Fih Group Regulatory News (FIH)

Falkland Islands Holdings plc

("FIH" or "the Group")

Final results for the year ended 31 March 2012

FIH, the AIM quoted international services group, which owns essential services businesses focused on transport and logistics and which has a 4.4% shareholding in AIM quoted oil exploration company Falkland Oil and Gas Limited ("FOGL"), is pleased to announce final results for the year ended 31 March 2012.

Financial Highlights - ahead of market expectations

·; Group revenue increased by 7.1% to 34.11million (2011: £31.84million)

·; Underlying operating profit up 21.8% at £3.57million (2011: £2.93million)

·; Underlying pre-tax profits up 18.3% to £3.23million (2011: £2.73million)

·; Fully diluted earnings per share increased by 27.2% to 26.2p (2011: 20.6p)

·; Bank borrowings at 31 March 2012 reduced to £3.0million (2011: £4.0million)

·; Cash balances of £2.8million (2011: £2.1million)

·; Increased final dividend of 7p per share (2011 5.5p)

·; Total dividends for the year of 11p per share, up 15.8% (2011: 9.5p per share)

Operating Highlights - diverse trading businesses proved resilient, performing well in difficult economic conditions

·; Falkland Islands Company ("FIC")

o Revenue up 0.4% to £14.98million (2011: £14.92million)

o Small decline in operating profit from £1.61million to £1.52million - profit generated from core trading activities was maintained; prior year results included profits on property sales which were negligible in 2012

·; Portsmouth Harbour Ferry Company ("PHFC")

o Revenues up 11.5% to £4.16million (2011: £3.73million)

o Operating profit up 38% to £1.09million (2011: £0.79million)

o Robust performance reflects increase in fares and mild winter weather, which more than offset substantial increase in operating costs following installation of the new pontoon

o The ferry continues to offer excellent value for money, and has maintained its outstanding reliability and safety record

·; Momart

o Revenue increased 13.5% to £14.97million (2011: £13.19million)

o Operating profit up 81.1% to £0.96million (2011: £0.53million)

o Encouraging recovery in 2012, helped by strength of the commercial art market

o Exhibition revenues and margins improved substantially with notable exhibitions including: The Cult of Beauty at the V&A, Lucian Freud at the National Portrait Gallery and Gerhardt Richter and the Damien Hirst retrospective, both at Tate Modern

·; FOGL

o FIH's holding of 14million FOGL shares, 4.4% of FOGL's issued share capital

o Market value of shareholding on 1 June 2012 was £12.78million (31 March 2012: £9.03million)

o FOGL's two well drilling programme is expected to commence in a few weeks time; the recent discovery by Borders & Southern Petroleum in their Darwin well augurs well for the prospectivity of similar features in FOGL's Southern licences which are not being drilled in this campaign

·; New joint venture company created

o FIH is pleased to announce the establishment of a 50/50 joint venture with Trant Construction, a UK construction and engineering group with substantial experience of working in the Falkland Islands over the last 10 years.

o The new company, South Atlantic Construction Company (SACC) will be based at the Group's offices in the Falkland Islands and will allow FIC to participate in the increase in construction activity in both the public and private sector that will result from the exploitation of oil in the Falkland Islands

David Hudd, Chairman of Falkland Islands Holdings plc, said:

"I am pleased to report another strong trading performance for the Group. Our market leading businesses continued to prove resilient and delivered good results in difficult economic conditions.

"For the current year, trading has been satisfactory and in line with our expectations. Whilst we do not expect the rate of growth achieved across the Group in the year ended March 2012 to be repeated in the coming year, in the medium term we are confident of further growth at Momart, steady progression at PHFC and in the Falklands our assets and businesses are well placed to take advantage of the transformational change which seems increasingly likely.

"In the Falkland Islands, the Sea Lion discovery in the North Falkland Basin has confirmed the existence of commercially exploitable hydrocarbons. To the south, the Darwin well recently drilled by Borders & Southern Petroleum has proved the existence of a working hydrocarbon system and supports the prospectivity of the South Falkland Basin. Both outcomes make further exploration work certain.

"I am also delighted that we have set up a joint venture with Trant Construction. We intend that South Atlantic Construction Company will play a significant role in improving the infrastructure of the Falkland Islands.

 "The Group's businesses remain robust and will continue to generate good cash flows and profits. The Board is pleased to recommend a final dividend of 7p per share, bringing the total dividend for the year to 11p per share, an increase of 15.8% on 2011."

