RNS Number:7926S
Guangdong Development Fund Ld
22 April 2008
Press Release
GUANGDONG DEVELOPMENT FUND LIMITED
ANNOUNCES 2007 ANNUAL RESULTS
Hong Kong, 22 April 2008 - The board of directors (the "Board") of Guangdong
Development Fund Limited (the "Fund" or the "Company") announced that the
audited net profit attributable to shareholders for the year ended 31 December
2007 was US$2.88 million (2006: US$2.50 million).
The Fund's consolidated net asset value was US$12.02 million (2006: US$21.42
million), a decrease of 44% compared with that of 2006. The decrease was
primarily attributable to the payment of the 2006 final and 2007 interim
dividends totaling US$12.60 million during the year.
The Board does not recommend the payment of any final dividend in respect of the
current year.
ECONOMIC ENVIRONMENT
In 2007, China's gross domestic product (GDP) reached 24.66 trillion yuan (3.43
trillion United States dollars), up 11.4 percent year on year. It was the fifth
consecutive year in which China's GDP grew at a pace of more than 10 percent.
The growth was also a record high over the past 13 years.
China also witnessed an accelerated growth in fixed-asset investment, with the
real estate sector leading the way in 2007. China's fixed-asset investment rose
24.8 percent year-on-year in 2007, up 0.9 percentage points from last year. The
overall investment in assets stood at 13.7 trillion yuan (1.9 trillion United
States dollars). Investment in the booming real estate sector continued to grow
rapidly. It scored a high rate of 30.2 percent in 2007, up 8.4 percentage
points from last year. Total investment in this sector was 2.5 trillion yuan.
The sizzling investment growth was achieved despite the government's cooling
measures. China's central bank raised the deposit reserve requirement ratio ten
times and the benchmark interest rate six times in a bid to curb loan growth.
From 21 July 2005 onwards, China started to implement a managed floating
exchange rate system based on market supply and demand and adjusted by referring
to a basket of currencies. Since then, the Renminbi has been appreciating and it
is generally accepted that it would be tending toward further appreciation in
the long run. We believe that this trend will be positive to the Fund's
investment projects since their value will increase when translated to U.S.
dollars.
OVERVIEW OF PERFORMANCE
After the change of Board of Directors in 2005, significant efforts have been
made to realise the Fund's investment portfolio at the best prices reasonably
obtainable in order to maximise the return to the shareholders of the Fund.
As the Fund is only a minority shareholder in all of its investment projects,
the Board believes that maintaining good relationship with other major
shareholders of the Fund's investment projects is of paramount importance to the
realisation of these investments. The main reason is that the other major
shareholders of the investments are the natural buyers of the Fund's minority
stakes in the investments. Therefore, the Board together with the Investment
Manager have been trying their best to establish good relationship with and gain
trust from the other major shareholders of the investments.
The Board has been committed to the Fund's investment strategy of realising its
long term investments. Our efforts show some achievements. Following the
change of Board of Directors in 2005, the Fund sold six unlisted investment
projects, including GD Decorative Material (Zhongshan) Co., Ltd., Guangdong
(Zhanjiang) Medium Density Fibre Board Co. Ltd., Guangzhou Malting Company Ltd.,
Honour Million Industries Limited, GH Water Supply (Holdings) Limited, and Pak
Kong Transco Limited in 2006, and further disposed of one more investment
project, namely Guangdong Heyuan Tong Hua Investment Limited, during this year.
All disposal proceeds of US$11.84 million, which were duly received, were
distributed to shareholders, after making provision for future expenses and
contingencies. During the year, the Fund declared and paid the final and
interim dividends of US13 cents per ordinary share in total to shareholders,
amounting to US$12.60 million.
OUTLOOK
The sale of the above-mentioned investments marked a significant success of the
Fund's commitment to the shareholders, at an extraordinary general meeting held
on 23 February 2001, of timely and orderly disposal of all or substantially all
the investment portfolio of the Fund. For the shareholders' best interest, the
Directors, with the help of the Investment Manger, will continuously seek
opportunities to dispose of the Fund's remaining investment portfolio at the
best prices possibly obtainable, and return realisation proceeds to
shareholders.
LI Wai Keung
Chairman
22 April 2008
* * *
For further information, please contact:
Guangdong Development Fund Limited
Tel: (852) 2106 0888
Fax: (852) 2868 3082
INVESTMENT MANAGER'S REPORT AND ANALYSIS
As at 31 December 2007, Guangdong Development Fund Limited (the "Fund" or the
"Company") had available-for-sale investments of US$5.18 million, representing
43 % of its net asset value. These investments contributed a major part of the
Fund's income, amounted to US$3.42 million, or 92 % of total income.
At the year end date, the total cash and bank deposits amounted to US$3.99
million, equivalent to 33 % of the net asset value. During the year, the Fund
recorded US$0.32 million interest income from its bank deposits and other
sources, representing 8% of the Fund's total income.
Vigers Appraisal & Consulting Limited ("Vigers") was engaged to perform an
independent valuation and to appraise the fair value of most of the investment
projects of the Fund at the balance sheet date. After taking into account the
results of the valuation reports, fair values of the investment projects were
adjusted accordingly. The net asset value of the Fund as at 31 December 2007
was US$12.02 million (2006: US$21.42 million), a 44 % decrease comparing with
the net asset value as at 31 December 2006.
INFRASTRUCTURE PROJECTS
Pak Kong Transco Limited ("Pak Kong")
- Operation of two Beijiang bridges in Qingyuan
As reported in the Interim Report 2007, on 13 April 2006, the Chinese party had
signed a conditional sale and purchase agreement with the Fund to purchase the
Fund's interests in Pak Kong for a consideration of RMB31.95 million, net of
tax. The necessary approvals in respect of the sale had been granted by the
relevant government authorities in April 2006. On 16 August 2007, the Fund
received the sale consideration of US$4.2 million (equivalent to RMB31.95
million). The Chinese party was then liaising with the State Administration of
Foreign Exchange ("SAFE") to arrange for the remittance to the Fund of the
compensation for the delay in remittances of sales proceeds of RMB5.84 million,
which is calculated on a daily basis from 1 October 2004 to 15 August 2007.
The remittance of the compensation was granted by the SAFE and the Fund received
the compensation of US$0.79 million (RMB5.8 million) on 9 November 2007.
Guangdong Heyuan Tong Hua Investment Limited ("Tonghua")
- Operation of Heyuan section of National Highway No. 205
As reported in the Interim Report 2007, on 17 May 2007, the Fund entered into a
sale and purchase agreement with the Chinese party to dispose of the Fund's
entire interests in Tonghua for a consideration of RMB4 million (approximately
US$0.53 million) which was duly received by the Fund in May 2007, subject to the
approval of the relevant regulatory authorities in China.
The sale was approved on 9 October 2007 and resulted in a net realised gain on
disposal of US$0.27 million.
Yuehui Highways and Bridges Development Company Limited ("Huizhang")
- Operation of Huizhou section of the Huizhang Highway
The Fund has a 20% stake in Huizhang, representing an investment with a carrying
value of US$3.85 million.
FY 2007 FY 2006 % Change
Investment income of the Fund US$2.94 million Nil N/A
Total toll revenue US$5.35 million US$4.75 million +13%
Average daily traffic flow 12,289 12,477 -2%
The overall performance of Huizhang was satisfactory in 2007. Though the
average daily traffic flow for the year decreased by 2% to 12,289, the total
toll revenue was recorded an increase of 13% to US$5.35 million over 2006 as a
result of change of categories of vehicles using the toll road. The opening of
the Dongguan-Huizhou Expressway at the end of 2008 may cause diversion of
traffic away from Huizhang.
As reported in the Interim Report 2007, the issue over the amendment of the old
joint venture contract was settled, and thus a new joint venture contract was
signed with all existing shareholders during the year. In July 2007, the Fund
received from Huizhang the dividends for years 2002, 2003, 2004, 2005 and 2006
aggregating RMB22.80 million (US$2.94 million), which was fully accounted for as
investment income during the year, except for the 2004 dividend which was
recognised in 2004.
Huizhang resolved to distribute dividend for the year 2007 amounting to RMB4
million (approximately US$0.55 million) to the Fund, which is recognised as
investment income during the year but yet to be received.
With reference to the independent valuation reports of Vigers, a fair value gain
of US$0.14 million was recorded in respect of this project for the current year.
INDUSTRIAL PROJECTS
Foshan Tongbao Co., Ltd. ("Tongbao")
- Production and sale of thermostats, other temperature control devices and
precision metal
The Fund has a 29.85% stake in Tongbao, representing an investment with a
carrying value of US$1.25 million.
FY 2007 FY 2006 % Change
Turnover US$96.36 million US$78.31 million +23%
Profit after tax US$2.96 million US$2.54 million +17%
Investment income of the Fund US$0.39 million US$0.37 million +5%
During the year, Tongbao's turnover and profit after tax increased by 23% and
17% respectively which was mainly attributable to the increase in demand and
rise in selling prices of thermostats.
As reported in previous Annual Reports, Tongbao had provided guarantees to the
related companies of its controlling shareholder without the knowledge of the
Fund. Legal proceedings were then instituted by the previous board of directors
of the Fund against Tongbao at the Foshan Intermediate People's Court (the "
Intermediate Court") in December 2003 in order to enforce its right to
investigate the corporate documents of Tongbao. The Fund made an appeal to
Guangdong Provincial Higher People's Court ("Higher Court") after an unfavorable
ruling against the Fund was received in September 2004. In April 2005, the
Higher Court instructed the Intermediate Court to revoke the original ruling
previously made by the Intermediate Court and to retry the case.
During the second half of 2005, following the change of the board of directors
of the Company, Tongbao took a more cooperative approach towards the Fund and
hence, the Fund was able to commission Vigers to conduct the valuation of
Tongbao in February 2006. The Fund had since made tremendous efforts to
negotiate an out of court settlement which was acceptable to both parties. The
proposed settlement was to execute an agreement/memorandum of understanding to
be made between the Fund and Tongbao to stipulate certain measures monitoring
Tongbao's future corporate governance. However, this proposal was declined by
Tongbao and eventually the settlement fell through. The Fund had no other
alternatives but to restart the litigation and the retrial was held at the
Intermediate Court on 2 August 2006.
In August 2006, Tongbao denied Vigers access to carry out their independent
valuation procedures to perform a valuation. Without an independent valuation,
the fair value of the Fund's investment in Tongbao as at 30 June 2006 could not
be determined.
