REG - Obtala Limited - Final Results FY2016 <Origin Href="QuoteRef">OBT.L</Origin> - Part 2
30/06/2017 16:40
- Part 2: For the preceding part double click ID:nRSd8062Ja
Merger reserve Foreign exchange reserve Share based payment reserve Retained earnings Total Non-controlling interests Total equity
$000 $000 $000 $000 $000 $000 $000 $000 $000
At 1 JANUARY 2015(Restated) 4,104 17,968 44,487 - 1,580 50,790 118,929 26,554 145,483
Loss for the year - - - - - (25,729) (25,729) 2,923 (22,806)
Other comprehensive income:
Currency translation differences - - - (653) - - (653) - (653)
Total comprehensive income for the year - - - (653) - (25,729) (26,382) 2,923 (23,459)
Issue of shares
Exchange differences on translating into presentational currency - - - (1,428) - - (1,428) - (1,428)
At 31 December 2015 (Restated) 4,104 17,968 44,487 (2,081) 1,580 25,061 91,119 29,477 120,596
Loss for the year - - - - - (4,836) (4,836) (797) (5,633)
Other comprehensive income:
Currency translation differences - - - (24) - - (24) - (24)
Total comprehensive income for the year - - - (24) - (4,836) (4,860) (797) (5,657)
Transactions with owners:
Sales of subsidiary - - - - - 311 311 (311) -
Issue of ordinary shares 136 - - - (136) - - - -
Reserve transfer - - - - (46) 46 - - -
Exchange differences on translating into presentational currency - - - 486 - - 486 - 486
At 31 December 2016 4,240 17,968 44,487 (1,619) 1,398 20,582 87,056 28,369 115,425
The notes on pages 20 to 45 form an integral part of the consolidated financial statements.
2016 2015Restated 2014Restated
Notes $000 $000 $000
ASSETS
Non-current assets
Available for sale investments 15 - 133 140
Intangible exploration and evaluation assets 10 - - 25,062
Biological asset 12 174,528 174,528 161,833
Property, plant and equipment 11 1,935 2,808 3,982
Total non-current assets 176,463 177,469 191,017
Current assets
Trade and other receivables 13 216 406 1,289
Inventory 14 1,017 855 2,103
Short term investments 15 - - 6,138
Current tax receivable 25 30 -
Cash and cash equivalents 3,398 974 5,095
Total current assets 4,656 2,265 14,625
TOTAL ASSETS 181,119 179,734 205,642
LIABILITIES
Current liabilities
Trade and other payables 17 (9,846) (3,290) (3,621)
Financial investment liabilities - - (4,507)
Current tax liabilities - - (3)
TOTAL CURRENT LIABILITIES (9,846) (3,290) (8,131)
NON-CURRENT LIABILITIES
Borrowings - - (242)
Deferred tax 7 (55,848) (55,848) (51,786)
Total non-current liabilities (55,848) (55,848) (52,028)
TOTAL LIABILITIES (65,694) (59,138) (60,159)
NET ASSETS 115,425 120,596 145,483
EQUITY
Share capital 18 4,240 4,104 4,104
Share premium 19 17,968 17,968 17,968
Merger reserve 20 44,487 44,487 44,487
Foreign exchange reserve (1,619) (2,081) -
Share based payment reserve 1,398 1,580 1,580
Retained earnings 21 20,582 25,061 50,790
Equity attributable to the owners of the parent 87,056 91,119 118,929
Non-controlling interests 24 28,369 29,477 26,554
TOTAL EQUITY 115,425 120,596 145,483
The notes on pages 20 to 45 form an integral part of the consolidated financial statements. The financial statements on
pages 16 to 45 were authorised for issue by the board of directors on 30th June 2017 and were signed on its behalf.
