Bumi plc Full Year Results

Delivering on our goals with a clear strategy going forward

·; Transforming into a world class, thermal coal business

·; One of the largest ever expansions in thermal coal production on schedule

·; Successfully met 2011 production targets

·; Major review underway to optimise operating efficiencies

·; Substantial progress made in reducing the Wider Group's1 cost of capital

·; FTSE index inclusion attained in December 2011

Financial highlights

·; Group1 operating profit2 of $280 million, driven by higher production & stronger thermal coal prices

·; Underlying earnings3 of $33 million and underlying earnings per share of $0.17

- Reported loss from PT Bumi impacted by early stage project costs expensed in line with Bumi plc policy ($41m Bumi plc share) and purchase price amortisation of $24m

·; Underlying EBITDA of $427m and net debt of $222 million

Strong operational performance

·; Strong operating performances across all coal businesses

·; Production volumes at PT Berau and PT Bumi increased by 9% to 85 million tonnes4

·; Production cost of sales at PT Berau and PT Bumi driven by higher stripping ratios and higher fuel prices

·; Realised price (FOB) for the Wider Group 2011 of $90.5/tonne, an increase of 32% over 2010

Industry leading growth

·; Major coal expansion phase in execution

·; PT Berau on track to increase production from 19m tpa to 23m tpa in 20125

·; PT Bumi set to increase output from 66m tpa to 75m tpa in 20124

Bumi plc appoints new Chairman, CEO, CFO on 26 March 2012:

·; Samin Tan appointed Chairman6

·; Nalin Rathod appointed CEO7

·; Scott Merrillees appointed CFO8

·; New management have extensive Indonesian coal mining experience, spanning 20 years

Samin Tan, Chairman of Bumi plc said:

"I would like to assure all of our stakeholders that as Chairman of Bumi plc, together with the Board and executive team, we will work tirelessly to deliver on the achievement of our key objectives and drive increased shareholder value as well as rolling out best practice corporate governance. The management changes will strengthen our team and also increase the presence of key executives in London. I have every confidence that we have the capacity to deliver on our stated goal of becoming the leading FTSE thermal coal company." 

Nalin Rathod, Chief Executive of Bumi plc said:

"We have met our production targets for the year, despite high levels of rainfall in the first quarter, which impacted output. Costs have been well maintained, with fuel being the major pressure point but this was more than offset by higher coal prices. We are implementing a number of new initiatives across the Group to optimise productivity. In terms of our expansion plans I am pleased to report that we have made excellent progress and are on track to deliver 23 million tonnes of production from PT Berau and 75 million tonnes for PT Bumi in 2012, a significant increase." 

1 Wider Group refers to the Bumi plc and its subsidiaries and its associate PT Bumi Resources Tbk. Group refers to Bumi plc and its subsidiaries.

2 Includes contribution from PT Berau for the 10 month period from 4 March 2011

3 See reconciliation on page 2. Includes contribution from PT Berau and PT Bumi Resources in the 10 month period from 4 March 2011.

4 Includes 100% of mine production for the twelve months ended December 2011

5 100% of live production

6 Samin Tan is currently President Director of PT Borneo Lumbung Energi & Metal Tbk. There are no further disclosures required under rule 9.6.13 of the Listing Rules.

7 Nalin Rathod, who replaces Ari Hudaya as CEO, is currently a Commissioner of PT Bumi Resources Tbk. There are no further disclosures required under rule 9.6.13 of the Listing Rules. Ari Hudaya remains on the Board as a Non-Executive Director.

8 Scott Merrillees, who replaces Andrew Beckham as Finance Director, is currently a Director of PT Borneo Lumbung Energi & Metal Tbk. There are no further disclosures required under rule 9.6.13 of the Listing Rules.

Notes

1 Operating profit is after charging $88 million in respect of the amortisation of fair value adjustments created as a result of the acquisition of PT Berau.

2 Underlying EBITDA of the Group is calculated as follows:

3 After charging $79 million in respect of the amortisation of fair value adjustments created as a result of the acquisition of PT Berau and $24 million as a result of the acquisition of PT Bumi.

4 After charging $43 million in respect of the amortisation of fair value adjustments created as a result of the acquisition of PT Berau and $24 million as a result of the acquisition of PT Bumi.

5 Underlying earnings are calculated as follows:

6 Basic earnings per share is calculated as loss for the financial period divided by the weighted average number of ordinary shares in issue for the period. The basic weighted average number of ordinary shares is 192 million.

7 Underlying earnings per share is calculated as underlying earnings divided by the weighted average number of ordinary shares in issue for the period.

8 Movement in fair value of financial instruments relate to changes in the PT Berau, PT Bumi and Vallar plc share prices and the Indonesian rupiah exchange rate between 1 January 2011 and completion of the acquisitions.

