feasibility and
commercial viability or if the legal right to explore expires or if the Group decides not to continue exploration
and evaluation activity, then the costs of such unsuccessful exploration and evaluation are written off to the
income statement in the period the relevant events occur.
- 18 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
1
Accounting policies
(continued)
Impairment
If and when facts and circumstances indicate that the carrying value of an E&E asset may exceed its
recoverable amount, an impairment review is performed. For E&E assets when there are such indications,
an impairment test is carried out by grouping the E&E assets with the D&P assets belonging to the same
geographic segment to form the Cash Generating Unit ("CGU") for impairment testing. The equivalent
combined carrying value of the CGU is compared against the CGU's recoverable amount and any resulting
impairment loss is written off to the income statement. The recoverable amount of the CGU is determined
as the higher of its fair value less costs to sell and its value in use.
1.9 Property plant and equipment
Property, plant and equipment are stated at cost or valuation less depreciation. Depreciation is provided at
rates calculated to write off the cost or valuation less estimated residual value of each asset over its
expected useful life, as follows:
Land and buildings - Leasehold
Fixtures, fittings & equipment
Motor vehicles
over the length of the lease
1 - 5 years, straight line
3 - 9 years, straight line
1.10 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises all costs of purchase
and other costs incurred in bringing the inventories to their present location and condition.
1.11 Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are
tested annually for impairment. Assets that are subject to amortisation are tested for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (Cash Generating Units). Non-financial assets other than goodwill that
have suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
1.12 Financial instruments
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group
becomes a party to the contractual provisions of the instrument.
1.13 Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in
an active market. The principal financial assets of the company are loans and receivables, which arise
principally through the provision of goods and services to customers (e.g. trade receivables) but also
incorporate other types of contractual monetary asset. They are included in current assets, except for
maturities greater than 12 months after the balance sheet date. These are classified as non-current assets.
The Group's loans and receivables are recognised and carried at the lower of their original amount less an
allowance for any doubtful amounts. An allowance is made when collection of the full amount is no longer
considered possible.
The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in
the consolidated statement of financial position.
Cash and cash equivalents include cash at bank and in hand and short-term deposits with an original
maturity of three months or less.
- 19 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
1
Accounting policies
(continued)
1.14 Derivative financial instruments
Derivative financial instruments are initially recognised at fair value on the date a derivative contract is
entered into and are subsequently carried at fair value with the changes in fair value recognised in the
income statement.
1.15 Trade and other payables
Trade and other payables are initially measured at fair value and subsequently measured at amortised cost
using the effective interest rate method.
1.16 Convertible debt
The component of convertible debt that exhibits characteristics of debt is recognised as a liability in the
Statement of Financial Position, net of transaction costs. On issue of convertible debt, the fair value of the
liability component is determined using a market rate for an equivalent non-convertible bond and this
amount is carried as a liability on the amortised cost basis until extinguished on conversion or redemption.
The increase in the liability due to the passage of time is recognised as a finance cost. The remainder of the
proceeds is allocated to the equity component and is recognised in shareholders’ equity. The carrying
amount of the equity component is not re-measured in subsequent years. Borrowings are classified as
current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12
months after the balance sheet date.
1.17 Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in the
assets of the entity after deducting all of its financial liabilities.
Where the contractual obligations of financial instruments (including share capital) are equivalent to a
similar debt instrument, those financial instruments are classed as financial liabilities. Financial liabilities are
presented as such in the balance sheet. Finance costs and gains or losses relating to financial liabilities are
included in the profit and loss account. Finance costs are calculated so as to produce a constant rate of
return on the outstanding liability.
Where the contractual terms of share capital do not have any terms meeting the definition of a financial
liability then this is classed as an equity instrument. Dividends and distributions relating to equity
instruments are debited direct to equity.
Equity comprises the following:
- Share capital represents the nominal value of equity shares;
- Share premium represents the excess over nominal value of the fair value of consideration received for
equity shares, net of expenses of the share issue;
- Profit and loss reserve represents retained deficit;
- Other reserve represents the capital redemption reserve arising on redemption of shares in previous years
and own share reserve.