Miles Pelham Philippe Cohen
Chairman Finance Director
2016 2015
Notes $000s $000s
(Loss)/ before taxation (5,251) (14,777)
Adjustment for:
Depreciation of property, plant and equipment 11 907 521
Fair value adjustment of biological asset 10 - (13,167)
Impairment of intangible assets - 24,618
Losses on investments - 1,658
Finance costs 6 521 -
Loss on disposal of subsidiary 382 60
Gain on fair value of investments - (1,601)
Decrease in trade and other receivables 195 6,991
Increase/(decrease) in trade and other payables 6,846 (11,221)
Increase/(decrease) in inventory (162) 1,248
CASH OUTFLOW FROM OPERATIONS
Income taxes received 7 - -
Net cash OUTFLOW from CONTINUING operations 3,438 (5,670)
INVESTING ACTIVITIES
Expenditure on property, plant and equipment 11 (493) (15)
Net cash (OUTFLOW)/INFLOW from investing activities (493) (15)
FINANCING ACTIVITIES
Proceeds from sale of investments - 1,624
Finance costs 7 (521) (60) (521) (60)
Net cash inflow from financing activities (521) 1,564
INCREASE IN CASH AND CASH EQUIVALENTS 2,424 (4,121)
Cash and cash equivalents at beginning of year 974 5,095
Effect of foreign exchange rate variation - -
CASH AND CASH EQUIVALENTS AT end of YEAR 3,398 974
The notes on pages 20 to 45 form an integral part of the consolidated financial statements.
1. ACCOUNTING POLICIES
Obtala Limited ("the Company" or "Obtala") is an AIM-quoted agriculture, food processing and timber company. The Company is
incorporated and domiciled in Guernsey. It registered office is Dixcart House, Sir William Place, St Peter Port, Guernsey,
GY1 1GX.
The principal activities and nature of the business are included on pages 1 to 7.
BASIs OF ACCOUNTING
The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted in
the European Union ("IFRS"). The financial statements have been prepared under the historical cost convention except for
biological assets and certain financial assets and liabilities, which have been measured at fair value
The financial information presented in this statement have been prepared applying the accounting policies and presentation
that was applied in the preparation of the Group's consolidated financial statements for the year ended 31 December 2016
and are not the Group's statutory accounts
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate those of the Company and all of its entities controlled by the Company
(together referred to as "the Group") from the date control commences until the date control ceases.
Control is achieved where the Company:
· Has the power over the investee
· Is exposed or has the rights to a variable return from the involvement with the investee
· Has the ability to use its power to affect its returns
Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of
comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total
comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even
if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into
line with those used by other members of the Group.
Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the
subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the
non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any
difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration
paid or received is recognised directly in equity and attributed to owners of the Company.
Subsidiaries
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are initially measured at fair value at acquisition date irrespective of the extent of any
non-controlling interest. The difference between the cost of acquisition of shares in subsidiaries and the fair value of
the identifiable net assets acquired is capitalised as goodwill and reviewed annually for impairment. Any deficiency of the
cost of acquisition below the fair value of identifiable net assets acquired (i.e. discount on acquisition) is recognised
directly in profit or loss.
Non-controlling interests in subsidiaries are identified separately from the Group's equity therein. Those interests of
non-controlling shareholders that represents ownership interests entitling their holders to a proportionate share of the
net assets upon liquidation are initially measured at fair value. Subsequent to acquisition, the carrying amount of
non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share
of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results
in the non-controlling interests having a deficit balance.
When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is
remeasured to fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or
loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date
that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment
would be appropriate if that interest were disposed of.
Intra-group transactions
All intra-group transactions, balances, and unrealised gains on transactions between Group companies are eliminated on
consolidation. Subsidiaries' accounting policies are amended where necessary to ensure consistency with the policies
adopted by the Group. All financial statements are made up to 31 December each year.
SEGMENTAL REPORTING
The reportable segments are identified by the Board (which is considered to be the Chief Operating Decision Maker) by the
way management has organised the Group. The Group operates within two separate operational divisions comprising agriculture
and forestry.