Bumi plc:

Nick von Schirnding

Tel: +44 (0) 207 201 7507

Finsbury:

Edward Simpkins

Tel: +44 (0) 207 251 3801

The results presentation will be broadcast live via our website at 9am BST on 27th March 2012.

Financial and Operating results

The Group's operating profit for the year was $280 million, with underlying earnings of $33 million and Underlying EBITDA of $427 million. Revenue for the Group was $1.4 billion, with Free-On-Board (FOB) selling prices averaging $81/t during the year. The demand picture during the year was strong, with higher levels of Indian and Japanese sales. 

Cost increases were mainly due to higher fuel prices and an increase in the stripping ratio as well as due to greater haul distances from certain mines to coal processing plants. 

Group cash at 31 December 2011 was $608 million. $30 million of dividends were received from PT Bumi and $12 million from PT Berau in respect of 2010.

Coal mined increased by 12% at PT Berau and by 9% at PT Bumi with total annualised coal mined for the Wider Group of 85.4 million tonnes. Approximately 85% of Group coal sales went to exports, with around 15% to domestic Indonesian sales.

The Wider Group is embarking on a major expansion of production at its existing mines in PT Berau and its associate PT Bumi. Capital expenditure for 2012 is expected to be $260 million for PT Berau and $360 million for PT Bumi's coal operations.

Group Structure

The Group's first set of full year financial results includes its 85% ownership of PT Berau Coal Energy ("PT Berau") and 29% interest in PT Bumi. Following the mandatory takeover offer made to PT Berau's minority shareholders in June 2011, Bumi plc increased its holding in PT Berau from 75% to 85% for a total amount of $214 million. PT Berau has been fully consolidated as a subsidiary and the 29% interest in PT Bumi has been reported as an associate.

Corporate Governance - Proposed majority independent directors by AGM 2012

The Company's board of directors places the highest emphasis on good corporate governance and during the course of 2011 has been developing and implementing policies and procedures consistent with this goal. All of its board committees (Audit, Nominations, Conflicts, Remuneration and HSEC) are chaired by and comprise independent directors. On the basis that the proposed independent directors are successfully approved at the company's AGM on June 14 2012, then the Bumi plc board will have a majority of independent directors. They are currently Sir Julian Horn-Smith, Lord Renwick of Clifton, Sir Graham Hearne, Steve Shapiro, Philip Yeo, Sony Harsono, Amir Sambodo with two additional independent directors being proposed at the AGM. The non-independent directors are Samin Tan (chairman), Indra Bakrie (co-chairman), Nalin Rathod (CEO), Scott Merrillees (CFO), Ari Hudaya, Rosan Roeslani and Nat Rothschild with Alex Ramlie being proposed as a Director. Ari Hudaya and Andy Beckham remain as CEO and CFO of PT Bumi.

Strategy

Bumi plc's strategy is to be the leading FTSE-listed thermal coal company. We have a clear strategy focused on:-

·; Delivering sector-leading growth

·; Optimising our asset base

·; Reducing the Wider Group's overall level of debt and lowering its cost of capital

In 2011 we performed well in each of these core strategic areas.

Delivering sector-leading growth

Bumi plc has one of the strongest organic growth profiles in the industry. Production levels of thermal coal from PT Berau and PT Bumi are set to increase significantly in the near term.

A number of projects have commenced at PT Berau, including the construction of a major new conveyor at Binungan as well as upgrading of existing coal handling facilities such as its barge loaders and crushers at the Lati coal handling facilities. Construction of a new crushing line and a new stockpile were completed during the year. As a result, PT Berau's output is expected to increase from 19m tonnes in 2011 to 23m tonnes in 2012. 

PT Bumi is also set to significantly increase its production, with both its key operations, Kaltim Prima Coal (KPC) and Arutmin, increasing levels of output. At KPC, work began on the Sangatta expansion where the second overland conveyor has been successfully installed and which will increase capacity by 30 million tonnes per annum. As a result of the second conveyor as well as a new coal crusher and additional conveyors between pits, KPC's production is forecast to increase by 10% in 2012, from 41 million tonnes in 2011 to 45 million tonnes in 2012.

At Arutmin, construction of the West Mulia and Asam-Asam coal processing plants and conveyors is underway, with completion expected by late 2012. Production is expected to increase from the current run rate of 25 million tonnes per annum to 30 million tonnes in 2012, an increase of 20%. The majority of the increase at Arutmin will come from these two expansion projects.

Optimising our asset base

In August 2011 we began a benchmarking review of all major coal operations. The aim of the exercise is to maximise operational and cost efficiencies at all mines and to drive increased shareholder value. The review will compare key mines against one another and also against best-in-class, enabling us to benchmark performance and share best practice across the group. 

In addition, in order to capitalise on the scale of the Wider Group's procurement spend, a further initiative will be launched to streamline our supply chain, covering existing operations and expansions.

