ELX.L Regulatory News (ELX)

9 Sep 2005 07:00

El Oro And Exploration Co Plc09 September 2005 EL ORO AND EXPLORATION COMPANY p.l.c.CHAIRMAN'S STATEMENTresults for the half year ended 30 June 2005 The Group profit before tax for the first half of 2005 was £2,844,532 (2004:£408,422). Group net assets under IFRS, taking all assets at fair value were£55,250,489 (equal to 509p per stock unit) as compared with £52,160,821 (asadjusted to be comparable) at 31 December 2004 (equal to 441p per stock unit). The measure for Group net assets at fair value has been amended from previousreporting and the comparative figure now includes the full potential for tax. Fuelled by oil, fortified by metal and nourished by beer and water, theseresults almost succeed in offsetting the miasma of obfuscation created by therecently-introduced IFRS. As we saunter into a September of sere and sunlitbeauty, bolstered by the thrilling fortitude of Flintoff and the English Cricketteam, and the conquests of the formidable and hirsute British coxless four, wecan reflect with satisfaction on strength in many areas of the portfolio. Frustratingly, the anticipated cash inflow from Terra Firma for our holding inEast Surrey has been stymied by the Northern Ireland Gas Regulator, andsidelined into German Railway workers' apartments. The Regulator's review oflast year's award, and desire to recompense the gas consumer, flies in the faceof economic reality, which has seen a surge in the value placed on assetsoffering a secure and longaevous cash return; the ever shrinking yield on longgovernment bonds, despite expectations of inflation, reflects this paradox. Wefind it bewildering that consumers should not only be provided with gas, butalso a gift-box to accompany it, like the bride at a Shower party: perhapsindicative of the socialist mentality still pervasive around former statesectors. The income foregone from East Surrey has been exacerbated by the claw of theChancellor, in the guise of the new tax regime under IAS. This requires tax tobe paid on the uplift in assets, and anticipated profits, even when no disposalshave been made: we regard this as pernicious; unrealised profits were previouslyused to compound the asset position of the company, whereas now we are enteredinto the sack race with the Inland Revenue, and we have had to sew the sack.Meanwhile shareholders continue to be taxed on their dividends, and have theiraccumulated savings assaulted by inheritance tax. The nostrils of both the Chancellor and the Treasury remain insentient to theintoxicating aroma of the Flat Tax, drifting across Europe from Estonia toGreece and on across continents towards India: its possible introduction intoGermany would further enhance that nation's economic resurgence, reinforced bythe seemingly irresistible urge of London's Police, Ambulance and Bus Servicesto purchase German-made vehicles instead of rescuing its citizens with thosemade in Britain. We feel ever more fervour for W.S. Churchill's remark "Icontend that for a nation to try to tax itself into prosperity is like a manstanding in a bucket and trying to lift himself up by the handle". Whilst we have every confidence in the spread of our investments, as always weare conscious of clouds on the horizon. The spectacle of lassitude and inertiadisplayed in New Orleans by all levels of U.S. Government stands in sorrycontrast to their speed of response after the Tsunami. We are concerned that thecatastrophe may presage a shock to the 'can-do' American psyche, already shakenby the deepening quagmire and insane strife within Iraq. At home, the decisive rejection of the European Dream has not prevented its oldprotectionist urge to impede the proper attire of the ladies of the Realm;furthermore, the slyly imposed European-centric procurement policy for the ArmedForces threatens the ability to operate the age-old alliance with the UnitedStates and hugely increases the cost of their equipment. Even soldering leadfor micro-circuitry does not escape its reach and the continued supply of a hugerange of microelectronics is thus threatened. Meanwhile the madness ofsubjugation to the European Convention on Human Rights impedes our ability toexpel the guests that even Thidwick the Big Hearted Moose in Dr. Suess foundultimately intolerable. More disturbing, on the World scene, particularly with respect to the health ofthe Mining and Oil industries, is the potential for upheaval in the ChineseBanking system, as recently highlighted by Bedlam Asset Management, and theimportance of Guangxi (connections). We are concerned to see the rush into Chinaby U.K. and U.S. Banks amongst others, an anxiety increased by reports of thenumber