The Directors review the performance of the Group based on total revenues and costs, for these four divisions and not by
any other segmental reporting.
Revenue recognition
Revenue from timber and agriculture sales is recognised when all the following conditions are satisfied:
· the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
· the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor
effective control over the goods sold;
· the amount of revenue can be measured reliably;
· it is probable that the economic benefits associated with the transaction will flow to the Group; and
· the costs incurred in respect of the transaction can be measured reliably.
Realised profits and losses on the disposal of investments is the difference between the fair value of the consideration
received less any directly attributable costs on the sale and the carrying value of the investments at the start of the
accounting period or acquisition date if later.
Unrealised profits and losses on the revaluation of investments is the movement in carrying value of investments between
the start of the accounting period or acquisition date if later and the end of the accounting period.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate
applicable.
Dividend income from investments is recognised when the shareholders' rights to receive payment have been established
(provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured
reliably).
Going concern
An assessment of going concern is made by the Directors at the date the Directors approve the annual financial statements,
taking into account the relevant facts and circumstances at that date including:
• Review of profit and cashflow forecasts;
• Review of actual results against forecast;
• Timing of cashflows; and
• Financial or operational risks.
Having made reasonable enquiries, the Directors are satisfied that the cash balance and resources and facilities of the
Group are sufficient to cover all known financial liabilities for the next 12 months from the date of approval of the
financial statements. As at 31 December 2016 the Group have a healthy cash balance of circa $4 million and committed
incoming funds of another $10 million over the next three months and a sound capital expenditure plan over the 12 months.
As a result, the directors have satisfied themselves that the Group is in a sound financial position and will be able to
meet the Group's foreseeable cash requirements and that it remains appropriate to adopt the going concern basis in
preparing the financial statements.
FOREIGN CURRENCIES
The presentation currency of the Group is US Dollars (USD). Items included in the Group's financial statements of each of
the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the
functional currency"). The functional currency of the majority of the Group's subsidiaries is USD. The consolidated
financial statements are presented in USD ("the presentation currency") because this is the currency better understood by
the principal users of the financial statements.
Up to 2015, the Group's financial statements were presented in sterling. In 2016, management has decided to change the
presentation currency to USD. The Company believes that the presentation of financial results in USD, which is the
functional currency of the majority of the Group, will provide greater transparency and provide shareholders and other
users of the financial statements with reliable and more relevant information, providing a more accurate reflection of the
Group's underlying financial performance and financial position. The change has been applied retrospectively in line with
IAS 8 "Accounting Policies, Changes in accounting Estimates and Errors" and as a result the comparative financial
information for the year ended 31 December 2015 has been presented in USD. Further, in accordance with IAS 1, a balance
sheet as at 31 December 2014 was presented in these consolidated financial statements. The sterling to USD exchange rates
as at 31 December 2014, 2015 and 2016 were 1.5586, 1.4763, and 1.228, respectively. The average sterling to USD exchange
rates for 2015 and 2016 were 1.5309 and 1.3633, respectively.
Foreign currency translation rates (against US$) for the significant currencies used by the Group were:
At 31 December 2016 Annual average At 31 December 2015 Annual average At 31 December 2014 Annual average
for 2016 for 2015 for 2014
Great British Pound 0.82 0.73 0.68 0.65 0.64 0.61
South African Rand 13.58 14.46 15.47 12.95 11.55 10.88
Mozambique Metical 71.64 62.67 48.03 39.16 31.33 31.72
Tanzanian Shilling 2,170 2,170 3,017 3,214 1,750 1,750
Transactions in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the
transaction. At each reporting date, monetary assets and liabilities that are denominated in foreign currency are
translated into the reporting currency at the rate prevailing on that date. Non-monetary assets and liabilities are carried
at cost and are translated into the reporting currency at the rate prevailing on the reporting date. Gains and losses
arising on retranslation are included in profit or loss for the year, except for exchange differences on non-monetary
assets and liabilities, which are recognised directly in other comprehensive income when the changes in fair value are
recognised directly in other comprehensive income.