Reducing the Wider Group's level of debt

One of the key strategic objectives at the time of listing Bumi plc was to reduce the Wider Group's overall cost of capital. Significant progress has been made in this regard, both in reducing the cost of existing debt and agreeing the way forward to reduce absolute levels of indebtedness, particularly at PT Bumi.

During the year PT Bumi made significant progress in refinancing a portion of its high-interest debt. It completed repayment, two years ahead of schedule, of US$600 million of the US$1.9 billion debt with the China Investment Corporation (CIC). The amount was refinanced with the China Development Bank at a significantly lower interest rate of LIBOR plus 6.7%, which will reduce PT Bumi's annual interest expense by around US$72 million. PT Bumi also expects to repay early the remainder of the US$1.3 billion CIC debt from October 2012 ($600 million), and October 2013 ($700 million).

In addition, agreement was reached on the re-payment to PT Bumi of the US$231 million investment with Recapital in the first half of 2012. It was also agreed that the US$251 million loan to Bukit Mutiara, would be repaid, half in 2012 and the balance in 2013.  Agreement was also reached on the progressive realisation of the business development assets in PT Bumi.

In March 2012, PT Berau successfully launched a five year, $500 million bond at a fixed rate of 7.25% to refinance a $340m debt facility as well to fund a major capex programme to expand output over the next few years. The bond was 19 times oversubscribed and reflected the high level of investor interest and improving fundamentals in the business.

FTSE Inclusion from December 2011

Following Bumi plc's successful premium listing on the London Stock Exchange in June 2011, the company was included in the FTSE all share index from December 2011.

Outlook

While the global economic recovery continues to be fragile, there is increasing evidence of some improvement in fundamentals. Recent data indicates that Chinese GDP is expected to grow at around 7% for 2012. Improving economic data from the US is also encouraging. As such, while European industrial activity remains weak, global demand for key commodities remains robust. 

In terms of thermal coal, the demand picture looks well supported for the Pacific region, with growing demand for lower CV coal from Indonesia forecast for India and China. While the Newcastle price has fallen over the last few months, with weak demand in Europe affecting even Asian markets, growing demand from India and China is expected to support current pricing in the near term, particularly as re-stocking for the summer period begins in the 2nd quarter. Readily available natural gas in the US is pushing some US thermal coal volumes into the Atlantic region, already impacted by weak European coal markets. 

With one of the strongest growth profiles in the industry over the next few years, Bumi plc expects to be a major beneficiary of strong thermal coal fundamentals over the medium and long term.

The following information is provided on a 100% mine level basis, for the 12 months ended 31 December 2011, including pre-acquisition results.

PT Berau

PT Berau's assets are located in the north-eastern part of Kalimantan and consist of three operating mines, namely Lati (which is the largest mine, accounting for circa 56% of PT Berau's output), Binungan and Sambarata.

PT Berau recorded a strong operating performance for 2011. Despite high levels of rainfall, PT Berau mined 19.4 million tonnes of coal, a 12% increase over 2010, and recorded sales of 20.0 million tonnes of coal. The increase in coal mined was mainly due to the opening of new pits (Lati East 2, Binungan pit H Blok 7 East; Parapatan).

PT Berau's average selling price for the year was $81.4/tonne (2010: $59.6/tonne). Production cost of sales at PT Berau was $38/tonne (2010: $29.1/t). The increase in the cost of sales from 2010 is mainly due to an increase in the stripping ratio, greater haulage distances (between the coal mined and the coal processing plant), higher fuel prices, and higher contractor rates. The average stripping ratio for the period was 9.5 bcm/t (2010: 8.2 bcm/t).

In terms of sales by destination, 49% of sales went to mainland China, 14% to Taiwan and 22% to the rest of Asia, with the remaining 15% sold domestically into Indonesia.

In terms of PT Berau's coal reserves, a new JORC report published in June 2011 showed total reserves increasing by 35% to 467 million tonnes at 31 December 2010, from 346 million tonnes at 31 December 2009.

1 Bank cubic metres (bcm) of overburden removed per tonne of coal mined.

In finalising the allocation of the purchase price to the identifiable assets and liabilities of PT Berau the Directors have decided to assign no value to the investment in Chateau. This investment was previously held at $75 million. With a corresponding increase in the value attributed to the coal mining properties at acquisition, there is no overall effect on the value of net assets acquired. Since acquisition, the Directors are of the view that their investment in PT Berau has become more valuable. The investment in Chateau remains in the books of PT Berau under Indonesian GAAP, at $47 million.

PT Bumi

PT Bumi's coal mined for the year was 66 million tonnes of coal, 9% higher than the prior year. PT Bumi average selling price for the year was $93.3/tonne, an increase of 32% over the prior year.