Notes to editors

Trant Construction

Trant Construction, is a privately owned Group with more than 50 years' experience in civil, mechanical and electrical engineering. It currently operates in the UK, Channel Islands, Ascension and the Falkland Islands and has an annual turnover of approximately £80million.

Chairman's Statement

I am delighted to report that Falkland Islands Holdings performed very well in the year ended 31 March 2012 with our three businesses achieving good results as the Group's spread of interests proved resilient in difficult economic conditions.

We achieved strong growth with underlying diluted earnings per share up 27% to a record 26.2p per share. This represents a compound annual growth rate of 9.2% over the last 10 years.

Underlying pre-tax profits increased for the eighth successive year by 18.3% to a new high of £3.23 million (2011: £2.73 million).

The financial position remains strong with minimal net debt; at the year-end bank borrowings were £3.0 million while bank deposits totalled £2.8 million.

We are pleased to recommend an increased final dividend of 7p per share which makes a total dividend of 11p per share, a 15.8% increase on the Group's 2011 dividend of 9.5p.

Operations

Momart was the largest contributor to the Group's increase in underlying profits before interest with an 80% improvement. The international art market continued to strengthen and the benefit of improvements made to the operating procedures and cost structures at the business flowed through. At the Portsmouth Harbour Ferry Company (PHFC), we were delighted with the opening of the new pontoon terminal and its positive impact on the overall quality of service, giving another robust performance with profits increasing, despite the impact of the new pontoon on costs and fares.

Excluding property sales, The Falkland Islands Company maintained its profit level. This was achieved despite significant inflation and increased staff costs as additional management was recruited.

On behalf of the Board and shareholders I would like to express thanks to all our colleagues who have contributed to an excellent year for the Group.

Falkland Oil and Gas ("FOGL")

We were pleased to support FOGL's fund raising in January 2012 by subscribing for a further 2 million ordinary shares at 43p each. The lock-in agreement preventing share sales which we entered into in April 2011 has now expired. We currently own 14 million shares with a book cost of £2.8 million; at 31 March 2012 these shares had a market value of £9.0 million which had increased to £12.8 million at 1 June 2012.

FOGL's two well drilling campaign with the Leiv Eiriksson rig is now expected to l commence in July 2012 and to continue for approximately three months. The first well to be drilled, Loligo, has the potential to be one of the highest impact exploration wells being drilled in the world this year, with mean recoverable prospective resources of 4.7 billion barrels. A positive drilling result would have a dramatic impact on the FOGL share price and that of your Company.

However,whatever the outcome of FOGL's exploration activities, your Board remains focused on increasing the long term profitability of the Group.

Outlook

In the Falkland Islands the Sea Lion discovery in the north Falkland basin has confirmed the existence of commercially exploitable hydrocarbons. To the south, the Darwin well recently drilled by Borders & Southern Petroleum has proved the existence of a working hydrocarbon system and supports the prospectivity of the south Falkland basin. Both outcomes make further exploration work certain.

Having traded in the Falkland Islands for 160 years we have a unique portfolio of assets and businesses whose prospects will be transformed if hydrocarbons are exploited. Your Board is taking a strategic approach to the potential opportunities ahead and has begun in-depth preparatory work on the investment opportunities available to us. We are strengthening our management in the Falklands and we will commit the capital required to bring these projects to completion.

At PHFC we are exposed to the fragility of customers' discretionary travel spend. Nevertheless, as an essential service PHFC will continue to generate good cash flow and profits. To continue to improve the service we intend to order a new ferry later this year to be operational in early 2014.

For Momart we anticipate another good year as the international art market remains buoyant and we continue to experience strong demand for our services.

The Group's businesses remain robust with market leading positions that will continue to generate good cash flow and profits. For the current year, trading has been satisfactory and in line with the Board's expectations.

David Hudd

Chairman

6 June 2012

Managing Director's Business Review

Group Overview

I am pleased to report another successful year for the Group, with a 7.1% increase in revenues to £34.1 million

and an 18.3% increase in underlying pre tax profits to £3.23 million (2011: £2.73 million).

Group underlying operating profits (before amortisation and financing costs) rose by 21.8% to £3.57 million (2011: £2.93 million).

Review of operations

A summary of Group revenue and operating profit by business is shown below:

Each of the Group's businesses is reviewed in detail below:

Falkland Islands Company ("FIC")

FIC had a satisfactory year with a small decline in profits from £1.61 million to £1.52 million on revenues 0.4% higher at £14.98 million. The prior year result included profits on property sales of £0.2 million whereas there were negligible such profits in 2012. Underlying profits generated from core trading activities were maintained despite increased costs from the recruitment of additional management personnel.

