RNS Number:5443Y
Jarlway Holdings plc
18 June 2007
JARLWAY HOLDINGS PLC
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
Chairman's Statement
Highlights
* Pre-tax profits up 116.62% to #743,000 (2005: #343,000)
* Sales up 47.62% to #7,164,000 (2005: #4,853,000)
* Earnings per share increase to 2.59p (2005: 1.33p), up 94.74%
* Tightened credit controls reduces average debtor turnover days from 386
to 191
* Broader product range, first overseas orders
* Strong forward order book
I am pleased to report on the results of Jarlway Holdings Plc (the "Company",
the "Group" or "Jarlway") for the year ended 31 December 2006. During what was
undoubtedly a successful year for the Company, we succeeded in strengthening our
capabilities and our financial position, in order to exploit the opportunities
facing the Company in the future. Although there are still many challenges
ahead, our solid 2006 growth leaves us confident of tackling the challenges
ahead, and increasing the net worth of the Company attributable to the
shareholders.
BUSINESS REVIEW
The market for construction machinery in China turned around in 2006 after
reaching a particularly low point in 2005. Increased demand for the continued
development of large-scale national infrastructure projects such as the railway
and highway networks, in addition to the booming property market, are now
creating a ready market for construction machinery. Although the development of
the national railway system has slowed slightly since January 2007, bringing
some pricing pressure into the market, a strengthening order book for the second
half of the year suggests the slowdown is temporary, and I believe the Company
will continue to thrive in this market.
I also believe the Company's success during 2006 reflects the hard work and
dedication of my fellow directors and the staff in achieving excellent results
on several key fronts, including improvement of our credit controls,
improvements in product quality, effective recruitment and training programmes,
and the introduction of tighter production and purchasing controls. Overall, I
believe Jarlway is now solidly positioned to continue its growth in what remains
an exciting but competitive market.
We have achieved excellent results in the following areas.
1. The Company has made significant improvements in credit control and the
management of trade receivables. We have implemented new credit control
procedures and we are more cautious about accepting customers, granting
credit terms and collecting settlements. As a result, the average period
for the collection of trade receivables has dropped to 191 days in 2006
from 386 days in 2005. We continue to work to reduce this further still.
However in the marketplace where we operate, many clients are State Owned
Enterprises ("SOEs") and it requires much work on the part of the Company
to ensure they understand that they too must act in a more commercial way
when dealing with their suppliers, such as Jarlway, in the private sector.
2. Through our unstinting dedication to product quality, the Company has built
up significant brand recognition and customer loyalty in the market.
Jarlway is recognised as making quality products and providing first rate
customer service. One of the most significant benefits of this is that it
has significantly reduced the pressure on us to compete on price alone. Our
customers are more willing to pay a fair price for a quality product.
3. The Company has implemented a new recruitment plan and training programme
designed for the sales team to both train and retain quality staff. This in
turns helps us to target and meet the expectations of high quality
customers. Our sales staff has been targeting sizable private enterprises
and medium to large-sized SOEs with significant success. Although the
Chinese domestic banks tightened the supply of credit available to
purchasers of construction machinery, we have succeeded in increasing our
sales without suffering from undue pressure on our working capital by
increasing our sales to more substantial customers who have a stronger
financial profile. Overall, our sales strategy, built on our brand
recognition and expanded and improved product range, has allowed us to
transform our customer base and penetrate into this high end market
comprising customers with greater financial strength.
4. We have strengthened our production and purchase management to raise
product quality whilst lowering production costs. We have also been able to
renegotiate more favorable component prices and terms from our major
suppliers. However, as the Company does not want to jeopardise the quality
of its products, we are currently still reliant on a few suppliers for the
most important components of our products. This creates an urgent challenge
to the Company as these few suppliers temporarily have some difficulties in
keeping up with our demand for production. This has led to a back log of
our customers' orders in the first half of 2007 and it is expected to have
an effect on sales for the same period.