Production costs at PT Bumi were $45.5/tonne against $35.9/tonne in the prior year. Higher fuel and contractor costs along with an increase in the stripping ratio were the principal reasons for the increase in production costs. The stripping ratio for PT Bumi of 11.5 was 9% higher than the prior year due to the opening of additional pits at the KPC mine, as well as due to high levels of rainfall, which required a change in the mining plan.

1 Bank cubic metres (bcm) of overburden removed per tonne of coal mined.

The Directors have also finalised the allocation of the purchase price for the acquisition of Bumi plc's interest in PT Bumi. Based on current information in respect of the PT Bumi business development funds, the Directors have decided to take a more cautious view on the value of these funds and have recorded them on acquisition at $218 million, rather than $381 million. There is a corresponding increase in the value of the coal mining properties at acquisition, with no overall effect on the value of net assets acquired.

Kaltim Prima Coal (KPC)

The largest operation within PT Bumi is Kaltim Prima Coal (KPC), which operates in east Kalimantan. KPC's two mines are Sangatta and Bengalon. The Sangatta mine is close to the port facilities at Tanjung Bara, which is linked to the mine by an overland conveyor. The Bengalon mine is also close to the coast, being linked to its port facilities by a haul road.

KPC produced 41.0 million tonnes of coal in 2011, a 4% increase over 2010, despite a 20-day crusher shutdown at Bengalon, a strike at Sangatta from 10 November to 27 December and operational issues experienced by the contractor at the Bengalon site. The second half production in 2011 of 22.7 million tonnes represented a 24% increase over the first half. KPC's average selling price of $98.6/tonne was 32% higher than 2010.

Production costs of sales at KPC were $49.1/tonne against $37.2/tonne in the prior year. The main reasons for the increase were a higher stripping ratio, greater distances from the coal mined to the coal processing plant, higher fuel costs, and higher contractor costs.

The average stripping ratio for the year was 12.1 bcm/t (2010: 11.7 bcm/t).

1 Bank cubic metres (bcm) of overburden removed per tonne of coal mined.

Arutmin

PT Bumi's second largest mine, Arutmin, operates in a concession area in the southeast of Kalimantan and has five operations, all strategically located near Arutmin's port facility, North Pulau Laut Coal Terminal.

Arutmin mined 24.7 million tonnes of coal in 2011, 18% higher than the prior year, despite the impact of barge delays, and idle equipment due to a shortage of qualified operators at its contractors. The increase is mainly due to the reopening of previously closed pits, as well as the opening of new pits, including Sarongga. However, this has also led to an increase in the stripping ratio (see below). Arutmin's average selling price of $83.8/tonne was 34% higher than 2010.

Production cost of sales at Arutmin was $38.7/tonne against $33.9/tonne in the prior year. The increase is mainly due to the higher stripping ratio and higher fuel prices.

The average stripping ratio for the year was 10.2bcm/t (2010: 8.1bcm/t). The increase in the stripping ratio is mainly due to the reopening of previously closed pits to take advantage of higher coal prices, and the opening of new pits. The stripping ratio was also impacted by the higher levels of rainfall, resulting in flooding, which led to coal being mined in alternative areas with a greater amount of overburden compared with the prior year.

1 Bank cubic metres (bcm) of overburden removed per tonne of coal mined.

Interest cover is calculated by dividing the profit before finance items and tax by the finance costs.

1 Bank cubic metres (bcm) of overburden removed per tonne of coal mined.

Bumi plc is a leading thermal coal company with significant assets in Indonesia, the world's biggest sea-borne thermal coal-exporting country. The group's key assets are PT Berau which is the country's fifth largest coal producer, and a 29% interest PT Bumi, which is the biggest thermal coal producer in Indonesia. Both PT Berau and PT Bumi have cost competitive positions in thermal coal, with all mining operations situated in the lower half of the cost curve.

Certain statements in this interim report are forward-looking. Although the group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Certain calculations are often more precise than the rounded numbers shown in this document, hence small differences might result if the calculations are repeated directly using the figures within this document.

Notes to the financial statements

1. General information

1.1. Definition

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 preliminary financial information as at and for the year ended 31 December 2011 and period ended 31 December 2010 included in this report is unaudited and does not have the status of statutory accounts within the meaning of Section 434 of the Companies Act 2006. This preliminary announcement does not constitute the Group's full financial statements for the year ended 31 December 2011. The preliminary financial information is based on accounts which are subject to audit, Board approval and filing with the Registrar of Companies.

When reference is made to the 'Top Company' in these financial statements, it means Vallar Ltd (formerly Vallar plc) up until 27 June 2011 and Bumi plc from 28 June 2011. When reference is made to the 'Group' in these financial statements, it means Vallar Ltd (formerly Vallar plc) and its subsidiaries to 27 June 2011 and Bumi plc and its subsidiaries from 28 June 2011.