However, following the change of investment manager of the Fund in December
2006, Tongbao returned a more co-operative approach towards the Fund again. In
order to allow time to resolve the problems on Tongbao, the Fund and Tongbao
applied to the Intermediate Court to defer the retrial in January 2007 until
further notice. In July 2007, the Fund reached an out of court settlement with
Tongbao and therefore entered into a settlement agreement on 30 July 2007 with
Tongbao, which allows the Fund to monitor Tongbao's future corporate governance
and commits Tongbao to assist the Fund to perform audit and valuation on
Tongbao. Following the signing of the settlement agreement, the Fund applied to
the Intermediate Court to withdraw the litigation against Tongbao which was
approved by the Court in August 2007.
In July 2007, the Fund received the dividend from Tongbao for year 2006 of
US$0.39 million.
As at 30 June 2007 and 31 December 2007, Vigers conducted a valuation of
Tongbao. In respect of the year ended 31 December 2007, the auditors were given
access to review the financial information of Tongbao as part of their audit
procedures of the Fund. With reference to the independent valuation report of
Vigers as at 30 June 2007, a provision for impairment loss of US$0.69 million
was made in respect of this project for the interim period, but with reference
to the independent valuation report of Vigers as at 31 December 2007, a fair
value gain of US$0.11 million was recorded at the balance sheet date.
Guangdong Zhanhai Instrument & Meter Co. Ltd. ("Zhanhai")
- Production and sale of flow meters
The Fund has a 36% stake in Zhanhai, representing an investment with a carrying
value of US$0.08 million.
FY 2007 FY 2006 % Change
Turnover US$0.80 million US$0.86 million -7%
Loss for the year US$0.28 million US$0.32 million -13%
Zhanhai continued to operate at a loss with little improvement.
During the second half of the current year, Zhanhai entered into a loan
restructuring agreement with one of its creditors, so that Zhanhai paid
approximately RMB1.43 million to this creditor to set off a loan of book value
of RMB2.75 million together with the accrued interest expenses of RMB0.78
million. The gain arising from such restructuring was accounted for in the
reserve account in the financial statements of Zhanhai.
The Fund sought an interested potential buyer to buy out all foreign parties'
interests in Zhanhai. In order to obtain a higher price, the Fund is currently
in the process of arranging an auction sale of its interests in Zhanhai. The
auction sale could take place immediately once the other foreign shareholder had
its internal approval procedures completed. The Fund shall closely liaise with
the other foreign shareholder to ensure the auction could proceed as soon as
possible.
With reference to Vigers' independent valuation report as at 30 June 2007, an
impairment loss of US$0.10 million was recorded in the statement of total
return, after the release of investment revaluation reserve of US$0.02 million
in respect of this project for the current interim period, but with reference to
Vigers' independent valuation report as at 31 December 2007, a fair value gain
of US$0.08 million was made at the balance sheet date.
Gaoyao Gaolu Cement Company Limited ("Gaolu")
- Production and sale of cement
The Fund has an effective stake of 30.6% in Gaolu and had made a full provision
in 1999. The stake is held through an 85% owned subsidiary, Guangxin Investment
Limited, which has invested US$8.49 million and holds a 36% interest in Gaolu.
Gaolu leased its assets for rental income of RMB6.54 million in 2007. But, it
continued to operate at a loss of RMB9.16 million.
Xin Hui Xing Wei Building Material Co. Ltd. ("Xingwei")
- Production and sale of ceramic tiles
The Fund has a 30% stake in Xingwei and had made a full provision in 1999.
Xingwei ceased production a number of years ago. The Chinese party is currently
winding up Xingwei voluntarily.
REAL ESTATE PROJECT
Guangdong Nan Fang (Holdings) Co. Ltd ("Nanfang")
- Investment holding and operation of a shopping mall at Guangzhou Exchange
Square
The Fund has a 43.7% stake in Nanfang and had made a full provision in 1999.
As of 31 December 2007, 70% of the shopping mall of Nanfang was leased. Rental
income derived from the property for the year was US$0.68 million. However,
Nanfang recorded a net loss after tax of US$0.09 million for the year, due to
the heavy interest costs in servicing its loan from Guangdong Investment
Limited.
REPORT OF THE DIRECTORS
The directors present their report and the audited financial statements of the
Company and its subsidiaries (collectively the "Group") for the year ended 31
December 2007.
PRINCIPAL ACTIVITY
The principal activity of the Group consisted of investment holding with the
objective of achieving long term capital appreciation through investing in
enterprises primarily in the Guangdong Province of the People's Republic of
China (the "PRC"), largely by taking significant minority interests in unlisted
equity and contractual joint ventures.
At the Extraordinary General Meeting of the Company held on 23 February 2001,
special resolutions were passed to widen the Company's powers of distribution
and to amend its investments policies. The Group thereafter intends not to make
any future investments of a long term nature.
NET ASSET VALUE
The net asset value per fully paid ordinary share at 31 December 2007 was
US$0.124.
ASSETS DENOMINATED IN RENMINBI
A number of the Group's financial assets are denominated in Renminbi ("RMB").
These assets amount to US$3.91 million and are either currently held or
initially due in RMB, which, until converted into United States dollars, are not
available for distribution to shareholders. It would also be difficult to
convert some of them into United States dollars. The Group is taking steps to
resolve the RMB issue; however this process is lengthy and uncertain. Details
of these amounts can be found in Notes 13 and 15 to the financial statements.
RESULTS AND DIVIDEND
The Group's return for the year ended 31 December 2007 and the state of affairs
of the Company and the Group at that date are set out in the financial
statements as shown below.
The directors do not recommend any payment of the final dividend for the year
(2006: US6 cent).
An interim dividend of US7 cents per ordinary share was declared and paid during
the year (2006: Nil).
SUMMARY FINANCIAL INFORMATION
A summary of the revenue and return/(loss) and of the assets and liabilities of
the Group for the last five financial years as extracted from the audited
financial statements is set out below:
Assets and liabilities
Total liabilities
and equity Capital and Net asset value
As at 31 December Total assets minority interest reserves per share
US$ US$ US$ US cents
2003 42,735,286 3,793,711 38,941,575 40
2004 25,376,716 1,635,868 23,740,848 25
2005 24,200,083 2,054,647 22,145,436 23
2006 22,299,609 881,170 21,418,439 22
2007 13,269,110 1,252,589 12,016,521 12
Revenue and return/(loss)
Return/(loss)
attributable Return/
to equity
Total shareholders (loss) per Dividend Dividend
Year ended 31 revenue equity share for the year per share
December US$ * US$ US cents US$ US cents
2003 3,820,205 207,129 0.2 2,907,000 3
2004 2,087,047 (15,200,727) (15.7) 969,000 1
2005 1,411,362 (4,282,794) (4.4) - -
2006 1,924,458 2,503,057 2.6 - -
2007 3,734,385 2,880,798 3.0 12,597,000 13
* Excluding provisions or impairment losses on long term investments,
provisions against amounts due from investee entities and fair value changes of
listed investments, where applicable.
SUBSIDIARIES
Particulars of the Company's subsidiaries are set out in note 11 to the
financial statements.
AVAILABLE-FOR-SALE INVESTMENTS
At 31 December 2007, the Group's available-for-sale investments were valued at
US$5,182,379 (2006: 5,915,765). Details of the available-for-sale investments
are included in note 12 to the financial statements.
SHARE CAPITAL
Details of the Company's share capital are set out in note 17 to the financial
statements.
RESERVES
Details of movements in the reserves of the Company and the Group during the
year are set out in note 18 to the financial statements and the Consolidated
Statement of Movements in Shareholders' Funds respectively.
DIRECTORS
The directors of the Company during the year were:
LI Wai Keung
Kin CHAN
*Ronald William GREEN
*Martyn Alan SCRIVEN
* Independent non-executive directors
Ms. Tse Man Yu and Mr. Tse Tak Wah were appointed as alternate directors to Mr.
Li Wai Keung and Mr. Kin Chan, respectively, to attend the board meetings held
on 23 April 2007, 20 July 2007 and 25 September 2007. Both Ms. Tse and Mr. Tse
ceased to act in such capacity after the meetings.
Mr. Tse Tak Wah was appointed as an alternate director to Mr. Chan Kin to attend
the Audit Committee meetings held on 18 April 2007 and 12 September 2007. Mr.
Tse ceased to act in such capacity after the meetings.
Subsequent to the balance sheet date, Ms. Tse Man Yu and Mr. Wong Ka Lok were
appointed as alternate directors to Mr. Li Wai Keung and Mr. Kin Chan,
respectively, to attend the board meeting held on 15 January 2008. Both Ms. Tse
and Mr. Wong ceased to act in such capacity after the meeting.
Mr. Wong Ka Lok was appointed as an alternate director to Mr. Chan Kin to attend
the Audit Committee meeting held on 18 April 2008. Mr. Wong ceased to act in
such capacity after the meeting.
Ms. Tong Yin Mui and Mr. Wong Ka Lok were appointed as alternate directors to
Mr. Li Wai Keung and Mr. Chan Kin, respectively, to attend the board meeting
held on 22 April 2008. Both Ms. Tong and Mr. Wong ceased to act in such
capacity after the meeting.
In accordance with the Company's articles of association, all directors continue
in office.
DIRECTORS' SERVICE CONTRACTS
No director has a service contract with the Company.
DIRECTORS' REMUNERATION
All directors of the Company are non-executive directors. Their remunerations
are decided by the Board under the authority delegated by the shareholders'
resolution at the Company's annual general meeting. Details of directors'
remuneration are set out in note 8 to the financial statements.
DIRECTORS' INTERESTS IN CONTRACTS
The following directors of the Company had beneficial interests in contracts to
which the Company or any of its subsidiaries was a party during the year:
Mr. Kin Chan holds an indirect equity interest in GDF Management (Cayman)
Limited ("GDFM"), which received management fee in connection with
administrative and accounting services provided to the Company pursuant to a
management agreement dated 29 May 2006 with effect from 1 December 2006.
Save as mentioned above, no director had a beneficial interest, either directly
or indirectly, in any material contract to which the Company or any of its
subsidiaries was a party during the year.
DIRECTORS' INTERESTS IN SHARES
As at 31 December 2007, ASM Asia Recovery (Master) Fund and ASM Hudson River
Fund, of which Mr. Kin Chan is director, held 17,430,000 and 1,690,000 ordinary
shares in the Company, representing 17.99% and 1.74% of the Company's issued
share capital, respectively.
As at 31 December 2007, GDH Limited, of which Mr. Li Wai Keung is a director,
through its subsidiary, Guangdong Capital Holdings Limited, owned 10,000,000
ordinary shares in the Company, representing approximately 10.32% of the
Company's issued share capital.
Save as disclosed above, none of the directors or their associates had any
personal, family, corporate or other interests in the equity or debt securities
of the Company or any of its associated corporations.
At no time during the year has any right been granted to, or exercised by, any
director of the Company, nor has the Company or any of its subsidiaries been a
party to any arrangement to enable the Company's directors or their associates,
to acquire benefits by means of acquisition of shares in the Company or any
other body corporate.
