RNS Number : 8048X
Arko Holdings PLC
30 June 2008
Stock Exchange Announcement
30 June 2008
For release at: 07:00 hours.
Arko Holdings plc ("the Company" or "Arko")
Results of the Company
for the year ended 31 December 2007
The Board of Arko announces the results of the Company for the year ended 31 December 2007, which are set out below. These have today
been published and will be despatched to shareholders.
Copies of these financial statements will be available from the offices of Nabarro Wells & Co. Limited, Old Change House, 128 Queen
Victoria Street, London EC4V 4BJ.
The AGM will be held at the offices of Baker Tilly LLP at 2 Bloomsbury Street, London WC1B 3ST on 21 July 2008 at 12:00 noon.
RESULTS
I am pleased to present the results for the financial year ended 31 December 2007. It has been a difficult year for the Group but,
despite the short-term challenges, we have come through with a strong business focus that is well positioned for the longer term.
The results for the year were disappointing. Group revenue for the year increased by 16.5% to US$10.86m. However, operating cost of
sales increased by 55% to US$7.97m. As a result the gross profit margin has dropped from 44.9% to 26.6%. Within the operating cost of sales
of US$7.97m were included depreciation charges of US$0.79m. The increase in fuel costs as well as the reduction of the average price per TEU
of 16% also contributed to the fall in the profit margin.
The loss for the year (after taxation) was US$32.24m, which took account of an impairment of property, plant and equipment of US$13.19m,
of which Hubei Changzhou Power Development Co. Ltd, a subsidiary operating the coal-fired power plant, amounted to US$12.06m and an
impairment of goodwill in the power plant of US$9.97m. These impairments represented a complete write-down to nil of goodwill in the power
plant as a result of the operational problems and consequent decline in value of the power plant, and the elimination of historic goodwill
which arose from prior acquisition of a number of trading subsidiaries.
Cash balances at the year end were US$0.43m. Subsequent to the year end, such cash was used primarily to pay for part of the purchase of
new machinery for the container terminal of US$3m.
Due to the significant write downs determined to be necessary, the Board made an announcement on 4 June 2008 to update the market about
the substantial loss of the Group to appear in the 2007 accounts.
DIVIDENDS
The Board does not recommend the payment of a dividend (2006: nil).
PROBLEMS ENCOUNTERED IN THE POWER PLANT
The power plant commenced electricity generation in 1995 and became a subsidiary of the Group after the reverse takeover in 2002. Due to
government policy in China over the last few years, the government did not encourage the operation of small coal-fired power plants. Despite
the high demand for electricity, the increase in the sales price of electricity from this plant was not in line with the sales price
achieved by larger power plants. In addition, the inflation in the coal price had a significant adverse effect on the profit margin of the
power plant. As a result, in July 2005, the operation of the power plant was contracted to an unrelated PRC privately-owned enterprise for a
term of five years. However, the underlying performance of the power plant has not altered and its continuing loss affected the whole
performance of the Group adversely. Following the policy implemented and announced by the State Council of the People's Republic of China in
January 2007, the power plant entered into an agreement with the local government in June 2007 in relation to shutting down and demolishing the power plant before December 2010. Since the PRC
operator had ceased operation of the plant in the beginning of third quarter of 2007, the management decided to shut down the plant
accordingly. The management believed that the operation of the power plant would not make any contribution to the Group and agreed to a
complete write-down of the power plant in this financial year so as to reflect its true value to the Group.
OPERATIONAL REVIEW
Despite the loss suffered from the power plant, the Group has improved its sales performance, mainly in the container terminal operation
and the shipping logistics business, being the areas on which the Group now concentrates its efforts, although margins have reduced for the
reasons referred to above. Subsequent to the completion of the construction of the new rail and the renovation of the quayside, two new
gantry cranes and two new 45t/45m rail-mounted gantry cranes were delivered and started operation in the third and final quarters of 2007.
The annual throughput has increased by 5.41% compared to the year 2006.
OUTLOOK
Arko's aim and development strategy is to continue with the expansion of the terminal and shipping logistics business, and the Board
believes that this will be the major business of the Group in the coming years. As result of the write-down of the power plant, the Board is
of the view that the result of 2008 will become positive. In the coming year Arko hopes to benefit from key operational and infrastructure
projects, potentially doubling our capital expenditure for the period of time. They will be financed partly from our own resources and
partly through shareholders' loans. It is also foreseen that the increase in consumption demand in China will enhance the river trade
activity. Therefore, the Group will spend more resources on the shipping logistics business by means of chartering and buying new river
trade vessels. It is also expected that with the increase in the machinery and equipment in the container terminal, the throughput will
increase steadily. In fact, the two brand new 45t quayside container cranes will be delivered by the last quarter of year 2008 and the first quarter of year 2009 respectively.
However, with the possible slowing economic growth in China and the slowdown in the world economy, the Board's view is its optimism on
the performance of the Group in 2008 should also be tempered with caution.
APPRECIATION
The Board would again like to thank all staff for the commitment, professionalism and loyalty they have shown during the last twelve
months.
Qin Shun Chao
Chairman
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
(Expressed in United States dollars)
Notes 2007 2006
US$ US$
'000 '000
REVENUE 5 10,860 9,323
Cost of sales (7,972) (5,139)
GROSS PROFIT 2,888 4,184
Other income 6 605 34
Administrative expenses (4,041) (2,218)
Impairment of property, plant and equipment (1,131) -
Impairment of goodwill (9,010) -
(LOSS)/PROFIT FROM OPERATIONS (10,689) 2,000
Finance costs 7(a) - (96)
(LOSS)/PROFIT BEFORE TAXATION 7 (10,689) 1,904
Tax 8 (142) (321)
LOSS FOR THE YEAR FROM CONTINUING (10,831) 1,583
OPERATIONS
LOSS FOR THE YEAR DISCONTINUED OPERATIONS 5 (21,408) (3,308)
LOSS FOR THE YEAR (32,239) (1,725)
Attributable to:
Equity holders of the parent Company (31,275) (2,121)
Minority interest - continuing operations (964) 396
(32,239) (1,725)
US cents US cents
Loss per share
Basic and fully diluted 11
- From continuing operations (0.50) 0.048
- From discontinued operations (1.08) (0.155)
(1.58) (0.107)
BALANCE SHEETS
AS AT 31 DECEMBER 2007
(Expressed in United States dollars)
Notes Group Company
2007 2006 2007 2006
US$'000 US$'000 US$'000 US$'000
Non-current assets
Goodwill 12 1,834 20,812 - -
Property, plant and equipment 13 24,376 32,843 - -
Investments in subsidiaries 14 - - 24,218 56,015
Available-for-sale investments 15 12 12 - -
26,222 53,667 24,218 56,015
Current assets
Inventories 16 124 77 - -
Trade and other receivables 17 8,312 10,148 63 44
Cash and cash equivalents 18 428 838 1 -
8,864 11,063 64 44
Current liabilities
Trade and other payables 19 3,606 2,591 200 123
Amount due to a subsidiary - - 2,299 1,937
Taxation 1,134 1,592 - -
4,740 4,183 2,499 2,060
Net current 4,124 6,880 ( 2,435) ( 2,016)
assets/(liabilities)
Total assets less current 30,346 60,547 21,783 53,999
liabilities
Non current liabilities
Bank loans 20 1,915 1,915 - -
Loans from fellow
investors in subsidiary
companies 21 787 787 - -
27,644 57,845 21,783 53,999
EQUITY
Share capital 22 14,922 14,922 14,922 14,922
Reserves 687 29,991 6,861 39,077
Total equity attributable to 15,609 44,913 21,783 53,999
equity shareholders
Minority interest - continuing 12,035 12,932 - -
operations
TOTAL EQUITY 27,644 57,845 21,783 53,999
Approved and authorised for issue by the board on 25 June 2008.