On consolidation, the assets and liabilities of the Group's overseas operations are translated into the Group's
presentational currency at exchange rates prevailing at the reporting date. Income and expense items are translated at the
average exchange rates for the year unless exchange rates have fluctuated significantly during the year, in which case the
exchange rate at the date of the transaction is used. Exchange differences arising, if any, are taken to other
comprehensive income and the Group's translation reserve. Such translation differences are recognised as income or as
expenses in the year in which the operation is disposed of.
Intangible exploration and evaluation assets
All costs associated with mineral exploration and evaluation including the costs of acquiring prospecting licences and
rights to explore, topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching,
sampling and other activities to evaluate the technical feasibility and commercial viability of extracting a mineral
resource, are capitalised as intangible exploration and evaluation assets and subsequently measured at cost. The costs are
allocated to base mineral/gemstone groupings within a region ("field"), which are treated as cash-generating units
("CGUs")/ projects because the underlying geology and risks and rewards of exploration within a field are considered to be
similar.
If an exploration project is successful, the related expenditures will be transferred at cost to property, plant and
equipment and amortised over the estimated life of the commercial ore reserves on a unit of production basis. Where a
project does not lead to the discovery of commercially viable quantities of mineral resources and is relinquished,
abandoned, or is considered to be of no further commercial value to the Group, the related costs are written off to profit
or loss as an impairment charge.
Property, PLANT AND EQUIPMENT
Property, plant and equipment are stated at historical cost less subsequent accumulated depreciation and any accumulated
impairment losses. Depreciation is provided at rates calculated to write each asset down to its estimated residual value
evenly over its expected useful life, as follows:
Land and Buildings over 50 years
Motor Vehicles over 3 years
Fixtures and Equipment over 3 years
Plant and Equipment over 2 - 5 years
LAND AND BUILDINGS
Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are
stated in the statement of financial position at cost, less any subsequent accumulated depreciation and subsequent
accumulated impairment losses. Land that is held under lease for the use in agriculture and forestry is stated at cost less
any subsequent depreciation.
Depreciation is recognised so as to write off the cost of the assets (other than freehold land and properties under
construction) less their residual values over their useful lives, using the straight-line method. For leasehold land and
buildings, the useful life is the period of the lease. The estimated useful lives, residual values and depreciation method
are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. Freehold
land is not depreciated.
IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
At each statement of financial position date, the Group reviews the carrying amounts of its tangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the
asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs.
Where there has been a change in economic conditions that indicate a possible impairment in a cash-generating unit, the
recoverability of the net book value relating to that field is assessed by comparison with the estimated discounted future
cash flows based on management's expectations of future oil prices and future costs.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash
flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised
as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is
treated as a revaluation decrease.
Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a
credit to the income statement, net of any depreciation that would have been charged since the impairment.
Impairment of exploration and evaluation assets and property, plant and equipment
Whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, an asset
is reviewed for impairment. An asset's carrying value is written down to its estimated recoverable amount (being the higher
of the fair value less costs to sell and value in use) if that is less than the asset's carrying value. Impairment losses
are recognised in profit or loss immediately. Impairment reviews for intangible exploration and evaluation assets are
carried out on the basis of mineral/gemstone fields with each field representing a single CGU. An impairment review is
undertaken when indicators of impairment arise but typically when one of the following circumstances applies:
• unexpected geological occurrences that render the resources uneconomic;
• title to the asset is compromised;
• variations in mineral/gemstone prices that render the project uneconomic;
• variations in the foreign currency rates; or
• the Group determines that it no longer wishes to continue to evaluate or develop the field.
biological assets
A biological asset is defined as a living plant managed by an enterprise which is involved in the agricultural activity of
the transformation of biological assets for sale, into agricultural produce, or into additional biological assets. The
Group's biological assets mainly comprise the standing timber. The fair value of the standing timber is determined using
models based on expected yields, market prices for the saleable produce, after allowing for harvesting costs and other
costs yet to be incurred in getting the produce to maturity. Any changes in fair value are recognised in the income
statement in the year in which they arise.
