2012 Results Announcement & Q1 2013 IMS - Part 2

2012 results announcement & q1 2013 IMS

Part 2 of 2

APPENDIX

Information required to be disclosed under DTR 6.3.5 The following information comprises the relevant sections from the Company's Annual Report which can be found on its website at www.bumiplc.com:

1. Statement of Directors' responsibilities

2. Events since the last Annual Report

3. Principal risks and uncertainties

4. Consolidated balance sheet and profit and loss account together with explanatory notes required by IAS 34 (for a complete set of notes please refer to the financial statements in the Annual Report)

As these are the relevant sections from the complete Annual Report required under DTR 6.3.5 for the purposes of this announcement, the page numbers and all other references and cross references refer to the page numbers and references in the complete Annual Report on the Company's website. Furthermore the sections may themselves be part of other sections which are set out in full in the Annual Report on the Company's website.

In accordance with Listing Rule 9.6.1, copies of the Annual report and the 2013 Notice of Annual General Meeting and Form of Proxy will be available on the Company's website, www.bumiplc.com and will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do.

1. Statement of Directors' responsibilities

The 2012 Annual Report contains the following statements regarding responsibility for the financial statements in compliance with DTR 4.1.12. The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the directors confirm that, to the best of their knowledge:

- the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

- the Director's report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

2. Events since the last Annual Report

Since the last Annual Report, the Board and its Committees have sought to apply the Group's approved governance framework working under the leadership of the CEO of the Company. This has been a challenging period for the Board which has had to deal with the following matters in particular:

(i) an independent investigation into allegations concerning potential financial and other irregularities in the Company's Indonesian operations, in particular in relation to PT Bumi;

(ii) the loss of significant influence and the re-classification of PT Bumi as an investment;

(iii) the receipt of separation proposals put forward by the Bakrie Group and NR Investments Limited;

(iv) the appointment of the first unaffiliated CEO of the Group and the appointment of the first unaffiliated President Director of PT Berau;

(v) the general meeting requisitioned by Mr Rothschild;

(vi) the appointment of an independent search firm to conduct a search for an independent chairman; and

(vii) an extensive review of the financial position at PT Berau undertaken by new management in PT Berau which led to the suspension of the listing of Bumi plc shares.

An independent investigation into allegations concerning potential financial and other irregularities in the Company's Indonesian operations, in particular in relation to PT Bumi

As part of the application of its governance framework, during 2012 the Board had been investigating certain financial transactions when, on 24 September 2012 following the receipt of materials of unsubstantiated provenance, it announced that it had become aware of allegations concerning potential financial and other irregularities in the Company's Indonesian operations, principally regarding PT Bumi, and established an Investigation Committee. The Investigation Committee comprised Sir Julian Horn-Smith (Chairman), Sir Graham Hearne, Graham Holdaway and Steve Shapiro and it instructed Macfarlanes to conduct an independent investigation into the allegations.

As set out in the Company's announcement on 22 January 2013, the Investigation conducted by Macfarlanes has been completed. However, as disclosed in the Company's circular issued on 28 January 2013, the clear evidence that information was obtained by illegal email hacking (which is a criminal offence in Indonesia) and the unsubstantiated nature of the allegations (largely as a result of investigators being denied access to relevant individuals) has seriously hindered the Company's ability to take remedial action. Notwithstanding this, the Board is taking all appropriate action open to it in respect of the findings of the independent investigation to pursue remedies where available and to liaise with all the relevant regulators in the UK and Indonesia. To this end, following the conclusion of the Macfarlanes investigation, the Board established a Litigation Committee, comprising Graham Holdaway (Chairman), Amir Sambodo, Nick von Schirnding and Sir Richard Gozney, to review all potential claims relating to the matters arising out of the investigation.

The Litigation Committee has, therefore, been reviewing all aspects of the original transactions to acquire shareholdings in PT Berau and PT Bumi in November 2010. Macfarlanes has obtained and reviewed a substantial quantity of documents in relation to the transactions, including documents from Vallar Advisers LP and other professional advisers. Cooperation has also been sought from certain individuals and advisers involved in the transactions, and detailed interviews have been conducted with a number of those involved. The fact finding stage has been substantially completed and leading counsel has been requested to prepare detailed advice setting out the merits of all available claims and the nature of the Company's remedies. In relation to PT Berau and its investment in the Chateau fund, a letter before action has been sent to the fund manager by PT Berau's Cayman Islands solicitors seeking realisation of the investment through the appointment of independent directors, or alternatively the winding-up of the fund manager by the court. Macfarlanes has also sent a formal notice of dispute to Bukit Mutiara, triggering the dispute resolution procedure under the original sale and purchase agreement with Bukit Mutiara. If a satisfactory response is not received, legal proceedings will be commenced.

The loss of significant influence and the re-classification of PT Bumi as an investment

Following the announcement of the independent investigation on 24 September 2012 and the resignation from the Board of Ari Hudaya, the President Director of PT Bumi, the Board concluded that it was no longer able to exert significant influence over PT Bumi via its 29% minority shareholding and re-classified PT Bumi from an associate to an investment with effect from 30 September 2012.

This lack of influence extended to the Company being unable to obtain access to the working papers of Tjiendradjaja & Handoko Tomo (Mazars Indonesia), the auditors of PT Bumi. PwC has therefore not been able to complete its audit procedures over Bumi plc's share of the loss of PT Bumi for the nine months ended 30 September 2012, and its qualified audit opinion reflects this limitation on the scope of their work.

The receipt of separation proposals from the Bakrie Group and NR Investments

On 11 October 2012 the Board announced that the Bakrie Group had proposed to enter into a transaction with the Company the effect of which would be for the Company to separate from the Bakrie Group and dispose of its shareholdings in PT Bumi. The Board delegated to the INEDs the responsibility for reviewing this offer and appointed Rothschild Group to assist the INEDs and to evaluate this proposal together with the NR Investments Limited's alternative which was received on 5 November 2012. Following such evaluation it was decided to pursue the Proposed Separation.

The Company is currently preparing a shareholder circular to convene a general meeting at which the transaction in respect of which heads of terms were agreed and announced on 12 February 2013, will be put to a shareholder vote. The arrangements in respect of $50m deposited in an escrow account by the Bakrie Group in relation to this proposed transaction have been extended to 26 June 2013. The details of this proposed transaction are set out in footnote 2 on page 3.

The appointment of the first unaffiliated CEO of the Group and the first unaffiliated President Director of PT Berau

On 12 December 2012 the Company announced that Nalin Rathod would be stepping down as CEO on 31 December 2012 to be replaced by Nick von Schirnding who was not affiliated to any founders or major shareholders and, on 28 January 2013, the Board announced that Eko Budianto would replace Rosan Roeslani as the President Director or PT Berau. This appointment was confirmed at the shareholders meeting of PT Berau held on 7 March 2013.

The general meeting requisitioned by Mr Rothschild

On 7January 2013 the Company announced that it had received a letter from a nominee shareholder on behalf of Mr Rothschild requisitioning a general meeting of the Company to remove 12 of the 14 directors and appoint new directors in response to which the Board issued a circular to shareholders on 28 January 2013 which included a notice of general meeting. In that circular, the Board also announced that it intended to execute the separation from the Bakrie Group and PT Bumi and restructure the Board upon such separation being implemented.