QIN Shun Chao ZHANG Jing
Director Director
STATEMENT OF CHANGES IN EQUITY - CONSOLIDATED
FOR THE YEAR ENDED 31 DECEMBER 2007
(Expressed in United States dollars)
(note i)
Statutory (note ii) Total attributable
surplus Merger to equity holders
Share Share reserve reserve Exchange Retained of the parent
Minority
capital premium reserve profit
interest
Group
Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
US$'000 US$'000
___________________________________________________________________________________________________________________
Balance at 1 January 2006 14,922 15,662 1,681 26,043 - (10,742) 47,566
12,544 60,110
Loss for the year - - - - - (2,122) (2,122)
396 (1,726)
Exchange movements - - - - (531) - (531)
(8) (539)
Total recognised income and expense - - - - (531) (2,122) (2,653)
388 (2,265)
___________________________________________________________________________________________________________________
Balance at 31 December 2006 14,922 15,662 1,681 26,043 (531) (12,864) 44,913
12,932 57,845
Loss for the year - - - - - (31,275) (31,275)
(964) (32,239)
Exchange movements - - - - 1,971 - 1,971
67 2,038
Total recognised income and expense - - - - 1,971 (31,275) (29,304)
(897) (30,201)
___________________________________________________________________________________________________________________
Balance at 31 December 2007 14,922 15,662 1,681 26,043 1,440 (44,139) 15,609
12,035 27,644
Note:
(i) Statutory surplus reserve:
In accordance with the law of the People's Republic of China and the articles of association of certain of the Company's subsidiaries,
directors of these subsidiaries may at their discretion make appropriations to a statutory surplus reserve equivalent to 10% of the
subsidiaries' net profits. Appropriations may also be made to statutory public welfare reserve equivalent to 5 to 10% of the net profits of
these operating subsidiaries. Distribution of profits to shareholders can only be made after such appropriations.
The statutory surplus reserve may be used to reduce any losses incurred or be capitalised as paid up capital. The use of the statutory
public welfare reserve is restricted to capital expenditure incurred for staff welfare facilities. The statutory public welfare reserve is
not available for distribution.
(ii) The merger reserve represents the difference between the nominal value of shares of the subsidiary company acquired, and the
nominal value of the Company*s shares issued in 2002.
STATEMENT OF CHANGES IN EQUITY - COMPANY
FOR THE YEAR ENDED 31 DECEMBER 2007
(Expressed in United States dollars)
Share Share Merger Retained
capital premium reserve profits
Company Total
US$'000 US$'000 US$'000 US$'000 US$'000
__________________________________________________________
Balance at 1 January 2006 14,922 15,662 26,043 (2,029) 54,598
Loss for the year - - - (599) (599)
Total recognised income and - - - (599) (599)
expense
__________________________________________________________
Balance at 31 December 2006 14,922 15,662 26,043 (2,628) 53,999
Loss for the year - - - (32,216) (32,216)
Total recognised income and - - - (32,216) (32,216)
expense
__________________________________________________________
Balance at 31 December 2007 14,922 15,662 26,043 (34,844) 21,783
CASH FLOW STATEMENT - CONSOLIDATED
FOR THE YEAR ENDED 31 DECEMBER 2007
(Expressed in United States dollars)
2007 2006
US$'000 US$'000
Cash flow from operating activities
(Loss)/profit before taxation
Continuing operations (10,689) 1,904
Discontinued operation (21,408) (3,308)
Discontinued operation (32,097) (1,404)
Adjustments for:
- Interest expense 120 210
- Interest income (14) -
- Depreciation 1,579 2,127
- Loss on disposal of property, plant 95 11
and equipment
- Impairment loss - goodwill 18,977 2,000
- Impairment loss - property, plant 13,194 -
and equipment
- Exchange adjustments 728 (298)
Operating profit before working 2,582 2,646
capital changes
(Increase)/decrease in inventories (47) 68
Decrease/(increase) in receivables 1,836 (1,338)
Increase in payables 567 689
Net cash flow generated from 4,938 2,065
operations
Interest paid (120) (211)
Taxes paid (152) (383)
Net cash generated from operating 4,666 1,471
activities
Investing activities
Purchase of property, plant and (5,187) (1,777)
equipment
Sales proceeds of property, plant and 97 491
equipment
Interest income 14 -
Net cash used in investing activities (5,076) (1,286)
Net (decrease)/increase in cash and (410) 185
cash equivalents
Cash and cash equivalents at 1 838 653
January
Cash and cash equivalents at 31 428 838
December
CASH FLOW STATEMENT - COMPANY
FOR THE YEAR ENDED 31 DECEMBER 2007
(Expressed in United States dollars)
2007 2006
US$'000 US$'000
Cash flow from operating activities
Loss after taxation and before working (32,216) (599)
capital changes
Adjustment for:
-Impairment loss on investments in 31,797 -
subsidiaries
Operating loss before working capital (419) (599)
changes
Increase in trade and other receivables (19) (18)
Increase in trade and other payables 77 26
Increase in amount due to subsidiary 362 444
Net increase/(decrease) in cash and cash 1 (147)
equivalents
Cash and cash equivalents at 1 January - 147
Cash and cash equivalents at 31 December 1 -
1. PRINCIPAL ACCOUNTING POLICIES
General information
The Company is a public limited company incorporated and domiciled in the United Kingdom and its shares are listed on the AIM Market of
the London Stock Exchange ("LSE"). The principal place of business of the Company is in the People's Republic of China ("PRC").
At 31 December 2007, the directors consider the immediate parent and ultimate controlling party of the company to be Keen Lloyd Holdings
Limited and Chin Dynasty Foundation Limited respectively, both of which are incorporated in the British Virgin Islands. Neither produces
financial statements available for public use.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Statement of compliance
Commencing on 1 January 2007, the consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards as adopted for use in the European Union(IFRS), and comparative figures for the year ended 31 December 2006 have been
restated in accordance with IFRS.
The Group has adopted the following transitional exemption:
IFRS 2: The Group has elected to apply the share-based payment exemption and accordingly it has applied IFRS 2 Share-based payment from
1 January 2006 only to share options that were granted after 7 November 2002, but which had not vested by 1 January 2006.
IFRS 3: The Group has elected not to restate business combinations which occurred prior to the IFRS transition date of 1 January 2006.
IAS 21: the Group has elected not to apply retrospectively to fair value adjustments and goodwill arising in business combinations that
accrued prior to the IFRS transition date.
The consolidated statement of cash flows prepared under IFRS presents substantially the same information as that required under UK GAAP.
Under IFRS only three categories of cash flow activity are required to be reported: operating, investing and financing. Cash flows from
returns on investments and servicing of finance under UK GAAP are including as operating activities and investing activities respectively
under IFRS. There are no other material differences between the cash flow statement presented under IFRS and the cash flow statement
presented under UK GAAP.
Income and equity reconciliation statements are stated below so as to reflect the effect of the adoption of IFRS. The sole adjustment
represents the non-amortisation of goodwill as recognised by IFRS 3 Business Combinations.