Bumi plc is the new holding company of the Vallar Ltd (formerly Vallar plc) group of companies. The main subsidiary PT Berau Coal Energy Tbk ('PT Berau') is a coal mining group of companies listed on the Indonesian Stock Exchange. The Company also holds an investment in an associate, PT Bumi Resources Tbk ('PT Bumi') which is also listed on the Indonesian Stock Exchange and is also engaged in coal mining operations and exploration and development of mineral mining concessions.

1.2. Scheme of arrangement

On 10 March 2011, Vallar Ltd (formerly Vallar plc) announced its intention to put in place a new parent company for the Group, Bumi plc, being a company incorporated in England and Wales that is tax-resident in the United Kingdom. The introduction of the new holding company was implemented by means of a Scheme of Arrangement under Article 125 of the Companies (Jersey) Law ('the Scheme'). The scheme of arrangement became effective on 28 June 2011.

Upon implementation of the Scheme, Bumi plc had the same proportionate interest in the profits, net assets and dividends of PT Berau and PT Bumi and their respective subsidiaries as Vallar Ltd (formerly Vallar plc) had prior to the effective date of the Scheme.

The Scheme falls outside the scope of IFRS 3 'Business Combinations'. Accordingly, following the guidance regarding the selection of an appropriate accounting policy provided by IAS 8 'Accounting policies, changes in accounting estimates and errors', the Scheme has been accounted for using the principles of predecessor accounting. With predecessor accounting the carrying values of the assets and liabilities of the parties to the combination are not required to be adjusted to fair value on consolidation and the difference between the carrying values and nominal value of shares issued is recorded in a merger reserve.

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

The consolidated financial statements of Bumi plc have been prepared in accordance with International Financial Reporting Standards ('IFRSs') and International Financial Reporting Interpretations Committee Interpretations ('IFRICs') as adopted by the European Union (IFRSs as adopted by the EU), and the Companies Act 2006 applicable to companies reporting under IFRS. The 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) at fair value through profit or loss.

Notes to the financial statements (continued)

2. Principal accounting policies (continued)

The preparation of 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.

These consolidated financial statements are presented in millions of United States Dollars ("$") except where otherwise indicated.

b) Comparative numbers

In accordance with the requirements of merger accounting, the comparative information in these consolidated financial statements has been extracted from the Vallar Ltd (formerly Vallar plc) consolidated financial statements for the nine months ended 31 December 2010. Those financial statements incorporated the results of Vallar Ltd (formerly Vallar plc) and its subsidiary undertakings for the period then ended.

c) Going concern

The Directors have, at the time of approving the 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 the consolidated financial statements.

3. Critical accounting judgements and key sources of estimation uncertainty

The preparation of 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 period. 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 estimates used in preparing the Group's consolidated financial information are presented below.

3.1. 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 (2004 edition) (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.

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 determined in this way are used in the calculation of depreciation, amortisation and impairment charges, the assessment of life of mine stripping ratios and for forecasting the timing of the payment of close-down and restoration costs and clean-up costs.

Notes to the financial statements (continued)

3. Critical accounting judgements and key sources of estimation uncertainty (continued)

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 of economic extraction within the term of the CCoW.

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.

3.2. Recoverable amount of property, plant and equipment and goodwill

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 assets. Predicted future cash flows include estimates of future costs to produce proven and probable reserves, future commodity prices, foreign exchange rates and discount rates. Any changes in these assumptions may have a material impact on the measurement of the recoverable amount and could result in an impairment.

3.3. Definition of underlying earnings

The Group presents 'Underlying earnings' as an additional measure to provide greater understanding of the underlying business performance of its operations. The adjustments made to net earnings to arrive at 'Underlying earnings' are explained in note 5.

3.4. Capitalisation and deferral of 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 proved 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 reviews regularly the expected average stripping ratio.

3.5. 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 5 years after the time that the tax becomes due.

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

Notes to the financial statements (continued)

3. Critical accounting judgements and key sources of estimation uncertainty (continued)

3.6. Purchase Price Allocation: goodwill and fair values of assets acquired in a business combination

According to the definitions of IFRS 3 Business Combinations the value to be used in the application of the acquisition method is the 'fair value'. 'Fair value' is defined as "the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction". Guidance on fair value measurements with respect to assets acquired in a business combination indicates that quoted market prices in active markets provide the most reliable estimate of fair value. If no market exists for an asset, the fair value is the amount that the entity would have paid for the asset, at the acquisition date, in an arm's length transaction between knowledgeable and willing parties, on the best information available, including the outcome of recent transactions for similar assets and the results of using other fair value measurement techniques, such as discounting estimated future net cash flow from the asset.

The purchase price allocation process involves significant management judgement and estimation. Allocation of the purchase price affects the future results of the Group, as assets with finite useful lives are amortized whereas goodwill and assets with indefinite useful lives are not amortized, and could result in differing amortization charges based on the allocation to goodwill and assets with finite useful lives.