MANAGEMENT AND ADMINISTRATION
On 18 February 1994, the Company entered into a management agreement with
Guangdong Investment Management Limited ("GIM"), which in turn has entered into
two administrative and accounting services agreements with GDF Management
Limited and Guangdong Fund (Hong Kong) Limited, respectively.
Effective from 1 December 2006, GIM ceased to act as the Investment Manager of
the Company, and GDFM and Springridge Company Limited were appointed as the
Manager and Investment Manager of the Company, respectively, for a fixed term of
three years.
Pursuant to the management agreement dated 29 May 2006, GDFM acts as the Manager
of the Company and provides administrative and accounting services to the
Company. A management fee is paid semi-annually in advance, equal to the
aggregate of US$150,000 per annum. In addition, a performance fee shall be
payable to the Manager at the end of the engagement term, which is equal to the
higher of 7.5% of aggregate proceeds distributed and available for distribution
to the shareholders since the formal engagement less US$20,000,000 or zero. All
of the operating costs of the Manager incurred in providing these services to
the Company are borne by the Manager, except for the expenses reasonably
incurred in connection with the performance of its duty under the management
agreement.
Pursuant to the investment management agreement dated 29 May 2006, Springridge
Company Limited acts as the Investment Manager of the Company and executes the
investment policy as set out in the Listing Particulars issued by the Company in
1994. An investment management fee is paid semi-annually in advance, equal to
the aggregate of US$150,000 per annum. In addition, a performance fee shall be
payable to the Investment Manager at the end of the engagement term, which is
equal to the higher of 7.5% of aggregate proceeds distributed and available for
distribution to the shareholders since the formal engagement less US$20,000,000
or zero. All of the operating costs of the Investment Manager incurred in
providing these services to the Company are borne by the Investment Manager,
except for the legal and professional fee reasonably incurred in connection with
the performance of its duty under the investment management agreement.
At a board meeting held on 6 August 2002, the directors of the Company appointed
Dominion Fund Administrators Limited as the administrator of the Company to
replace Barclays Private Bank & Trust Limited. A novation agreement was
executed on 16 October 2002 among the Company, GIM, Barclays Private Bank &
Trust Limited and Dominion Fund Administrators Limited. Upon the appointment of
GDFM as the new Manager of the Company which took effect on 1 December 2006,
another novation agreement was executed on 25 January 2007 among the Company,
GDFM, and Dominion Fund Administrators Limited, which took effect on 1 December
2006 to replace the above novation agreement.
On 23 November 2007, Dominion Fund Administrators Limited tendered its
resignation as the administrator of the Company with effect from 23 May 2008.
The Company is in the course of finding a replacement to take up the role of
administrator. As requested by the Company, Dominion Fund Administrators
Limited is willing to extend its resignation date as Administrator to that of
30th June 2008.
SUBSTANTIAL SHAREHOLDINGS
The directors of the Company are aware of the following parties (or their
clients) who, as at 17 April 2008, were interested, directly or indirectly, in
3% or more of the issued share capital of the Company:
Percentage of
Number of shares issued share
Name fully paid capital
QVT Fund L.P. 28,672,678 29.59%
Roy Nominees Limited 19,299,768 19.92%
ASM Asia Recovery (Master) Fund 17,430,000 17.99%
Guangdong Capital Holdings Limited 10,000,000 10.32%
United Gulf Bank (BSC) 8,000,000 8.26%
Gartmore No.2 General Partner Scottish Limited Partnership 5,500,000 5.68%
PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES
Neither the Company, nor any of its subsidiaries purchased, redeemed or sold any
of the Company's listed securities during the year.
MAJOR CUSTOMERS AND SUPPLIERS
A substantial proportion of the Group's gross revenue is derived from its
unlisted investments and the disclosure of information regarding customers would
not be meaningful. The Group has no major suppliers requiring disclosure.
PAYMENT POLICY
It is the Group's policy to finalise terms before business is agreed to ensure
that suppliers are aware of such terms and bills would be paid in accordance
therewith. As at 31 December 2007, the Group did not have any outstanding trade
creditors.
PRE-EMPTIVE RIGHTS
There are no provisions for pre-emptive rights under the articles of the Company
or the laws of Jersey which would oblige the Company to offer new shares on a
pro-rata basis to existing shareholders.
INTERNAL FINANCIAL CONTROLS
The board has entered into contracts delegating to external parties the
management of the investment portfolio, the custodial services which include the
safeguarding of the assets, and the day-to-day accounting and company
secretarial requirements. Each of these contracts was entered into only after
proper consideration by the board of the quality and cost of services offered.
The Investment Manager invests the Company's funds in accordance with the
investment policy and guidelines as set out in the Listing Particulars when the
Company's shares were first launched. The Investment Manager gives, from time
to time, reports on the Company's investment holdings and performance to the
Manager and the board at its meetings. The Investment Manager is required to
follow the instructions set by the shareholders at the Extraordinary General
Meeting held on 23 February 2001, not to make further investments of a long term
nature. The Manager also reports regularly to the board on the Company's
financial position and the custody of its assets.
On 10 May 1999, the Company, pursuant to the Combined Code of Principles of Good
Governance of the London Stock Exchange, established an Audit Committee (the "
Committee") comprising two independent non-executive directors and one
non-executive director. The role of the Committee is to advise the board by
providing independent and objective reviews on the Company's financial reporting
process, internal control and audit function; and the compliance and management
services of the Manager and Investment Manager under the management and
investment management agreement, respectively. The Committee will meet with the
Company's auditors, the Manager and/or Investment Manager and employees of the
Manager and/or Investment Manager and other third parties from time to time as
the Committee considers necessary to ensure an effective control system is in
place and to ensure that appropriate compliance procedures are being put in
place for the Company and, where needed, make recommendations to the board.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the financial statements in
accordance with applicable Jersey law and generally accepted accounting
principles.
Jersey Company law requires the directors to prepare financial statements for
each financial year which give a true and fair view of the state of affairs of
the company and of the profit or loss of the company for that period. In
preparing these financial statements, the directors should:
* select suitable accounting policies and then apply them consistently;
* make judgments and estimates that are reasonable and prudent;
* prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
company and enable them to ensure that the financial statements comply with the
Law. They are also responsible for safeguarding the assets of the company and
hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
CHANGE OF REPORTING FRAMEWORK
As a result of the stipulations of the Disclosure and Transparency Rules and the
Listing Rules of the United Kingdom Listing Authority, the Fund will be required
to change the financial statements reporting framework from United Kingdom
Accounting Standards to International Financial Reporting Standards ("IFRS")
effective for annual periods from 20 January 2007. The Fund will adopt IFRS in
the preparation of interim financial report for the period ending 30 June 2008.
AUDITORS
Ernst & Young LLP retire and a resolution for their reappointment as auditors of
the Company will be proposed at the forthcoming annual general meeting.
On behalf of the Board
LI Wai Keung
Chairman
22 April 2008
The following is the full set of the audited financial statements of the Fund
for the year ended 31 December 2007:
INDEPENDENT AUDITORS' REPORT
TO THE MEMBERS OF
GUANGDONG DEVELOPMENT FUND LIMITED
We have audited the Group and Parent Company (the "Company") financial
statements (the "financial statements") of Guangdong Development Fund Limited
for the year ended 31 December 2007 which comprise the Consolidated Statement of
Total Return, Consolidated Statement of Movements in Shareholders' Funds,
Consolidated Portfolio Statement, Consolidated Balance Sheet, Consolidated Cash
Flow Statement, Balance Sheet, Consolidated Summary of Material Portfolio
Changes and the related notes 1 to 28. These financial statements have been
prepared on the basis of the accounting policies set out therein.
This report is made solely to the Company's members, as a body, in accordance
with Article 110 of the Companies (Jersey) Law 1991. Our audit work has been
undertaken so that we might state to the Company's members those matters that we
are required to state to them in an auditors' report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described in the Report of the Directors, the Company's directors are
responsible for the preparation of the financial statements in accordance with
applicable Jersey law.
Our responsibility is to audit the financial statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies
(Jersey) Law 1991. We also report to you if, in our opinion, the Company has
not kept proper accounting records or if we have not received all the
information and explanations we require for our audit.
We read other information contained in the Annual Report, and consider whether
it is consistent with the audited financial statements. This other information
comprises only the Report of the Directors, Chairman's Statement, Investment
Manager's Report and Analysis. We consider the implications for our report if
we become aware of any apparent misstatements or material inconsistencies with
the financial statements. Our responsibilities do not extend to any other
information.
BASIS OF AUDIT OPINION
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes an
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Group's and the Company's circumstances, consistently applied and
adequately disclosed.
INDEPENDENT AUDITORS' REPORT (continued)
TO THE MEMBERS OF
GUANGDONG DEVELOPMENT FUND LIMITED
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion, the financial statements give a true and fair view, in
accordance with United Kingdom Accounting Standards, of the state of affairs of
the Group and the Company as at 31 December 2007 and of the results of the Group
for the year then ended, and have been properly prepared in accordance with the
Companies (Jersey) Law 1991.
Ernst & Young LLP
Jersey, Channel Islands
22 April 2008
GUANGDONG DEVELOPMENT FUND LIMITED
CONSOLIDATED STATEMENT OF TOTAL RETURN
Year ended 31 December 2007
2007 2006
Notes Revenue Capital Total Revenue Capital Total
US$ US$ US$ US$ US$ US$
Investment income:
Listed investments - - - 896 - 896
Unlisted investments 4 3,418,726 - 3,418,726 1,829,987 - 1,829,987
Impairment loss of available-for-sale 12 - (791,546) (791,546) - (3,168,343) (3,168,343)
investments
Net realised gain on disposal of
available-for-sale investments - 269,134 269,134 - 4,315,507 4,315,507
Net realised gain on disposal of
equity
investments at fair value through - - - - 204,979 204,979
profit or loss
Interest income from:
Bank deposits 223,800 - 223,800 59,360 - 59,360
Other sources 91,859 - 91,859 34,215 - 34,215
_________ _________ _________ _________ _________ _________
Gross return/(loss) 3,734,385 (522,412) 3,211,973 1,924,458 1,352,143 3,276,601
continued/...
GUANGDONG DEVELOPMENT FUND LIMITED
CONSOLIDATED STATEMENT OF TOTAL RETURN (continued)
Year ended 31 December 2007
2007 2006
Notes Revenue Capital Total Revenue Capital Total
US$ US$ US$ US$ US$ US$
Management fees 6 (300,000) - (300,000) (434,859) - (434,859)
Other administrative expenses 7 (411,017) - (411,017) (660,930) - (660,930)
Exchange gain, net 379,842 - 379,842 322,245 - 322,245
_________ _________ _________ _________ _________ _________
Return/(loss) attributable to equity 3,403,210 (522,412) 2,880,798 1,150,914 1,352,143 2,503,057
shareholders
_________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________
Return/(loss) per ordinary share (US 10 3.51 (0.54) 2.97 1.19 1.40 2.58
cents) - Basic
_________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________
The total column of this statement is the income statement of the Group.