UK GAAP Adjustment IFRS
Year ended 31 December 2006 US$'000 US$'000 US$'000
______________________________________________________________________________________________
Revenue 9,323 - 9,323
Cost of sales (5,139) - (5,139)
_______________________________________________
Gross profit 4,184 - 4,184
Other income 760 - 760
Administrative expenses (4,138) - (4,138)
Impairment loss of goodwill (2,000) - (2,000)
Amortisation (1,400) 1,400 -
_______________________________________________
Operating loss (2,594) 1,400 (1,194)
Finance costs (210) - (210)
_______________________________________________
Loss before taxation (2,804) 1,400 (1,404)
Tax (321) - (321)
_______________________________________________
Loss for the year (3,125) 1,400 (1,725)
_______________________________________________
Attributable to :
Equity holders of the parent (3,521) 1,400 (2,121)
Company
Minority interest 396 - 396
_______________________________________________
(3,125) 1,400 (1,725)
_______________________________________________
UK GAAP Adjustment IFRS
Balance sheet as at 31 US$'000 US$'000 US$'000
December 2006
____________________________________________________________________________________________
Non-current assets
Goodwill 19,412 1,400 20,812
Property, plant and equipment 32,843 - 32,843
Available-for-sale investments 12 - 12
______________________________________
52,267 1,400 53,667
______________________________________
Current assets
Inventories 77 - 77
Trade and other receivables 10,148 - 10,148
Cash and cash equivalents 838 - 838
______________________________________
11,063 - 11,063
______________________________________
Current liabilities
Trade and other payables 3,534 - 3,534
Current tax liabilities 649 - 649
______________________________________
4,183 - 4,183
______________________________________
Current assets 6,880 - 6,880
______________________________________
Total assets less current liabilities 59,147 1,400 60,547
______________________________________
Non-current liabilities
Bank loans 1,915 - 1,915
Advances from fellow investors in subsidiary 787 - 787
companies
______________________________________
2,702 - 2,702
______________________________________
56,445 1,400 57,845
______________________________________
EQUITY
Issued capital 14,922 - 14,922
Share premium 15,662 - 15,662
Merger reserve 26,043 - 26,043
Retained earnings (14,264) 1,400 (12,864)
Other reserves 1,150 - 1,150
______________________________________
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
COMPANY 43,513 1,400 44,913
MINORITY INTEREST 12,932 - 12,932
______________________________________
TOTAL EQUITY 56,445 1,400 57,845
______________________________________
UK GAAP Adjustment IFRS
Balance sheet as at 31 US$'000 US$'000 US$'000
December 2005
____________________________________________________________________________________________
Non-current assets
Goodwill 22,807 - 22,807
Property, plant and equipment 33,878 - 33,878
Available-for-sale investments 12 - 12
______________________________________
56,697 - 56,697
______________________________________
Current assets
Inventories 145 - 145
Trade and other receivables 8,810 - 8,810
Cash and cash equivalents 653 - 653
______________________________________
9,608 - 9,608
______________________________________
Current liabilities
Trade and other payables 2,783 - 2,783
Current tax liabilities 711 - 711
______________________________________
3,494 - 3,494
______________________________________
Current assets 6,114 - 6,114
______________________________________
Total assets less current liabilities 62,811 - 62,811
______________________________________
Non-current liabilities
Bank loans 1,915 - 1,915
Advances from fellow investors in subsidiary 786 - 786
companies
______________________________________
2,701 - 2,701
______________________________________
60,110 - 60,110
______________________________________
EQUITY
Issued capital 14,922 - 14,922
Share premium 15,662 - 15,662
Merger reserve 26,043 - 26,043
Retained earnings (10,742) - (10,742)
Other reserves 1,681 - 1,681
______________________________________
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
COMPANY 47,566 - 47,566
MINORITY INTEREST 12,544 - 12,544
______________________________________
TOTAL EQUITY 60,110 - 60,110
______________________________________
b) Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as enclosed by the
EU for the first time. The disclosures required by IFRS, concerning the transition from UK GAAP to IFRS are given in note 2(a). The
financial statements have been prepared on the historical cost basis, as modified for the revaluation of available-for-sale investments.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving in a higher
degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are
disclosed in note 4.
c) Basis of consolidation
On the acquisition of a subsidiary, the assets and liabilities of that subsidiary are recorded at their fair value, reflecting their
condition at the date of acquisition.
The consolidated income statement and consolidated balance sheet include the financial statements of the Company and its subsidiary
undertakings up to 31 December. The results of subsidiaries acquired are included in the consolidated income statement from the date on
which control passes. Intra-group sales and profits are eliminated on consolidation.
As permitted by Section 230 of the Companies Act 1985, a separate income statement is not presented in respect of the Company.
d) Revenue
Revenue comprises the value of sales in the year in respect of the operation of the terminal and provision of shipping logistic
services.
e) Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of
the acquired subsidiary companies.
Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is annually tested for
impairment. In respect of associated companies, the carrying amount of goodwill is included in the carrying amount of the interests in the
associated companies.
If the cost of acquisition is less than the fair value of net identifiable assets of the acquired subsidiary company, associated
company, the difference is recognised immediately in the consolidated income statement.
Any gain or loss on disposal of a subsidiary company and an associated company includes the carrying amount of goodwill relating to the
entity sold.
f) Property, plant and equipment
Expenditure on additions and improvements is capitalised as incurred. Non-current assets are included at historical cost less
accumulated depreciation and any impairment losses.
Property, plant and equipment, other than construction in progress, are depreciated over their estimated useful lives on a straight line
basis. The following annual rates of depreciation have been used.
Land and buildings 20-30 years
Plant and machinery 10-20 years
Furniture, fixtures and equipment 5-10 years
Motor vehicles 5-10 years
Oil storage tanks 15 years
Vessels 10 years
Construction in progress represents a building under construction, which is stated at cost less any impairment. Cost comprises the
direct cost of construction.
Both the useful life of an asset and its residual value, if any, are reviewed annually.
The carrying amounts of other property, plant and equipment are reviewed for indications of impairment at each balance sheet date. An
impairment loss is recognised to the extent that the carrying amount of an asset, or the cash-generating unit to which it belongs, is more
than its recoverable amount. The recoverable amount of an asset, or of the cash generating unit to which it belongs, is the greater of its
net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the assets. An impairment
loss is reversed if there has been a favourable change in estimates used to determine the recoverable amount.
Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference
between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or
disposal.
g) Subsidiary companies
A company where more than 50 per cent of the issued share capital is held by the Company for the long term or where 50 per cent of the
issued share capital is held for the long term and where the Company controls the composition of the board of directors is deemed to be a
subsidiary.
The Company's investments in subsidiary companies are stated at cost less any provision for diminution in value.
h) Available-for-sale investments
Investments being those held for non-trading purposes, are classified as available-for-sale investments. At each balance sheet date the
fair value is remeasured, with any resultant gain or loss being recognised directly in equity in the fair value reserve, except foreign
exchange gains and losses in respect of monetary items such as debt securities which are recognised directly in profit or loss. Where these
investments are interest-bearing, interest calculated using the effective interest method is recognised in profit or loss. When these
investments are derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in profit or loss.
When there is objective evidence that available-for-sale investments are impaired, the cumulative loss that has been recognised directly
in equity is removed from equity and is recognised in profit or loss. The amount of the cumulative loss that is recognised in profit or loss
is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment
loss on that asset previously recognised in profit or loss.
Impairment losses recognised in profit or loss in respect of available-for-sale investments are not reversed through profit or loss. Any
subsequent increase in the fair value of such assets is recognised directly in equity.
Impairment losses in respect of available-for-sale debt investments are reversed if the subsequent increase in fair value can be
objectively related to an event occurring after the impairment loss was recognised. Reversals of impairment losses in such circumstances are
recognised in profit or loss.
i) Inventories
Inventories are carried at the lower of cost and net realisable value.
Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs
incurred in bringing the inventories to their present location and condition.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the
estimated costs necessary to make the sale.
When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related
revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as
an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a
reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.
j) Trade and other receivables
Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less impairment losses for
bad and doubtful receivables, except where the receivables are interest-free loans made to related parties without any fixed repayment terms
or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less impairment losses for bad and
doubtful debts.