1.18 Equity-settled share-based payment
The Company makes equity-settled share-based payments. The fair value of options and warrants granted
is recognised as an expense, with a corresponding increase in equity. The fair value is measured at grant
date and spread over the vesting period, which is the period over which all of the specified vesting
conditions are to be satisfied. The fair value of the options granted is measured based on the Black-Scholes
framework, taking into account the terms and conditions upon which the instruments were granted. At each
balance sheet date, the Company revises its estimate of the number of options that are expected to become
exercisable. It recognises the impact of the revision to original estimates, if any, in the income statement,
with a corresponding adjustment to equity.
- 20 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
1
Accounting policies
1.19 Foreign currency translation
(continued)
Transactions in currencies other than Sterling, the presentational and functional currency of the Company,
are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates
prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are
denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was
determined. Gains and losses arising on retranslation are included in the income statement for the period,
except for exchange differences on non-monetary assets and liabilities, which are recognised directly in
equity, where the changes in fair value are recognised directly in equity
On consolidation, the assets and liabilities of the Group's overseas entities (none of which has the currency
of a hyper-inflationary economy) are translated at exchange rates prevailing on the balance sheet date.
Income and expense items are translated at the average exchange rates for the period. Exchange
differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such
translation differences are recognised as income or as expenses in the period in which the operation is
disposed of.
The exchange rate on 31 December 2014 was £1: 91.423 KGS ("Kyrgyzstanian Som") (2013 £1: 81.157
KGS) the functional and presentational currency of the main subsidiary undertaking. The average rate
applied to transactions during the year was £1: 87.484 KGS.
1.20 Taxation
The income tax expense or taxation recoverable represents the sum of tax currently payable or recoverable
and deferred tax.
The tax currently payable is based on the taxable profit for the period using the tax rates that have been
enacted or substantially enacted by the balance sheet date. Taxable profit differs from the net profit as
reported in the income statement because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable or deductible.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax is
determined using tax rates that have been enacted or substantially enacted at the balance sheet date and
are expected to apply when the related deferred income tax asset is realised or the deferred tax liability is
settled. Deferred tax is charged or credited in the income statement, except when it relates to items charged
or credited to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are only
recognised to the extent that it is probable that future taxable profit will be available against which the asset
can be utilised.
1.21 Leasing
Rentals payable under operating leases are charged against income on a straight line basis over the lease
term.
- 21 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
1
Accounting policies
(continued)
1.22 Accounting Standards issued but not yet effective and/or adopted
As at the date of approval of these financial statements, the following standards were in issue but not yet
effective. These standards have not been adopted early by the company as they are not expected to have a
material impact on the company's financial statements.
IFRS 9
IFRS 9
IFRS 10 and
IAS 28
IFRS 11
IFRS 12
IFRS 14
IFRS 15
IFRS 2, 3, 8,
IAS 16, 24, 38
IFRS 1, 3, 13
IAS 40
IAS 1
IAS 19
IAS 27
IAS 38
IAS 39
IAS 41
Financial instruments - classification and measurement (revised)
Financial instruments - Hedge accounting (revised)
Consolidated financial statements - sale or contribution of assets between an investor and
its associates or joint venture (amendment)
Joint arrangements - accounting for acquisitions of an interest in a joint operation
(amendment)
Disclosure of interests in other entities - application of the consolidation exception
(amendment)
Regulatory deferral accounts
Revenue from contracts with customers
Annual improvements 2010 - 2012 cycle
Annual improvements 2011 - 2013 cycle
financial statements - use of equity accounting method for investments
Presentation of financial statements - disclosure initiative (amendment)
Defined benefit plans: Employee contributions (amendment)
Separate
(amendment)
Intangible assets - acceptable methods of depreciation and amortisation (amendment)
Novation of derivatives and continuation of hedge accounting (amendment)
Agriculture - bearer plants
The International Financial Reporting Interpretations Committee has also issued interpretations which the
company does not consider will have a significant impact on the financial statements.
2
Critical accounting estimates and judgements
The preparation of the financial information in conformity with IFRS requires the use of certain critical
accounting estimates that affect the reported amounts of assets and liabilities at the date of the financial
information and the reported amounts of revenue and expenses during the reporting period. Although
these estimates are based on management's best knowledge of the amounts, events or actions, actual
results ultimately may differ from these estimates. The estimates and underlying assumptions are as
follows:
Exploration and evaluation costs and licences
Capitalisation of exploration and evaluation costs and the cost of acquiring licences requires that costs
be assessed against the likelihood that such costs will be recoverable against future exploitation or sale
or alternatively, where activities have not reached a stage which permits a reasonable estimate of the
existence of mineral reserves, a judgement that future exploration or evaluation should continue. This
requires management to make estimates and judgements and to make certain assumptions, often of a
geological nature, and most particularly in relation to whether or not an economically viable mining
operation can be established in future. Such estimates, judgements and assumptions are likely to change
as new information becomes available. When it becomes apparent that recovery of expenditure is
unlikely the relevant capitalised amount is written off to the income statement.