All revenue and capital items in the above statement are derived from continuing
operations.
No operations were acquired or discontinued during the year.
GUANGDONG DEVELOPMENT FUND LIMITED
CONSOLIDATED STATEMENT OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Year ended 31 December 2007
Special Investment Capital Capital
Share Share distributable revaluation reserve reserve Revenue
capital premium reserve reserve - realised - unrealised reserve Total
US$ US$ US$ US$ US$ US$ US$ US$
At 1 January 2006 969,000 4,977,239 43,178,000 3,656,382 12,348,198 (51,450,254) 8,466,871 22,145,436
Change in fair value of
available-for-sale
investments - - - (2,082,890) - - -(2,082,890)
Impairment loss of - - - 3,168,343 - (3,168,343) - -
available-for-sale investments
Disposal of interests in - - - (4,315,507) 4,315,507 - - -
available-for-sale investments
Disposal of equity investments at
fair value through
profit or loss - - - - 204,979 - - 204,979
Capital reserve realised on - - - - (18,800,883) 18,800,883 -
-
disposal of investments
Return for the year - - - - - - 1,150,914 1,150,914
_______ _________ _________ _________ _________ _________ _________ _________
At 31 December 2006 and 1 969,000 4,977,239 43,178,000 426,328 (1,932,199) (35,817,714) 9,617,785 21,418,439
January 2007
Change in fair value of
available-for-sale
investments - - - (208,128) - - - (208,128)
Impairment loss of - - - 791,546 - (791,546) - -
available-for-sale investments
Disposal of interests in - - - (269,134) 269,134 - - -
available-for-sale investments
Capital reserve realised on - - - - (2,075,317) 2,075,317 - -
disposal of investments
Return for the year - - - - - - 3,403,210 3,403,210
Final 2006 dividend - - (5,814,000) - - - -(5,814,000)
Interim 2007 dividend - - (6,783,000) - - - -(6,783,000)
_______ _________ _________ _________ _________ _________ _________ _________
At 31 December 2007 969,000 4,977,239 30,581,000 740,612 (3,738,382) (34,533,943)13,020,995 12,016,521
_______ ________ _________ ________ _________ _________ _________ _________
_______ ________ _________ ________ _________ _________ _________ _________
GUANGDONG DEVELOPMENT FUND LIMITED
CONSOLIDATED PORTFOLIO STATEMENT
31 December 2007
Percentage
Effective Carrying of total
holding value net assets
% US$ %
Xin Hui Xing Wei Building Material Co. Ltd. 30.0 - -
Dormant
Foshan Tongbao Co., Ltd. 29.9 1,249,392 10.4
Production and sale of thermostats and
other temperature control devices
Guangdong Zhanhai Instrument & Meter Co. Ltd. 36.0 79,792 0.7
Production and sale of flow meters
Gaoyao Gaolu Cement Company Limited 30.6 - -
Production and sale of cement
Guangdong Nan Fang (Holdings) Co. Ltd 43.7 - -
Property holding
Yuehui Highways and Bridges Development
Company Limited 20.0 3,853,195 32.1
Operation of a section of Provincial Highway No. 1918, 1919
__________ _________
Portfolio of investments 5,182,379 43.2
Long term other receivable 3,358,468 27.9
Net current assets 3,474,662 28.9
Equity minority interest 1,012 -
__________ _________
Net assets 12,016,521 100.0
__________ _________
__________ _________
Except for the disposal of the Group's investment in Guangdong Heyuan Tong Hua
Investment Limited, there was neither acquisition nor disposal of the Group's
investment portfolio during the year.
GUANGDONG DEVELOPMENT FUND LIMITED
CONSOLIDATED BALANCE SHEET
31 December 2007
Notes 2007 2006
US$ US$
NON-CURRENT ASSETS
Available-for-sale investments 12 5,182,379 5,915,765
Other receivable 13 3,358,468 2,602,604
__________ __________
8,540,847 8,518,369
__________ __________
CURRENT ASSETS
Due from related companies 14 - 3,490,152
Due from investee entities 15 547,638 512,248
Prepayments, deposits and other receivables 13 189,589 1,428,659
Time deposits 21(b) 2,559,311 1,025,235
Cash and bank balances 21(b) 1,431,725 7,324,946
__________ __________
4,728,263 13,781,240
__________ __________
CURRENT LIABILITIES
Other payables and accrued liabilities 16 1,253,601 882,182
__________ __________
NET CURRENT ASSETS 3,474,662 12,899,058
__________ __________
TOTAL ASSETS LESS CURRENT LIABILITIES 12,015,509 21,417,427
EQUITY MINORITY INTEREST 1,012 1,012
__________ __________
12,016,521 21,418,439
__________ __________
__________ __________
CAPITAL AND RESERVES
Share capital 17 969,000 969,000
Share premium 4,977,239 4,977,239
Special distributable reserve 30,581,000 43,178,000
Investment revaluation reserve 740,612 426,328
Capital reserve
- realised (3,738,382) ( 1,932,199)
- unrealised (34,533,943) (35,817,714)
Revenue reserve 13,020,995 9,617,785
__________ __________
TOTAL EQUITY SHAREHOLDERS' FUNDS 12,016,521 21,418,439
__________ __________
__________ __________
NET ASSET VALUE PER ORDINARY SHARE 20 0.12 0.22
__________ __________
__________ __________
Approved by the Board on 22 April 2008
Li Wai Keung Chan Kin
Director Director
GUANGDONG DEVELOPMENT FUND LIMITED
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2007
Notes 2007 2006
US$ US$
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES 21 (a) 7,712,597 (1,405,938)
ACQUISITIONS AND DISPOSALS
Proceeds from disposals of available-for-sale investments 525,258 7,372,593
_________ _________
Cash inflow from acquisitions and disposals 525,258 7,372,593
_________ _________
EQUITY DIVIDEND PAID (12,597,000) -
_________ _________
NET CASH INFLOW/(OUTFLOW) BEFORE USE OF
LIQUID RESOURCES (4,359,145) 5,966,655
_________ _________
MANAGEMENT OF LIQUID RESOURCES
Net increase in time deposits 21(b) (1,534,076) (1,025,235)
Proceeds from disposal of listed investments - 574,390
_________ _________
Cash outflow from management of liquid resources (1,534,076) ( 450,845)
_________ _________
INCREASE/(DECREASE) IN CASH 21(b) (5,893,221) 5,515,810
_________ _________
_________ _________
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Notes 2007 2006
US$ US$
INCREASE/(DECREASE) IN CASH 21(b) (5,893,221) 5,515,810
INCREASE IN LIQUID RESOURCES 1,534,076 450,845
_________ _________
CHANGE IN NET FUNDS RESULTING FROM
CASH INFLOW/(OUTFLOW) (4,359,145) 5,966,655
NON-CASH CHANGE IN NET FUNDS - 204,979
_________ _________
CHANGE IN NET FUNDS (4,359,145) 6,171,634
NET FUNDS AT BEGINNING OF YEAR 21(b) 8,350,181 2,178,547
_________ _________
NET FUNDS AT 31 DECEMBER 21(b) 3,991,036 8,350,181
_________ _________
_________ _________
GUANGDONG DEVELOPMENT FUND LIMITED
BALANCE SHEET
31 December 2007
Notes 2007 2006
US$ US$
-
NON-CURRENT ASSETS
Interests in subsidiaries 11 4,781,891 6,506,454
Other receivable 13 3,358,468 2,602,604
__________ __________
8,140,359 9,109,058
__________ __________
CURRENT ASSETS
Due from related companies 14 - 3,490,152
Prepayments, deposits and other receivables 13 189,311 124,625
Time deposits 2,559,311 1,025,235
Cash and bank balances 1,392,224 7,290,089
__________ __________
4,140,846 11,930,101
__________ __________
CURRENT LIABILITIES
Other payables and accrued liabilities 16 925,926 498,841
__________ __________
NET CURRENT ASSETS 3,214,920 11,431,260
__________ __________
11,355,279 20,540,318
__________ __________
__________ __________
CAPITAL AND RESERVES
Share capital 17 969,000 969,000
Share premium 18 4,977,239 4,977,239
Special distributable reserve 18 30,581,000 43,178,000
Capital reserve
- realised 18 (4,767,139) 10,995,327
- unrealised 18 (29,975,486) (49,278,283)
Revenue reserve 18 9,570,665 9,699,035
__________ __________
TOTAL EQUITY SHAREHOLDERS' FUNDS 11,355,279 20,540,318
__________ __________
__________ __________
NET ASSET VALUE PER ORDINARY SHARE 20 0.12 0.21
__________ __________
__________ __________
Approved by the Board on 22 April 2008
Li Wai Keung Chan Kin
Director Director
GUANGDONG DEVELOPMENT FUND LIMITED
CONSOLIDATED SUMMARY OF MATERIAL PORTFOLIO CHANGES
31 December 2007
The following investment was disposed of during the year:
Net sale
proceeds
US$
Guangdong Heyuan Tong Hua Investment Limited
Operation of a section of National Highway No. 205 525,258
__________
__________
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
1. GENERAL
The Company was incorporated with limited liability in Jersey on 12
January 1994 under the Companies (Jersey) Law 1991. The Company's ordinary
share capital has been listed on the London Stock Exchange since 23 February
1994. The Company obtained a secondary listing of its ordinary share capital on
The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") on 23
July 1996.
On 6 March 2001, the Company's board of directors passed a resolution to
withdraw the Company's secondary listing of its ordinary share capital on the
Hong Kong Stock Exchange. The Company's application to withdraw the listing of
its ordinary share capital was confirmed by the listing committee of the Hong
Kong Stock Exchange on 18 April 2001 and the trading of the shares on the Hong
Kong Stock Exchange ceased with effect from the close of business on 2 May 2001.
2.1 IMPACT OF NEW FINANCIAL REPORTING STANDARD
The Group has adopted the new Financial Reporting Standard ("FRS") 29 "Financial
Instruments: Disclosures" for the current year's financial statements.
FRS 29 requires disclosures that enable users of the financial statements to
evaluate the significance of the Group's financial instruments and the nature
and extent of risks arising from those financial instruments, and to make new
disclosures to enable users of the financial statements to evaluate the Group's
objectives, policies and processes for managing capital. The new disclosures
are included throughout the financial statements. The adoption of FRS 29 has
had no material effect on the financial position or results of operations of the
Group.