4. Segmental analysis

In accordance with the provisions of IFRS 8 - Operating Segments, the operating segments used to present segment information were identified on the basis of internal reports used by the Board of Directors to allocate resources to the segments and assess their performance. The Board of Directors is the Group's "chief operating decision maker" within the meaning of IFRS 8.

The Board of Directors considers the business from a product perspective and has determined that it has a single segment, being coal mining. Information on financial performance and net assets is presented in the income statement and balance sheet.

Notes to the financial statements (continued)

5. Underlying earnings

Underlying earnings 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/loss on disposal of a business or significant other asset, material claims and settlements and significant gains and losses on derivative instruments.

6. Finance income and costs

7. Taxation

Notes to the financial statements (continued)

7. Taxation (continued)

The movement in deferred tax, from $1,313 million recognised as fair value at date of acquisition to $1,277 million at the end of the year, relates to the release of $36 million of the deferred tax liability linked to the amortisation of mining licences 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:

In the prior year, Vallar Ltd (formerly Vallar plc) was incorporated and subject to Jersey income tax at a rate of 0%.

In the Budget on 23 March 2011, it was announced that the UK corporation tax rate will reduce from 28% to 23% over a period of 3 years from 2011. The first reduction in UK corporation tax from 28% to 26% relating to the period from 1 April 2011 to 31 March 2012 was substantially enacted on 29 March 2011. The second reduction in UK corporation tax from 26% to 25% relating to the period from 1 April 2012 onwards was substantially enacted on 5 July 2011.

No income tax has been charged or credited directly to equity or other comprehensive income during the year or preceding period.

Notes to the financial statements (continued)

8. 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 earnings per share 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 earnings per share are set out below:

1 Potentially dilutive share options relate to the exchange of the Founder Securities for ordinary shares in Bumi plc, refer to note 14.

2 Basic weighted average number of ordinary shares in the prior year is stated as the number of ordinary shares in issue at 31 December 2010, which the directors believe provides a truer indication of the earnings per share than a weighted average.

Notes to the financial statements (continued)

9. Business combinations

9.1. Investment in subsidiary

Acquisition of PT Berau

On 4 March 2011, Vallar Ltd (formerly Vallar plc) completed the acquisition of 26,175,000,000 PT Berau shares (representing 75 per cent of the issued ordinary shares of PT Berau) at Rp.540 per PT Berau share, in consideration of the payment of $739 million in cash consideration for 35 per cent of PT Berau and the issue to the vendor of 52.3 million Ordinary Shares in consideration for 40 per cent of PT Berau.

On 4 March 2011, Vallar Ltd (formerly Vallar plc) obtained control of PT Berau. Legal completion followed on 8 April 2011 when shares were exchanged. PT Berau is a holding company that indirectly owns 90 per cent of PT Berau Coal, the fifth largest coal producer in Indonesia in terms of production volume. PT Berau Coal engages in open-cut mining of coal in its concession area in East Kalimantan, where it holds coal mining rights until 26 April 2025.

On 14 June 2011, Vallar Ltd (formerly Vallar plc) increased its holding in PT Berau through a mandatory cash offer for the remaining shares following the acquisition described above. Vallar Ltd (formerly Vallar plc) acquired an additional 3,398,999,404 shares in PT Berau for $214 million and its total ownership following this acquisition is 29,573,999,404 shares, representing 85% of the issued ordinary shares of PT Berau.

In the period from 4 March 2011, the date of acquisition, to 31 December 2011, the business has contributed $1,407 million of revenues and $296 million of profit before tax. If the acquisition had occurred on the first day of this reporting period, the contributions would have been $1,657 million of revenues and $376 million of profit before tax.

Final details of net assets acquired and fair value adjustments are set out below.

Notes to the financial statements (continued)

9. Business combinations (continued)

1 The fair value of the non-controlling interest is calculated with reference to the PT Berau share price on the date of acquisition.

2 Adjustments to the fair value of consideration relate to movements in the PT Berau share price, Vallar Ltd (formerly Vallar plc) share price and the Indonesian Rupiah exchange rate between the date of the Berau Sale and Purchase of Shares Agreement on 16 November 2010 and the completion of the acquisition of PT Berau on 4 March 2011.

Notes to the financial statements (continued)

9. Business combinations (continued)

Goodwill arising on acquisition is associated with the recognition of a deferred tax liability in respect of the fair value of mining properties.

Acquisition costs incurred on the Berau transactions expensed in the year were $21 million.

Other acquisitions

On 18 May 2011, the Group acquired 100% of PT Mutiara Tanjung Lestari, a company incorporated in Indonesia, engaged in mining services, for $11 million. The whole of the consideration was satisfied in cash and the fair value of the assets acquired was $2 million with the difference representing goodwill arising on expected synergies.