Impairment losses for bad and doubtful debts are measured as the difference between the carrying amount of the financial asset and the
estimated future cash flows, discounted where the effect of discounting is material.
k) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and
short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk
of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an
integral part of the Company's cash management are also included as a component of cash and cash equivalents for the purpose of the cash
flow statement.
l) Trade and other payables
Trade and other payables are initially recognised at fair value. Trade and other payables are subsequently stated at amortised cost
unless the effect of discounting would be immaterial, in which case they are stated at cost.
m) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and
redemption value being recognised in profit or loss over the period of the borrowings, together with any interest and fees payable, using
the effective interest method.
n) Employee benefits
Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary
benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the
effect would be material, these amounts are stated at their present values.
o) Translation of foreign currencies
(a) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic
environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in United States
Dollars which is the Company's presentation currency.
(b) Transactions and balances
Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary
assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date.
Exchange gains and losses are recognised in profit or loss.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign
exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at
fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined.
(c) Group companies
The results of the subsidiary company in the PRC are translated into Hong Kong dollars at the exchange rates approximating the foreign
exchange rates ruling at the dates of the transactions. Balance sheet items are translated into Hong Kong dollars at the foreign exchange
rates ruling at the balance sheet date. The resulting exchange differences are recognised directly in a separate component of equity.
On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in equity which relate to that foreign
operation is included in the calculation of the profit or loss on disposal.
p) Income tax
Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in
deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised directly in
equity, in which case they are recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between
the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from
unused tax losses and unused tax credits. Apart from differences which arise on initial recognition of assets and liabilities, all deferred
tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which
the asset can be utilised, are recognised.
The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of
the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax assets and liabilities
are not discounted.
q) Share-based payments
The Company has taken advantage of the exemption in IFRS2 Share-based payment from recognising a charge in respect of share options
which were fully vested before 31 December 2005.
r) Provisions and contingent liabilities
Provisions and contingent liabilities
Provisions are recognised for other liabilities of uncertain timing or amount when the Group has a legal or constructive obligation
arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a
reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure
expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the
obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations,
whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent
liabilities unless the probability of outflow of economic benefits is remote.
s) Related parties
For the purposes of these financial statements, a party is considered to be related to the Company if:
(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Company or exercise
significant influence over the Company in making financial and operating policy decisions, or has joint control over the Company;
(ii) the Company and the party are subject to common control;
(iii) the party is a subsidiary, an associate of the Company or a joint venture in which the Company is a venturer;
(iv) the party is a member of key management personnel of the Company or the Company*s parent, or a close family member of such an
individual, or is an entity under the control, joint control or significant influence of such individuals;
(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or
significant influence of such individuals; or
(vi) the party is a post-employment benefit plan which is for the benefit of employees of the Company or of any entity that is a
related party of the Company.
Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in
their dealings with the entity.
3. CHANGES IN ACCOUNTING POLICIES
In the current year, the Group has adopted IFRS 7 Financial instruments: disclosures which is first effective for the current accounting
period of the Company.
There have been no significant changes to the accounting policies applied in these financial statements for the years presented as a
result of the adoption of IFRS 7. However, some additional disclosures are provided as follows:
As a result of the adoption of IFRS 7, the financial statements include expanded disclosures relating to the Group's financial
instruments and the nature and extent of risks arising from those instruments, compared with the information previously required to be
disclosed by IAS 32, Financial instruments: Disclosure and presentation. These disclosures are provided throughout these financial
statements, and in particular in note 23.
IFRS 7 does not have any material impact on the classification, recognition and measurements of the amounts recognised in the financial
statements.
The Group has not applied any new Standard or interpretations that are not yet effective for the current accounting period (see note
28).
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are currently evaluated and are based on historical experience and other factors including expectations of
future events that are believed to be reasonable under the circumstances. Apart from information disclosed elsewhere in these financial
statements, the following disclosures summarise : (1) estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year and (2) significant judgements made in the
process of applying the Group's accounting policies.
(i) Income taxes
The Group is subject to income taxes in the People's Republic of China (the "PRC"), Hong Kong and the United Kingdom. Significant
judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax
determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based
on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were
initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is
made.
(ii) Provision for doubtful receivables
The Group provides for doubtful receivables based on an assessment of the collectibility of trade receivables. Provisions for doubtful
receivables are applied to trade receivables where events or changes in circumstances indicate that the balance may not be collectible. The
identification of doubtful receivables requires the use of judgments and estimates. Where the expectation is different from the original
estimates, such difference will impact carrying value of receivables and doubtful debt expenses in the period in which such estimate has
been changed.
5. REVENUE AND SEGMENT INFORMATION
The principal activities of the Group are the provision of logistics and other related services including sea freight forwarding and
barge hire.
Revenue represents income earned from the provision of logistic and other related services. Business (primary) segment information is
as follows:
Revenue Segment profit/(loss)
i) Segment revenue and result 2007 2006 2007 2006
US$'000 US$'000 US$'000 US$'000
Continuing operations
Terminal and shipping logistics 10,860 9,298 (820) 4,772
Trading and others - 25 (8,776) (3,189)
Mining - - (1,235) -
10,860 9,323 (10,831) 1,583
Discontinued operations
Power plant - - (21,408) (3,308)
10,860 9,323 (32,239) (1,725)
An analysis of the results of discontinued operation, after elimination of intra company transactions, is as follows:
2007 2006
US$'000 US$'000
Revenue - -
Other income 1,142 726
Administrative expenses (401) (1,920)
Impairment of property, plant and equipment (12,062) -
Impairment of goodwill (9,967) (2,000)
_______ _______
Loss from operations (21,288) (3,194)
Finance costs (120) (114)
_______ _______
Loss before taxation (21,408) (3,308)
Income tax - -
_______ _______
Loss for the year (21,408) (3,308)
_______ _______
Assets Liabilities
ii) Segment assets and 2007 2006 2007 2006
liabilities
US$'000 US$'000 US$'000 US$'000
Continuing operations
Terminal and shipping logistics 34,739 31,635 4,040 2,978
Trading and others 7,196 8,026 271 294
Mining (9) 1,210 137 123
41,926 40,871 4,448 3,395
Discontinued operations
Power plant (1,982) 28,717 2,994 3,490
Trading and others (4,858) (4,858) - -
(6,840) 23,859 2,994 3,490
Total 35,086 64,730 7,442 6,885
Assets Liabilities
2007 2006 2007 2006
Represents in balance sheet US$'000 US$'000 US$'000 US$'000
Non-current 26,222 53,667 2,702 2,072
Current 8,864 11,063 4,740 4,813
Total 35,086 64,730 7,442 6,885
iii) Other information
Continuing Discontinued operations
operations
Terminal Trading Trading
shipping and Power and
and logistics others Mining plant others Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Additions to property,
plant and equipment 4,354 833 - - - 5,187
Depreciation 881 297 - 401 - 1,579
Impairment losses on
property, plant and
equipment - - 1,131 12,063 - 13,194
Loss on disposal of
vessel - 95 - - - 95
Impairment losses on
goodwill - 9,010 - 9,967 - 18,977
iv) Geographical (secondary) segment
information
Revenue Segment assets
2007 2006 2007 2006
US$'000 US$'000 US$'000 US$'000
Analysis by origin:
Hong Kong 944 1,327 23,872 23,636
People's Republic of
China,
excluding Hong Kong 9,916 7,996 5,406 35,591
United Kingdom - - (1,634) (1,382)
10,860 9,323 27,644 57,845
6. OTHER INCOME 2007 2006
US$'000 US$'000
Rental income 224 34
Exchange gains 269 -
Other 112 -
605 34
7. LOSS BEFORE TAXATION
Loss before taxation is stated after
charging:
2007 2006
US$'000 US$'000
a) Finance costs
Bank loans - -
Other loans - 96
- 96
b) Staff costs
Wages and salaries
- included in cost of sales 957 739
- included in administrative 434 407
expenses
Other pension costs 14 13
Other staff welfare 23 30
1,428 1,189
Employees 2007 2006
No. No.