Although the suppliers have indicated to us that this situation is
temporary and have promised normal supply will resume in the second half of
2007, the Company is exploring other alternatives, including the
possibility of finding other suppliers. This is the first time we have
faced this situation and we will continue to seek alternative suppliers to
ensure we can make timely delivery to our customers without compromising
our product quality.
All these efforts and improvements are reflected in the increased sales
turnover, higher gross profit margin and lower trade receivable balances.
FINANCIAL RESULTS
The consolidated net profit after taxation attributable to shareholders for the
year ended 31 December 2006 was #632,000 (2005: #294,000) and turnover was
#7,164,000 (2005: #4,853,000).
Administrative costs for the year ended 31 December 2006 were #1,044,000 (2005:
#790,000). The increase was mainly due to the increase of costs of maintaining
listing status of the Company as 2006 was the first full year of the Company
after being listed on AIM in July 2005. In addition, additional administrative
costs were incurred as 2006 was the first year of operation of Jarlway Xinxin
Machinery Inc. (DT1)
During the year, an additional provision for doubtful debts of #230,000 (2005:
#360,000) and direct write-off of trade receivable of #48,000 (2005: Nil) were
made.
Total staff costs (including directors' emoluments) in 2006 were #734,000 (2005:
#583,000).
PROSPECTS
As I have indicated, 2006 was a year of strengthening our foundations. The board
is well aware that its business is exposed to risks in certain areas, such as
our relatively limited product range, our heavy reliance on the domestic market
in China, and our small size. The board has been addressing these risks and has
started and will continue to develop the following strategies to deal with these
challenges.
Expansion of product variety
Limited product variety limits the Company's opportunities. As we believe we
have successfully established brand recognition, we consider the next step is to
expand our product range, while maintaining our focus on the same business
sector and customer base.
The Company successfully produced its first tower crane in November 2006 and
obtained the production license from the Chinese government in April 2007 by
satisfying all the exacting national requirements and standards in developing
this new product. This new product has been well received by customers and the
Company has started receiving orders, both domestic and from overseas.
Development of overseas market
In addition to the tower crane, research on a concrete placing boom is underway
and it is expected the research will be completed and the new product will be
launched in 2007.
We will also continue to diversify the spectrum of our existing products and
modify our existing product lines by continuous efforts in research and
development. We believe it is important to ensure our products are market
leaders.
Although we foresee our future development in the China market remaining very
strong, we believe it is always to the benefit of the Company and its
shareholders to minimise the risk of depending solely on a single market, as
sudden economic or political changes in policy or instability can affect the
Company's prospects adversely.
With this in mind, the Company has decided to expand into the overseas market.
To prepare for this, the Company has recruited personnel who have a strong
background in international trade in construction machinery. The Company has
also attended the international trade fair for construction machinery held by
Bauma in Shanghai and Germany in November 2006 and April 2007, respectively. The
feedback from potential overseas customers at the trade fairs was very positive
and orders were received, with shipments to commence in 2007. The directors have
also visited our target overseas markets to explore business opportunities and
assess customer requirements.
These are the initial steps we have taken to build up an international network
by introducing our products to overseas customers and trading agents. Having
assessed the needs of overseas customers for our type of construction machinery,
we will seek where appropriate to develop models or variants of our products
that will fit the needs of overseas customers.
Expansion of Company's size
Being small in size is a risk in today's market with its intense competition
amongst suppliers. It also hinders our development and expansion. With the
planned developments I have mentioned, we have been actively exploring the
possibility to co-operate with companies that have well equipped plant and
machinery and skilled human resources. In March 2007, the Company formed a
subsidiary with the participation of Guangdong Lishitong Machinery Co. Ltd., a
company which has manufactured spare parts for the Company for many years, and
with whom we have a very good relationship. The registered capital of the
subsidiary, Jarlway-Lishitong Machinery Inc., is RMB5 million (approximately
#330,000). The Company has contributed cash of RMB3.5 million (approximately
#230,000) as capital in return for a 70% interest, and Guangdong Lishitong
Machinery Co. Ltd. will contribute cash of RMB1.5 million (or approximately
#100,000) for a 30% interest.