Oil exploration activity continued during 2011/12 and total revenue remained at the record levels seen in the prior year (some 20% higher than 2009/10 revenues). However, tourist activity declined as cruise ship visits were 10% lower than last year largely as a result of poor weather. Non oil activity was subdued compared to the strong growth experienced in the prior year as household budgets were constrained by pay settlements below inflation, which in the Falkland Islands reached 8%; as a consequence overall retail spending fell.

Despite the success of the enlarged and modernised supermarket at the MPA military base which opened in November and added £0.15 million to sales, market conditions remained tough and overall Retail sales fell by 2.8% to £9.45 million. Although a range of new offers were sourced from the UK, core grocery sales from the West Store Food hall fell by 2.6% and DIY revenues were down 5.8%. Revenue from the Capstan gift shop was 10.3% lower in line with the reduction in the number of cruise ship visitors.

In the absence of any large military orders Motor revenues declined by 18% to £1.57 million with total vehicle sales of 47 units compared to 78 last year.

Revenues from third party freight were up 62% to £1.12 million largely due to an increase in northbound traffic to the UK resulting from the demobilisation of the Ocean Guardian drilling rig in December 2011.

Following the confirmation of Rockhopper's Sea Lion discovery, sales of residential property were halted. After one house sale early in the year FIC now retains nine of its twelve Marmont Row properties and these are let to oilfield services companies. In addition FIC has a rental portfolio of a further 31 properties and these are currently let to corporate clients, private customers and staff.

Support services achieved a 21% increase in revenues largely as a result of a much improved Illex fishing season in the early part of the year. The other business units, insurance broking, stevedoring and Penguin Travel, produced results similar to last year.

Portsmouth Harbour Ferry Company ("PHFC")

PHFC delivered another robust performance with revenues rising by 11.5% reflecting the increase in fares and mild winter weather, which more than offset the substantial increase in operating costs following the June 2011 installation of the new pontoon at Gosport. As a result ferry operating profits, before pontoon lease finance costs of £0.2 million, rose by £0.3 million to £1.09 million (2011: £0.79 million).

*Operating profit is shown before charging finance lease interest of £0.2 million relating to the new Pontoon.

Annual passenger numbers saw a further modest decline over the course of the year of 2.1% compared to a fall of 2.7% last year. The rate of decline fell during the year from an initial 4.1% in the first half to 2.1% for the year as a whole reflecting relatively mild weather conditions compared to the snow and ice of the prior year. The trend experienced last year of reductions in weekend discretionary travel has continued and weekend volumes were lower by 4.1% whereas daily commuting was less affected and passenger numbers declined by just 1.6%.

The new pontoon with a capitalised lease cost of £5.0 million brought additional operating and finance costs of £0.4 million per annum. To meet these costs, ferry fares were increased by an average of 17.5% from the installation date and after absorbing the decline in passenger numbers of 2.1%, core ferry revenues rose by 10.6%.

Cruise revenues saw a small increase to £0.19 million (2011: £0.14 million) and a corresponding small increase in contribution as well as providing a valued service to the local community.

The pontoon which is held on an extendable 50 year lease from Gosport Borough Council secures PHFC's position as harbour ferry operator for the long term and also significantly improves the passenger experience at Gosport providing a modern, safe and welcoming gateway to the ferry.

After the summer 2011 fare increases, with adult return ticket prices of £2.70 (£1.35 per crossing), discounted fares for regular customers, and lower tariffs for seniors and children (£1.80 return), the ferry service continues to offer excellent value for money. With 99.9% of its annual 70,000 sailings departing on time PHFC maintained its outstanding reliability record. This together with an exemplary safety record is the cornerstone of the success of the ferry service and is founded on the very high levels of commitment and expertise of the ferry's staff, which we salute.

Momart

I am delighted to report that Momart, the Group's art handling and logistics business, continued the recovery seen in the first half and produced a much improved performance for the year. Helped by the strength of the commercial art market, total revenue increased by 13.5% to £15.0 million (2011: £13.2 million) and underlying operating profit rose by £0.43 million (81%) to £0.96 million (2011: £0.53 million).

Exhibitions

As expected, Exhibition revenues and margins improved substantially following the introduction of a more flexible pricing policy designed to defend market share and deliver the sales volume necessary to adequately cover fixed overheads. Exhibition sales saw a continued increase in the second half (£3.6 million vs £3.4 million in H1) although the absolute level of sales did not match the high levels seen in H2 last year of £4.0 million (which were boosted by the Gauguin exhibition at Tate Modern). For the year as a whole overall Exhibition revenues increased by 5.7%, with notable exhibitions including The Cult of Beauty at the V&A, Lucian Freud at the National Portrait Gallery and Gerhardt Richter and the Damien Hirst retrospective, both at Tate Modern.