The average monthly number of persons
(including directors) employed by the
Group during the year was:
Management and administration 31 58
Sales and distribution 7 7
Operations 282 503
320 568
Staff costs are included within administrative expenses in the income statement.
2007 2006
US$'000 US$'000
c) Other items
Fees payable to Baker Tilly UK Audit LLP 36 39
(2006 : Baker Tilly)
for the audit of Company's annual
financial statements
Fees payable to associates of company's
auditors
for other services:
The audit of the Company's subsidiaries 49 36
Taxation services - 32
Depreciation of property, plant and 1,178 1,004
equipment
Loss on disposal of property, plant and 95 11
equipment
Rentals under operating leases 77 75
- land and buildings
- barges and containers 222 262
- motor vehicles 8 27
Directors' remuneration (note 9)
- Directors' emoluments - salaries 176 83
- pension costs 6 6
Exceptional items
Impairment of goodwill 9,010 -
Impairment loss on property, plant and 1,131 -
equipment
10,141 -
8. TAXATION 2007 2006
US$'000 US$'000
Overseas tax:
Current year 142 321
2007 2006
Factors affecting tax charge for the year: US$'000 US$'000
The tax assessed differs from the standard rate of
corporation tax in the UK (30%). The differences are explained
below:
(Loss)/profit before tax (10,689) 1,904
(Loss)/profit before tax multiplied by standard rate of (3,207) 571
corporation tax in the UK of 30% (2006: 30%)
Effects of:
Different tax rates on overseas earnings 93 (31)
Expenses not deductible for tax purposes 4,813 563
Non-taxable income (1,564) (821)
Utilisation of tax losses previously not recognised 7 (9)
Addition to tax losses - 48
Tax charge for the year 142 321
In respect of subsidiary companies operating in Hong Kong, provisions for Hong Kong profits tax are calculated at 17.5% (2006: 17.5%) of
the estimated assessable profits for the year.
Subsidiary companies operating in the People's Republic of China are subject to Enterprise Income Tax ('EIT') at rates ranging from 15%
to 33%. However, certain subsidiaries are subject to tax holidays from the local tax authorities under income tax law. Others had tax losses
brought forward from previous years.
No deferred tax is recognised on the unremitted earnings of the overseas subsidiary companies, as no dividend payments due to UK parent
company are expected to be made in the foreseeable future. A deferred tax asset of approximately US$879,000 (2006: approximately US$109,000)
has not been recognised in respect of tax losses carried forward due to the uncertainty of the timing of future taxable profits against
which these losses can be offset.
9. DIRECTORS' REMUNERATION
Fees of US$47,494 (2006: US$47,876) were paid to certain directors through Winbest Resources Limited, a company which is ultimately
controlled by Chin Dynasty Foundation Limited. These fees are in addition to fees of US$181,821 (2006: US$89,360) that were paid to the
directors by Group companies, as disclosed in note 7. For the purpose of this disclosure, the directors are considered to be key management
of the group.
10. DIVIDEND
The directors do not recommend the payment of any dividend.
11. LOSS PER SHARE - BASIC AND DILUTED
i) From continuing operations
The calculation of basic and diluted earnings per share is based on the loss attributable to equity shareholders of the Group of
US$9.875 million (2006: profit of US$0.953 million) and the weighted average number of shares in issue of 1,978,895,097 (2006:
1,978,895,097).
ii) From discontinued operations
The calculation of basic and diluted earnings per share is based on the loss attributable to equity shareholder of the Group of US$21.4
million (2006: loss of US$3.074 million) and the weighted average number of shares in issue of 1,978,895,097 (2006: 1,978,895,097).
12. GOODWILL Goodwill on
acquisition of subsidiaries
2007 2006
US$'000 US$'000
Cost 22,807 22,807
At 1 January
Exchange realignment (1) 5
At 31 December 22,806 22,812
Provision 1,995 -
At 1 January
Impairment charge for the year 18,977 2,000
At 31 December 20,972 2,000
Net book value 1,834 20,812
At 31 December
At 1 January 20,812 22,807
Commencing from 1 January 2006, no amortisation of goodwill is provided and an annual impairment test is made to assess the fair value
of goodwill.
The impairment charge in the year ended 31 December 2007 is in respect of the cessation of the Group's power plant operation and other
discontinued activities during the year. The goodwill balance at 31 December 2007 relates to the Group's remaining operations.
Land and buildings Plant and machinery Furniture, fixtures Oil storage tanks Vessels
Motor vehicles Construction in Total
13. PROPERTY, PLANT AND and equipment
progress
EQUIPMENT
GROUP US$'000 US$'000 US$'000 US$'000 US$'000
US$'000 US$'000 US$'000
Cost
At 1 January 2006 22,065 21,040 7,947 173 2,446
687 466 54,824
Exchange realignment (300) 1,029 175 - 150
16 - 1,070
Transfers - 88 - - -
- (88) -
Additions 140 1,250 47 - -
12 327 1,776
Disposals - - (4) - (871)
- - (875)
At 1 January 2007 21,905 23,407 8,165 173 1,725
715 705 56,795
Exchange realignment 787 1,239 519 - -
17 - 2,562
Additions 932 3,010 104 - 831
136 174 5,187
Disposals - - - - (430)
- - (430)
At 31 December 2007 23,624 27,656 8,788 173 2,126
868 879 64,114
Depreciation
At 1 January 2006 6,584 9,471 4,581 13 1,079
515 - 22,243
Exchange realignment (39) (65) 33 - 20
6 - (45)
Charge for the year 416 930 546 - 183
52 - 2,127
Disposals - - (3) - (370)
- - (373)
At 1 January 2007 6,961 10,336 5,157 13 912
573 - 23,952
Exchange realignment 292 607 339 - (5)
16 - 1,249
Charge for the year 546 509 272 - 177
75 - 1,579
Disposals - - - - (236)
- - (236)
Impairment charge 2,999 7,891 2,257 - -
27 20 13,194
At 31 December 2007 10,798 19,343 8,025 13 848
691 20 39,738
Net book value
At 31 December 2007 12,826 8,313 763 160 1,278
177 859 24,376
At 31 December 2006 14,944 13,071 3,008 160 813
142 705 32,843
At 31 December 2005 15,481 11,569 3,366 160 1,367
172 466 32,581
Of the depreciation charge for the year, US$788,000 (2006: US$618,000) is included in cost of sales, US$390,000 (2006: US$386,000) is
included in administrative expenses and US$401,000 (2006: US$1,123,000) is included in exceptional item, in the income statement.
The impairment charge has been made as a result of the cessation of the Group's power plant operation during the year.
At 31 December 2007, the net book values of land and buildings, plant and machinery, fixtures and equipment are further analysed as
follows:
Terminal Power plant Mining zone Others Total
US$'000 US$'000 US$'000 US$'000 US$'000
Land 2,757 - - - 2,757
- short lease
- unspecified leases 1,378 - - - 1,378
4,135 - - - 4,135
Buildings 8,691 - - - 8,691
Land and buildings 12,826 - - - 12,826
Plant and machinery 8,286 - 27 - 8,313
Furniture, fixtures and 183 - - 580 763
equipment
On 31 December 2003, a guarantee was given by the Company's subsidiary, Keen Chance Terminal (GZ) Company Limited ("KCT") for banking
facilities granted to a fellow investor, Miaotou Economic Development Company Limited ("MEDCL"), in KCT (see note 27(b)).
The Group has obtained land use right and real estates certificates on the terminal's land under short leases from the local land
authority. Land with a value of US$ 1,378,309 held under unspecified leases of the terminal is land held for industrial use for which the
relevant land use right certificate has not been obtained and thus the term of the lease has yet to be agreed.