2.2 SIGNIFICANT ACCOUNTING ESTIMATES
The Group makes estimates and assumptions concerning the future and
other key sources of estimation uncertainty at the balance sheet date that have
a significant risk of causing a material adjustment to the carrying value of
assets and liabilities within the next financial year, details of which are
discussed below.
Fair value of available-for-sale investments
The fair value of certain unlisted investments of the Group that are
not quoted in active markets is determined by using valuation techniques,
primarily discounted cash flow projections. The projections used to determine
fair values are based on reliable estimates of future cash flows, supported by
external evidences such as observable market data on interest rates and equity
returns. The discount rates used for valuing equity investments are determined
based on historic equity returns for other entities operating in the same
industry for which market returns are observable.
The total carrying amount of these investments which fair values are
determined by using valuation techniques at 31 December 2007 was US$5,182,379
(2006: US$5,659,641).
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
2.2 SIGNIFICANT ACCOUNTING ESTIMATES (continued)
Impairment of available-for-sale investments
The Group's available-for-sale investments are either stated at fair
value or at cost less any impairment losses where the fair value cannot be
reliably measured. The Group determines whether available-for-sale investments
are impaired, at least, on an annual basis. This requires an estimation of the
recoverable amount of the investments which is based on reliable estimates of
the expected future cash flows and also a suitable discount rate to calculate
the present value of those cash flows.
The total carrying amount of available-for-sale investments at 31
December 2007 was US$5,182,379 (2006: US$5,915,765).
Impairment allowances on receivables
The Group regularly reviews its receivables to assess impairment.
In determining whether a receivable or a group of receivables is impaired and
impairment losses are incurred, the Group considers, inter alia, whether there
is any observable data indicating that there is a measurable decrease in the
estimated future cash flows from its receivables. This requires the Company to
make estimates about expected future cash flows, and hence they are subject to
uncertainty.
The total carrying value of receivables, including amounts due from
related companies and investee entities and other receivables, at 31 December
2007 was US$3,923,316 (2006: US$7,905,922).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the principal accounting policies, all of which have
been applied consistently throughout the current and preceding years is set out
below.
Basis of preparation and accounting policies
The financial statements have been prepared in United States dollars
under the historical cost convention, as modified by the revaluation of
investments, and in accordance with accounting principles generally accepted in
the Island of Jersey, incorporating United Kingdom Accounting Standards.
The financial statements have been prepared in accordance with the
Statement of Recommended Practice "Financial Statements of Authorised Funds"
issued in December 2005 by the Investment Management Association in the United
Kingdom as far as is practicable for this entity.
Basis of consolidation
The consolidated financial statements include the financial
statements of the Company and its subsidiaries for the year ended 31 December
2007. All significant intra-group transactions and balances within the Group
are eliminated on consolidation.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Subsidiaries
A subsidiary is a company in which the Company, directly or
indirectly, controls more than half of its voting power or issued share capital
or controls the composition of its board of directors.
Interests in subsidiaries are stated at cost unless, in the opinion
of the directors, there have been impairment losses, when they are written down
to values determined by the directors.
Associates
An associate is a company, not being a subsidiary or a
jointly-controlled entity, in which the Group has a long term interest of
generally not less than 20% of the equity voting rights and over which it is in
a position to exercise significant influence.
In accordance with the exemption as set out in paragraph 49 of FRS 9
"Associates and Joint Ventures", the Group classified investments that are held
as part of the Group's investment portfolio as available-for-sale investments,
even though the Group has significant influence over the investees. The
directors consider that, because these investments are held with a view to the
ultimate realisation of capital gains, equity accounting would not give a true
and fair view of the Group's interests in these investments, which are better
measured by dividends and interest. Further details of accounting policies and
the Group's investment portfolio are included under the heading of "Investments
and other financial assets" in notes 3 and 12, respectively, to the financial
statements.
Investments and other financial assets
Financial assets in the scope of FRS 26 are classified as loans and
receivables or available-for-sale investments, as appropriate. When financial
assets are recognised initially, they are measured at fair value, plus, in the
case of investments not at fair value through profit or loss, directly
attributable transaction costs. The Group determines the classification of its
financial assets after initial recognition and, where allowed and appropriate,
re-evaluates this designation at each balance sheet date.
All regular way purchases and sales of financial assets are
recognised on the trade date, which is the date that the Group commits to
purchase the asset. Regular way purchases or sales are purchases or sales of
financial assets that require delivery of assets within the period generally
established by regulation or convention in the marketplace.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market. After initial
measurement, loans and receivables are subsequently carried at amortised cost
using the effective interest method less any allowance for impairment.
Amortised cost is calculated taking into account any discount or premium on
acquisition and includes fees that are an integral part of the effective
interest rate and transaction costs. Gains and losses are recognised in the
statement of total return when the loans and receivables are derecognised or
impaired, as well as through the amortisation process.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments and other financial assets (continued)
Available-for-sale investments
Available-for-sale investments are those non-derivative financial
assets in unlisted equity securities that are designated as available-for-sale
or are not classified in the other category. After initial recognition,
available-for-sale investments are measured at fair value with unrealised gains
or losses being recognised directly in equity in the investment revaluation
reserve. When the investment is disposed of, the cumulative gain or loss
previously reported in equity is recognised in the statement of total return.
Interest earned on the investments is reported as interest income using the
effective interest rate. Dividends earned on the investments are recognised in
the statement of total return as investment income when the right of payment has
been established. Losses arising from the impairment of such investments are
recognised in the statement of total return as "Impairment losses of
available-for-sale investments" and are transferred from the investment
revaluation reserve.
When the fair value of unlisted equity securities cannot be reliably
measured, such securities are stated at cost less any impairment losses.
Fair value
The fair value of investments that are actively traded in organised
financial markets is determined by reference to quoted market bid prices at the
close of business on the balance sheet date. For investments where there is no
active market, fair value is determined using valuation techniques. Such
techniques include using recent arm's length market transactions; reference to
the current market value of another instrument, which is substantially the same;
a discounted cash flow analysis or other valuation models.
Impairment of financial assets
The Group assesses at each balance sheet date whether a financial
asset or a group of financial assets is impaired.
Assets carried at amortised cost
If there is objective evidence that an impairment loss on loans and
receivables carried at amortised cost has been incurred, the amount of the loss
is measured as the difference between the asset's carrying amount and the
present value of estimated future cash flows (excluding future credit losses
that have not been incurred) discounted at the financial asset's original
effective interest rate (i.e., the effective interest rate computed at initial
recognition). The carrying amount of the asset is reduced either directly or
through the use of an allowance account. The amount of the impairment loss is
recognised in return or loss. Loans and receivables together with any
associated allowance are written off when there is no realistic prospect of
future recovery.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring
after the impairment was recognised, the previously recognised impairment loss
is reversed by adjusting the allowance account. Any subsequent reversal of an
impairment loss is recognised in the statement of total return, to the extent
that the carrying value of the asset does not exceed its amortised cost at the
reversal date.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Impairment of financial assets (continued)
Available-for-sale financial assets
If an available-for-sale asset is impaired, an amount comprising the
difference between its cost (net of any principal payment and amortisation) and
its current fair value, less any impairment loss previously recognised in return
or loss, is transferred from equity to the statement of total return. A
provision for impairment is made for available-for-sale equity investments when
there has been a significant or prolonged decline in the fair value below its
cost or where other objective evidence of impairment exists. The determination
of what is "significant" or "prolonged" requires judgement. Impairment losses
on equity instruments classified as available-for-sale are not reversed through
return or loss.
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset
or part of a group of similar financial assets) is derecognised where:
* the rights to receive cash flows from the asset have expired;
* the Group retains the rights to receive cash flows from the asset, but has
assumed an obligation to pay them in full without material delay to a third
party under a "pass-through" arrangement; or
* the Group has transferred its rights to receive cash flows from the asset
and either (a) has transferred substantially all the risks and rewards of the
asset, or (b) has neither transferred nor retained substantially all the risks
and rewards of the asset, but has transferred control of the asset.
Where the Group has transferred its rights to receive cash flows
from an asset and has neither transferred nor retained substantially all the
risks and rewards of the asset nor transferred control of the asset, the asset
is recognised to the extent of the Group's continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the transferred
asset is measured at the lower of the original carrying amount of the asset and
the maximum amount of consideration that the Group could be required to repay.
Financial liabilities at amortised cost
Financial liabilities including other payables are initially stated at fair
value less directly attributable transaction costs and are subsequently measured
at amortised cost, using the effective interest method unless the effect of
discounting would be immaterial, in which case they are stated at cost.
Gains and losses are recognised in the statement of total return when the
liabilities are derecognised as well as through the amortisation process.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the
same lender on substantially different terms, or the terms of an existing
liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and the recognition of a
new liability, and the difference in the respective carrying amounts is
recognised in the statement of total return.
Dividends
Dividends declared are recognised in equity on their ex-dividend date.
Foreign currency translation
These financial statements are presented in United States dollars,
which is the Company's functional and presentation currency. Each entity in the
Group determines its own functional currency and items included in the financial
statements of each entity are measured using that functional currency. Foreign
currency transactions are initially recorded using the functional currency rates
ruling at the date of the transactions. Monetary assets and liabilities
denominated in foreign currencies are
retranslated at the functional currency rate of exchange ruling at
the balance sheet date. All differences are taken to the revenue reserve.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates at the dates of the initial
transactions. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value was
determined.
For the purpose of the consolidated cash flow statement, the cash
flows of overseas subsidiaries are translated into United States dollars at the
exchange rates ruling at the dates of the cash flows. Frequently recurring cash
flows of overseas subsidiaries which arise throughout the year are translated
into United States dollars at the weighted average exchange rates for the year.
Cash and cash equivalents
For the purpose of the consolidated cash flow statement, cash and
cash equivalents comprise cash at banks and term deposits, 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, and have a short
maturity of generally within three months when acquired.
For the purpose of the balance sheets, cash and bank balances
comprise cash at banks, including term deposits, which are not restricted as to
use.
Revenue recognition
Interest income is recognised on an accrual basis using the
effective interest method by applying the rate that discounts estimated future
cash receipts through the expected life of the financial instrument to the net
carrying amount of the financial asset. Investment income is recognised when
the right to receive payment is established.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
4. INVESTMENT INCOME - UNLISTED INVESTMENTS
Investment income from available-for-sale investments earned from
the Group's investment portfolio is as follows:
2007 2006
US$ US$
Foshan Tongbao Co., Ltd. 393,368 372,396
Guangdong Heyuan Tong Hua Investment Limited - 951,332
Pak Kong Transco Limited ("Pak Kong")* 80,278 506,259
Yuehui Highways and Bridges Development
Company Limited 2,941,072 -
Others 4,008 -
__________ __________
3,418,726 1,829,987
__________ __________
__________ __________
* The balance comprised an amount of US$80,278 (2006: US$183,000) receivable
from the purchaser, also the Chinese joint venture partner, related to the delay
in completion of certain sales terms, including completion of foreign exchange
clearance procedures, in connection with the disposal of the Group's entire
interest therein. Pak Kong ceased to be the Group's investment effective 27
April 2006.