Gallery Services

In Gallery Services the good growth seen in the first half (+28%) continued into the second half with further increases of 25% compared to H2 in 2010/11. For the year as whole, having increased by nearly 30% in 2010/11, sales increased further, this year by 26%, to a record level of £6.3 million (2011: £5.0 million).

The global commercial art market has continued to show strong growth and record auction sales confirm the attractiveness of art as an alternative investment to financial assets. Momart with its established reputation for technical excellence and the highest levels of service has continued to win new contracts from a demanding global clientele. During the year the company was successful in winning a number of important international contracts such as the simultaneous display of Damien Hirst's spot paintings at 11 Gagosian galleries worldwide. The company's reputation and standing with galleries, artists, auction houses and collectors has been enhanced by these successful high profile contracts which have reinforced Momart's established presence at the major international fairs including Art Basel, Frieze London and Miami Basel.

The underlying operating profit from Gallery Services increased by over 30% in the year and has been the principal factor in the substantial increase in profitability seen in the year.

Storage

Storage revenues increased by 6.6% to £1.62 million. Momart's storage facilities are now close to their maximum capacity, accordingly plans are being progressed for their expansion although this will not come on stream until the next financial year.

FOGL investment

The Group owns 14 million shares (4.4% of the issued share capital) in AIM quoted Falkland Oil and Gas Limited ("FOGL") which is solely engaged in exploration in the Falkland Islands. FOGL has the largest licence area of the five listed exploration companies which currently totals 49,000 sq km.

FOGL's two well drilling programme is expected to commence in a few weeks and will take some 3 months to complete. The recent discovery of condensate by Borders & Southern Petroleum in their Darwin well augurs well for the prospectivity of similar features in FOGL's southern area which are not being drilled in this campaign.

Details of the Group's shareholding in FOGL are set out below:

The market value of the shareholding on 1 June 2012 was £12.78 million.

Trading outlook

In the coming year we expect to see a slowing of the growth seen in 2011-12. PHFC will be constrained by weakened consumer demand in the UK, and at Momart we anticipate that the rate of growth will slow as capacity is fully utilised.

In the Falkland Islands local demand will be soft pending increased activity from oil explorers and our cost base will increase as we invest further in strengthening the management team. In the second half of the year we will be commencing the development of our property assets to enable the Group to take advantage of the opportunities which are emerging as the Falklands move towards oil production.

The Group's financial position remains strong with bank borrowings reduced to £3.0 million at 31 March 2012, while cash balances were £2.8 million.

In the medium term the outlook is positive and we are confident of further growth at Momart and steady progression at PHFC. In the Falklands the Group is well placed to take advantage of the transformational change which now seems increasingly likely.

John Foster

Managing Director

6 June 2012

Managing Director's Financial Review

Summary income statement

Earnings per share

Revenue and underlying operating profit

Group revenue and underlying operating profit rose to £34.1 million and £3.57 million respectively in the year ended 31 March 2012. These are discussed in more detail above in the Review of Operations.

Net financing costs

The Group's net financing costs increased to £0.33 million from £0.20 million due principally to the £0.19 million of interest on the finance lease for the new Gosport Pontoon. This increase in finance costs was partially offset by a decrease in bank interest payable reflecting the £1.0 million reduction in bank loans.

Underlying pre-tax profit

With the underlying operating profit increase of £0.64 million to £3.57 million partially offset by an increase in financing costs, the Group's underlying pre-tax profits ("PBT") grew by £0.51 million (18.3%) to £3.23 million.

Reported pre-tax profit

After charging £0.4 million for the amortisation of intangible assets (2011: £0.4 million) reported profit before tax for the Group increased by 21.9% to £2.84 million (2011: £2.33 million).

Taxation

The Group pays corporation tax on its UK and Falkland Islands' earnings at 26%. The reduction in UK corporation tax rate from 28% to 26% and then 24% (from 2012/13) has generated a deferred tax credit of £0.2 million (7.0%) in the current year reducing the effective tax charge to 20.5%.

Fully diluted Earnings per Share ("EPS") derived from underlying profits, increased by 27.2% to 26.2p (2011: 20.6p). This reflected the lower effective tax rate.