- 22 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
(continued)
Impairment of assets
The Group is required to test, on an annual basis, whether its non-current assets have suffered any
impairment. Determining whether these assets are impaired requires an estimation of the value in use of
the cash-generating units to which the assets have been allocated. The value in use calculation requires
the Directors to estimate the future cash flows expected to arise from the cash-generating unit and a
suitable discount rate in order to calculate the present value. Subsequent changes to the cash
generating unit allocation or to the timing of cash flows could impact on the carrying value of the
respective assets.
Recoverability of other financial assets
The majority of the Company's financial assets represent loans provided to its subsidiary, which are
associated with funding of mineral exploration and development projects. The recoverability of such
loans is dependent upon the discovery of economically recoverable reserves, the ability of the Company
to maintain necessary financing to complete the development of the reserves and future profitable
production or proceeds from the disposition thereof.
Share based payments
The estimates of share based payments requires that management selects an appropriate valuation
model and make decisions on various inputs into the model including the volatility of its own share price,
the probable life of the options before exercise, and behavioural consideration of employees.
Deferred tax assets
Deferred taxation is provided for using the liability method. Deferred tax assets are recognised in respect
of tax losses where the Directors believe that it is probable that future profits will be relieved by the
benefit of tax losses brought forward. The Board considers the likely utilisation of such losses by
reviewing budgets and medium term plans for each taxable entity within the Group. The Directors have
decided that no deferred tax asset should be recognised at 31 December 2014. If the actual profits
earned by the Group differs from the budgets and forecasts used then the value of such deferred tax
assets may differ from that shown in these financial statements.
Valuation of derivative financial asset
The Company placed 250 million shares with Lanstead Capital L.P. ('Lanstead') for a consideration of £1
million and a second tranche of 150 million shares for a consideration of £260,000. At the same time, the
Company and Lanstead entered into equity swap and interest rate swap agreements in respect of the
placings for which consideration will be received on a monthly basis over a 24 month period (note 16).
The amount receivable each month is dependent on the Company's share price at the settlement date.
The Directors have made assumptions in the financial statements about the funds receivable at the year
end. However, there is significant uncertainty underlying these assumptions due to the unpredictable
nature of the share price.
- 23 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
3
Segmental information
The Directors are of the opinion that the Group operates in one primary business segment, gold and
precious mineral exploration and in one principal geographical area, Kyrgyzstan. The management
information received by the Board is prepared on this basis.
The Group also conducts business within the UK including fund raising, subsequently passed to
subsidiary companies, and the incurring of expenditure in relation to the Company's activities as a
holding company. None of this activity is considered to be significantly different to the principal activity of
the Group in Kyrgyzstan.
Geographical market
Loss before taxation
UK
Kyrgyz Republic
Net (liabilities)/assets
UK
Kyrgyz Republic
4
Expenses by nature
Directors' emoluments and key management
Travel and subsistence costs
Legal and professional fees
Financial PR
Other expenses
2014
£
(687,701)
(3,892,744)
2013
£
(1,117,003)
(414,590)
(4,580,445)
(1,531,593)
(723,814)
(7,490)
1,042,786
2,727,268
(731,304)
3,770,054
2014
£
222,075
34,712
107,171
44,568
206,496
2013
£
287,286
37,829
249,579
43,712
254,899
615,023
873,310
- 24 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
5
Operating loss
Operating loss is stated after charging:
Amortisation of intangible assets
Depreciation of tangible assets
Loss on foreign exchange transactions
Auditors' remuneration
- Fees payable to the company's auditor for
the audit of the company's financial
statements
- Fees payable to the company's auditor for
the audit of the financial statements of a
subsidiary
6
Finance income
Bank interest received
7
Finance costs
2014
£
-
2,946
81,850
2013
£
77
4,649
242
19,500
20,000
-
2,500
2014
£
34
2014
£
2013
£
190
2013
£
Other interest
67,491
9,250
- 25 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
8
Income tax expense
Total tax expenses
2014
£
-
2013
£
-
Factors affecting the tax charge for the year
Loss before income taxation
(4,580,445)
(1,531,593)
Loss on ordinary activities before taxation multiplied by standard rate of
UK corporation tax of 20.00% (2013 - 23.25%)
(916,089)
(356,095)
Effects of:
Non deductible expenses
Tax losses not utilised
Total tax expense
803,977
112,112
144,738
211,357
916,089
356,095
-
-
There is no provision for UK Corporation Tax due to adjusted losses for tax purposes, subject to
agreement with HM Revenue and Customs. The deferred asset arising from the accumulated tax losses
of approximately £3.2m (2013: £2.76m) carried forward has not been recognised but would become
recoverable against future trading profits.