5. TAXATION
Under Article 123A of the Income Tax (Jersey) law 1961, as amended,
the Company has obtained Jersey exempt company status for the year and is
therefore exempt from Jersey income tax on non Jersey source income and bank
interest (by concession). A US$1,188 (equivalent to �600) annual exempt company
fee was paid by the Company.
The Group is not subject to income tax in any jurisdiction.
6. MANAGEMENT FEES
The management fees represent amounts paid or payable in connection
with investment, administrative and accounting services provided by the
investment manager and/or manager to the Company and is charged to the revenue
account in the statement of total return.
The management fees were charged by each of the Group's manager, GDF
Management (Cayman) Limited ("GDFM"), and the Group's investment manager,
Springridge Company Limited ("Springridge"), at an annual fixed amount of
US$150,000 commencing from 1 December 2006.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
6. MANAGEMENT FEES (continued)
Prior to 1 December 2006, the management fee was charged by
Guangdong Investment Management Limited ("GIM"), the former investment manager,
for the above services and was calculated quarterly based on an annual rate of
2.5% of the Group's assets invested in unlisted companies and of 0.75% of the
Group's remaining assets.
7. OTHER ADMINISTRATIVE EXPENSES
Group
2007 2006
US$ US$
Directors' remuneration 88,534 82,153
Auditors' remuneration
- audit services 83,334 84,231
- non-audit services 30,769 30,769
Legal and professional fees 133,518 366,478
General and administrative expenses 74,862 97,299
_________ _________
411,017 660,930
_________ _________
_________ _________
8. DIRECTORS' REMUNERATION
Details of remuneration payable by the Group to the directors of the
Company are as follows:
2007 2006
US$ US$
Fees:
Non-executive directors 28,800 26,998
Independent non-executive directors 59,734 55,155
_______ _______
88,534 82,153
_______ _______
_______ _______
There was no arrangement under which a director of the Company
waived or agreed to waive any remuneration during the year.
The Group did not employ any staff other than the directors noted above during
the year.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
9. DIVIDENDS PAID AND PROPOSED
2007 2006
US$ US$
Declared and paid during the year:
Final dividend for 2006: US6 cents (2005: Nil) per share 5,814,000 -
Interim dividend for 2007: US7 cents (2006: Nil) per share 6,783,000 -
__________ _______
12,597,000 -
__________ _______
__________ _______
Proposed for approval at AGM (not recognised as a liability
as at 31 December):
Final dividend for 2007: Nil (2006: US6 cents) per share - 5,814,000
_________ _________
_________ _________
10. RETURN/(LOSS) PER ORDINARY SHARE
The revenue return per ordinary share is based on the revenue return
attributable to equity shareholders of US$3,403,210 (2006: US$1,150,914) and on
the 96,900,000 (2006: 96,900,000) ordinary shares in issue during the year.
The capital loss per ordinary share is based on the net realised and
unrealised capital loss of US$522,412 (2006: gain of US$1,352,143) and on the
96,900,000 (2006: 96,900,000) ordinary shares in issue during the year.
The total return per ordinary share is based on the return
attributable to equity shareholders of US$2,880,798 (2006: US$2,503,057) and on
the 96,900,000 (2006: 96,900,000) ordinary shares in issue during the year.
No diluted return per ordinary share has been shown as no diluting
events existed during the year (2006: Nil).
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
11. INTERESTS IN SUBSIDIARIES
Company
2007 2006
US$ US$
Unlisted shares, at cost 10 14
Due from subsidiaries 53,268,983 75,079,223
Due to subsidiaries (19,702,316) (20,485,200)
__________ __________
33,566,677 54,594,037
Less: Impairment of amounts due from subsidiaries# (28,784,786) (48,087,583)
__________ __________
4,781,891 6,506,454
__________ __________
__________ __________
# Impairment was recognised in the prior years for the amounts due from
certain subsidiaries with a carrying amount of US$41,318,090 (before deducting
the impairment loss) (2006: US$63,128,930) because the subsidiaries have
suffered losses over the years and the balances due therefrom are considered to
be impaired.
The balances with subsidiaries are unsecured, interest-free and have
no fixed terms of repayment.
The subsidiaries' sole activity is to hold the Group's investments
with any dividends received passed up to the Company.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
11. INTERESTS IN SUBSIDIARIES (continued)
Particulars of the subsidiaries, which are incorporated in the
British Virgin Islands, are as follows:
Percentage
Nominal value of equity
of issued attributable to
Name share capital the Company Principal activity
GDF (Xinhui) Limited US$1 100% Investment holding
GDF (Tongbao) Limited US$1 100% Investment holding
GDF (New Beijiang) Limited US$1 100% Investment holding
GDF (Zhanhai) Limited US$1 100% Investment holding
GDF (Gaoyao) Limited US$1 100% Investment holding
GDF (Zhongfang) Limited US$1 100% Investment holding
Guangyong Development Limited US$1 100% Investment holding
GDF (Heyuan) Limited US$1 100% Investment holding
GDF (Mankelong) Limited * US$1 100% Investment holding
GDF (Hui Zhang) Limited US$1 100% Investment holding
Guangxin Investment Limited ** US$100 85% Investment holding
* GDF (Mankelong) Limited ("GDF (Mankelong)") is a subsidiary of Guangyong
Development Limited.
** Guangxin Investment Limited ("Guangxin") is a subsidiary of
GDF (Gaoyao) Limited.
Except for GDF (Mankelong) and Guangxin, all of the above
subsidiaries are directly held by the Company.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
12. AVAILABLE-FOR-SALE INVESTMENTS
Group
2007 2006
US$ US$
Available-for-sale investments, at fair value 5,182,379 5,915,765
__________ __________
__________ __________
Movements during the year:
Valuation at 1 January 5,915,765 19,312,618
Impairment loss (791,546) ( 3,168,343)
Net changes in fair value 583,418 1,085,453
Disposals (525,258) (11,313,963)
__________ __________
(733,386) (13,396,853)
__________ __________
Valuation at 31 December 5,182,379 5,915,765
__________ __________
__________ __________
The fair values of certain unlisted available-for-sale investments
have been estimated using valuation techniques, further details of which are set
out in note 2.2 to the financial statements. The valuation requires estimates
about the expected future cash flows including expected future dividends and
proceeds on subsequent disposal of shares, which are discounted at the current
rate in the range of 10.9% to 12.2%. The directors believe that the estimated
fair values resulting from the valuation techniques, which are recorded in the
consolidated balance sheet, and the related changes in fair values, which are
recorded in the consolidated statement of movements in shareholders' funds, are
reasonable, and that they were the most appropriate values at the balance sheet
date.
During the year, the Group disposed of its entire interest in
Guangdong Heyuan Tong Hua Investment Limited ("Heyuan") for a consideration of
RMB4,000,000 (US$525,258), resulted in a gain of approximately US$0.27 million
after the release of the attributable fair value gain from the investment
revaluation reserve. The carrying value of Heyuan as at 31 December 2006
amounted to US$256,124.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
12. AVAILABLE-FOR-SALE INVESTMENTS (continued)
Details of the Group's available-for-sale investments, which are
holdings in unlisted associates, are as follows:
Place of Share
incorporation/ capital and
registration Percentage reserves/ Attributable Share-
and of equity (deficiency net assets/ Capital holders'
Company operations holding in assets) (liabilities) invested loans
% US$'000 US$'000 US$'000 US$'000
Xin Hui Xing Wei
Building Material
Co. Ltd. (d) PRC 30.0 N/A N/A 3,530 1,240
Foshan Tongbao
Co., Ltd. (d) PRC 29.9 34,238* 10,237 7,993 -
Guangdong Zhanhai
Instrument PRC 36.0 2,499# 900 2,330 1,462
& Meter Co. Ltd. (d)
Gaoyao Gaolu Cement PRC 36.0 7,308# 2,631 7,439 1,045
Company Limited (d)
Guangdong Nan Fang British 43.7 (25,234)# (11,027) 29 10,603
(Holdings) Co. Ltd Virgin
Islands/
PRC
Carrying Attributable
Fair value value as at 31 earnings/
changes/ December Earnings/ (share of Investment Principal
Company (impairment) 2007 (losses) losses) income activities
US$'000 US$'000 US$'000 US$'000 US$'000
Xin Hui Xing (4,770) - N/A N/A - Dormant
Wei Building
Material
Co. Ltd. (d)
Foshan Tongbao (6,744) 1,249 2,961* 885 393 Production
Co., Ltd. (d) and sale of
thermostats and
other temperature
control devices
Guangdong Zhanhai
Instrument & (3,712) 80 (281)# (101) - Production
Meter Co. Ltd. and sale of
(d) flow meters
Gaoyao Gaolu (8,484) - (1,205)# (434) - Production
Cement Company and sale
Limited (d) of cement
Guangdong Nan (10,632) - (94)# (41) - Property
Fang (Holdings) holding
Co. Ltd
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
12. AVAILABLE-FOR-SALE INVESTMENTS (continued)
Place of Share
incorporation/ capital and
registration Percentage reserves/ Attributable Share-
and of equity (deficiency net assets/ Capital holders'
Company operations holding in assets) (liabilities) invested loans
% US$'000 US$'000 US$'000 US$'000
Yuehui Highways and
Bridges Development PRC 20.0 12,276* 2,455 1,328 1,977
Company Limited
("Huizhang") (c), (d)
______ ______ ______ ______
Total 31,087 5,196 22,649 16,327
______ ______ ______ ______
______ ______ ______ ______
Carrying Attributable
Fair value value as at 31 earnings/
changes/ December Earnings/ (share of Investment Principal
Company (impairment) 2007 (losses) losses) income activities
US$'000 US$'000 US$'000 US$'000 US$'000
Yuehui Highways
and Bridges 548 3,853 1,957* 391 2,941 Operation
Development Company of a section
Limited ("Huizhang") of Provincial
(c), (d) Highway
No. 1918,1919
_____ ______ _____ ____ ____
Total (33,794) 5,182 3,338 700 3,334
_____ ______ _____ ____ ____
_____ ______ _____ ____ ____
* Based on the PRC audited financial statements as at 31 December 2007
# Based on the unaudited management accounts as at 31 December 2007
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
12. AVAILABLE-FOR-SALE INVESTMENTS (continued)
Notes:
(a) All associates are held by the subsidiaries of the Company.