Following the general meeting held on 21 February 2013 the Board announced that 19 of the 22 proposed resolutions had been rejected, that all directors had been retained on the Board with the exception of Messrs Rathod and Mizrahi, and that Sir Richard Gozney, the former British Ambassador to Indonesia, had been elected to the Board. The Board welcomed the decision of shareholders to support it on substantially all resolutions, which provided an endorsement of the Board's strategy as set out in its notice to shareholders, and respected shareholders' decisions on the other resolutions.

The recruitment of an independent chairman

On 22 January 2013, the Company announced that Samin Tan had informed the Board that he would step down as Chairman of the Company once a new independent chairman is found but will remain on the Board as the Company's business partner in Indonesia. As mentioned in the Nomination Committee report, the recruitment of a new chairman, who has experience in, and is familiar to, the London market is well advanced following the appointment of an independent search firm.

An extensive review of the financial position at PT Berau undertaken by new management at PT Berau which led to the suspension of the listing of Bumi plc shares

Whilst former directors of PT Berau had agreed to work within the Group's approved governance framework, allowing for adaptation to local requirements, it became evident that not all the Group's policies were being fully complied with despite assurances to the contrary. In particular there were concerns about non-compliance with delegated authorities, matters reserved for the Board and failure to fully disclose related party transactions. In response the Board, through the Audit Committee, undertook a review of contracts and payments to identify counterparties and the extent of any transactions with related parties. This work concluded that a number of related party transactions had not been disclosed by former PT Berau management and that a number of large payments could not be determined as having a clear business purpose. Despite a thorough review it was not possible to conclude that all related party transactions entered into by former PT Berau management for the year ended 31 December 2012 had been identified and, as a result, PwC's audit opinion reflects this limitation in their scope. Further details are set out in Note 31 to the Financial Statements.

The formal appointment of a new President Director (Eko Budianto) and the resignation of former PT Berau directors at a General Meeting of Shareholders of PT Berau held on 7 March 2013 coincided with the previously appointed CFO of PT Berau (Scott Merrillees) receiving his Indonesian work permit thereby enabling him to exercise the necessary bank mandate authorities to be fully effective in PT Berau. The new President Director and the CFO immediately initiated an extensive review of the financial position of PT Berau with the assistance of external legal and accounting advisers. This review focused on payments described as being for hauling roads and other construction-in-progress and land related payments as well as unusual transactions where the business purpose was not clear. The review also included an assessment of contracts and a search for evidence of unrecorded liabilities, commitments and encumbrances on assets.

This review uncovered evidence of apparent financial irregularities and identified significant expenditure, predominantly in 2012, for which no clear business purpose could be established. By mid-April 2013, the review had revealed $56m of expenditure attributed to hauling roads and overburden removal where insufficient evidence could be found to support the capitalisation of these costs as previous PT Berau management had intended. Similarly $38m of land compensation payments could not be validated. Furthermore this review identified previously undisclosed encumbrances on cash balances and that some of the information provided to the Remuneration Committee had not been complete.

As a result of this review, PT Berau management were not in a position to report results by 30 April 2013 and, as a consequence, on 22 April 2013, the Board requested that the Bumi plc shares be temporarily suspended. Following the completion of this review in May 2013 it was concluded that payments to the value of $152m in 2012 and $49m in 2011 could not be substantiated as having a clear business purpose. In these circumstances the Board has disclosed all such expenditure as "other exceptional costs" in the income statement and, where relevant, in the disclosure of related parties transactions. A summary of re-classifications and re-statements arising from this review is set out in Note 2 in the Financial Statements.

The Company and PT Berau reacted swiftly to these findings and Indonesian legal advisers have been instructed by the Company to provide a full report to the Litigation Committee on all options available to PT Berau to seek recourse and take appropriate action against wrongdoers. The Company is also engaged in discussions to attempt to recover what the Board considers to have been inappropriate expenditure. The Company will pursue all means available for the recovery of all relevant expenditure, including by way of engagement with relevant regulators.

The Board fully supported the extensive review of PT Berau's financial position undertaken by the new management of PT Berau notwithstanding that it resulted in the delay in publication of this Annual Report and Accounts and the suspension of Bumi plc shares from trading. However, the Board is unanimous in its view that this was the right approach to ensure a reliable set of accounts as a basis for restoring investor confidence in the Company.

3. Principal risks and uncertainties

The Board continues to identify, evaluate and manage the risks which the Group and the wider sector face. The risks to which the Group is exposed at any point in time in pursuing its strategic objectives cover a wide range of factors: competition, legislative, fiscal, political, financial, economic, social, reputational and operational. Each could impact EBITDA, operating profits, net assets and liquidity. The principal risks and uncertainties which are specific to Bumi at this point in time, together with the actions that management is taking to mitigate each, are set out below.

The Board continues to pay particular attention to the effectiveness of management's mitigating actions and progress is monitored in each area.

4. Consolidated balance sheet and profit and loss account together with explanatory notes required by IAS 34 (for a complete set of notes please refer to the financial statements in the Annual Report)

* The 2011 numbers have been restated to show other exceptional costs separately, the associated tax effect and the write off of assets under construction. Refer to Note 34.

The notes on pages 68 to 109 form part of these consolidated financial statements.

* The 2011 numbers have been restated to show other exceptional costs separately, the tax effect thereof and the write off of assets under construction. Refer to Note 34.

The notes on pages 68 to 109 form part of these consolidated financial statements.

* The 2011 Balance Sheet has been restated to reflect adjustments to goodwill, cash and cash equivalents, accruals and property, plant and equipment and taxation. Refer to Note 34.

The notes on pages 68 to 109 form part of these consolidated financial statements.

The financial statements were authorised for issue by the Board of Directors on 31 May 2013 and signed on its behalf by

Nick von Schirnding Scott Merrillees

Director Director

31 May 2013

The 2011 numbers have been restated to show other exceptional costs separately, the associated tax effect and the write off of assets under construction.

The notes on pages 68 to 109 form part of these consolidated financial statements.

*  The 2011 numbers have been restated to show other exceptional costs and restricted cash separately. Refer to Note 34.

1.  The 2011 number has been reduced by $47m to exclude the restricted cash balance at that date.

The notes on pages 68 to 109 form part of these consolidated financial statements.

1. General information

Bumi plc (the "Company") is a company domiciled and incorporated in the UK. The address of the registered office is 2nd floor, 4 Grosvenor Place, London SW1X 7HJ. The Company has its listing on the London Stock Exchange.

The Company along with its main operating subsidiary, PT Berau Coal Energy Tbk ("PT Berau"), a coal mining group of companies listed on the Indonesian Stock Exchange, comprise "the Group". The Company also holds an investment in PT Bumi Resources Tbk ("PT Bumi") which is also listed on the Indonesian Stock Exchange and which was classified as an associate from the date of acquisition to 30 September 2012 (see note 15). PT Bumi is also engaged in coal mining operations and exploration and development of mineral mining concessions.

2. Principal accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied, unless otherwise stated.

2.1 Basis of preparation

a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Standards Interpretations Committee Interpretations ("IFRIC") as adopted by the European Union ("IFRSs as adopted by the EU"), and the Companies Act 2006 applicable to companies reporting under IFRS. These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments).

The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3 below.