9
Loss per share
The loss and number of shares used in the calculation of earnings per ordinary share are set out below:
Basic:
Loss for the financial period
2014
£
2013
£
(3,809,213)
(1,478,822)
Weighted average of ordinary shares
1,361,298,989 1,053,805,264
There was no dilutive effect from the options outstanding during the period (note 19).
- 26 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
10
Intangible fixed assets
The Group
Cost
At 1 January 2014
Additions
Exchange differences
Impairment charge
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
Licences Exploration
and
evaluation
assets
£
£
Total
£
3,447,077
-
-
(3,447,077)
305,164
12,333
(34,797)
(282,700)
3,752,241
12,333
(34,797)
(3,729,777)
-
-
-
-
-
-
3,447,077
305,164
3,752,241
Kyrgyzstan Licences
On acquisition of Central Asian Resources Limited, the company acquired an 80% interest in the
Kyrgyzstan prospecting licences held by Alji LLC, which have subsequently been transferred to Premier
Asia Resources LLC. This included a Lithium licence in the Uzunbulak region that was deemed non-core
on acquisition, on this basis none of the exploration asset fair value uplift was allocated to the Lithium
licence. The other licence acquired was the Cholokkaindy gold prospecting licence covering 24km2. This
licence extends for a 5 year period to 31 December 2017 and has been expanded to cover an additional
8 square kilometres.
The Group has one CGU being that of gold exploration in Kyrgyzstan as disclosed in note 3, segmental
information, which is relevant for the purposes of the evaluation of intangible exploration assets.
The Company has been prevented, by the local community, from progressing the exploration and
exploitation of the area covered by its Licence over the last 30 months. In February 2015, A C A Howe
International Limited, Geological and Mining Consultants, valued the Licence at £nil. Therefore, a full
impairment charge has been made writing off the value of the Licence.
Exploration and evaluation expenditure
Exploration and evaluation expenditure comprises costs that are directly attributable to:
- researching and analysing existing exploration data;
- conducting geological studies, such as geochemistry, geophysics, drilling and sampling;
- examining and testing extraction and treatment methods; and/or
- compiling prefeasibility and feasibility studies.
Exploration expenditure relates to the initial search for mineral deposits with economic potential.
Evaluation expenditure arises from a detailed assessment of mineral deposits that have been identified
as having economic potential. Expenditure on exploration activity is capitalised to the extent that it is
recoverable. Capitalisation of evaluation expenditure commences when there is a high degree of
confidence in the project's viability and hence it is probable that future economic benefits will flow to the
Group.
- 27 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
10
Intangible fixed assets
(continued)
Such capitalised evaluation expenditure is reviewed for impairment at each statement of financial
position date. The review is based on a status report regarding the Group's intentions for development of
the undeveloped property and when available, any CPR report completed on the relevant assets.
Subsequent recovery of the resulting carrying value depends on successful development of the area of
interest or sale of the project.
If a project does not prove viable, all irrecoverable costs associated with the project net of any related
impairment provisions are written off.
The Company has been prevented, by the local community, from progressing the exploration and
exploitation of the area covered by its Licence over the last 30 months. In February 2015, A C A Howe
International Limited, Geological and Mining Consultants, valued the exploration and evaluation assets at
£nil. Therefore, a full impairment charge has been made writing off the value of the exploration and
evaluation assets.