(b) Investment income includes dividend income and other
related investment income. All investment income is derived from the People's
Republic of China (the "PRC").
(c) This is a contractual joint venture established by a subsidiary of
the Company and independent PRC third parties. In accordance with the terms of
the joint venture contract, the residual interest in the joint venture project
is to be transferred to a PRC joint venture partner at the end of the
contractual period.
(d) The fair value/impairment loss of these investments was recorded by
reference to the independent professional valuation as at 31 December 2007
carried out by Vigers Appraisal & Consulting Limited.
13. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
Group Company
2007 2006 2007 2006
US$ US$ US$ US$
Non-current assets:
Other receivable* 3,358,468 2,602,604 3,358,468 2,602,604
Current assets:
Prepayments and deposits 172,379 127,741 172,101 124,468
Other receivables 17,210 1,300,918 17,210 157
_________ _________ _________ _________
189,589 1,428,659 189,311 124,625
_________ _________ _________ _________
Total 3,548,057 4,031,263 3,547,779 2,727,229
_________ _________ _________ _________
_________ _________ _________ _________
* This represents a receivable from an authorised financial institution (the
"Trustee") registered in the PRC who, in turn, deposited the amount in a trust
bank account jointly operated by the Trustee and the Group. The amount
maintained in this trust bank account is denominated in Renminbi, which is not
freely convertible into foreign currencies under the existing PRC foreign
exchange regulations. The Group is currently exploring ways to have this amount
remitted to the Group in United States dollars. In the opinion of the
directors, this amount may not be realised and distributed to the shareholders
in United States dollars within the next twelve months from the balance sheet
date and, accordingly, the receivable is classified as a non-current asset.
None of the above assets is either past due or impaired, and there was no
recent history of default.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
14. DUE FROM RELATED COMPANIES
Group and Company
2007 2006
US$ US$
GDF Management Limited - 11,359
Guangzhou Yagao Consultant Company
Limited - 3,478,793
_________ _________
- 3,490,152
__________ __________
__________ __________
The amounts due from related companies were unsecured, interest-free
and were fully repaid during the year.
15. DUE FROM INVESTEE ENTITIES
Group
2007 2006
US$ US$
Due from investee entities 1,325,270 1,289,880
Impairment (777,632) (777,632)
_________ _________
547,638 512,248
_________ _________
_________ _________
The amounts due from investee entities represent the investment
income receivables.
At the balance sheet date, the amount included an investment income
receivable from an investee entity, Huizhang, denominated in Renminbi, which is
not freely convertible into foreign currencies under the existing PRC foreign
exchange regulations. The Group is currently taking necessary procedures to
have this amount remitted to the Group in United States dollars. The receivable
is not impaired and has no recent history of default.
The amounts due from investee entities are unsecured, interest-free
and have no fixed terms of repayment.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
16. OTHER PAYABLES AND ACCRUED LIABILITIES
Group Company
2007 2006 2007 2006
US$ US$ US$ US$
Accrued liabilities 234,360 233,349 209,839 207,161
Withholding tax payable 298,857 352,856 - -
Other payables 720,384 295,977 716,087 291,680
________ ________ ________ ________
1,253,601 882,182 925,926 498,841
________ ________ ________ ________
________ ________ ________ ________
The above payable balances are non-interest-bearing.
17. SHARE CAPITAL
Company
2007 2006
US$ US$
Authorised:
150,000,000 ordinary shares of US$0.01 each 1,500,000 1,500,000
__________ __________
__________ __________
Issued and fully paid:
96,900,000 ordinary shares of US$0.01 each 969,000 969,000
__________ __________
__________ __________
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
18. RESERVES
Group
The movements in the Group's reserves for the current and prior years are
presented in the consolidated statement of movements in shareholders' funds on
page 5 of the financial statements.
Company
Special Capital Capital
Share distributable reserve reserve Revenue
premium reserve - realised - unrealised reserve
US$ US$ US$ US$ US$
At 1 January 2006 4,977,239 43,178,000 10,736,260 (49,224,195) 10,254,000
Net realised gain on disposal of
equity investments at fair value
through profit or loss - - 204,979 - -
Captial reserve realised on disposal
of equity investments at fair value
through profit or loss - - 54,088 (54,088) -
Loss for the year - - - - (554,965)
________ ________ ________ ________ ________
At 31 December 2006 and 1 January 4,977,239 43,178,000 10,995,327 (49,278,283) 9,699,035
2007
Net realised gain on dissolution of
subsidiaries - - 3,540,331 - -
Capital reserve realised on dissolution
of subsidiaries - - (19,302,797) 19,302,797 -
Loss for the year - - - - (128,370)
Dividends paid - (12,597,000) - - -
________ ________ _______ ________ ________
At 31 December 2007 4,977,239 30,581,000 (4,767,139) (29,975,486) 9,570,665
_______ ________ _______ ________ ________
_______ ________ _______ ________ ________
Note: Pursuant to a special resolution passed at the Extraordinary
General Meeting held on 23 February 2001, the Company's share premium account
was reduced by US$80 million to approximately US$5 million. The surplus arising
from such reduction was transferred to a distributable reserve account which is
available for distribution to the Company's shareholders. On 1 March 2001, the
Royal Court of Jersey confirmed such special resolution.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
19. RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS' FUNDS
Group
2007 2006
US$ US$
Return/(loss) attributable to equity shareholders 3,195,082 (726,997)
Equity shareholders' funds at beginning of year 21,418,439 22,145,436
Dividend paid (12,597,000) -
__________ __________
Equity shareholders' funds at end of year 12,016,521 21,418,439
__________ __________
__________ __________
20. NET ASSET VALUE PER ORDINARY SHARE
The Group's net asset value per fully paid ordinary share of US$0.12
(2006: US$0.22) has been calculated in accordance with the articles of
association. The calculation is based on 96,900,000 shares (2006: 96,900,000
shares) in issue at the year end and the net assets of the Group of
US$12,016,521 (2006: US$21,418,439) at the year end.
The Company's net asset value per fully paid ordinary share of
US$0.12 (2006: US$0.21) has been calculated in accordance with the articles of
association. The calculation is based on 96,900,000 shares (2006: 96,900,000
shares) in issue at the year end and the net assets of the Company of
US$11,355,279 (2006: US$20,540,318) at the year end.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
21. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
(a) Reconciliation of the Group's revenue return on ordinary
activities to net cash inflow/(outflow) from operating activities
2007 2006
US$ US$
Revenue return on ordinary activities for the year 3,403,210 1,150,914
Decrease in amounts due from related companies 3,490,152 1,359,060
Decrease/(increase) in amounts due from investee entities (35,390) 309,269
Decrease/(increase) in prepayments, deposits
and other receivables 483,206 (3,051,704)
Decrease in amounts due to related companies - ( 656,452)
Decrease in an amount due to an investee entity - ( 434,742)
Increase/(decrease) in other payables and
accrued liabilities 371,419 ( 82,283)
________ ________
Net cash inflow/(outflow) from operating activities 7,712,597 (1,405,938)
________ ________
________ ________
(b) Analysis of changes in net funds
At At
beginning Net cash 31 December
of year flows 2007
US$ US$ US$
Cash 7,324,946 (5,893,221) 1,431,725
Time deposits 1,025,235 1,534,076 2,559,311
_______ _________ _________
8,350,181 (4,359,145) 3,991,036
_________ _________ _________
_________ _________ _________
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
22. SEGMENT INFORMATION
The principle activity of the Group is investment holding. An
analysis of the Group's revenue and loss and net assets by geographical area of
operations for the year ended 31 December 2007 is as follows:
Mainland China Hong Kong Total
2007 2006 2007 2006 2007 2006
US$ US$ US$ US$ US$ US$
Revenue:
Investment income 3,414,718 1,829,987 4,008 896 3,418,726 1,830,883
Interest income 91,859 34,215 223,800 59,360 315,659 93,575
________ ________ ________ ________ ________ ________
3,506,577 1,864,202 227,808 60,256 3,734,385 1,924,458
Net realised gain on disposal
of interests in available-
for-sale investments 269,134 4,098,183 - 217,324 269,134 4,315,507
Net realised gain on disposal
of equity investments at fair
value through profit or loss - - - 204,979 - 204,979
________ ________ ________ ________ ________ ________
3,775,711 5,962,385 227,808 482,559 4,003,519 6,444,944
Less:
Impairment loss of
available-for-sale
investments (791,546) (3,168,343) - - (791,546) (3,168,343)
________ ________ ________ ________ ________ ________
2,984,165 2,794,042 227,808 482,559 3,211,973 3,276,601
________ ________ ________ ________
________ ________ ________ ________
Expenses:
Management fees ( 300,000) ( 434,859)
Other administrative ( 411,017) ( 660,930)
expenses
Exchange gain, net 379,842 322,245
________ ________
Return attributable to
equity shareholders 2,880,798 2,503,057
________ ________
________ ________
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
22. SEGMENT INFORMATION (continued)
Mainland China Hong Kong Total
2007 2006 2007 2006 2007 2006
US$ US$ US$ US$ US$ US$
Available-for-sale 5,182,379 5,915,765 - - 5,182,379 5,915,765
investments
Other receivables 3,358,468 3,903,365 17,210 157 3,375,678 3,903,522
Due from related companies - 3,490,152 - - - 3,490,152
Due from investee entities 547,638 512,248 - - 547,638 512,248
Time deposits - - 2,559,311 1,025,235 2,559,311 1,025,235
Cash and bank balances - - 1,431,725 7,324,946 1,431,725 7,324,946
________ ________ ________ ________ ________ ________
9,088,485 13,821,530 4,008,246 8,350,338 13,096,731 22,171,868
________ ________ ________ ________
________ ________ ________ ________
Other net current liabilities
and minority interest (1,080,210) (753,429)
________ ________
Net assets 12,016,521 21,418,439
________ ________
________ ________
23. RELATED PARTY TRANSACTIONS
In addition to the balances and transactions disclosed elsewhere in
these financial statements, the Group had the following material transactions
with related parties during the year:
Name of payee Nature Notes 2007 2006
US$ US$
Guangdong Investment
Management Limited# Investment management fees (a) - 409,859
GDF Management (Cayman)
Limited# Management fees (b) 150,000 12,500
_______ _______
_______ _______
# Certain directors and/or beneficial shareholders of the above companies are
also directors and/or beneficial shareholders of the Company.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
23. RELATED PARTY TRANSACTIONS (continued)
Notes:
(a) The investment management fees to GIM were calculated quarterly based
on an annual rate of 2.5% of the Group's assets invested in unlisted
companies and of 0.75% of the Group's remaining assets. GIM ceased to
act as the Group's investment manager with effect from 1 December
2006.