These consolidated financial statements are presented in millions of US dollars ("$").

b) Going concern

The Directors have, at the time of approving these consolidated financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, the Group continues to adopt the going concern basis of accounting in preparing these consolidated financial statements.

c) Review of the financial position of PT Berau

As outlined in the Governance Report, an extensive review of the financial position of PT Berau uncovered evidence of apparent financial irregularities and identified significant expenditure, predominantly in 2012, for which no clear business purpose could be established. In addition, the extensive review identified certain pledges over cash deposits held by PT Berau, which had not been disclosed by previous management at PT Berau. The findings of the review have impacted the basis of preparation of the Financial Statements in the following three areas:

1. Other exceptional costs

Expenditure for which no clear business purpose could be established has been classified separately as other exceptional costs in the Consolidated Income Statement and Consolidated Statement of Cash Flows. This expenditure was attributed by former management principally to hauling roads and other construction in progress, land related payments, consulting services and acquisition related goodwill. Refer to Note 6.

2. Undisclosed liabilities, commitments and encumbrances over assets

The review included an extended assessment of contracts and a search for evidence of unrecorded liabilities, commitments or encumbrances on assets. Whilst the review cannot provide absolute certainty on the financial position of PT Berau, the Board is satisfied that it has provided sufficient assurance that the financial statements are not materially misstated.

3. Reclassifications and restatements

Consideration has also been given to the presentation of amounts in respect of 2011, and the need to provide information on a comparable basis. Amounts have been reclassified or restated, as follows:

(i) A total of $45m has been reclassified from cost of sales to other exceptional costs for expenditure in 2011 where no clear business purpose could be established. Refer to Note 34.

(ii) Where such expenditure had been attributed to assets under construction in the acquisition balance sheet, amounting to $31m, it has been reallocated to mining properties, with an associated $14m effect on deferred tax liabilities and goodwill. Refer to Notes 14, 25 and 13, respectively.

(iii) Capital accruals at 31 December 2011 included $20m in respect of construction in progress for which there is no clear business purpose, and the balances have been restated to reverse this accrual. Refer to Note 14.

(iv) Amounts previously included in cash and cash equivalents have been reclassified as restricted cash, to recognise that previously undisclosed pledges over cash balances amounting to $101m were in place at 31 December 2011. Refer to Note 19, Note 28 and Note 33, respectively.

(v) Related party transactions identified in 2012 that were present in 2011 have been disclosed. Refer to Note 31.

(vi) The tax impact of other exceptional costs identified in 2011 is $20m and the tax charge for the year has been restated. Refer to Note 11.

The impact of reclassifications and restatements is summarised in Note 34.

2.2 New accounting standards

The Group applied all applicable standards and interpretations published by the IASB and as endorsed by the European Union for the year beginning 1 January 2012.

The Group did not early adopt any standard or interpretation published by the IASB and endorsed by the European Union for which the mandatory application date is after 1 January 2012.

The following new standards, interpretations and amendments to standards and interpretations have been issued, subject to EU endorsement, but are not effective for the financial year beginning 1 January 2012 and have not been early adopted by the Group:

The Group does not currently expect any of these changes to have a material impact on the results or net assets of the Company or the Group with the exception of IFRIC Interpretation 20 "Stripping Costs in the Production Phase of a Surface Mine" ("IFRIC 20").

IFRIC 20 considers when and how to account separately for benefits arising from production stage stripping activity, as well as how to measure these benefits both initially and subsequently. The interpretation also addresses the recognition of production stripping costs as an asset, initial measurement of the stripping activity asset and subsequent measurement of the stripping activity asset. Under IFRIC 20 the stripping costs deferred at the balance sheet date would be reduced to a very low level as coal exposed by the stripping activity is mined shortly thereafter and, for 2012, the impact of early implementation would have been to reduce the balance from $55m to zero.

In addition, whilst not at the same stage, potential changes to IFRS 13 "Fair Value Measurements ("IFRS 13") could have a significant impact. IFRS 13 seeks to increase consistency and comparability in fair value measurements through a hierarchy of measurements and categorises the inputs used in valuation techniques into levels. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable inputs.

As highlighted in The International Accounting Standards Board ("IASB") March 2013 Board meeting, there is a debate as to how the fair value of non-current assets should be determined. Management's interpretation of the current standards is that, for consolidated subsidiaries, the individual assets such as goodwill and mining properties should be assessed by reference to how a typical industry participant would value the underlying mining concession, using discounted future cash flows incorporating future development plans.

The IASB is proposing to issue an exposure draft to amend IFRS13 in this regard, and are proposing that the fair value measurement of cash generating units ("CGU") for impairment testing, when those CGUs correspond to a quoted entity, should be the product of their quoted price multiplied by the quantity of instruments held. Two members of the IASB indicated a tentative intention to propose an alternative view in the upcoming exposure draft.

2.3 Consolidation

The consolidated financial information consists of the consolidation of the financial statements of the Company and its subsidiaries.

a) Subsidiaries

Subsidiaries are entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. All intragroup transactions, balances, income and expenses are eliminated on consolidation. Consistent accounting policies have been adopted across the group.

b) Associates

An associate is an entity in which the Group has an equity interest and over which it has the ability to exercise significant influence. Under the equity method, investments in associates are carried at cost plus post acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. The income statement reflects the Group's share of the results of the associate, which is net of interest and taxation and presents this as a single line item in arriving at Group profit before finance items and income tax on the face of the income statement. The Group's share of post-acquisition movements in other comprehensive income is recognised in the statement of comprehensive income. Adjustments are made at a Bumi plc level to ensure consistent accounting policies have been adopted across the Group. Where the Group ceases to have significant influence, any retained interested is remeasured to fair value at the date significant influence is lost, with the change in the carrying amount recognised in the income statement. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as a financial asset. In addition, any amounts previously recognised in Other Comprehensive Income in respect of that entity are reclassified to the income statement.

c) Transactions with non-controlling interests

The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

d) Transactions between entities under common control

Business combinations involving entities under common control are accounted for as if the acquisition had occurred at the beginning of the earliest comparative year presented or at the date that common control was established, if later. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the Group's controlling shareholder's financial statements. Any differences on consolidation are recognised directly in equity.

2.4 Business combinations and goodwill

The Group uses the purchase method of accounting to account for business combinations in accordance with IFRS 3 (revised) - Business Combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets.

The excess of the consideration transferred the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement.

2.5 Foreign currency translation

a) Presentation currency

The Group's financial statements are presented in millions of US dollars ("$") which is also the functional currency of the main entities in the Group. As required to be disclosed by the Companies Act 2006, the exchange rate between US dollars and GB Pounds is as follows: the average rate for year to 31 December 2012 was $1.585 to £1(2011: $1.603 to £1), and the rate at 31 December 2012 was $1.6168 to £1 (2011: $1.546 to £1).

b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

2.6 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable from the sale of goods (coal) in the ordinary course of the Group's activities. Revenue is shown net of applicable sales taxes, returns, rebates and discounts and after eliminating sales within the Group.

Under the terms of PT Berau's Coal Contract of Work ("CCoW"), the Government of Indonesia (the "Government") is entitled to 13.5% of the coal production of PT Berau. Rather than deliver coal to the Government, as agreed, PT Berau markets and sells the Government's coal entitlement and pays the Government the cash proceeds less certain charges. Revenue in the income statement includes the proceeds of the sales of the Government's entitlement as the Group suffers the credit risk associated with these sales. The Government's entitlement is recognised as a royalty expense as part of the cost of sales.