Also on 18 May 2011, the Group acquired 100% ownership of PT Pelayaran Sandita Parkasa Maritim, a company incorporated in Indonesia, engaged in shipping services, for $8 million. The whole of the consideration was satisfied in cash and the fair value of the assets acquired was $7 million with the difference representing goodwill arising on expected synergies.

9.2. Investment in associate

Acquisition of shares in PT Bumi

On 4 March 2011, Vallar Ltd (formerly Vallar plc) completed its acquisition of 5,193,350,000 PT Bumi Shares (representing 25 per cent of the issued ordinary share capital of PT Bumi) at IDR 3,025 per PT Bumi Share, in consideration of the payment, 90,072,216 Ordinary Shares were issued.

Final details of net assets acquired and fair value adjustments are set out below.

Notes to the financial statements (continued)

9.2. Investment in associate (continued)

1 Adjustments to the fair value of shares relate to movements in the PT Bumi share price, Vallar Ltd (formerly Vallar plc) share price and the Indonesian Rupiah exchange rate between the date of the PT Bumi Sale and Purchase of Shares Agreement on 16 November 2010 and the completion of the acquisition of PT Bumi on 4 March 2011.

Acquisition costs incurred on the PT Bumi transaction expensed in the year were $21million.

Notes to the financial statements (continued)

10. Property, plant & equipment

1 Mining properties include deferred stripping costs of $36 million. Amortisation of deferred stripping costs of $34 million is included within depreciation for the year.

Property plant and equipment includes no amounts under finance leases.

In accordance with the Coal Contract of Work, certain fixed assets recorded in the consolidated financial statements remain the property of the Government of Indonesia. However, PT Berau has an exclusive right to use the fixed assets over the contract period.

Depreciation expense of $120 million has been charged to cost of sales. No borrowing costs were capitalised during the period of this report.

11. Investments in associates

On 5th and 15th July, the Group acquired a further 13.8 million and 1.1 million of shares in PT Bumi for a total non-cash consideration of $306 million.

As at 31 December 2011, the market value of the Group's interest in PT Bumi, which is listed on the Indonesian stock exchange, was USD1,470m. The Group does not believe this value represents the fair value of the underlying business, as stock markets are subject to short term volatility.

Notes to the financial statements (continued)

11. Investments in associates (continued)

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

12. Trade and other receivables

Trade and other receivables includes VAT recoverable of $309 million. This represents amounts claimed by PT Berau Coal from the Government. This amount is part of an on-going dispute with the Government which resulted from a change in the VAT law in 2001 when coal became a VAT exempt supply. This change meant that PT Berau Coal can no longer claim credits for its input VAT on purchases. However, under the CCoW, PT Berau Coal is indemnified against Indonesian taxes not in effect at the time of signing of the CCoW. On this basis, PT Berau Coal claimed reimbursement for input VAT paid from 2001. The claims were rejected and PT Berau Coal began setting off the VAT receivable against royalty payments due under the CCoW. The VAT receivable and royalty payable amounts have been disclosed separately on a gross basis within Trade and other receivables and Trade and other payables, respectively.

Notes to the financial statements (continued)

13. Borrowings

An analysis of borrowings is set out below:

The carrying amounts of the Group's borrowings are all denominated in US dollar.

a) Bank Loans

On 23 July 2010, PT Berau entered into a $400 million Senior Secured Credit Facility with Credit Suisse AG, Singapore Branch. PT Berau drew down the entire $400 million available under this facility. The facility comprises two tranches: (i) Tranche A a principal amount of $300 million and (ii) Tranche B in a principal amount of $100 million. Interest for the Tranche A loans is payable quarterly and accrues at the rate of London Interbank Offered Rate (LIBOR) plus a margin of 4.75% per annum. Interest for Tranche B loans is payable quarterly and accrues at the rate of LIBOR plus a margin of 5.75% per annum.

b) Secured Notes

On 8 July 2010, PT Berau issued $350 million Guaranteed Senior Secured Notes ('Senior Notes'). Also, PT Berau issued an additional amount of 12.5% Guaranteed Senior Secured Notes on 29 July 2010. The maturity date of the notes is 8 July 2015. The Senior Notes bear interest from 8 July 2010 at the rate of 12.5% per annum, payable semi-annually.

There were no undrawn committed borrowing facilities at 31 December 2011 (2010: nil).

Notes to the financial statements (continued)

14. Share capital, share premium and merger reserve

Notes to the financial statements (continued)

14.1. Ordinary shares

On 31 March 2010, two ordinary shares of £1 were subscribed for at par value. On 9 July 2010 a written resolution of the sole member of the Company authorised the issue of 68,718,229 ordinary £1 shares at a price of £10 per share. On 16 August 2010, pursuant to the terms of a repurchase option, the Company repurchased 1,375,495 ordinary shares of £1 each in the Company at a price of £10 per ordinary share.