It is expected that the new subsidiary will give the Company greatly expanded
production capacity to enable us to cope with the future development of the
Company.
APPRECIATION
I wish to thank my fellow directors and all our staff who have worked so hard
for the Company during 2006. Their hard work and dedication are the basis of the
Company's success in the year. I strongly believe that the Company's prospects
are very exciting and bear great promise.
I would like to pay a special tribute to David Steeds who resigned as a director
of the Company on 19 February 2007. David has provided much valuable advice to
the Company as an independent director and chairman of the audit committee.
At the same time I am pleased to welcome Stephen Wong who was appointed a
non-executive director on 14 June 2007. Stephen is a Hong Kong chartered
accountant and we look forward to working with him.
I would also like to pay a special tribute to Xu Jia Jin who is retiring and
will not be standing for re-election. Jia Jin has made a significant
contribution to the management of the Company. I wish him well in his
retirement.
Wu Zhi Jia
Chairman
18 June 2007
For further information, please contact:
Jarlway Holdings PLC Nabarro Wells & Co. Limited First City Financial
David Thomas Robert Lo/Jonathan Naess Public Relations
Director Director Jiang Lei
+44 7753 457931 +44 (0) 20 7710 7400 +44 (0)20 7424 2666
Consolidated Income Statement
Year ended 31 December 2006
2006 2005
Note #'000 #'000
Turnover 2 7,164 4,853
Cost of sales (4,352) (3,091)
Gross profit 2,812 1,762
Other revenue 2 13 7
Selling and distribution costs (986) (636)
Administrative expenses (1,044) (790)
Finance costs 3 (52) -
Profit before taxation 3 743 343
Taxation 4 (111) (49)
Profit for the year 632 294
Attributable to:
Shareholders of the Company 6 632 294
Earnings per share
Basic and diluted 7 2.59p 1.33p
Consolidated Statement of Changes in Equity
Year ended 31 December 2006
Share
Share option Share Merger Exchange Retained
capital reserve premium reserve reserve profits Total
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Balance at 1
January 2005 - - - - (101) 2,946 2,845
Profit for
the - - - - - 294 294
year
Exchange
differences
on
translating
foreign - - - - 438 - 438
operations
Total
recognised
income and
expenses 438 294 732
Ordinary
shares issued 61 - 228 - - - 289
Employee
share - 6 - - - - 6
option
benefit
Merger
reserve
arising on - - - (49) - - (49)
consolidation
Balance at 31
December 2005 61 6 228 (49) 337 3,240 3,823
Profit for
the - - - - - 632 632
year
Exchange
differences
on
translating
foreign - - - - (345) - (345)
operations
Total
recognised
income and
expenses - - - - (345) 632 287
Employee
share - 14 - - - 14
option
benefit
Balance at 31
December 2006
carried
forward 61 20 228 (49) (8) 3,872 4,124
Company Statement of Changes in Equity
Year ended 31 December 2006
Share
Share option Share Accumulated
capital reserve premium losses Total
#'000 #'000 #'000 #'000 #'000
Balance at 1 January
2005
Ordinary
shares issued 61 - 228 - 289
Employee share
option benefit - 6 - - 6
Loss and total
recognised
income and
expenses for
the year - - - (53) (53)
Balance at 31
December 2005 61 6 228 (53) 242
Employee share
option benefit - 14 - - 14
Loss and total
recognised
income and
expenses for
the year - - - (132) (132)
Balance at 31
December 2006
carried
forward 61 20 228 (185) 124
Consolidated Balance Sheet
At 31 December 2006
2006 2005
Note #'000 #'000
Non-current assets
Property, plant and equipment 10 330 261
Intangible assets 11 46 -
Trade receivables 16 11 165
Restricted bank balance 12 78 257
Deferred tax assets 20 63 81