of projects and businesses that have little chance of ever being viable.In the light of the unacceptability of Saddam Hussein's policies, we observecontinued unrest within China, flouting of democracy, and the alliances struckwith those paragons of liberty, Messrs. Mugabe and Chavez. We wonder whetherChina will ever be, for overseas investors, the Pandora's box of riches thatseduce so many, and observe the withdrawal of PZ Cussons, after losses of nearly£12 million over a period of ten years, despite their prowess in extractingprofit from their operations in Nigeria. At the same time, we see pressures onthe Indonesian Rupiah and hope these do not presage another currency crisis. The margin for error remains slim, given the indebtedness of the United Statesand renewed signs of the unravelling of the housing market, both in the U.K.,where the supply of unsold properties appears to be increasing and substantialdiscounts now pertain, and in the U.S. where Freddie Mac and Fannie Mae arewrithing in discomfort after the exposure of their accounting infractions. Thedemise in Shropshire of the long-established firms of Lloyd's of Ludlow and E.W.Walters are perhaps earlier indicators of an oncoming colder climate. We are grateful to John Jones for our recent visit to the opening of Troy'shappily named Lords Nelson and Henry goldmines in Western Australia; anauspicious occasion that demonstrated the Troy team's ability to locate anddevelop new gold reserves rather like the Troy Chairman's renowned racehorsewinning from far back in the field in its recent races; also because we considerGold's slow, obscure but persistent progress to be the fail-safe should any ofthese less-attractive outcomes emerge beyond the Ashes. We remain confident that our portfolio is well-positioned, despite the ravagesof taxation and accountancy mayhem. We would like to express our thanks to allour team and advisers, and especially Christopher Burman as he steers throughthe shoals of regulation-infested waters, Abbie for her enthusiasm andever-widening mastery of the settlement process, and Rosanna for invigoratinggood humour undoubtedly due to be inherited by her forthcoming and applaudedoffspring. We are very much reminded of Helen Walton's dictum to her children "It is notwhat you gather in life, but what you scatter, that determines the quality ofyour life". C.R.Woodbine Parish3 September 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT(Unaudited)for the half year ended 30 June 2005 30 June 30 June 2005 2004 £ £ Income from investment trading 3,913,373 1,647,412Management expenses 724,938 893,254 Operating profit 3,188,435 754,158 Interest payable: Banks 343,903 343,269 Other 0 2,467 343,903 345,736 Profit before taxation 2,844,532 408,422 Taxation (see note l) 762,424 174,207 Profit for the half year 2,082,108 234,215 Earnings per stock unit (Basic and diluted) 19.06p 1.96p CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSES(Unaudited)for the half year ended 30 June 2005 30 June 30 June 2005 2004 £ £Profit for the half year 2,082,108 234,215Revaluation of available for sale securities 6,179,000 0Tax on revaluation of available for sale securities (1,853,700) 0 Total recognised income and expense for the half year 6,407,408 234,215 BALANCE SHEETS(Unaudited) at 30 June 2005 Group Group Company Company 30 June 31 Dec 30 June 31 Dec 2005 2004 2005 2004 £ £ £ £AssetsNon-current assetsProperty, plant and equipment 113,045 703,321 767,783 767,661Investment property 269,788 611,475 269,788 261,475Investments in subsidiary companies 0 0 462,438 493,249Deferred tax asset 0 4,518 0 4,518 382,833 1,319,314 1,500,009 1,526,903 Current assetsTrade and other receivable 322,464 380,635 331,264 315,247Financial assets: Available for sale investments 81,424,200 39,693,884 81,417,225 39,686,909 Derivative financial instruments 0 39,325 0 39,325 Commodities 376,439 483,545 376,439 483,545Cash and cash equivilents 192,098 173,608 188,000 161,412 82,315,201 40,770,997 82,312,928 40,686,438 LiabilitiesCurrent LiabilitiesFinancial liabilities: Borrowings 12,651,478 12,489,423 12,651,478 12,354,764 Derivative financial instruments 231,671 128,481 231,671 128,481Trade and other payables 2,626,679 1,130,052 16,476,711 15,134,463Current tax liabilities (see note l) 2,655,419 846,027 2,655,419 846,027 18,165,247 14,593,983 32,015,279 28,463,735Net current assets 64,149,954 26,177,014 50,297,649 12,222,703 Non Current LiabilitiesDeferred taxation 9,933,815 0 9,933,815 0 Net assets 54,598,972 27,496,328 41,863,843 13,749,606 Stockholders' equityOrdinary stock units 542,435 592,045 542,435 592,045Share premium 6,017 6,017 6,017 6,017Capital redemption reserve 343,792 