Balance sheet

The Group's Balance Sheet remains strong. Total net assets decreased marginally from £30.6 million in the prior year to £29.5 million as at 31 March 2012 due to a fall in the market value of the Group's investment in FOGL, but retained earnings after the payment of tax and dividends increased by £1.1 million to £13.3 million (2011: £12.2 million). Bank borrowings fell to £3.0 million (2011: £4.0 million) and the Group had UK cash balances of £2.8 million (2011: £2.1 million).

The carrying value of intangible assets was reduced by annual amortisation charges of £0.4 million to £12.7 million as at 31 March 2012 (2011: £13.1 million) (see note 11)

The net book value of property, plant and equipment increased by £5.4 million to £12.9 million (2011: £7.5 million) after capital investment of £6.2 million, including £5.0 million applicable to the new Gosport Pontoon (see note 12).

The Group owns investment properties comprising commercial and residential properties in the Falkland Islands held for rental together with 670 acres of undeveloped land. At 31 March 2012 the net book value of these assets after the transfer of the shopping complex at Mount Pleasant into operating properties was £1.5 million (2011: £1.7 million). There is a restricted market for freehold land in the Falklands, and the Directors have had regard to this in estimating the value of these assets and at 31 March 2012 estimate that the fair value of this property portfolio was £3.9 million (31 March 2011: £4.2 million).

The Group shareholding in FOGL is described above in the Managing Director's Business Review.

Deferred tax assets relating to future pension liabilities increased marginally to £0.59 million (2011: £0.55 million).

Non-property related inventories decreased from £4.2 million to £4.0 million at 31 March 2012 largely representing stock held for resale in the Group's retail operations in the Falkland Islands.

Property related inventories are shown at cost and represent expenditure incurred to complete the conversion of Marmont Row back into a terrace of heritage cottages. After the sale of one property at the start of the year, the total cost of completed properties at 31 March 2012 was £1.0 million (2011: £1.2 million).

Trade and Other Receivables were reduced by £0.2 million to £5.6 million as at 31 March 2012. Average debtor days outstanding were 57.7 (2011: 56.3).

Outstanding finance leases totalled £5.3 million (2011: £0.2 million). The increase in finance leases is largely represented by £4.9 million in respect of the Gosport Pontoon.

Corporation tax due for payment within the next 12 months is £0.5 million (2011: £0.6 million).

Trade and other payables increased from £8.3 million to £8.8 million at 31 March 2012 reflecting increased trading activity.

At 31 March 2012 the liability due in respect of the Group's defined benefit pension schemes was £2.5 million (2011: £2.1 million) as a result of the decline in long term interest rates used to discount future liabilities. The pension scheme in the Falkland Islands, which was closed to new entrants and to further accrual in 2007 is unfunded and liabilities are met as they fall due from operating cash flow. The net present value of the liability in respect of this scheme increased by £0.3 million to £2.4 million. At PHFC following an enhanced cash offer made to eligible deferred members last year the scheme's net deficit has almost been eliminated; net liabilities at 31 March 2012 were £0.06 million (2011: £0.02 million).

The net deferred tax liabilities at 31 March 2012 decreased by £0.3 million to £1.1 million (2011: £1.4 million) due principally to reductions in the current and future rates of UK Corporation Tax announced in the Budget on 26 March 2012.

Net assets per share were 317p at 31 March 2012 (2011: 332p) reflecting a lower carrying value of the Group's holding in FOGL at the year end.

Cash flows

Operating cash flow

Net cash flow from operating activities increased from £0.8 million last year to £4.6 million, primarily due to the reversal of cash outflows into working capital seen in the prior year when the Falkland Islands experienced substantial growth. This followed more effective management of stock, receivables and creditors.

The Group's Operating Cash Flow can be summarised as follows:

Financing outflows

During the year the Group paid dividends of £0.9 million and received £0.3 million from the proceeds of shares issued following the exercise of share options. Investment in fixed assets continued with £1.3 million of expenditure to strengthen the Group's operating base (2011: £0.8 million); £0.6 million was invested in Stanley with further improvements to FIC's general store at the MPA military base while at Momart four new vehicles were purchased.

With net outflows from financing and investment of £3.9 million (2011: £2.5 million) the Group generated a net cash inflow for the year of £0.7 million (2011: £1.7 million outflow).

Business drivers, risk factors and key performance indicators

Business drivers

All the Group's businesses are consumer oriented operations and their success is linked to general economic conditions in their markets. Inflation, employment levels, interest rates and government spending programmes all have an effect on disposable incomes and consumer confidence.