Forestry
IAS41 requires biological assets to be measured at fair value less costs to sell. The fair value of standing timber is
estimated based on the present value of the net future cash flows from the asset, discounted at a current market-based
rate. In determining the present value of expected net cash flows, the Group includes the net cash flows that market
participants would expect the asset to generate in its most relevant market. Increases or decreases in value are recognised
in profit or loss. When the fair value estimates are determined to be clearly unreliable due to insufficient information
being available to the directors, the biological asset is held at cost less any accumulated depreciation and any
accumulated losses.
All expenses incurred in maintaining and protecting the assets are recognised in profit or loss. All costs incurred in
acquiring additional planted areas are capitalised.
Agriculture
Crops which are planted from seed to undergoing the process of transformation until they become mature and productive are
also stated at fair value less costs to sell. Management review the crops on an ongoing basis and should these be deemed to
be unsuitable for further cultivation, full provision for impairment loss is made at that time.
A gain or loss arising on initial recognition of biological assets at fair value less costs to sell and from a change in
fair value less costs to sell is recognised as profit or loss in the period in which it arises.
Agricultural produce harvested from the Group's biological assets is measured at its fair value less costs to sell. The
fair value of agricultural produce is based on market prices of agricultural produce of similar size and weight or
alternative estimates of fair value.
Costs incurred prior to the demonstration of commercial feasibility of forestry and agriculture in a particular area are
written-off to profit and loss as incurred.
FINANCIAL ASSETS AND LIABILITIES
The Group classifies its financial assets and liabilities as follows:
Trade and other receivables
Trade and other receivables do not carry any interest and are initially recognised at fair value. They are subsequently
measured at amortised cost using the effective interest rate method, less any provision for impairment.
Impairment provisions are recognised when there is objective evidence that the Group will be unable to collect all of the
amounts due under the terms of the receivable, the amount of such a provision being the difference between the net carrying
amount and the present value of the future expected cash flows associated with the impaired receivable.
Financial assets at FAIR VALUE THROUGH THE PROFIT OR LOSS ("FVTPL")
Financial investment assets are classified at fair value through profit or loss when either they are held for trading or
when they are initially designated at fair value through the profit or loss.
The fair value is derived from the closing bid-market price at the reporting date. Gains and losses arising from changes in
fair value are recognised directly in profit or loss.
A financial asset is classified as held for trading if:
· it has been acquired principally for the purpose of selling in the near future; or
· it is part of an identified portfolio of financial instruments that the Group manages together and has a recent
actual pattern of short-term profit-taking; or
· it is a derivative that is not designated and effective as a hedging instrument.
A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:
· such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise
arise; or
· the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and
its performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment
strategy, and information about the grouping is provided internally on that basis; or
· it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments:
Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.
FINANCIAL LIABILITIES
Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Financial
liabilities are subsequently measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future
cash payments over the expected life of the financial liability, or (where appropriate) a shorter period, to the net
carrying amount on initial recognition.
The Group derecognises financial liabilities when, and only when, the Group's obligations are discharged, cancelled or
expire.
Trade and other payables
Trade and other payables are not interest bearing and are initially recognised at fair value. They are subsequently
measured at amortised cost using the effective interest rate method.
Cash and cash equivalents
Cash and cash equivalents comprise cash at hand and deposits on a term of not greater than 3 months.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in
equity as a deduction, net of tax, from proceeds.
LEASES
Leases where the lessor retains substantially all of the risks and rewards of ownership are classified as operating leases
and the rentals payments are charged to profit or loss on a straight-line basis over the lease term.