Sales revenue is only recognised on individual sales when persuasive evidence exists that all of the following criteria are met:

► the significant risks and rewards of ownership of the product have been transferred to the buyer;

► neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold, has been retained;

► the amount of revenue can be measured reliably;

► it is probable that the economic benefits associated with the sale will flow to the Group; and

► the costs incurred or to be incurred in respect of the sale can be measured reliably.

These conditions are satisfied when title passes to the customer. In most instances sales revenue is recognised when the product is delivered to the destination specified by the customer, which is the vessel on which it will be shipped, the destination port or the customer's premises. The sale prices are based on the Newcastle Free on Board ("FOB") benchmark with relevant adjustment for calorific value, moisture, ash and sulphur content and other factors.

Occasionally, products are "provisionally priced". When the price adjustment for a particular year has not been agreed with the customer at the time a delivery is to be made, the Group will continue to invoice coal at the prior year's price and adjust the price after reaching an agreement with the customer. When this occurs, the Group records the sales revenue on a prevailing market price for the coal and adjusts the sales revenue amount when a price agreement is reached with the customer.

2.7 Exploration and evaluation expenditure and assets

Exploration and evaluation activity involves the search for coal and mineral resources, the determination of technical feasibility and the assessment of commercial viability of an identified resource.

Exploration and evaluation activity includes:

► Gathering exploration data through topographical, geochemical and geophysical studies

► Exploratory drilling, trenching and sampling

► Determining and examining the volume and grade of the resource

► Surveying transportation and infrastructure requirements

► Administration costs that are not directly attributable to a specific exploration area are charged to the income statement. Licence costs paid in connection with a right to explore in an existing exploration area are capitalised and amortised over the term of the permit.

Exploration and evaluation expenditure is charged to the income statement as incurred except in the following circumstances, in which case the expenditure is capitalised.

In respect of coal and mineral activities:

► the acquisition of a concession or licence area of interest at the exploration and evaluation stage from a third party, which is measured at fair value on acquisition; otherwise

► when the existence of a commercially viable mineral deposit has been established.

Capitalised exploration and evaluation expenditure is not depreciated as the asset is not available for use, but is monitored for indications of impairment. Where a potential impairment is indicated, an assessment is performed for each area of interest in conjunction with the group of operating assets (representing a cash generating unit) to which the exploration is attributed. To the extent that capitalised expenditure is not expected to be recovered it is charged to the income statement.

Cash flows associated with capitalised exploration and evaluation expenditure are classified as investing activities in the consolidated statement of cash flows, and exploration and evaluation expenditure related cash flows that are expensed are classified as operating cash flows.

2.6 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable from the sale of goods (coal) in the ordinary course of the Group's activities. Revenue is shown net of applicable sales taxes, returns, rebates and discounts and after eliminating sales within the Group.

Under the terms of PT Berau's Coal Contract of Work ("CCoW"), the Government of Indonesia (the "Government") is entitled to 13.5% of the coal production of PT Berau. Rather than deliver coal to the Government, as agreed, PT Berau markets and sells the Government's coal entitlement and pays the Government the cash proceeds less certain charges. Revenue in the income statement includes the proceeds of the sales of the Government's entitlement as the Group suffers the credit risk associated with these sales. The Government's entitlement is recognised as a royalty expense as part of the cost of sales.

Sales revenue is only recognised on individual sales when persuasive evidence exists that all of the following criteria are met:

► the significant risks and rewards of ownership of the product have been transferred to the buyer;

► neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold, has been retained;

► the amount of revenue can be measured reliably;

► it is probable that the economic benefits associated with the sale will flow to the Group; and

► the costs incurred or to be incurred in respect of the sale can be measured reliably.

These conditions are satisfied when title passes to the customer. In most instances sales revenue is recognised when the product is delivered to the destination specified by the customer, which is the vessel on which it will be shipped, the destination port or the customer's premises. The sale prices are based on the Newcastle Free on Board ("FOB") benchmark with relevant adjustment for calorific value, moisture, ash and sulphur content and other factors.

Occasionally, products are "provisionally priced". When the price adjustment for a particular year has not been agreed with the customer at the time a delivery is to be made, the Group will continue to invoice coal at the prior year's price and adjust the price after reaching an agreement with the customer. When this occurs, the Group records the sales revenue on a prevailing market price for the coal and adjusts the sales revenue amount when a price agreement is reached with the customer.

2.7 Exploration and evaluation expenditure and assets

Exploration and evaluation activity involves the search for coal and mineral resources, the determination of technical feasibility and the assessment of commercial viability of an identified resource.

Exploration and evaluation activity includes:

► Gathering exploration data through topographical, geochemical and geophysical studies

► Exploratory drilling, trenching and sampling

► Determining and examining the volume and grade of the resource

► Surveying transportation and infrastructure requirements

► Administration costs that are not directly attributable to a specific exploration area are charged to the income statement. Licence costs paid in connection with a right to explore in an existing exploration area are capitalised and amortised over the term of the permit.

Exploration and evaluation expenditure is charged to the income statement as incurred except in the following circumstances, in which case the expenditure is capitalised.

In respect of coal and mineral activities:

► the acquisition of a concession or licence area of interest at the exploration and evaluation stage from a third party, which is measured at fair value on acquisition; otherwise

► when the existence of a commercially viable mineral deposit has been established.

Capitalised exploration and evaluation expenditure is not depreciated as the asset is not available for use, but is monitored for indications of impairment. Where a potential impairment is indicated, an assessment is performed for each area of interest in conjunction with the group of operating assets (representing a cash generating unit) to which the exploration is attributed. To the extent that capitalised expenditure is not expected to be recovered it is charged to the income statement.

Cash flows associated with capitalised exploration and evaluation expenditure are classified as investing activities in the consolidated statement of cash flows, and exploration and evaluation expenditure related cash flows that are expensed are classified as operating cash flows.

2.8 Property, plant and equipment

Property, plant and equipment are stated at cost, less accumulated depreciation. The cost of property, plant and equipment comprises the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the estimated costs of decommissioning the assets and site rehabilitation costs to the extent that they relate to the asset and are the responsibility of the Group.

The cost of an item of property, plant and equipment is capitalised into its various components where the useful life of the components differ from the main item of property, plant and equipment to which the component can be logically assigned.

Expenditure incurred to replace or modify a significant component of property, plant and equipment is capitalised and any remaining carrying value of the component replaced is written off as an expense in the income statement. Subsequent expenditure on property, plant and equipment is only capitalised when the expenditure enhances the value or output of the asset beyond original expectations and it can be measured reliably.

Costs incurred on repairing and maintaining assets are recognised in the income statement in the period in which they are incurred.

Gains and losses on the disposal of property, plant and equipment, which are represented by the proceeds on disposal of such assets less their carrying values at that date, are recognised in the income statement.

When proven reserves are determined and development is sanctioned, capitalised exploration and evaluation expenditure is reclassified as mining properties, and is disclosed as a component of property, plant and equipment. All subsequent development expenditure relating to the construction of infrastructure required to operate the mine is capitalised and classified as assets under construction. Development expenditure is net of proceeds from the sale of ore extracted during the development phase. On completion of the development phase, all assets included in assets under construction are reclassified as either plant and equipment or mining properties.

Mining properties includes assets in production and in development assets transferred from exploration and evaluation expenditure, deferred stripping performed in the development of the mine, and the fair value of mineral resources acquired through business combinations. Mining properties in development and acquired mineral resources are not depreciated until production commences.