The Group's businesses in the Falkland Islands and Gosport are linked to local demand for their goods and services. In addition, demand is boosted by tourist activity and both locations have been affected by a cyclical reduction in tourist numbers in recent years. In the Falkland Islands the strength of the economy has been closely linked to the fortunes of the fishing industry which accounts for over 60% of GDP. The variable factors have been the level of squid catches, in particular Illex, which has experienced very large variations, whereas Loligo, which has a substantial Falkland ownership, has had fewer fluctuations. Since the start of drilling in the north Falkland basin in 2010, offshore oil exploration activity has had a significant impact on the economy and this is expected to continue in the current year. If, oil exploration were to stop, this stimulus would cease and activity would revert to pre 2010 levels, conversely if hydrocarbon exploitation progresses as expected the positive impact on the Falkland Islands economy will be very significant.

For Momart, activity in the art market is correlated to the performance of the wider global economy with increasing influence attributable to emerging economies in the Middle East, China and India. Despite the continuing recession in the UK and Europe the global art market is still experiencing growth with the emergence of new buyers, patrons and artists. In the commercial art market, ultra high net worth individuals are a key driver, whereas in the museums sector government funding remains key in addition to corporate sponsorship and revenue raised from public admissions. Pressures on museum budgets in the UK, US and Europe have increased as Government subsidies have been cut and although in the longer term this will reverse, no recovery is anticipated in the near term.

Income generated from cultural exports through travelling international exhibitions is an important source of revenue for museums and galleries and is attractive although in the near term privately sponsored exhibitions are likely to increase more than government funded exhibitions.

Risk factors

The PHFC and FIC businesses are sensitive to changes in local economic conditions. The level of local competition also affects their performance. In the Falkland Islands, FIC faces competition in almost every area of its operations but due to the company's long history and accumulated expertise, in most sectors in which it operates FIC has a leading market position. Maintaining leadership depends on continued innovation, investment and a commitment to customer service.

Argentina continues to claim sovereignty of the Falkland Islands. However, the people of the Falkland Islands and their Government have no doubt that the Falkland Islands are British. The British Government has re-affirmed its sovereignty in unequivocal terms and despite the fact that Argentina's protests have made the development of commercial links with other South American countries difficult, the Islands' key trade and logistic links with the UK are unaffected. Argentina's military capacity has diminished since the conflict of 1982, whereas the Islands defences are much stronger. Argentina has expressly ruled out military action against the Falklands and the risk of such action is considered to be negligible. Diplomatic efforts by Argentina are likely to continue, but are not expected to have any impact on the status of the Falkland Islands for the foreseeable future.

Although there is no other directly competing service to the Portsmouth Harbour Ferry between Gosport and Portsmouth, customers are able to travel by car or public transport round the harbour. Maintaining and promoting the relative attractions of using the ferry whether for commuting to work, shopping or for tourism is a key strategic focus. PHFC will continue to work closely with local authorities and other public transport providers to reinforce its advantages as the faster, more cost effective, and environmentally friendly alternative to travelling by car.

For Momart the physical security of artworks is of paramount importance and the company goes to great lengths to guard against the risk of theft or damage to the works in its care. The other risks faced by Momart are those factors which might impact the global art market. For instance a reduction in the personal wealth of collectors and investors could result in a contraction of personal or institutional budgets which would lead to a reduction in the movement and display of art. The emergence of new competitors could also impact the business adversely. In addition, because much of Momart's business involves working with overseas partners, volatility in the Sterling/Dollar and Sterling/Euro exchange rates has a direct effect on its cost base and profitability.

Key performance indicators

At Group level management attention is focussed on revenue, costs and the contribution generated by each sub group of businesses.

In the Falkland Islands businesses like-for-like revenue growth is a key measure of performance, especially for the retail outlets which account for two thirds of revenues. In addition to sales trends, gross margins by product and general costs are also kept under close review.

At PHFC, passenger numbers and the average fare yield are monitored on a weekly basis. Other key concerns are ferry reliability and passenger safety as well as a focus on costs and net profitability.

At Momart, forward sales projections are monitored and updated and these are an important predictive indicator which facilitates forward planning. In addition, order intake and the conversion rate in bidding for contracts are reviewed on a regular basis. Direct costs and the gross contribution of individual contracts are monitored closely as are the level of indirect costs and the overall amount of overtime being worked.

John Foster

Managing Director

6 June 2012

Board of Directors and Secretary

David Hudd (67) Chairman

David joined the Board as Chairman on 4 March 2002 and is also Chairman of the Nominations Committee. He is a Chartered Accountant and was a partner in Price Waterhouse until 1982. Since then, he has been Chairman or Chief Executive of a number of listed companies. He was a founder director of Falkland Oil and Gas Limited and remains a non-executive director of that company.