(b) The management fees were charged by GDFM at an annual fixed
amount of US$150,000.
24. FINANCIAL INSTRUMENTS
The carrying amounts of each of the categories of financial instruments as at
the balance sheet date are as follows:
2007 Group
Financial assets
Available-for- Loans and
sale investments receivables Total
US$ US$ US$
Available-for-sale investments 5,182,379 - 5,182,379
Financial assets included in prepayments,
deposits and other receivables (note 13) - 3,375,678 3,375,678
Due from investee entities - 547,638 547,638
Time deposits - 2,559,311 2,559,311
Cash and bank balances - 1,431,725 1,431,725
_________ _________ __________
5,182,379 7,914,352 13,096,731
_________ _________ __________
_________ _________ __________
Financial liabilities
Financial
liabilities
at amortised cost
US$
Financial liabilities included in other payables and accrued liabilities (note 16) 720,384
_________
_________
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
24. FINANCIAL INSTRUMENTS (continued)
The carrying amounts of each of the categories of financial instruments as at
the balance sheet date are as follows (continued):
2006 Group
Financial assets
Available-for- Loans and
sale investments receivables Total
US$ US$ US$
Available-for-sale investments 5,915,765 - 5,915,765
Financial assets included in prepayments,
deposits and other receivables (note 13) - 3,903,522 3,903,522
Due from related companies - 3,490,152 3,490,152
Due from investee entities - 512,248 512,248
Time deposits - 1,025,235 1,025,235
Cash and bank balances - 7,324,946 7,324,946
_________ _________ __________
5,915,765 16,256,103 22,171,868
_________ _________ __________
_________ _________ __________
Financial liabilities
Financial
liabilities
at amortised cost
US$
Financial liabilities included in other payables and accrued liabilities (note 16) 295,977
_________
_________
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
24. FINANCIAL INSTRUMENTS (continued)
The carrying amounts of each of the categories of financial instruments as at
the balance sheet date are as follows (continued):
Company
Financial assets
2007 2006
Loans and Loans and
receivables receivables
US$ US$
Financial assets included in interests in subsidiaries (note 11) 24,484,197 26,991,640
Financial assets included in prepayments,
deposits and other receivables (note 13) 3,375,678 2,602,761
Due from related companies - 3,490,152
Time deposits 2,559,311 1,025,235
Cash and bank balances 1,392,224 7,290,089
__________ __________
31,811,410 41,399,877
__________ __________
__________ __________
Financial liabilities
2007 2006
Financial Financial
liabilities at liabilities at
amortised cost amortised cost
US$ US$
Financial liabilities included in interests in subsidiaries (note 11) 19,702,316 20,485,200
Financial liabilities included in other
payables and accrued liabilities (note 16) 716,087 291,680
__________ __________
20,418,403 20,776,880
__________ __________
__________ __________
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
25. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES
(a) Values of financial instruments
Interests in available-for-sale investments are carried at the values
calculated in accordance with the accounting policies set out in note
3 to the financial statements. The Group's other assets and
liabilities include cash and bank balances, time deposits, balances
with investee entities and other receivables and payables which are
realised or settled within a short period of time. The carrying
amounts of these other assets and liabilities approximate to their
fair values.
(b) Associated risks
The Group's investment activities expose it to various types of risk
which are associated with the financial instruments and markets in
which it invests. The following summary, which is not intended to be
a comprehensive summary of all risks, illustrates the risks inherent
in investing in the Group:
(i) Credit risk
Financial assets which potentially expose the Group to credit
risk consist principally of cash and bank balances, time
deposits, amounts due from investee entities and other
receivables. The maximum extent of the Group's exposure to
credit risk in respect of these financial assets is equal to
their carrying amounts as recorded in the Group's balance sheet.
The Group minimises its exposure to a concentration of credit
risk through only dealing with a variety of recognised and
creditworthy parties.
(ii) Equity price risk
Equity price risk arises mainly from uncertainty about the future
prices of the financial instruments held. It represents the
potential loss the investments might suffer through holding
market positions in the face of price movements. The Group's
investment manager performs periodic evaluations of the
investment portfolio in order to minimise the risk associated
with the investments whilst continuing to follow the Group's
investment objectives.
The following table demonstrates the sensitivity to every 10%
change in the fair values of the equity investments, with all
other variables held constant and before any impact on tax, based
on their carrying amounts at the balance sheet date. For the
purpose of this analysis, for the available-for-sale equity
investments the impact is deemed to be on the available-for-sale
investment revaluation reserve and no account is given for
factors such as impairment which might impact on the statement of
total return.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
25. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(b) Associated risks (continued)
(ii) Equity price risk (continued)
Carrying amount Increase/
of equity decrease
investments in equity
US$'000 US$'000
2007
Unlisted investments at fair value
- Available-for-sale 5,182 518
______ ______
______ ______
2006
Unlisted investments at fair value
- Available-for-sale 5,916 592
______ ______
______ ______
(iii) Foreign currency risk
A number of the Group's financial assets are denominated in
currencies other than their functional currency, with the effect
that the balance sheet and total return can be affected by
currency movements. An analysis of the Group's financial assets
which may have significant foreign currency exposure is as
follows:
2007 2006
US$ US$
Financial assets Foreign currencies
Available-for-sale investments Renminbi 5,182,379 5,915,765
Other receivable Renminbi 3,358,468 3,903,365
Due from related companies Renminbi - 3,490,152
Due from investee entities Renminbi 547,638 512,248
__________ _________
9,088,485 13,821,530
__________ _________
Hong Kong
Cash and bank balances dollars 47,659 32,128
__________ _________
Total 9,136,144 13,853,658
__________ __________
__________ __________
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
25. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(b) Associated risks (continued)
(iii) Foreign currency risk (continued)
Under the existing foreign exchange regulations of Mainland
China, Renminbi is not freely convertible into foreign currencies.
The Group is currently taking necessary steps/procedures to have
these Renminbi financial assets be realised and distributed to
the shareholders in United States dollars. As further detailed
in note 13 to the financial statements, an other receivable of
US$3,358,468 (2006: US$2,602,604) may not be realised and
distributable in United States dollars within the next twelve
months from the balance sheet date and, accordingly, the
receivable is classified as a non-current asset.
In addition, investment income from the Group's investment
portfolio is originally declared/distributed by the investee
entities in foreign currencies. The Group makes their best
effort to negotiate with the investee entities to remit the
investment income in United States dollars to minimise foreign
currency exposure.
The following table demonstrates the sensitivity at the balance
sheet date to a reasonably possible change in the RMB exchange
rate, with all other variables held constant, of the Group's
return before tax (due to changes in the fair value of monetary
assets) and the Group's equity.
Increase/ Increase/
(decrease) in (decrease) Increase/
RMB in return (decrease)
rate before tax in equity
% US$'000 US$'000
2007
If US$ weakens against RMB 10 391 391
If US$ strengthens against RMB (10) (391) (391)
__________ __________ _________
__________ __________ _________
2006
If US$ weakens against RMB 10 791 791
If US$ strengthens against RMB (10) (791) (791)
__________ __________ _________
__________ __________ _________
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
25. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(b) Associated risks (continued)
(iv) Interest rate risk
The majority of the Group's financial assets are equity shares
and other investments which neither pay interest nor have a
maturity date. Financial assets that expose the Group directly
to interest rate risk consist of bank balances and time deposits
and therefore, the Group is not exposed to significant risk
arising from the fluctuations in the prevailing levels of market
interest rates, therefore the Group does not actively manage
its exposure to interest rate risk.
Weighted
Average
interest 2007 2006
rate US$ US$
Investments Non-interest-bearing - 5,182,379 5,915,765
Time deposits Fixed 3.49% 2,559,311 1,025,235
Cash and bank
balances Floating 1.71% 1,431,725 7,324,946
___________ ___________
___________ ___________
For United States dollar bank deposits, assuming the amount of
bank balances outstanding at the balance sheet date was
outstanding for the whole year, a 25 basis-point increase/decrease
in interest rates at 31 December 2007 and 2006 would have
increased/decreased the Group's return before tax by US$9,978 and
US$20,875, respectively.
(v) Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in raising funds to meet commitments associated with
financial instruments. Liquidity risk may result from an
inability to sell a financial asset quickly at close to its fair
value. The Group is exposed to liquidity risks on its unlisted
investments for which a liquid market does not exist. All of the
financial liabilities of the Group fall due within one year.
The Group's objective is to ensure that there are adequate funds
to meet commitments associated with its financial liabilities and
cash flows are closely monitored on an ongoing basis.
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
25. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES
(continued)
(c) Capital management
The primary objective of the Group's capital management
is to safeguard the Group's ability to continue as a going concern, so that it
continues to provide returns for shareholders and to maximise shareholder value.
The Group regularly reviews and manages its capital
structure and makes adjustments to it to ensure optimal capital structure and
shareholder returns, taking into consideration the future capital requirements
of the Group and capital efficiency, prevailing and projected profitability,
projected operating cash flows, projected capital expenditures and projected
strategic investment opportunities.
To maintain or adjust the capital structure, the Group
may adjust the dividend payment to shareholders, or issue new shares.
Currently, the Group's dividend policy is to provide shareholders with dividend
based on the return from it's investment projects, while retaining sufficient
return as capital for future use.
The Group monitors the level of its capital on an
ongoing basis. As at 31 December 2007, the capital of the Group which comprises
all components of shareholders' equity was US$12,016,521 (2006: US$21,418,439).
The Group is not subject to any externally imposed
capital requirements. No significant changes were made in the Group's
objectives, policies and processes for managing capital during the years ended
31 December 2006 and 2007.
(d) Fair value
There is no material difference between the value of the
financial assets and liabilities, as shown in the balance sheet, and their fair
values.
26. EXCHANGE RATES
The rates of exchange ruling at 31 December 2007 were as follows:
Hong Kong dollars 7.80 = US$1
Renminbi 7.30 = US$1
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO FINANCIAL STATEMENTS
31 December 2007
27. CONTINGENT LIABILITIES
Pursuant to (i) the management agreement dated 29 May 2006 entered
into between the Company and GDFM; and (ii) the investment management agreement
dated 29 May 2006 entered into between the Company and Springridge, both GDFM
and Springridge are entitled to a one-off performance fee equal to 7.5% of
aggregate proceeds, distributed and available for distribution to the
shareholders in excess of US$20 million from the date of appointment to the date
of termination of the management agreement and the investment management
agreement, respectively.
A provision has not been recognised in respect of such possible
payments because, in the opinion of the directors, such possible payments cannot
be reliably measured and are not probable to result in a material future outflow
of resources from the Group in the foreseeable future.
28. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue by
the board of directors on 22 April 2008.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FKDKPPBKDFQB
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