Property, plant and equipment, including mining properties, are depreciated over their useful lives, the lease term, or the term of the CCoW, whichever is shorter. At the balance sheet date, 13 years are remaining under the original CCoW. Depreciation commences when an asset is available for use.

The major categories of property, plant and equipment are depreciated on a straight line basis, except for the mining properties in production, which are depreciated on a unit of production ("UoP") basis as follows:

Residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. Changes to the estimated residual values or useful lives are accounted for prospectively.

Costs associated with commissioning new assets, in the period before they are capable of operating in the manner intended by management, are capitalised. Development costs incurred after the commencement of production are capitalised to the extent they are expected to give rise to a future economic benefit.

2.9 Deferred stripping

It is necessary to remove overburden and other waste materials to open the mining area before production commences. The process of removing overburden and waste materials is referred to as stripping.

Where a mine operates several open pits that are regarded as separate operations for the purpose of mine planning, stripping costs are accounted for separately by reference to the ore from each separate pit. If, however, the pits are highly integrated for the purpose of mine planning, the second and subsequent pits are regarded as extensions of the first pit in accounting for stripping costs. In such cases, the initial stripping (i.e. overburden and other waste removal) of the second and subsequent pits is considered to be production phase stripping relating to the combined operation. The Group's determination of whether multiple pit mines are considered separate or integrated operations depends on each mine's specific circumstances.

In the development stage of a mine, before production commences, stripping costs are capitalised as part of mining properties and amortised on a UoP basis over the life of the mine. This includes any advance payments to contractors, where mining activities are outsourced, to compensate for the relatively high cost of overburden removal, which arises in the early stages of a mine's life.

Stripping costs incurred in the production phase are deferred to the extent that the actual stripping ratio in the period exceeds the life of mine stripping ratio. These deferred costs are then released to the income statement as production costs, in those periods where the actual stripping ratio is less than the life of mine stripping ratio.

The life of mine stripping ratio is calculated as the total expected amount of overburden to be removed over the life of the mine, divided by the total expected amount of coal to be mined over the life of the mine. The life of mine stripping ratio is reviewed regularly and, where necessary, amended to reflect changes in the economically mineable coal reserves, and a more detailed understanding of the overburden to be removed. The accounting effects of changes to the life of mine stripping ratio are applied prospectively.

Planned stripping ratios are calculated using the life of mine mineable reserves and individual pit designs based on the survey results by the independent mineral expert.

2.10 Impairment of non-financial assets

Assets that have an indefinite useful life such as goodwill or intangible assets not ready for use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

2.11 Financial instruments

Financial assets

The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables or as available for sale. The classification depends on the nature and purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition. The designation of financial instruments is reevaluated at every reporting date.

a) Financial assets at fair value through profit or loss

Derivatives are included in this category unless they are designated as hedges. The Group does not designate any other financial assets as fair value through profit or loss. Assets in this category are classified based on their maturity. The Group does not acquire financial assets for the purpose of selling in the short term. Financial assets carried at fair value through profit or loss are initially recognised at fair value. Gains and losses on initial recognition resulting from fair values that do not include any observable market conditions for the same instrument are deferred and recognised in the income statement in full on completion.

b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as current assets or non-current assets based on their maturity date. Loans and receivables comprise cash and cash equivalents and trade and other receivables (excluding prepayments) in the balance sheet. Loans and receivables are carried at amortised cost less any impairment.

i. Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short term highly liquid investments. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash, generally have an original maturity of 90 days or less and are subject to an insignificant risk of adverse changes in value. However, certain deposits of greater duration can be classified as cash equivalents if the funds can be withdrawn at short notice with an insignificant risk of adverse changes in value. Cash that is pledged or encumbered and is not readily available is classified separately as restricted cash.

ii. Trade and other receivables

Trade receivables are recognised initially at fair value and are subsequently measured at amortised cost, using the effective interest rate method, reduced by any provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due. Indicators of impairment would include significant financial difficulties of the debtor, likelihood of the debtor's insolvency, default in payment or a significant deterioration in creditworthiness. Any impairment is recognised in the income statement. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to the income statement.

Included in this account are the trade receivables which pertain to amounts due from customers for coal sold in the ordinary course of business.

(c) Available for sale financial assets

Available for sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period. The Company holds certain securities, which have been reclassified as available for sale, and are measured at fair value on initial recognition. Such securities are classified as available for sale, rather than as an investment in an associate if the Company does not have the power to exercise significant influence over the investee. Subsequent to initial recognition they are measured at fair value and changes therein, other than impairment losses, are recognised in other comprehensive income and reflected in the shareholders equity in the consolidated balance sheet. The fair value of available for sale securities are determined by reference to quoted prices at each reporting date. When an investment is derecognised the cumulative gain or loss in other comprehensive income is transferred to the income statement.

Financial liabilities

Financial liabilities are classified as financial liabilities at fair value through profit or loss or at amortised cost, as appropriate. Financial liabilities are recognised initially at fair value and, in the case of financial liabilities at amortised cost, inclusive of directly attributable transaction costs. The subsequent measurement of financial liabilities depends on their classification as follows:

a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include derivative liabilities unless they are designated as effective hedging instruments. Financial liabilities at fair value through profit or loss are stated at fair value, with changes in fair value during a reporting period immediately recognised in the income statement.

b) Financial liabilities at amortised cost

After initial recognition, trade and other payables, interest bearing loans, notes and borrowings are measured at amortised cost using the effective interest rate method taking into account principal repayments or reductions. The calculation also takes into account any premium or discount paid or received either on acquisition or on redemption. It also includes transaction costs and fees that are an integral part of the effective interest rate. Gains and losses are recognised in the income statement when the liabilities are derecognised. Included in this category are trade and other payables and borrowings.

i. Trade and other payables

Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are classified as current liabilities if payment is due within one year otherwise they are presented as non-current liabilities. Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

ii. Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost, any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowing using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

c) Derecognition of financial liabilities

The Group derecognise financial liabilities when, and only when, the Group's obligations are discharged, transferred, cancelled or expired.

2.12 Inventories

Inventories are valued at the lower of cost and net realisable value, primarily on a weighted average cost basis. Cost of coal inventories is determined by a twelve month rolling weighted average of historical production costs, while cost of spare parts inventories are valued at cost, determined on a moving average basis. Net realisable value is the estimated sales amount in the ordinary course of business, less the estimated costs of completion and selling expenses. Stores and consumable supplies are charged to production in the period they are used.

Allowance for inventory obsolescence is provided to reduce the carrying values of inventories to their net realisable value based on the review of the status of the inventories at the end of the period.

2.13 Leases

The Group leases certain property, plant and equipment. Leases of property, plant and equipment, where the Group has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the commencement of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. All other leases are classified as operating leases. Payments under operating leases are charged to the income statement on a straight line basis over the term of the relevant lease.

For finance leases, each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other long term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term.

2.14 Provisions

Provisions are recognised when (i) the Group has a present legal or constructive obligation as a result of past events; (ii) it is probable that an outflow of resources will be required to settle the obligation; and (iii) the amount can be reliably estimated.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as interest expense.

a) Environmental rehabilitation provision

The Group has an obligation to undertake restoration, rehabilitation and environmental work when environmental disturbance is caused by the development or ongoing production of a mining property. It is anticipated that these costs will be incurred over a period in excess of 20 years.