Included in land and buildings is short lease land on which the power plant, related ash storage pools and ancillary facilities are
located. In addition, they also include land held for industrial use in respect of which the Group has not obtained the relevant land use
right certificate.
Under the law of the People's Republic of China, land held for industrial use and the buildings without building ownership certificates
can only be used for identified industrial purposes. The Group has not obtained any building ownership certificates in respect of the
buildings of the Group. The Group cannot legally sell or mortgage such properties until the relevant land taxes have been paid to the local
land authority. However there is no binding agreement for the taxes to be paid.
14. INVESTMENTS IN SUBSIDIARIES
2007 2006
US$'000 US$'000
COMPANY
Unlisted shares, at cost
At 1 January 2007 and 31 December 2007 56,015 56,015
Provision for impairment
At 1 January - -
Charge for the year 31,797 -
At 31 December 31,797 -
Net book value
At 31 December 24,218 56,015
At 1 January 56,015 56,015
At 31 December 2007, the Company held 100% of the ordinary shares of Arko Offshore Holdings Limited, a company incorporated in the
British Virgin Island ("BVI"), whose principal activity was that of a holding company. Arko Offshore Holdings Limited had the following
subsidiary undertakings:
Name Holding ordinary Business activities Country of
shares/registered incorporation
capital
Arko Energy Limited 100% Investment holding British Virgin
Islands
Arko Consultants Limited 100% Providing management British Virgin
services Islands
Arko Pacific Limited 100% Investment holding British Virgin
Islands
Long Prosperity Industrial 100% Investment holding Republic of
Limited* Seychelles
Arko Silicon (Hubei) Limited* 100% Dormant People's Republic
of China
Sanko Mineral Limited* 100% Sub-letting of British Virgin
yachts, ships Islands
and vessels
Arko Logistics Limited* 100% Providing logistics Hong Kong
and related services
Arko Satellite Limited* 100% Dormant British Virgin
Islands
Arko Terminal Limited ("ATL")* 100% Investment holding Republic of
Seychelles
Changzhou Power Development 59.2% Operating a People's Republic
Company Limited* coal-fired thermal of China
power plant
Keen Chance Terminal (GZ) 40% Investing in and People's Republic
Company Limited* operation of China
of a terminal and
providing
logistics services
Fujian Sanko Mining Limited* 70% Dormant People's Republic
of China
* held by a subsidiary of Arko Offshore Holdings Limited
The 40% equity interest in Keen Chance Terminal (GZ) Company Limited ("KCT") previously held by Keen Lloyd Energy Limited ("KLEL"), a
subsidiary of Keen Lloyd Holdings Limited ("KLHL"), has been transferred to ATL. The transfer has been submitted for registration to the
relevant PRC authorities.
Pursuant to an agreement dated 5 April 2002 entered into between KLEL and Miaotou Economic Development Company Limited ("MEDCL"), (a
shareholder of KCT who held a 30% equity interest in KCT), MEDCL agreed to vote in accordance with the instructions of KLEL at board
meetings in view of its indebtedness to KLEL, for an approximate sum of RMB78 million (equivalent to US$9.4 million), and KLEL intended to
convert the outstanding loan into registered capital of KCT.
On 22 April 2003, KLEL entered into a shareholder agreement with MEDCL and Harbour Economic Development Company Limited ("HEDCL"),
another shareholder in KCT, whereby all parties agreed that MEDCL has unconditionally transferred the authority empowered to its directors
representative (including their rights and obligations) to KLEL until KLEL transferred the 40% equity interests in KCL to ATL to reiterate
the aforesaid agreement dated 5 April 2002.
On 16 May 2003, a supplemental agreement was entered into between ATL, KLEL, MEDCL and HEDCL by which all parties agreed that the above
authority transferred to KLEL would be vested in ATL after KLEL completed the transfer of equity interests in KCT to ATL.
In accordance with the terms and conditions set out in the above agreements, KLEL effectively controls the board of KCT and this
arrangement has been confirmed by the shareholders of KCT. In 2002, a Hong Kong lawyer expressed his view that KCT is a subsidiary of KLEL
under Hong Kong Company Law. Control of KLEL has been transferred to ATL and therefore in the opinion of the directors, KCT is a subsidiary
of ATL under the Companies Act 1985.
KCT will be a legal subsidiary of ATL immediately upon the registration of the transfer of the 40% of equity in KCT from KLEL to ATL.
During the second half of 2007, pursuant to an agreement signed with the Hubei Provincial Economic Committee Bureau, Suizhou City
Government and the Hubei Provincial Electricity Co., Ltd. on 30 June 2007, the power plant factory of Changzhou Power Development Company
Limited has been ordered to close down its operation from July 2007 onwards owing to the macroeconomic and administrative measures imposed
by the order of State Council to clear off those ineffective coal-fired power plants in Hubei Province.
15. AVAILABLE-FOR-SALE INVESTMENTS 2007 2006
US$'000 US$'000
Unlisted in PRC 12 12
The above investment represents 20% of the ordinary shares in a company incorporated in the People's Republic of China, Guangzhou Keen
Lloyd Shipping Agents Limited, at consideration of RMB 100,000 (approximately US$12,000). The associate is principally engaged in provision
of logistics and related services. It is not treated as an investment in associate on the ground of its immaterial amount.
16. INVENTORIES
Inventories represent consumables. There was no significant difference between the replacement cost and the value shown in the balance
sheet.
17. TRADE AND OTHER RECEIVABLES
Group Company
2007 2006 2007 2006
US$'000 US$'000 US$'000 US$'000
Amounts falling due within one
year:
Trade receivables 1,689 1,985 - -
Deposits 700 652 - -
Prepayments 3 - - -
Other receivables 2,528 3,116 63 44
Amount due from shareholders 1,656 3,585 - -
Amount due from related 64 645 - -
companies
Amount due from immediate holding 1,672 165 - -
company
8,312 10,148 63 44
Trade receivables are due within 30 days from the date of billing. Further details on the Company's credit policy are set out in note
23(a).
The ageing analysis of trade debtors and that are neither individually nor collectively considered to be impaired are as follows:
2007 2006
US$'000 US$'000
Neither past due nor impaired 751 896
Less than one month past due 443 515
1 to 3 months past due 495 574
Total amounts past due 938 1,089
Total 1,689 1,985
Receivables that were neither past due nor impaired relate to a wide range of customers for whom there was no recent history of
default.
Receivables that were past due but not impaired relate to a number of customers that have a good track record with the Group. Based on
past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a
significant change in credit quality and the balances are considered fully recoverable. The Group does not hold any collateral over these
balances.
Note:
Included in other receivables at 31 December 2007 are amounts due from (non-group) related companies as follows:
- Tanko Electronics Limited - US$Nil (2006: US$38,687)
- Guangzhou Tung Lloyd Shipping Agency Company Limited - US$351,874 (2006: US$328,723)
- Guangzhou Winko Investment Limited - US$Nil (2006: US$91,680)
- Guangzhou Keen Lloyd Copper Industry Company Limited - US$42,148 (2006: US$81,126)
- Keen Lloyd Holdings Limited - US$1,671,947 (2006: US$165,166)
The amounts are of the nature of current account, interest free, unsecured and repayable on demand.
18. CASH AND CASH EQUIVALENTS
2007 2006
US$'000 US$'000
Cash in hand and at bank 428 838
Floating rate
2007 2006
Currency US$'000 US$'000
Hong Kong Dollars 405 517
Chinese RMB 22 321
UK Pound Sterling 1 -
________ ________
428 838
19. TRADE AND OTHER PAYABLES
Group Company
2007 2006 2007 2006
US$'000 US$'000 US$'000 US$'000
Amounts falling due within
one year:
Trade payables 991 492 105 65
Other payables 529 364 - -
Accruals 737 882 95 58
Amount due to related 77 499 - -
companies
Deferred income 1,272 354 - -
3,606 2,591 200 123
20. Bank LOANS, other loans and financial instruments
2007 2006
US$' US$'000
000
Analysis of debt maturity
Amounts payable and due within
- Two to five years 1,915 1,915
The bank loan is unsecured, with interest accruing at the fixed rate of 5.85% per annum.