John Foster (54) Managing Director

John joined the Board on 26 January 2005. He is a Chartered Accountant and previously served as Finance Director for software company Macro 4 plc and toy retailer, Hamleys plc. Prior to joining Hamleys, he spent three years in charge of acquisitions and disposals at FTSE 250 company Ascot plc and before that worked for nine years as a venture capitalist with a leading investment bank in the City.

Mike Killingley (61) Non-executive Director

Mike was appointed to the Board on 26 July 2005, having previously been appointed non-executive Chairman of the Portsmouth Harbour Ferry Company Limited, following the Company's successful bid. He is a Chartered Accountant and was a partner of KPMG (and predecessor firms) from 1984 to 1998. He was previously non-executive Chairman of Beale plc a listed Company, and non-executive Chairman of Southern Vectis plc and Conder Environmental plc, both quoted on AIM. He is Chairman of the Audit Committee and a member of the Remuneration Committee.

Jeremy Brade (50) Non-executive Director

Jeremy joined the Board on 9 September 2009. He is a Director and Private Equity Partner at Harwood Capital where he has worked since 2001. Jeremy had previously been with the Foreign and Commonwealth Office (FCO) where he served at the British High Commission in New Delhi and as the representative of Cyrus Vance and Lord Owen at the International Conference on the Former Yugoslavia. Prior to joining the Diplomatic Service, Jeremy was an Army Officer. He is Chairman of the Remuneration Committee .

Carol Bishop (38) Company Secretary

Carol Bishop joined the Company on 5 December 2011. She is a Chartered Accountant and has previously worked for London Mining plc, an AIM listed company as Group Reporting manager. Prior to this she spent three years at Hanson plc and six years at the Peninsular and Oriental Steam Navigation Company.

Directors' Report

The Directors present their Annual Report and the financial statements for the Company and for the Group for the year ended 31 March 2012.

Results and dividend

The Group's result for the year is set out in the Group Income Statement. The Group profit for the year after taxation amounted to £2,256,000 (2011: £1,620,000). Basic earnings per share were 24.5p (2011: 17.7p). The Directors recommend a final dividend of 7.0p per share (2011: 5.5p) which, if approved by shareholders at the forthcoming Annual General Meeting, will be paid on 19 September 2012 to shareholders on the register at close of business on 31 August 2012. With the interim dividend of 4.0p paid in January 2012 (2011: 4.0p) this will take the total dividend for the year to 11.0p per share (2011: 9.5p). The proposed final dividend has not been included in creditors as it was not approved before the year end. Dividends paid during the year comprise a dividend of 5.5p per share in respect of the previous year ended 31 March 2011 and an interim dividend of 4.0p per share in respect of the current year.

Principal activities and business review

The business of the Group during the year ended 31 March 2012 was general trading in the Falkland Islands, the operation of a ferry across Portsmouth Harbour and the provision of international arts logistics and storage services. The principal activities of the Group are discussed in more detail in the Business Review and should be considered as part of the Directors' Report for the purposes of the requirements of the enhanced Directors' Report guidance.

The principal activity of the Company is that of a holding company.

Directors

There have been no changes to the Board during the year.

Directors' interests

The interests of the Directors in the issued shares and share options over the shares of the Company are set out below under the heading "Directors' interests in shares". During the year no Director had an interest in any significant contract relating to the business of the Company or its subsidiaries other than his own service contract.

Health and safety

The Group is committed to the health, safety and welfare of its employees and third parties who may be affected by the Group's operations. The focus of the Group's effort is to prevent accidents and incidents occurring by identifying risks and employing appropriate control strategies. This is supplemented by a policy of investigating and recording all incidents.

Employees

The Board is aware of the importance of good relationships and communication with employees. Where appropriate, employees are consulted about matters which affect the progress of the Group and which are of interest and concern to them as employees. Within this framework, emphasis is placed on developing greater awareness of the financial and economic factors which affect the performance of the Group. Employment policy and practices in the Group are based on non-discrimination and equal opportunity irrespective of age, race, religion, sex, colour and marital status. In particular, the Group recognises its responsibilities towards disabled persons and does not discriminate against them in terms of job offers, training or career development and prospects. If an existing employee were to become disabled during the course of employment, every practical effort would be made to retain the employee's services with whatever retraining is appropriate. The Group's pension arrangements for employees are summarised in note 24.

Share capital and substantial interests in shares

During the year 77,153 share options were exercised (2011: 123,236).