294,182 343,792 294,182Merger reserve 3,563 (149,798) 0 0Other reserves 27,764,808 0 27,764,808 0Retained earnings 25,938,357 26,753,882 13,206,791 12,857,362Total equity 54,598,972 27,496,328 41,863,843 13,749,606 CONSOLIDATED CASHFLOW STATEMENT(Unaudited)for the half year ended 30 June 2005 30 June 30 June 2005 2004 £ £ Cash flows from operating activitiesCash generated from operations 510,147 186,944Interst paid (359,946) (336,812)UK Corporation tax paid (913,903) (915,023) Net cash from operating activities (763,702) (1,064,891) Cash flows from investment activitiesPurchases of fixed assets (17,016) (182,977)Purchases of available for sale investments and derivative (18,326,575) (12,816,304)financial instrumentsSales of available for sale investments and derivative 18,830,389 12,991,007financial instrumentsCash disposed of with subsidiary undertaking 133,339 0 Net cash from investment activities 620,137 (8,274) Net decrease in cash and cash equivalents in the half (143,565) (1,073,165)year Cash and cash equivalents at 1 January (12,315,815) (10,335,178) Cash and cash equivalents at 30 June (12,459,380) (11,408,343) NOTES TO THE CONDENSED CONSOLIDATED INTERIM STATEMENTS Primary note to the financial statements The condensed consolidated interim financial statements for the first half of2005 have been prepared in accordance with International Financial ReportingStandards, incorporating International Accounting Standards (IASs) andInterpretations (collectively 'IFRS') which are expected to be endorsed for usein the company's annual financial statements for the year ending 31 December2005. Comparatives for the first half of 2004 and at 31 December 2004 have beenrestated from UK GAAP to IFRS, with the exception of the requirements of IAS32 "Financial Instruments: Disclosure and Presentation" and IAS39 "FinancialInstruments: Recognition and Measurement", which have been applied with effectfrom 1 January 2005. Significant accounting policies El Oro and Exploration Company p.l.c. is a company domiciled in the UnitedKingdom. The condensed consolidated interim financial statements of the Groupfor the first half of 2005 comprise the Company and its subsidiaries (togetherreferred as the "Group"). The condensed consolidated interim financial statements were authorised by theDirectors for issuance on 6 September 2005. a. Statement of compliance The condensed consolidated interim financial statements have been prepared inaccordance with International Financial Reporting Standards, incorporatingInternational Accounting Standards (IASs) and Interpretations (collectively 'IFRS') which are expected to be endorsed for use in the company's annualfinancial statements for the year ending 31 December 2005. The condensed consolidated interim financial statements do not include all ofthe information required for full annual financial statements. An explanation ofhow the transition to IFRSs has affected the reported financial position andperformance of the Group is provided in note m. This note includesreconciliations of equity and profit or loss for comparative periods reportedunder UK GAAP (previous GAAP) to those reported for those periods under IFRSs. b. Basis of preparation The financial statements are presented in sterling. They are prepared on thehistorical cost basis except that the following assets and liabilities arestated at their fair value: derivative financial instruments, financialinstruments held for trading, financial instruments classified as available forsale and investment property. The preparation of interim financial statements requires management to makejudgements, estimates and assumptions that affect the application of policiesand reported amounts of assets and liabilities, income and expenses. Actualresults may differ from these estimates. The IFRSs that will be effective or available for voluntary early adoption inthe annual financial statements for the period ended 31 December 2005 are stillsubject to change and to the issue of additional interpretation(s) and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period that are relevant to this interim financial information willbe determined only when the first IFRS financial statements are prepared at 31December 2005. The preparation of the condensed consolidated interim financial statementsresulted in changes to the accounting policies as compared with the most recentannual financial statements prepared under previous GAAP. Comparatives havebeen prepared under IFRS, with the exception of items accounted for under IAS32and IAS39 where the exemption for restatement of comparatives has been taken.The impact on the transition from previous GAAP to IFRSs is explained in note m. The accounting policies have been applied consistently throughout the Group forpurposes of these condensed consolidated interim financial statements. c. Basis of consolidation i. Subsidiaries Subsidiaries are entities that are controlled by the Company. Control existswhen the Company has the power, directly or indirectly, to govern the financialand operating policies of an entity so as to obtain benefits from itsactivities. ii. Transactions eliminated on consolidation Intragroup balances and income and expenses arising from intragrouptransactions, are eliminated in preparing the condensed consolidated interimfinancial statements. d. Foreign currency i. Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rateruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are translated tosterling at the foreign exchange rate ruling at that date. Foreign exchangedifferences arising on translation are recognised in profit or loss. ii. Derivative financial instruments The Group holds derivative financial instruments for trading purposes which areaccounted for as trading instruments. Derivative financial instruments are recognised initially at cost. Subsequentto initial recognition, derivative financial instruments are stated at fairvalue, being their quoted bid price for short positions and quoted offer pricefor long positions. The gain or loss on re-measurement to fair value isrecognised immediately in profit or loss. The fair value of forward exchange contracts is their quoted market price at thebalance sheet date, being the present value of the quoted forward price. e. Property, plant and equipment i. Owned assets Items of property, plant and equipment are stated at cost less accumulateddepreciation. ii. Depreciation Depreciation is charged to profit and loss on a straight-line basis over theestimated useful lives of each part of an item of plant, equipment, fixtures andfittings. The rates of depreciation are as follows: Freehold property 2%Plant and equipment 33%Fixtures and fittings 33% f. Investments i. Investments in debt and equity securities Financial instruments held by the Group for trading are classified as beingavailable for sale and are stated at fair value, with any resultant gain or lossrecognised directly in equity, except for impairment losses and, in the case ofmonetary items, foreign exchange gains and losses. When these investments arederecognised, the cumulative gain or loss previously recognised directly inequity is recognised in profit or loss. The fair value of financial instruments classified as available for sale istheir quoted bid price. Financial instruments classified as available for sale investments arerecognised (derecognised) by the Group on the date it commits to purchase (sell)the investments (trade date accounting). ii. Investment property Investment properties are properties which are held either to earn rental incomeor for capital appreciation or for both. Investment properties are stated atfair value. An external, independent valuer, having an appropriate recognisedprofessional qualification and recent experience in the location and category ofproperty being valued, values the portfolio every six months. The fair valuesare based on market values, being the estimated amount for which a propertycould be exchanged on the date of valuation between a willing buyer and awilling seller in an arm's length transaction after proper marketing wherein theparties had each acted knowledgeably, prudently and without compulsion. Valuations reflect, when appropriate; the type of tenants actually in occupationor responsible for meeting lease commitments or likely to be in occupation afterletting of vacant accommodation and the market's general perception of theircredit-worthiness; the allocation of maintenance insurance responsibilitiesbetween lessor and lessee; and the remaining economic life of the property. Any gain or loss arising from a change in fair value is recognised in profit orloss. Rental income from investment property is accounted for when due. g. Trade and other receivables Trade and other receivables are stated at their cost less impairment losses. h. Cash and cash equivalents Cash and cash equivalents comprises cash balances with an original maturity ofthree months or less. Bank overdrafts that are repayable on demand and form anintegral part of the Group's cash management are included as a component of cashand cash equivalents for the purpose of the statement of cash flow. i. Impairment i. Impairment The carrying amounts of the Group's non-current assets are reviewed at eachbalance sheet date to determine whether there is any indication of impairment.If any such indication