The Bumi Resources Transaction closed on 4 March 2011. At the closing of this transaction, the Top Company issued 90,072,216 Top Company Shares to the Bakrie Group for 25 per cent of PT Bumi, of which 28,861,172 were Top Company Voting Ordinary Shares and 61,211,044 were Top Company Suspended Voting Ordinary Shares. At the closing of the Bumi Resources Transaction, the Top Company also obtained control of PT Berau through contractual arrangements with PT Bukit Mutiara.

At the closing of the Berau Transaction on 8 April 2011, PT Bukit Mutiara transferred title to, and registered ownership of, shares comprising 75 per cent of PT Berau to Vallar Investments UK Ltd and the Top Company issued 52,297,680 Top Company Shares, of which 27,772,829 were Top Company Voting Ordinary Shares issued to PT Bukit Mutiara and 24,524,851 were Top Company Suspended Voting Ordinary Shares issued to Long Haul (pursuant to the Mutiara Share Transaction Arrangements). As part of the Berau Transaction, the Top Company also agreed to pay $739 million in cash consideration. Of this amount, approximately $639 million was paid to PT Bukit Mutiara on 18 November 2010 and, following the closing of the Bumi Resources transaction, the balance was released to PT Bumi in accordance with the Escrow Agreement. Closing of the Berau Transaction triggered a mandatory cash offer (MCO) for the remaining issued share capital of PT Berau, which has now completed, with the Group's aggregate holding in PT Berau increasing to 84.7 per cent as a result.

The Top Company Suspended Voting Ordinary Shares convert into Voting Ordinary Shares on a one for one basis automatically on issue of new Voting Ordinary shares by the Company. This is to ensure that PT Bakrie Brothers Tbk, Long Haul Holdings and affiliates percentage ownership in the Company remains at 29.9%.

On 27 June 2011, the Group entered into sale and purchase agreements with a number of shareholders in PT Bumi pursuant to which Bumi plc agreed to purchase shares in the PT Bumi representing approximately 4.2% of the issued share capital of PT Bumi in consideration for the issue to the selling PT Bumi shareholders of 15,059,827 Bumi plc voting ordinary shares.

On 7 July 2011, the Company undertook a capital reduction.

On 6 October 2011, the Founder Shares, a separate share class of Vallar Holding Company Ltd, were exchanged for 6.67 per cent of the fully diluted ordinary shares of the Company.

14.2. Merger Reserve

Upon implementation of the scheme of arrangement, the Group's ordinary shares have been re-presented as that of Bumi plc, with a nominal value of £6. The difference between the Group's net assets and the nominal value of the shares in issue is recorded in the merger reserve.

No dividends have been paid or proposed for the year.

14.3. Founder Securities

Founder securities are a further separate class of equity share capital in Vallar Holding Company Limited. The holders of the Founder Securities have the right to exchange the Founder Securities for ordinary shares in the Company to a value of 15 per cent of the increase in value from the initial public offering value of £10, if within four years post acquisition, the closing share prices reaches the higher of:

·; a compound rate of return of 8.25 per cent on the share from the IPO value of £10 and from date of acquisition.

·; an increase of 25 per cent of the share price from the IPO value of £10.

15. Consolidated cash flow analysis

15.1. Reconciliation of profit before tax to cash flows from operations

Notes to the financial statements (continued)

16. Contingent liabilities and contingent assets

Contingent liabilities

The Group is subject to various claims in the normal course of business. These include but are not restricted to land claims. Occasionally local residents issue claims against the Group and the associate with regard to the mining on areas of land where ownership is in dispute between the Group and local inhabitants. The majority of cases are resolved with no material liability assumed by the Group and associate.

No contingent liabilities were secured on the assets of the Group at 31 December 2011 or 31 December 2010.

Other Specific Contingent Liabilities

Offset of Coal Production Proceeds with VAT input

The Group has a contingent liability in respect of the coal sharing payable to the Government which has been offset against VAT recoverable claimed from the Government amounting to $309million. Please see note 12 for further details.

Contractual mine service fee agreement claim

PT Bumi has an on-going dispute with a contractor regarding the contractual mining service fee and it's escalation formula. The contractor is claiming the escalation formula no longer reflects the actual increase in its operating costs. The associate believes the contractors rate is above other comparative mining contractors rates.

Contingent assets

There were no significant contingent assets in the Group at 31 December 2011 or 31 December 2010.

17. Subsequent events

On 13 March 2012, PT Berau issued fixed rate guaranteed senior notes of $500 million, with a term of 5 years and a coupon rate of 7.25% payable semi-annually. PT Berau used the net proceeds to repay the balance outstanding on its bank loan and will use the remainder of the proceeds to fund capital expenditure and other operating activities.