Rehabilitation costs are a normal consequence of mining, and are provided for as and when a legal or constructive obligation to incur costs associated with rehabilitation arises. The environmental rehabilitation provision consists of costs associated with continuous mine reclamation during mine operations.

Long term environmental rehabilitation provisions are measured based on the net present value of the estimated future costs. Although the ultimate cost to be incurred is uncertain, the Group's businesses estimate their respective costs based on feasibility and engineering studies using current restoration standards and techniques, taking into account the Group's environmental policy and current Indonesian environmental and regulatory requirements, including the requirements of the CCoW.

The unwinding of the discount applied in establishing the net present value of provisions is charged to the income statement in each accounting period as a financing cost.

b) Mine closure provisions

Mine closure provisions, which include decommissioning, demobilisation and other closure activities, are recognised when the economic life of the mine ends within the period of the existing life of the CCoW because they relate to the facilities which are in use over the life of the mine.

The initial mine closure provision together with other movements in the provisions for environmental costs, including those resulting from new disturbance, updated cost estimates, changes to the estimated lives of operations and revisions to discount rates are capitalised in mining properties, within property, plant and equipment. These costs are then depreciated over the useful life of the assets to which they relate on a UoP basis.

2.15 Taxation

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial information. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and assets arising on consideration except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax is provided in respect of fair value adjustments on acquisitions. These adjustments may relate to assets such as mining rights or resources that, in general, are not eligible for income tax allowances. In such cases, the provision for deferred tax is based on the difference between the carrying value of the asset and its nil income tax base. The existence of a tax base for capital gains tax purposes is not taken into account in determining the deferred tax provision relating to such mining rights or resources because it is expected that the carrying amount will be recovered primarily through use and not from disposal.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.16 Ordinary shares

Ordinary shares are classified as equity. Where any group company purchases the Company's ordinary shares, the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the Company's owners until the shares are cancelled or reissued.

2.17 Merger Reserve

Upon implementation of the Scheme of arrangement in 2011, whereby Bumi plc succeeded Vallar Ltd (formerly Vallar Plc) as the new parent company for the Group, the Group's ordinary shares have been re presented as that of Bumi plc, with a nominal value of £6. The difference between Vallar Ltd's net assets and the nominal value of the shares in issue is recorded in the merger reserve. In addition, certain consolidation adjustments are also recorded in the merger reserve.

3. Critical accounting judgements and key sources of estimation uncertainty

The preparation of the consolidated financial statements in accordance with IFRS requires the use of critical estimates and assumptions to determine the value of assets and liabilities, and contingent assets and liabilities at the balance sheet date, and revenues and expenses reported during the year. Due to uncertainties inherent in the estimation process, the Group regularly revises its estimates in light of currently available information. Final outcomes could differ from those estimates. The main judgements and estimates used in preparing the Group's consolidated financial statements are presented below.

3.1 Identification of other exceptional costs

As stated in the basis of preparation (note 2.1 c), Berau's new management conducted an extensive review of the financial position at PT Berau and identified significant expenditure, principally in 2012, that had no clear business purpose. These costs had been attributed, by former management, to activities or items which might ordinarily have been of value to PT Berau. In conducting its review, management had to apply judgement in assessing expenditure in both 2011 and 2012 to determine the substance of counterparties and whether the services performed or assets acquired were of value to the business. This expenditure has been classified as other exceptional costs and shown separately in the Consolidated Income Statement and Consolidated Statement of Cash Flows to separate it from costs incurred in the ordinary course of business. Comparatives have also been restated.

3.2 Determination of coal reserve estimates

The Group reports its coal reserves in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, December 2004 (the "JORC Code"), prepared and published by The Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia based on advice from an independent third party working with management in house experts. The term "coal reserve" is defined in the JORC Code as the economically mineable part of a measured and/or indicated coal resource. Coal reserves are subdivided in order of increasing confidence into "probable coal reserves" and "proved coal reserves".

Under the JORC Code, the term "coal resource" refers to a concentration or occurrence of coal of intrinsic economic interest in or on the Earth's crust in such form and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade, geological characteristics and continuity of a coal resource are known, estimated or interpreted from specific geological evidence and knowledge. Coal resources are subdivided, in order of increasing geological confidence, into "inferred", "indicated" and "measured" categories.

Reserves and resources determined in this way are used in the calculation of depreciation, amortisation and impairment charges, the assessment of life of mine stripping ratios and in forecasting the timing of the payment of close down and restoration costs and clean-up costs. In assessing the life of a mine for accounting purposes, mineral resources are only taken into account where there is a high degree of confidence for economic extraction.

There are numerous uncertainties inherent in estimating coal reserves, and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated.

3.3 Recoverable amount of goodwill and property, plant and equipment

The recoverable amount of goodwill and property, plant and equipment is based on estimates and assumptions regarding, in particular, the expected market outlook and future cash flows associated with the asset. Forecast future cash flows include estimates of future costs to produce, proven and probable reserves and resources, future commodity prices, foreign exchange rates and discount rates.

Due to a combination of falling coal prices, increased production costs, reduced volume assumptions and changes to the discount rate, it was determined that the carrying value of the investment in PT Berau was impaired, as explained further in note 13.

Judgement and estimation is required for all elements of the future cash flows, but especially the length of the mining licence and the conversion of resources to reserves.

To date, no first generation CCoW has reached its expiration period and therefore there is no precedent for extension, although this is envisaged in the terms of the CCoW. Recent legislation from the Government of Indonesia has indicated that CCoWs may be extended in the form of an Izin Usaha Pertambangan (IUP) issued by the central government. Whilst the terms of the extension would need to be negotiated, the legislation allows for first-term CCoW's, such as that held by PT Berau, to be extended into an IUP without need for a tender. Management has risk adjusted future cash flows based on its estimate of the likelihood of favourable extensions of the mining licence beyond the initial CCoW period to 2035 and subsequently 2045.

Future cash flows are also dependent upon the ability to economically mine in areas where mineable reserves have not yet been established to JORC standards. Judgement is required to support the anticipated conversion of resources to reserves and associated cash flows. Management has based this judgement on its knowledge of the geology and exploration activity conducted in the concession area, prior experience of the conversion of resources to reserves through additional drilling, and an estimate of the production costs and capital expenditure requirements.

3.4 Share of results of PT Bumi for the nine months ended 30 September 2012

Following the loss of significant influence over PT Bumi from 30 September 2012, Bumi plc was provided with limited IFRS financial information from PT Bumi to calculate the share of results of PT Bumi for the nine months. Bumi plc has made certain adjustments to comply with Group accounting policies, however, Bumi plc has not had access to underlying information sufficient to allow a complete understanding of business development funds, sufficiency of tax provisions and certain other items.

Judgement is also required in determining the effective date from which significant influence is lost. The principal factors are set out in note 15, and support the judgement that with the departure of the President Director, Ari Hudaya, from the Bumi plc Board on 24 September 2012 and a lack of access for the auditors of the Company, the Board considered that significant influence ceased from 30 September 2012.

Notwithstanding such estimation uncertainties it is noted that any misstatement in Bumi plc's share of the results from PT Bumi would be offset by an equal and opposite change in the 'Loss on reclassification of associate to an investment'. The net effect of these two adjacent lines in the Consolidated Income Statement would not change.

3.5 Capitalisation and deferral of production stripping costs

The Group defers stripping costs incurred during the production stage of its operations when the actual stripping ratio for a specific period exceeds the expected average stripping ratio over the life time of the mine or pit. Such deferred costs are then charged against reported profits to the extent that, in subsequent periods, the current period ratio falls below the average stripping ratio.