SHARE BASED PAYMENTS
Share options and Warrants
Share option programmes entitle certain employees and Directors to acquire shares of the Company. In addition warrants may
be issued as consideration for services provided. These options and warrants are granted by the Company. The fair value of
options granted is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant
date and spread over the period during which the employees become unconditionally entitled to the options based on the
number expected to vest. The fair value of the options granted is measured using the Black Scholes valuation model for
options without market conditions and using the binomial method for those with market conditions, taking into account the
terms and conditions under which the options were granted. The amount recognised as an expense is adjusted to reflect the
actual number of share options that vest.
INVENTORIES
Inventories, are stated at the lower of cost-of-production on the weighted average basis or estimated net realisable value.
Cost of production includes direct labour, other direct costs and related production overheads. Net realisable value is the
estimated selling price in the ordinary course of business.
PENSION COSTS
Contributions by the Group to personal pension schemes are charged to profit or loss on a straight-line basis as they
become due.
TAXATION
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax payable is based on taxable profit for the year. The Group's liability for current tax is calculated by using tax
rates that have been enacted or substantively enacted by the reporting date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is
accounted for using the balance sheet liability method.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against which deductible temporary differences can be
utilised. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised
or the liability is settled based upon rates enacted and substantively enacted at the reporting date. Deferred tax is
charged or credited in profit or loss, except when it relates to items credited or charged directly to equity, in which
case the deferred tax is also dealt with in equity or taken to other comprehensive income if it relates to other
comprehensive income items.
CRITICAL ACCOUNTING ESTIMATES AND AREAS OF JUDGEMENT
The preparation of the consolidated financial statements requires management to make estimates and judgements and form
assumptions that affect the reported amounts of the assets, liabilities, revenue and costs during the periods presented
therein, and the disclosure of contingent liabilities at the date of the financial statements. Estimates and judgements are
continually evaluated and based on management's historical experience and other factors, including future expectations and
events that are believed to be reasonable. The estimates and assumptions that have a significant risk of causing a material
adjustment to the financial results of the Group in future reporting periods are discussed below.
Fair value of biological assets
The methods and assumptions used in determining the fair value of standing timber within the forestry concessions held has
been based on discounted cash flow models which require a number of significant judgements to be made by the directors in
respect of sales price, production levels, operational cost and discount rates.
The discounted cash flow models cover the 10 concession areas of Miombo hardwood forest to which the group has secured the
rights to. The concessions cover the same surface as last year but have reduced in number from 12 to 10 which makes for
easier management. The concessions are in three locations in three adjacent provinces within northern Mozambique and cover
a total area of 314,965 hectares. The concessions have been granted by the Mozambican Government for a 50 year term once
the necessary management plan, community consultation and administrative process is completed, and are renewable
thereafter. The ten management plans have been presented, of which 3 are fully approved and are now operational, with
another 5 in the final stages of approval by the Mozambican Government. We expect the last two to be completed as well by
the end of 2017.
Harvesting levels are regulated by the Annual Permitted Cut ("APC") (total m3 per species) set in each management plan and
approved at Provincial government level and can be reviewed and increased periodically, while continued sustainability is
ensured.
The volume of timber to be harvested has been estimated based on the assumption that:
· the proportion of the APC to be harvested in any one year will increase over the first three years and then remain
constant.
· from year 4, all the current APC will be harvested in any one year; as the APC number can be increased as per the
13% increase already authorised from 2016 to 2017.
· From year 3 to 5 we are projecting to ramp up high margin veneer production with a new unit to about 15% of
production as of year 5.
· We have extended the model from a 10 to a 20 period which we believe is appropriate for the sawmill operation that
will be completed in 2017.
The valuation model accommodates uncertainties over the actual levels of available timber and reflects the variability of
the woodland types and content.
The valuation models assume a discount rate of 12%. Further details of the underlying assumptions and judgements are given
in note 12.
The concessions were granted to Obtala at nil initial cost but with a levy payable to the Mozambique government based on
harvesting and sales. These projected costs are included in the discounted cash flow valuation models within costs of
sales.