Further information about the Company's share capital is given in note 26. Details of the Company's executive share option scheme and employee ownership plan can be found in note 25.

Payments to suppliers

The policy of the Company and each of its trading subsidiaries, in relation to all its suppliers, is to settle the terms of payment when agreeing the terms of the transaction and to abide by those terms, provided that it is satisfied that the supplier has provided the goods or services in accordance with agreed terms and conditions. The Group does not follow any code or standard payment practice. As a holding company, the Company had no trade creditors at either 31 March 2012 or 31 March 2011.

Charitable and political donations

Charitable donations made by the Group during the year amounted to £15,560 (2011: £17,223), largely to local community charities in Gosport and the Falkland Islands. There were no political donations in the year (2011: nil).

Disclosure of information to auditors

The Directors who held office at the date of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Auditors

A resolution proposing the re-appointment of KPMG Audit plc will be put to shareholders at the Annual General Meeting.

Annual General Meeting

The Company's Annual General Meeting will be held at the London offices of FTI Consulting, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB at 11.00am on 21 August 2012. The Notice of the Annual General Meeting and a description of the special business to be put to the meeting are considered in a separate Circular to Shareholders which accompanies this document.

Details of Directors' remuneration and emoluments

The remuneration of non-executive Directors consists only of annual fees for their services both as members of the Board and of Committees on which they serve.

An analysis of the remuneration and taxable benefits in kind (excluding share options) provided for and received by each Director during the year to 31 March 2012 and in the preceding year follows:

Directors' interests in shares

As at 31 March 2012 and 31 March 2011, the share options of executive Directors may be summarised as follows:

The mid-market price of the Company's shares on 31 March 2012 was 366.5p and the range in the year was 227.5p to 415.0p.

The Directors' options extant at 31 March 2012 totalled 277,837 and represented 3.0% of the Company's issued share capital. Under the Company's executive share option scheme, executive Directors and senior executives have been granted options to acquire ordinary shares in the Company after a period of three years from the date of the grant. All outstanding options have been granted at an option price of not less than market value at the date of the grant. The exercise of options is subject to various performance conditions, which have been determined by the remuneration committee after discussion with the Company's advisors.

In addition to the share options set out above, the interests of the Directors, their immediate families and related trusts in the shares of the Company according to the register kept pursuant to the Companies Act 2005 were as shown below:

Statement of Directors' responsibilities in respect of the Directors' Report and financial statements

The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the European Union and applicable laws and have elected to prepare the Company financial statements on the same basis.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of their profit or loss for that period.

In preparing each of the Group and Company financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether they have been prepared in accordance with IFRSs as adopted by the EU; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume

that the Group and the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm, to the best of their knowledge that:

·; these financial statements, prepared in accordance with IFRS, as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the undertakings included in the consolidation as a whole; and

·; the management report, which comprises the Chairman's Statement and the Business Review, includes a fair review of the development and performance of the business and of the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Approved by the Board and signed on its behalf by:

Carol Bishop

Secretary

6 June 2012

Kenburgh Court

133-137 South Street

Bishop's Stortford

Hertfordshire

CM23 3HX

Independent Auditor's Report to the members of Falkland Islands Holdings plc

We have audited the financial statements of Falkland Islands Holdings plc for the year ended 31 March 2012 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Company Balance Sheets, the Consolidated and Company Cash Flow Statements, the Consolidated and Company Statements of Changes in Shareholders' Equity and the related notes.

The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.

Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditors

As explained more fully in the Directors' Responsibilities Statement the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion:

• the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 March 2012 and of the Group's profit for the year then ended;

• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;

• the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

• the Parent Company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of Directors' remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

W Cox (Senior Statutory Auditor)

For and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants

St Nicholas

House Park Row Nottingham

NG1 6FQ

6 June 2012

Consolidated Income Statement

FOR THE YEAR ENDED 31 MARCH 2012

Consolidated Statement of Comprehensive Income

FOR THE YEAR ENDED 31 MARCH 2012

Consolidated Balance Sheet

AS AT 31 MARCH 2012

These financial statements were approved by the Board of Directors on 6 June 2012 and were signed on its behalf by:

J L Foster

Director

Company Balance Sheet

AS AT 31 MARCH 2012

These financial statements were approved by the Board of Directors on 6 June 2012 and were signed on its behalf by:

J L Foster

Director

Registered company number: 03416346

Consolidated Cash Flow Statement

FOR THE YEAR ENDED 31 MARCH 2012

Company Cash Flow Statement

FOR THE YEAR ENDED 31 MARCH 2012