The expected average ratio is based on proven and probable reserves of the mine. The expected average stripping ratio is highly dependent on the design of the mine and on the technical and economic parameters of the project. The Group regularly reviews the expected average stripping ratio of the mine.

3.6 Taxation

Taxes are paid by the Group's subsidiary in Indonesia under a number of different regulations and laws, which are subject to varying interpretations. In addition, these can change frequently and the judicial system does not have well developed rules of precedent. This, in turn, may result in transactions and activities that have not been challenged in the past being scrutinised in greater detail and additional taxes may be assessed based on new interpretations of the legislation and tax positions. Accordingly, management's interpretation of such legislation as applied to the transactions and activity of the Group's subsidiary may be challenged by the relevant authorities.

Under Indonesian tax laws, fiscal periods up until 2007 remain open for 10 years, or until the end of 2013 whichever is earlier and fiscal periods ending after 2007 remain open for five years after the time that the tax becomes due.

At the date of these financial statements, the Group's subsidiary, PT Berau has received several tax assessment letters that are not yet finalised and is undergoing a tax audit. PT Berau has filed objections and/or appeals that are still in process or pending decisions, the outcomes of which are not presently determinable. Management believes that its interpretation of the relevant legislation is appropriate and the tax position included in these financial statements will be sustained.

There is an ongoing dispute with the Government of Indonesia which resulted from a change in the VAT law in 2001 when coal became a VAT exempt supply. This change meant that PT Berau could no longer claim credits for its input VAT on purchases. However, under the Coal Contract of Works (CCoW), PT Berau is indemnified against Indonesian taxes not in effect at the time of signing of the CCoW. On this basis, PT Berau claimed reimbursement for input VAT paid from 2001. The claims were rejected and PT Berau began setting off the VAT receivable against royalty payments due under the CCoW. The VAT receivable and royalty payable amounts have been presented separately on a gross basis within trade and other receivables and trade and other payables, respectively. Whilst there is no current indication that the amount may not be recoverable, management believes that there may be a low risk that the receivable may not be recovered in whole or in part. Further details are in note 18.

3.8 Fair value of derivatives

The Group has borrowings at fixed rates in the form of senior secured notes. As interest rates continue to fluctuate, the interest rate that the Group could refinance at could be either higher or lower than the fixed rates secured under the notes. As these notes have call options for early repayment, management believes that the most appropriate treatment is to value these options using option valuation methodologies, taking into account the volatility of interest rates, the exercise price and the length of time to exercise.

6. Other exceptional costs

As referred to in notes 2.1 c) and 3.1, new management conducted an extensive review of the financial position of PT Berau and identified significant expenditure, principally in 2012, that had no clear business purpose. Previous management at PT Berau had attributed these costs to hauling roads and other construction in progress, land related payments, consulting services and acquisition related goodwill. These amounts are shown separately in the Consolidated Income Statement to separate them from costs incurred in the ordinary course of business.

The review also identified that certain costs incurred in 2011 had no clear business purpose. In the comparative numbers, they have been reclassified mainly from cost of sales to other exceptional costs.

An analysis of other exceptional costs is set out below:

8. Underlying earnings and underlying EBITDA

The Group presents underlying earnings and underlying earnings before interest, tax, depreciation and amortisation ("underlying EBITDA") as additional measures to provide greater understanding of the underlying business performance of its operations. Underlying earnings and underlying EBITDA exclude separate items. Separate items are those items of financial performance that the Group believes should be separately disclosed. Separate items include when applicable, impairment of goodwill and other assets, costs of acquiring and integrating acquisitions, fundamental restructuring of business, profit or loss on disposal of a business or significant other asset, material claims and settlements, other exceptional costs and significant gains and losses on derivative instruments.

The results of PT Bumi, which were treated as an associate for the nine months to 30 September 2012, have been excluded from underlying earnings and underlying EBITDA as PT Bumi is available for sale and it no longer represents a part of the ongoing operations of the Group. The 2011 underlying earnings and underlying EBITDA have been restated to exclude the share of loss of associate. The impact of this has been to increase the prior year underlying earnings and underlying EBITDA by $39m. In addition, 2011 numbers have been adjusted for the impact of other exceptional costs which has increased prior year underlying earnings and underlying EBITDA by $49m.

The adjustments made to net earnings to arrive at underlying earnings and underlying EBITDA are explained below:

* The 2011 numbers have been restated to reflect share of loss of associate and other exceptional costs and associated tax effect as described in Note 2.

1  Underlying EBITDA represents the whole Group.

11. Taxation

* The 2011 tax charge has been restated for the tax effect of other exceptional costs. The impact is $20m

The deferred tax credit, primarily relates to the release of $52m (2011: $36m) of the deferred tax liability linked to the depreciation of mining properties recognised in the Purchase Price Allocation following the acquisition of PT Berau.

The Group's tax charge was higher than the UK statutory rate and can be reconciled as follows:

A number of changes to the UK corporation tax system were announced in the March 2012 Budget Statement. With effect from 1 April 2012, the main rate of corporation tax was reduced from 26% to 24%. The impact of this change has been recognised in calculating the effective rate of tax for the year ended 31 December 2012. Legislation to reduce the main rate of corporation tax from 24% to 23% effective from 1 April 2013 was included in the Finance Act 2012, which received Royal Assent on 17 July 2012. Further reductions to the main rate have been proposed to reduce the rate by 2% per annum to 21% by 1 April 2014 and reduce the rate by 1% to 20% by 1 April 2015. The changes are not expected to have a material impact on the Group's deferred tax balances. Indonesian corporate tax rate is 25%, with the exception of the tax charged within a CCoW which incurs a tax rate of 45%. No income tax has been charged or credited directly to equity or other comprehensive income during the year or the preceding period.

12. Earnings per share ("EPS")

The calculation of earnings per ordinary share is based on profit attributable to ordinary shareholders of the Company and the weighted average number of ordinary shares in issue during the year. In addition to the earnings per share required by IAS 33 "Earnings per Share", underlying EPS has also been calculated and is based on earnings excluding the effect of separately disclosed items. It has been calculated to allow shareholders to have a better understanding of the trading performance of the Group. Details of the underlying EPS are set out below:

1 Basic and diluted loss per share has been restated as explained in Note 34.

2  The underlying earnings per share has been restated to reflect share of loss of associate and other exceptional costs as explained in Note 8.

13. Intangible assets

1. This represents goodwill arising on the acquisition of PT Pelayaran Sandita Perkeson Maritim, PT Kirana Berau and PT Manira Mitra where it was established that the excess consideration above the fair value of assets acquired had no clear business purpose. This has been written off to other exceptional costs in the year.

2. Following the adjustment to prior year acquisition valuations of assets under construction, mining properties and goodwill arising on acquisition were also restated. Refer to Note 14 and Note 34.

Impairment tests for goodwill

Goodwill arising through acquisitions has been allocated to individual or groups of cash generating units (CGUs), each representing the lowest level in the Group at which goodwill is monitored for internal management purposes.

The carrying value of the Group's goodwill of $1,334m at 31 December 2011 has arisen mainly on the acquisition of PT Berau on 4 March 2011, which is treated as a single CGU.