11 Tangible fixed assets
Cost or valuation
At 1 January 2014
Exchange differences
Additions
At 31 December 2014
Depreciation
At 1 January 2014
Exchange differences
Charge for the year
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
Plant and
machinery
£
15,416
(1,740)
196
13,872
788
(217)
2,946
3,517
10,355
14,628
- 28 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
12
Investments in subsidiary undertakings
The Company
Cost or valuation
At 1 January 2014
At 31 December 2014
Provisions for diminution in value
At 1 January 2014
Charge for the year
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
£
2,503,270
2,503,270
100
2,503,170
2,503,270
-
2,503,170
Subsidiary undertakings:
As at 31 December 2014, the company held more than 20% of the share capital of the following
companies:
Company
Central Asia Resources Limited
Premier Asia Resources LLC
Country of registration or
incorporation
England & Wales
Kyrgyz Republic
Shares held
Class
Ordinary
Ordinary
13
Inventories
The Group
Finished goods and goods for resale
14 Trade and other receivables
Trade receivables
Amounts owed by subsidiary undertakings
Other receivables
Prepayments and accrued income
The Group
2014
£
7,451
-
14,434
12,043
2013
£
-
-
13,946
2,499
%
100
80
2013
£
-
2013
£
2014
£
977
The Company
2014
£
-
-
13,314
12,043
-
1,374,416
6,556
2,499
33,928
16,445
25,357
1,383,471
The Directors consider that the carrying amount of trade and other receivables approximates to their fair
value.
- 29 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
15 Derivative financial assets
Due within one year
Due after more than one year
2014
£
46,359
-
2013
£
236,250
126,875
Value of derivative financial assets at 31 December 2014
46,359
363,125
Lanstead 1 Agreement
In December 2012, the Company issued 250 million new shares of 0.1p per share at a price of 0.4p per
share to Lanstead Capital L.P. ('Lanstead') with a notional value of £1 million. The Company entered into
an equity swap price mechanism with Lanstead for a notional 75% of these shares with a notional
reference price of 0.5333p per share. Lanstead have hedged the consideration they pay for shares in the
Company against the performance of the Company's share price over a 24 month period. All 250 million
shares were allotted with full rights on the date of the transaction.
To the extent that the share price is greater or lower than the reference price at each swap settlement,
the Company will receive greater or lower consideration calculated on pro-rata basis i.e. share price /
reference price multiplied by the monthly transfer amount. The valuation for each settlement is
determined to be the average share price for the preceding 5 trading days up to settlement date.
As the amount of the consideration receivable by the Company from Lanstead will vary subject to the
change in the Company's share price and will be settled in the future, the receivable is treated as a
derivative financial asset and has been designated at fair value through profit or loss.
The Company also issued 25 million shares to Lanstead as a value payment in connection with the
equity swap agreement.
The fair value of the derivative financial assets has been determined by reference to the Company's
share price and has been estimated as follows:
Share price
Fair value
Notional
number of
shares
outstanding
£
Value of derivative financial assets at 1 January 2013
0.43p 187,500,000
806,250
Consideration received
Loss on revaluation of derivative financial asset
(78,125,000)
(177,292)
(475,833)
Value of derivative financial assets at 31 December 2013
0.14p 109,375,000
153,125
Consideration received
Loss on revaluation of derivative financial asset
(93,750,000)
(96,988)
(47,278)
Value of derivative financial assets at 31 December 2014
0.05p
15,625,000
8,859
- 30 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
15 Derivative financial assets
(continued)
Lanstead 2 Agreement
In December 2013, the Company issued 200 million new shares of 0.1p per share at a price of 0.13p per
share to Lanstead Capital L.P. ('Lanstead') with a notional value of £260,000. The Company entered into
an equity swap price mechanism with Lanstead for a notional 75% of these shares with a notional
reference price of 0.17333p per share. Lanstead have hedged the consideration they pay for shares in
the Company against the performance of the Company's share price over a 24 month period. All 150
million shares were allotted with full rights on the date of the transaction.
The Company also issued 20 million shares to Lanstead as a value payment in connection with the
equity swap agreement.
As with the Lanstead 1 Agreement, the consideration receivable from Lanstead has been treated as a
derivative financial asset and has been designated at fair value through profit or loss. The fair value of
the derivative financial asset has been determined by reference to the Company's share price and has
been estimated as follows:
Value recognised on inception (notional)
Initial payment
Gain on revaluation of derivative financial asset
Share price
Notional
number of
shares
outstanding
0.17333p 150,000,000
Fair value
£
260,000
(52,000)
2,000
Value of derivative financial assets at 31 December 2013
0.14p 150,000,000
210,000
Consideration received
Loss on revaluation of derivative financial asset
(75,000,000)
(51,590)
(120,910)
Value of derivative financial assets at 31 December 2014
0.05p
75,000,000
37,500
16 Cash and cash equivalents
The Group
2014
£
2013
£
The Company
2014
£
2013
£
Cash at bank and in hand
22,734
274,539
22,487
269,935
The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.