In support of the revised valuation and to corroborate the fair value of the forestry concession the directors have also
commissioned, an independent valuation report reflecting the value of the sale of rights "to a willing buyer". This report
prepared on 1 May 2017 was undertaken by Mr: Edward Anderson-Bickley, formerly of Honour Capital, who is an independent
consultant that specialises in providing comprehensive forestry investment and management services, and is regulated and
authorised to conduct investment appraisals and analysis of forestry by the Royal Institution of Chartered Surveyors
(RICS).
On the basis of the recommendations and the existing valuation model, which we are maintaining at the same level in 2016,
the Group has successfully raised funds from the sale of Argento Limited Preference Share, with another $6.6 million to be
received by Argento by the end of September 2017. These funds are being primarily used to scale up production levels and
engage the necessary personnel to support the planned production increases and boost sales team.
Impairment of intangible exploration and evaluation assets
The Group has no intangible assets. An impairment charge of $nil (2015: $24,618,000) was recognised in the year, and the
carrying value of intangible exploration and evaluation assets at 31 December 2016 was $nil (2015:£nil).
Accounting standards adopted during the year
New standards, amendments to published standards and interpretations to existing standards effective in 2016, with their
dates of adoption adopted by the Group and brief description:
Annual Improvements to IFRSs 2010-2012 Cycle Includes amendments to the definitions of 'vesting conditions' and 'market condition' and new definitions of 'performance condition' and 'service condition' in IFRS 2 Share-based Payment 1 February 2015
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation Clarifies that preparers should not use revenue-based methods to calculate charges for the depreciation or amortisation of items of property, plant and equipment or intangible assets. 1 January 2016
Amendments to IAS1: Disclosure Initiative Amended to further clarify the concept of materiality, namely that it is applicable to the financial statements as a whole, not just the primary statements and that it applies to specific disclosures required by an IFRS and, therefore, an entity does not have to disclose information required by an IFRS if that information would not be material. 1 January 2016
Annual Improvements to IFRSs The improvements in this Amendment clarify the requirements of IFRSs and eliminate inconsistencies within and between Standards, including disclosure of information 'elsewhere in the interim financial report'. 1 January 2016
2012-2014 Cycle
Amendments to IAS 27: Restoration of the option to use the equity method to account for investments in subsidiaries, joint ventures and associates in the entity's separate financial statements. 1 January 2016
Equity Method in Separate Financial Statements
Amendments to IFRS 10, IFRS 12 Clarifies that the exemption from preparing consolidated financial statements is available to a parent entity that is a subsidiary of an investment entity. This clarification extends to the equity method for entities that are subsidiaries and that hold interests in associates and joint ventures. IFRS 12 clarifies that an investment entity is not excluded from the scope of the standard. 1 January 2016
and IAS 28: Investment Entities*
Amendments to IAS 16 and IAS 41: Brings bearer plants, which are used solely to grow produce, into the scope of IAS 16 so that they are accounted for in the same way as property, plant and equipment 1 January 2016
* not yet endorsed by the EU
The implementation of these standards did not have a material impact on the Group's consolidated financial statements other
than disclosures.
ACCOUNTING STANDARDS AND INTERPRETATIONS NOT APPLIED
The following Adopted IFRSs have been issued but have not been applied by the Group in these financial statements. Their
adoption is not expected to have a material effect on the financial statements:
Annual Improvements to IFRSs 1 January 2017 & 1 January 2018 The improvements in this Amendment clarify the requirements of IFRSs and eliminate inconsistencies within and between Standards, including clarification of the scope of
2014-2016 Cycle* IFRS 12.
Amendments to IAS 12: 1 January 2017 Clarifies deferred tax on unrealised losses generated by debt instruments carried at fair value.
Recognition of Deferred Tax Assets for Unrealised Losses*
Amendments to IAS 7: 1 January 2017
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