The Group's annual impairment review resulted in an impairment charge of $815m on a 100% basis (non-controlling interest: $194m) for 2012. PT Berau's recoverable amount has been assessed based on fair value less costs to sell using discounted cash flows.

Expected future cash flows are inherently uncertain and could materially change over time. They are significantly affected by a number of factors including ore reserves and production estimates, commodity prices, discount rates, future operating costs and capital expenditure. Cash flow projections are based on financial budgets and production plans to the end of the Coal Contract of Work (CCoW), including two ten year extensions, appropriately risk adjusted.

The key assumptions relating to the calculation of PT Berau's fair value less costs to sell are the long term thermal coal price; operating costs; and discount rates.

The medium term (2013 to 2017) forecast benchmark thermal coal price is within the range supported by market analysts of $90 to $113 per tonne (2011: $108 to $125) in nominal terms. This price is then adjusted for various coal quality parameters, such as calorific value, moisture and sulphur content, to derive the expected realised selling prices on a free on board (FOB) basis.

Post tax cash flows were estimated for the period of the Coal Contract of Work (CCoW), and discounted using a post tax discount rate of between 9.8% and 10.5% (2011: 9.7% and 10.3%) expressed in nominal terms. The operating costs included in the fair value assessment are calculated based on PT Berau's production plans for the remainder of the CCoW. Price assumptions for inputs are based on analysis of market fundamentals and are made consistent with related output price assumptions. The Coal Contract of Work expires in 2025, with further extensions permitted, subject to terms and conditions being agreed. Management has included two 10 year extensions in the fair value less costs to sell at 31 December 2012, with additional risk adjustments as appropriate.

It is estimated that the following adverse changes in key assumptions would lead to corresponding decreases in fair value less costs to sell, which may lead to a further impairment charge:

5% decrease in thermal coal prices $510m

5% increase in operating costs $240m

5% decrease in planned volumes $120m

1% increase in discount rate applied to post tax cash flows $150m

Each of the sensitivities above was determined assuming the relevant key assumption moved in isolation, except where modifying the thermal coal price directly affects certain input costs, and further assumes that management does not take any mitigating actions. However, this is for disclosure purposes and under those circumstances management could take mitigating action such as changes to the mine plan, cost reduction initiatives and additional sales strategies.

15. Investment in associate

IAS 28 - Investments in Associates includes a rebuttable presumption that where a company has more than 20% of the voting equity in another company, it is presumed to be an Associate. Following the initial investment of 25% in the ordinary share capital of PT Bumi in March 2011, which increased to 29% in July 2011, Bumi plc determined it had significant influence over PT Bumi. In addition to the rights associated with the Group's equity investment, influence was also conveyed by common management teams as Bumi plc's shared the same Chief Executive Officer, Ari Hudaya, and Chief Financial Officer, Andrew Beckham, with PT Bumi.

During the course of 2012 there were a number of events that led Bumi plc to review the influence that it had over PT Bumi, these included:

·; the changes to the Bumi plc Board following the joint venture between PT Borneo Lumbung Energi & Metal Tbk and the Bakrie Group, where Andrew Beckham resigned from the Board and Ari Hudaya became a Non-Executive Director on 26 March 2012. Samin Tan and Scott Merrillees joined the Board at this time and became Commissioners of PT Bumi in May 2012, which was designed to contribute to ongoing significant influence.

·; the extension of certain financial arrangements between PT Bumi and the Recapital Group at the end of August 2012 against the wishes of Bumi plc and,

·; finally, the resignation of the President Director of PT Bumi, Ari Hudaya, from the Board on 24 September 2012. Whilst Samin Tan and Scott Merrillees remained Commissioners of PT Bumi at this date, the lack of formal Board meetings and the information they were provided, were in Bumi plc's view insufficient for them to participate in policy making decisions or to exert significant influence.

On 5 November 2012, Bumi plc announced the result of its review, which determined that it was not able to exert significant influence over PT Bumi and that it was longer appropriate to account for its shareholding in PT Bumi as an associate in accordance with IAS 28, with effect from 30 September 2012.

As set out in note 2, information was provided by PT Bumi for results under IFRS to 30 September 2012, however access to underlying information was not sufficient to allow a complete understanding of business development funds, the sufficiency of tax provisions and other items. Whilst access to this additional information may have changed the reported result for PT Bumi for the nine months ended 30 September 2012 there would have been an equal and opposite impact on the reported loss on reclassification to an investment, since that is calculated based on the carrying value of the associate immediately prior to reclassification. No information has been received in respect of any period since 30 September 2012. This lack of access extended to the Company's auditors and has led to a qualification in their audit opinion due to a limitation of scope.

Following the Board's decision that Bumi plc is no longer able to exert significant influence, the investment in PT Bumi has been accounted for as an available for sale investment in accordance with IAS 39 Financial Instruments: Recognition and Measurement with effect from 30 September 2012. IAS 28 requires that any share of the results of an associate previously reported in the Statement of Other Comprehensive Income (SOCI) should be transferred to the Income Statement. Accordingly, $6m has been transferred to the Consolidated Income Statement in the current period.

The Group's share of the results of its associate for the nine months to 30 September 2012, and its aggregated assets (including goodwill) and liabilities as at 30 September 2012 are as follows:

The Group's share of the results of its associate for the period to 31 December 2011, and its aggregated assets (including goodwill) and liabilities as at 31 December 2011 are as follows:

16. Available for sale financial asset

From 30 September 2012, the investment in associate was reclassified as an available for sale asset.

The available for sale financial asset consists of 6,061,699,637 ordinary shares in PT Bumi that are quoted on the Indonesia Stock Exchange and are denominated in Indonesian Rupiahs. The valuation of the available for sale financial asset at 30 September 2012 and 31 December 2012 has been calculated using the closing bid price for PT Bumi ordinary shares quoted on the Indonesia Stock Exchange on the last working day prior to the relevant dates and the closing US Dollar exchange rate against the Indonesian Rupiah (IDR). The exchange rates used at 30

September 2012 and 31 December 2012 were IDR 9,569: $1 and IDR 9,613: $1 respectively.

As at 31 December 2012, the market value of the Group's interest in PT Bumi, which is listed on the Indonesia Stock Exchange, was $372m (2011 market value: $1,470m). Changes in the valuation of the Group's interest in the period from 30 September 2012 to 31 December 2012 have been recognised in other comprehensive income as the diminution in value is not considered to be permanent and the subsequent increase in value of the investment from the year end to the date of this report has supported management's view.

28. Consolidated cash flow analysis

28.1 Reconciliation of loss before tax to cash flows from operations

* The 2011 numbers have been restated to reflect other exceptional costs separately.

28.2 Reconciliation of net cash flow to movement in net (debt)/cash

* The 2011 numbers have been restated to exclude restricted cash.

33. Subsequent events

Release of pledged bank accounts

As at 31 December 2012, $124m was pledged as security against liabilities outside the Group (2011: $101m). During April 2013, all such pledges were released (see Note 19).

Proposed separation transaction

Heads of Terms were agreed on 12 February 2013 for the proposed separation of the Bakrie Group as shareholders in Bumi, and the disposal of the Company's 29.2% interest in PT Bumi. $50m was deposited in escrow by the Bakrie Group in respect of this transaction.

34. Reclassifications and restatements

The extensive review of the financial position of PT Berau identified expenditures for which there is no clear business purpose in 2011 and pledges over cash. The primary financial statements are restated as shown below.

34.1 Consolidated Income Statement