All of the Company's cash and cash equivalents are at floating rates of interest.
- 31 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
17 Trade and other payables
Trade payables
Corporation tax
Other taxes and social security costs
Other payables
Accruals and deferred income
The Group
2014
£
138,096
411
1,580
138,321
87,465
The Company
2013
£
121,529
411
28,118
50,899
39,250
2014
£
137,989
411
771
111,597
87,465
2013
£
121,529
411
27,807
20,560
39,250
365,873
240,207
338,233
209,557
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
18 Borrowings
Convertible loan note
2014
£
2013
£
479,784
410,717
In 2013, the Company entered into a convertible loan note agreement for £1 million of which £500,000
was drawn down by 31 December 2013, with further draw downs totalling £80,000 during 2014. The
interest rate on the loan is 10% per annum. The loan matures five years from the issue date at their
nominal value. The Loan Note Holder can convert their loan, and accrued interest, into shares at the
holder's option commencing six months after the issue date of the loan and up to the maturity date at the
rate of 500 shares per £1. The Company has the right to repay the loan at any time up to the maturity
date. The values of the liability component and the equity conversion component were determined at
issuance of the loan.
The convertible loan recognised in the balance sheet is calculated as follows:
Nominal value of convertible loan issued
Equity component
2014
£
2013
£
580,000
(100,216)
500,000
(89,283)
Liability component on initial recognition and at 31 December 2014
479,784
410,717
Interest of £61,608 (2013: £nil) has been charged in respect of the convertible loan note to the statement
of comprehensive income and included in trade and other payables under accruals and deferred income.
- 32 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
19 Share-based payments
Share options
At 31 December 2013 and 31 December 2014 outstanding awards to subscribe for ordinary shares of 0.1p each in
the company, granted in accordance with the rules of the share option scheme, were as follows:
31 December 2013
Brought forward
Granted
Lapsed
Carried forward
31 December 2014
Brought forward
Granted
Lapsed
Carried forward
Shares under
option
68,350,000
-
-
Weighted
average
remaining
contractual
life (years)
8.5
-
-
68,350,000
7.6
Weighted
average exercise
price (pence)
0.63
-
-
0.63
Shares under
option
Weighted
average exercise
price (pence)
Weighted
average
remaining
contractual
life (years)
68,350,000
-
(1,250,000)
67,100,000
7.6
-
-
6.3
0.63
-
(2.25)
0.60
The fair value of remaining share options has been calculated using the Black Scholes model. The assumptions
used in the calculation of the fair value of the share options outstanding during the year are as follows:
Grant date
Exercise period
Exercise price
Number of employees
Shares under option
Expected volatility
Expected life
Risk-free interest rate
Expected dividend yield
Possibility of ceasing
employment before vesting
Fair value per option
1 September
2012
September
2012 -
September
2022
0.50p
1
2,000,000
32%
3.5 years
30 April 2012 31 July 2007
18 November
2005
April 2012 -
April 2022
July 2007 -
July 2017
November 2005 -
November 2015
0.50p
7
52,000,000
32%
3.5 years
1.00p
3
9,100,000
100%
5 years
4.4%
-
-
1.00p
2
4,000,000
100%
5 years
4.4%
-
-
0.24% - 0.43% 0.24% - 0.43%
-
-
-
-
0.02p
0.19p
0.33p
0.04p
The share based payments charge relating to the above options in the year ended 31 December 2014 was a
charge of £nil (2013 : £24,666)
- 33 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
19 Share-based payments
(continued)
2,000,000 share options lapsed after the year end. As a result of the share reorganisation in April 2015 as detailed
in note 25, the table below gives details of the options that existed at the balance sheet date and the revised share
options.