The Company had no other financial liabilities.
The Group holds financial instruments in order to finance its operations and to manage interest rate and currency risks. Group
operations are financed by means of retained profits and a mixture of both short and medium term debts. The Group borrows, through banks and
from related parties, in local currencies at fixed rates. The Group does not trade in any way in financial instruments.
21. ADVANCE FROM FELLOW INVESTORS IN SUBSIDIARY
An amount was advanced from Miaotou Economic Development Company Limited of US$718,004 (2006 : US$718,004) and a further amount from
Walton Enterprises Limited of US$68,673 (2006 : US$68,673). These amounts are unsecured, interest free and no fixed term of repayment.
22. share capital 2007 2006
Number � Number �
a) Authorised: 30,000,000,000 150,000,000 30,000,000,000 150,000,000
Ordinary shares of 0.5p each
Equivalent to: US$ US$ 265,395,280
265,395,280
Allotted, called up and fully 1,978,895,097 US$ 1,978,895,097 US$ 14,921,520
paid: 14,921,520
Ordinary shares of 0.5p each
Share options
The Company operates a share option scheme. During the year ended 31 December 2002, the Company granted share options to its advisers as
part of payment for services provided. Details of share options transactions during the year ended 31 December 2007 are set out below:
Number of Number of Number of
Date granted Exercisable period Exercise shares shares shares
From To price At 1 January granted/(lapsed) At 31 December
2007 2007
10.5.2002 27.6.2002 10.5.2007 2p 300,000 (300,000) -
b) Capital management
The Group's main objective when managing capital is to provide returns to shareholders by ensuring the Group will continue to trade in
the foreseeable future. The Group also aims to maximise its capital structure of debt and equity so as to minimise its cost of capital.
The Group manages its capital with regard to the risks inherent in the business and the sector within which it operates by monitoring
its gearing ratio on a regular basis.
The Group considers its capital to include share capital, share premium, translation reserve and retained earnings.
Net debt includes short and long-term borrowings net of cash and cash equivalents.
2007 2006
US$'000 US$'000
Total debt 7,442 6,885
Less cash and cash equivalents (428) ( 838)
Net debt
7,014 6,047
Total equity 27,644 57,845
Debt to capital ratio 25% 10%
The Group does not have any externally imposed capital requirements.
23. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The principal risks arising from the Group's financial instruments are credit risk, interest rate risk, liquidity risk and exchange rate
risk. The Group board reviews and agrees policies for managing each of these risks and these are summarised below. These policies have been
developed during the current accounting period as a consequence of the Group's expansion.
a) Credit risk
Credit risk is the potential financial loss resulting from the failure of a customer or counterparty in setting their financial and
contractual obligations to the Group, as and when they fall due.
The Group's primary exposure to credit risk arises through its trade receivables. The management has a credit policy in place and
exposure to credit risk is monitored on an ongoing basis. Other financial assets of the Group with exposure to credit risk include cash and
deposits that are placed with financial institutions which are regulated.
At the balance sheet date, there was no significant concentration of credit risk.
b) Liquidity risk
The Group's policy is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants, to
ensure that it maintains sufficient reserves of cash and readily realisable marketable securities and adequate committed lines of funding
from major financial institutions to meet its liquidity requirements in the short and longer term.
b) Liquidity risk
The following table details the remaining contractual maturities at the balance sheet date of the Group's financial liabilities, which
are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on
rates current at the balance sheet date) and the earliest date the Group can be required to pay:
Group Group
2007 2006
Total More than Total More
than
contractual Within 1 1 year but contractual Within 1 1 year
but
Carrying undiscounted year or on less than More than Carrying undiscounted year or on less
than More than
amount cash flow demand 2 years 5 years amount cash flow demand 2
years 5 years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
US$'000 US$'000
Trade payables 991 991 991 - - 492 492 492
- -
Other payables 529 529 529 - - 364 364 364
- -
Accruals 737 737 737 - - 882 882 882
- -
Bank loans 1,915 1,915 - - 1,915 1,915 1,915 -
- 1,915
Loan from fellow investors in
subsidiary companies 787 787 - - 787 787 787 -
- 787
Amount due to related 77 77 77 - - 499 499 499
- -
companies
5,036 5,036 2,334 - 2,702 4,939 4,939 2,237
- 2,702
====== ====== ====== ===== ====== ====== ====== =======
===== ======
Company Company
2007 2006
Total More than Total More than
contractual Within 1 1 year but contractual Within 1 1 year but
Carrying undiscounted year or on less than More than Carrying undiscounted year or on less than
More than
amount cash flow demand 2 years 5 years amount cash flow demand 2 years
5 years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
US$'000
Trade and other payables 200 200 200 - - 123 123 123 -
-
Amount due to subsidiary 2,299 2,299 2,299 - - 1,937 1,937 1,937 -
-
2,499 2,499 2,499 - - 2,060 2,060 2,060 -
-
====== ====== ====== ===== ===== ====== ====== ====== =====
=====
c) Foreign exchange risk
The Group's businesses include revenue and expenses which are principally conducted in Chinese Renminbi ("RMB") through its subsidiaries
in PRC. The Group is largely exposed to foreign currency risk with respect to United States dollars. Foreign exchange risk mainly arises
from recognised assets and liabilities and net investments in foreign operations.
The Group did not use any forward contract or currency borrowing to hedge its exposure to foreign currency risk. However, the directors
will monitor the related foreign currency exposure closely and will consider hedging significant foreign currency exposures should the need
arise in the future.
No entity in the Group has material assets and liabilities denominated in currency other than functional currency of that entity,
therefore no material foreign exchange risk arises.
d) Interest rate risk
Group borrowings are held in local currencies. Current loans are at fixed rates. The Group's policy for future borrowings will be to
take floating rates unless fixed rate finance is available at particularly attractive rates. There is no material exposure to interest rate
risk at 31 December 2007 (2006:nil)
Summary of financial instruments by category
The carrying amounts of the Group's financial assets are categorised as loans and receivables
2007 2007 2006 2006
Financial assets US$'000 US$'000 US$'000 US$'000
Group Company Group Company
Trade receivables 1,689 - 1,985 -
Deposits 700 - 652 -
Other receivables 2,528 63 3,116 44
Cash and cash equivalents 428 1 838 -
5345 64 6,591 44
Financial liabilities
Group 2007 2006
Financial Financial
liabilities liabilitie
at amortised s
cost at
amortised
cost
US$'000 US$'000
Trade payables 991 492
Other payables 529 364
Accruals 737 882
Amount due to related companies 77 499
Bank loan 1915 1915
Loans from fellow investors in a subsidiary
787 787
5,036 4,939
Company 2007 2006
Financial Financial
liabilitie liabilitie
s s
at at
amortised amortised
cost cost
US$'000 US$'000
Trade and other payables 200 123
Amount due to a subsidiary 2,299 1,937
2,499 2,060
Sensitivity analysis
The Group is not exposed to interest rate risk as its bank borrowings are at a fixed rate and that from fellow investors in subsidiaries
on an interest free basis. The Group monitors closely its interest rate exposure and will consider hedging significant interest rate
exposure should the need arise in the future.
The interest rate risk profile of the Group's financial liabilities as stated in note 23(b) are as follows:
Group
Currency Interest-free Fixed rate Fixed rate weighted Fixed rate weighted
average interest average period for
rate at which rate is fixed
Total
US$'000 US$'000 US$'000 % Years
2007
RMB 2,702 787 1,915 5.85 1
2,702 787 1,915
2006
RMB 2,702 787 1,915 5.85 1
2,702 787 1,915
All financial liabilities with maturity of less than 5 years bear no interest.