exists, the asset's recoverable amount is estimated. When a decline in the fair value of a financial asset that has been classifiedas available for sale has been recognised directly in equity and, at asubsequent date, there is objective evidence that the asset is impaired, thecumulative loss that has previously been recognised directly in equity isrecognised in profit or loss, even though the related asset has not beenderecognised. This amount is in addition to any further impairment that is alsorecognised in profit or loss. The net amount of the cumulative loss that is recognised in profit or loss isthe amount initially recognised less the current fair value, with that amountbeing reduced to the extent of any impairment loss that has previously beenrecognised in profit or loss in relation to the financial asset. ii. Reversal of impairment An impairment loss in respect of an investment in an equity instrumentclassified as available for sale is not reversed through profit or loss. An impairment loss is reversed only to the extent that the asset's carryingamount does not exceed the carrying amount that would have been determined, netof depreciation or amortisation, if no impairment loss has been recognised. j. Interest-bearing borrowings Interest-bearing borrowings are initially recognised at fair value less directlyattributable transaction costs. Subsequently, these borrowings are recognisedat amortised cost. k. Share capital i. Repurchase of share capital When share capital recognised as equity is repurchased, the amount of theconsideration paid, including directly attributable costs, is recognised as achange in equity. ii. Dividends Dividends to stockholders are recognised as a liability in the period in whichthey are declared. The following dividends were declared by the Group: 2005 2004 £ £11.5p (2004: 11.0p) per stock unit 1,247,601 1,313,722 l. Taxation The total tax charge and tax liability for the half year is treated within thefinancial statements as follows: 2005 2004 £ £Shown within the profit and loss account: UK corporation tax charge for the half year 762,424 174,207 Included within current tax liabilities in the balance sheet: UK corporation tax charge for the half year 735,759 174,207 Corporation tax on the movement on the difference between 1,986,351 0 fair value of available for sale investments and book cost between 1 January 2005 and 30 June 2005 Adjustments in respect of prior years (49,588) 0 Overseas tax recoverable (17,103) 0 2,655,419 174,207 m. Explanation of transition to IFRS The above accounting policies have been applied in preparing the condensedconsolidated interim financial statements for the first half of 2005, thecomparative information for the first half of 2004 and the financial statementsfor the year ended 31 December 2004. The requirements of IAS32 "FinancialInstruments: Disclosure and Presentation" and IAS39 "Financial Instruments:Recognition and Measurement" have been adopted with effect from 1 January 2005.The comparative figures do not therefore incorporate any restatements in respectof either IAS32 or IAS 39. Share Share Reval'n Cap Red Merger Profit Other Capital Premium Reserve Reserve Reserve and Loss Reserves Total At 31 Dec 04 592,045 6,017 199,635 294,182 (149,798) 25,306,646 26,248,727(UK GAAP) Note 1 1,247,601 1,247,601 Note 2 (199,635) 199,635 0 At 31 Dec 04 592,045 6,017 0 294,182 (149,798) 26,753,882 0 27,496,328(IFRS) Note 3 (358,560) (358,560) Note 4 9,051,690 9,051,690 Note 5 (9,284,355) (9,284,355) Note 6 36,987,812 36,987,812 Note 7 (11,096,344) (11,096,344) At 1 Jan 05 592,045 6,017 0 294,182 (149,798) 26,162,657 25,891,468 52,796,571(IFRS) Note 1 Adjustment due to dividends to stockholders being recorded in the period when are declared, where previously they were recorded in the period to which they were charged. Note 2 Reclassification of Revaluation reserve balance to Profit and Loss account. Note 3 Currency difference on the original and 1 January 2005 exchange rates on unimpaired overseas stocks. Note 4 Release of provision on impaired stocks and derivative positions at 31 December 2004 at mid market price. Note 5 Provision on impaired stocks and long derivative positions at 1 January 2005 at bid market price and provision on impaired short derivative positions at 1 January 2005 at offer market price. Note 6 Uplift in value of unimpaired stocks and long derivatives at 1 January to bid market price and uplift in value of unimpaired short derivative positions at 1 January 2005 at offer market price. Note 7 Transfer to Deferred taxation of the above item at 30%. This information is provided by RNS The company news service from the London Stock Exchange