Issue date
Expiry date
30 April 2012
31 July 2007
18 November 2005
30 April 2022
31 July 2017
18 November 2015
Pre Reorganisation
Post reorganisation
No. of
existing
options
52,000,000
9,100,000
4,000,000
Current
exercise price
No. of new
options
New exercise
price
0.5p
1.0p
1.0p
208,000
36,400
16,000
125p
250p
250p
20 Share capital
2014
Number
2013
Number
2014
£
2013
£
Allotted, called up and fully paid
Ordinary shares of 0.1p each
Deferred shares of 0.1p each
1,361,935,975
942,462,000
1,346,435,975
942,462,000
1,361,936
942,462
1,346,436
942,462
2,304,398
2,288,898
On 16 January 2014, the Company issued 15,500,000 new Ordinary Shares of 0.1p each allotted as fully
paid at 0.15p per share, in settlement of fees for services provided to the Company.
- 34 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
21 Directors' emoluments
Key management personnel are those persons having authority and responsibility for planning, directing
and controlling activities of the Group, including all directors of the Company.
2014
£
2013
£
215,083
-
259,750
24,666
215,083
284,416
2014
£
2013
£
35,500
21,667
25,000
60,000
20,416
52,500
36,000
13,750
60,000
65,000
25,000
60,000
215,083
259,750
2014
£
2013
£
264,158
14,070
-
338,818
17,536
24,666
278,228
381,020
Directors
Emoluments for qualifying services
Equity-settled share based payment (note 19)
Directors and key management personnel
Salaries and fees
Directors' emoluments
Gerry Desler
Christian Schaffalitzky
Dr Reza Tabrizi (resigned 19 June 2014)
Richard Nolan
Colonel Robert Stewart (resigned 14 October 2014)
Garth Earls
22 Employees
Number of employees
There were 14 employees during the year including the directors (2013: 20).
Employment costs
Wages and salaries
Social security costs
Equity settled share-based payments
23 Control
In the opinion of the directors, there is no ultimate controlling party.
- 35 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
24 Related party transactions
During the year there were consultancy fees and property related expenses of £39,521 (2013: £16,355)
charged by Eurasia Mining Plc and included in trade payables at the year end is £38,081 (2013: £27,592)
owing to Eurasia Mining Plc. Christian Schaffalitzky is a director of Eurasia Mining Plc.
Included in trade and other payables are the following balances due to Directors as at 31 December 2014.
Christian Schaffalitzky
Garth Earls
Gerry Desler
Richard Nolan
2014
£
13,333
36,119
25,423
36,722
2013
£
-
9,126
5,527
-
Key management compensation
Key management include directors. The compensation paid or payable to key management for services
is shown below.
Salaries and other short term benefits
Share-based payments
2014
£
2013
£
215,083
-
259,750
24,666
215,083
284,416
In the Company's own accounts, full provision has been made against balances due from Central Asia
Resources Limited and Premier Asia Resources LLC amounting to £772,715 (2013: £nil) and £689,546
(2013: £nil) respectively.
- 36 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
25 Subsequent events
On 14 April 2015, the Company held a General Meeting at which resolutions to effect the following were
approved.
1. The Company enter into a Company Voluntary Arrangement ("CVA") with its creditors.
2. To dispose of the entire issued share capital of Central Asia Resources Limited ("CAR") to Trivedi
Capital Partners (I) LP ("Trivedi") in full and final settlement of the outstanding loan under the Convertible
Loan Agreement. ACA Howe independently valued the exploration licence known as the Cholokkaindy
licence in the Kyrgyz Republic on 24 February 2015 at £nil. The Licence was owned by Premier Asia
Resources LC, which was 80% owned by CAR. Following this transaction, Tridevi's loan will be reduced
to £nil, Tridevi will waive any right it may have to participate in the CVA and Tridevi would transfer
£50,000 to the Company in order to enable it to make an improved offer of settlement to the unsecured
Creditors of the Company, than would have otherwise have been possible.
3. To adopt an Investing Policy following the disposal of CAR which accounted for the whole of the
Group's activities and assets. The Company's new Investing Policy is to invest in and/or acquire
companies and/or projects within the natural resources and/or energy sector with potential for growth
and/or income. The Company may also directly apply for new exploration licences or invest in existing
licences. It is anticipated that the geographical focus will primarily be Europe. However, investments may
also be considered in other regions to the extent that valuable opportunities may exist and returns can be
achieved.
4. To re-organise the Company's share capital through the consolidation of every 25,000 existing
ordinary shares into one Consolidation Share; thereafter each Consolidation Share would be sub-divided
into 100 New Ordinary Shares of 1p each and 1 New Deferred Share. The same reorganisation applies
to the number of share options in issue, with a corresponding adjustment to the exercise price (note 19).