The Company incurs no interest rate risk as it does not have any liability of bank or other borrowings.
e) Fair value estimation
The fair value of the Group's trade receivables is estimated by discounting the future contractual cash flows at the current market
interest rate that is available to the Group for similar financial instruments.
The carrying amounts of the Group's financial assets, including cash and cash equivalents, other receivables and financial liabilities,
including trade and other payables and bank borrowings approximate their fair values as at 31 December 2007 and 2006.
24. RELATED PARTY TRANSACTIONS
Other than transactions otherwise disclosed in the financial statements, the Group and the Company had the following material
transactions which were carried out on an arm's length basis with related parties during the year:
Name of company Note Nature 2007 2006
US$'000 US$'000
Guangzhou Tung Lloyd Shipping (a) Agency charges 77 74
Agency Limited
Winko Metal Limited (b) Hiring charges for Motor Vehicle 8 23
Tanko Electronics Limited (b) Management fee received - 25
Notes:
(a) A company in which the Chairman, Mr Qin Shun Chao, is a director.
(b) Companies which are controlled by Keen Lloyd Holdings Limited.
25. OPERATING LEASE COMMITMENTS
At 31 December 2007, the Group had total commitments in respect of land and building under operating leases:
2007 2006
US$'000 US$'000
Leases which expire:
in the next year 171 116
in the second to fifth years 741 57
912 173
26. CAPITAL COMMITMENTS
At 31 December 2007, the Group had a capital commitment contracted for as follows:
- in respect of the acquisition of 7 gantries from a non-related supplier in the sum of RMB 81,000,000 intended for use by a
subsidiary company, Keen Chance Terminal (GZ) Company Limited. At 31 December, 2007, the Group has settled RMB20,000,000.
The Company had no other significant capital commitments.
27. CONTINGENT LIABILITIES
(a) On 23 July 1998, a subsidiary of the Company, Keen Chance Terminal (GZ) Company Limited ("KCT"), gave a guarantee for RMB50
million (equivalent to approximately US$5.9 million) in favour of the Huangpu Branch of the Industry and Commercial Bank of China for
banking facilities granted to Harbour Economic Development Company Limited ("HEDCL"), a fellow investor in KCT and its ultimate controlling
party, Guangzhou Huangpu Foreign Trade Group Company Limited and secured over their equity interests in KCT. HEDCL was unable to repay the
loans due to the bank. The bank took action against KCT to enforce the guarantee for the outstanding loan.
(b) On 9 November 1999, KCT gave a guarantee for RMB18 million (equivalent to approximately US$2.1 million) in favour of Nangang
Rural Credit Co-operation Bank for banking facilities granted to Miaotou Economic Development Company Limited ("MEDCL"), a fellow investor
in KCT, secured over its equity interests in KCT. MEDCL was unable to repay the outstanding loan.
On 27 September 2001, the Guangzhou Law Court delivered an order and notice that the guarantees above were invalid and MEDCL's equity
interest in KCT was frozen.
Based on legal advice, the equity interests had no material impact on the operations of KCT and the directors consider that no provision
is required.
KCT maintains that the guarantee given was invalid on the following grounds:
(1) such guarantee did not have approval from the board of directors of KCT;
(2) in accordance with the law of the People*s Republic of China, the board of directors and the management of KCT cannot give KCT's
properties for guarantee to its shareholder; and
(3) the controlling party of HEDCL has not held a valid business licence since 1998 and ceased operations in 1999. In accordance with the
banking regulations of the People*s Republic of China, the bank cannot lend money to enterprises which do not have a valid business
licence.
The legal proceedings are still in progress. Based on legal advice, the directors are of the opinion that, the loan agreement was void
because it was illegal and accordingly, the guarantee contract was also invalid.
Furthermore, Keen Lloyd Holdings Limited, the Company's parent company, has indemnified the Group against any loss KCT will suffer
should the guarantee be enforceable.
Accordingly, the directors are of the opinion that no provision should be made in the financial statements for any possible claim from
the bank in respect of the litigation.
(c) Following the closure of the power plant on 30 June 2007, the Group may be required to incur decommissioning costs in respect of
the power plant site. The Group is unable to estimate such costs since the power plant can be sold to other larger power plant companies in
China before 31 December of 2010 (the date at which the plant is required to be demolished). If a sale is achieved, no decommissioning costs
will be incurred. Accordingly, no provision is made in respect of these costs in these financial statements.
28. ADOPTION OF NEW AND REVISED STANDARDS
In the current year, the Group has applied all the standards, amendment and interpretations ("New IFRSs") issued by the International
Accounting Standards Board (the "IASB") and the International Financial Reporting Interpretations Committee (the "IFRIC") of the IASB that
are effective for the Group's financial year beginning on 1 January 2007.
The Group has not early applied the following new and revised standards or interpretations that have been issued at the date of this
report but are not yet effective.
IAS 1 (Revised) Presentation of Financial Statements1
IAS 23 Revised) Borrowing Costs1
IAS 27 (Revised) Consolidated and Separate Financial Statements2
IAS 32 and IAS 1 (Amendment) Putable Financial Instruments and Obligations
Arising on Liquidation1
IFRS 2 (Amendment) Vesting Condition and Cancellations1
IFRS 3 (Revised) Business Combinations2
IFRS 8 Operating Segments1
IFRIC 11 IFRS 2: Group and Treasury Share Transactions3
IFRIC 12 Service Concession Arrangements4
IFRIC 13 Customer Loyalty Programmes5
IFRIC 14 IAS 19: The Limit on a Defined Benefit Asset,
Minimum Funding
Requirements and their interaction4
1 Effective for annual periods beginning on or after 1 January 2009
2 Effective for annual periods beginning on or after 1 July 2009
3 Effective for annual periods beginning on or after 1 March 2007
4 Effective for annual periods beginning on or after 1 January 2008
5 Effective for annual periods beginning on or after 1 July 2008
The Group is in the process of making an assessment of what the impact of the above new amendments, standards and interpretations will
be on the Group's financial statements but are not yet in a position to state whether they would have a material financial impact on the
Group's consolidated financial statements.
29. EXCHANGE RATE
The US Dollar to Pound Sterling exchange rate at 31 December 2007 was US$1.9994/� (2006: US$1.9585/�).
30. ULTIMATE CONTROLLING PARTY
The directors consider that Chin Dynasty Foundation Limited ("CDFL"), a company incorporated in the British Virgin Islands is the
ultimate holding company. CDFL is controlled by the Chin Dynasty Fund. No group financial statements for CDFL are published.
The Chin Dynasty Fund is a discretionary trust where Mr. Qin Shun Chao is the settlor. Members of Mr. Qin's family are the potential
beneficiaries of the trust.
The Company's immediate parent company is Keen Lloyd Holdings Limited, a company incorporated in the British Virgin Islands.
The announcement set out above does not constitute a full financial statement of the Company's affairs for the year ended 31 December
2007. The Company's auditors have reported on the full accounts for the said year and have accompanied them with an unqualified report. The
accounts have yet to be delivered to the Registrar of Companies. The annual report and accounts will be available from the Company's
nominated adviser, Nabarro Wells & Co. Limited, Old Change House, 128 Queen Victoria Street, London EC4V 4BJ.
Enquiries:
Angela Leung - Arko Holdings plc
Tel: 00 852 2219 9999. Email: angelal@arkoholdings.com
Robert Lo / Marc Cramsie - Nabarro Wells & Co. Limited
Tel: 020 7634 4705. Email: robertlo@nabarro-wells.co.uk / marccramsie@nabarro-wells.co.uk
This information is provided by RNS
The company news service from the London Stock Exchange
END
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