And
5. That a new board is appointed and that the Company changes its name to Prospex Oil and Gas plc.
The Company had conditionally raised £1,076,150 through the placing of 35,283,591 New Ordinary
Shares to advance the Company's Investing Policy, of which £50,000 would be transferred to the
Company in order to enable it to make an improved offer of settlement to the unsecured Creditors of the
Company. With all the resolutions passed at the General Meeting the placing closed and the shares were
issued.
On 15 April 2015 the Company issued share options to the new directors of the Company as follows:
Directors
Richard Mays
Gavin Burnell
Edward Dawson
William Smith
Number of
options
541,726
541,726
680,212
541,726
Percentage
of enlarged
share capital
1.33%
1.33%
1.67%
1.33%
These shares vest immediately and are exercisable for a period of 10 years at a price of 3p per share.
A further 1,342,926 options were awarded at the same time, which vest immediately, of which 541,726
are exercisable over a 10 year period at 3 pence per share, with the remaining 801,200 being exercisable
over a 3 year period at 3 pence per share.
As a result of the consolidation and placing the Company has in issue a total of 40,731,291 Ordinary
Shares of £0.01 each.
- 37 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
26 Financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises are as
follows
- Derivative financial assets
- Trade and other receivables
- Cash and cash equivalents
- Trade and other payables
A summary of the financial instruments held by category is provided below:
Financial assets
Loans and receivables
Trade and other receivables
Cash and cash equivalents
Derivative financial assets
Total financial assets
Financial liabilities
Trade and other payables
Derivative financial assets
At 31 December 2014
At 31 December 2013
2014
£
33,928
22,734
46,359
2013
£
16,445
274,539
363,125
103,021
654,109
2014
£
2013
£
845,657
650,924
Fair value measurement
Level 1
£
Level 2
£
Level 3
£
-
-
46,359
363,125
-
-
The Directors consider that the carrying amount of trade and other receivables and trade and other
payables approximate their fair value.
Financial risk management
The Group's activities expose it to a variety of risks including market risk (foreign currency risk and
interest rate risk), credit risk and liquidity risk. The Group manages these risks through an effective risk
management programme and through this programme, the Board seeks to minimise potential adverse
effects on the Group's financial performance.
The Board provides written objectives, policies and procedures with regards to managing currency and
interest risk exposures, liquidity and credit risk including guidance on the use of certain derivative and
non derivative financial instruments
- 38 -
PROSPEX OIL AND GAS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2014
26 Financial instruments
(continued)
Credit risk
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. The Group's credit risk is primarily attributable to its receivables
and its cash deposits. It is Group policy to assess the credit risk of new customers before entering
contracts. The credit risk on liquid funds is limited because the counterparties are banks with high credit-
ratings assigned by international credit-rating agencies.
Liquidity risk and interest rate risk
Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they fall due. The Board regularly receives cash
flow projections for a minimum period of 12 months, together with information regarding cash balances
monthly.
The Group is principally funded by equity and invests in short-term deposits, having access to these
funds at short notice. The Group's policy throughout the period has been to minimise interest rate risk by
placing funds in risk free cash deposits but also to maximise the return on funds placed on deposit.
All cash deposits attract a floating rate of interest. The benchmark rate for determining interest receivable
and floating rate assets is linked to the UK base rate.
Foreign currency exposure
The Group has entities which operate in Kyrgyzstan and are therefore exposed to foreign exchange risk
arising from currency exposure to the Kyrgyzstan Som, the functional currency of those subsidiaries.
The overseas subsidiaries operate separate bank accounts which are used solely for those subsidiaries,
thus managing the currency in that country. The Group's net assets arising from the overseas
subsidiaries are exposed to currency risk resulting in gains or losses on retranslation into sterling. Given
the levels of materiality, the Group does not hedge its net investments in overseas operations as the cost
of doing so is disproportionate to the exposure.
Sensitivity analysis
The effect of a 10% movement on the foreign exchange rate between Sterling and the Kyrgyzstan Som
on the net assets and the Sterling value of cash balances held would be as follows:
Net assets: 10% movement either way will result in £35,779 increase or decrease in net assets.
Cash balances: 10% movement either way will result in £102 increase or decrease in cash balances.
- 39 -