528 764
Current assets
Assets held for sale 9 312 332
Inventories 15 1,478 812
Trade and other receivables 16 4,670 5,484
Financial assets at fair value through profit or 14 5 5
loss
Cash and cash equivalents 374 298
Restricted bank balance, current 12 265 104
7,104 7,035
Total assets 7,632 7,799
2006 2005
Note #'000 #'000
Equity and liabilities
Capital and reserves
Share capital 21 61 61
Share option reserve 20 6
Share premium 228 228
Merger reserve (49) (49)
Exchange reserve (8) 337
Retained profits 24 3,872 3,240
Total equity 4,124 3,823
Non-current liabilities
Non-current portion of long-term bank borrowings 18 11 89
Current liabilities
Trade and other payables 19 2,697 3,053
Provisions 23 66 80
Short-term bank borrowings 27(d) 519 -
Current portion of long-term bank borrowings 18 100 642
Income tax payable 115 112
3,497 3,887
Total liabilities 3,508 3,976
Total equity and liabilities 7,632 7,799
Company Balance Sheet
At 31 December 2006
2006 2005
Note #'000 #'000
Non-current assets
Interests in subsidiaries 13 50 50
Current assets
Bank balances 3 -
Amount due from a subsidiary 17 77 222
80 222
Total assets 130 272
Capital and reserves
Share capital 21 61 61
Share option reserve 22 20 6
Share premium 22 228 228
Accumulated losses 22 (185) (53)
Total equity 124 242
Current liabilities
Other payables 19 6 30
Total equity and liabilities 130 272
Consolidated Cash Flow Statement
At 31 December 2006
2006 2005
Note #'000 #'000
OPERATING ACTIVITIES
Profit before taxation 743 343
Adjustment for:
Interest income (5) (7)
Interest expense 52 -
Depreciation 3 44 29
Amortisation of intangible assets 3 14 -
Write-off of bad debts 3 48 -
Provision for doubtful debts 3 230 360
Employee share-based compensation payment 3 14 6
1,140 731
Operating profit before changes in working capital
Increase in assets held for sale (10) (332)
Increase in inventories (706) (445)
Decrease in trade and other receivables 134 685
(Decrease) / Increase in provisions (14) 7
(Decrease) / Increase in trade and other payables (99) 125
Cash generated from operations 445 771
Interest received 5 7
Taxation (85) (107)
Net cash inflow from operating activities 365 671
Investing activities
Change in Restricted bank balances (13) 726
Purchase of property, plant and equipment (138) (187)
Net cash (used in) from investing activities (151) 539
Financing activities
Interest paid (22) -
(Repayment)/proceeds in bank borrowings (35) (1,285)
Issue for share capital - 239
Net cash used in financing activities (57) (1,046)
Net increase in cash and cash equivalents 157 164
Cash and cash equivalents at 1 January 298 121
Effect of foreign exchange rate changes (81) 13
Cash and cash equivalents at 31 December 374 298
Company Cash Flow Statement
At 31 December 2006
2006 2005
Note #'000 #'000
OPERATING ACTIVITIES
Loss before taxation (132) (53)
Adjustment for:
Employee share-based compensation payment 3 14 6
(118) (47)
Operating profit before changes in working capital
Decrease / (Increase) in amount due from a 145 (222)
subsidiary
(Decrease) / Increase in other payables (24) 30
Net cash inflow (outflow) from operating activities 3 (239)
Financing activities
Issue for share capital - 239
Net cash used in financing activities - 239
Net increase in cash and cash equivalents 3 -
Cash and cash equivalents at 1 January - -
Cash and cash equivalents at 31 December 3 -
Notes to the Financial Statements
Year ended 31 December 2006
1. PRINCIPAL ACCOUNTING POLICIES
General information
The Company is a public listed company incorporated in England and its
shares are listed on the AIM Market, a market operated by the London Stock
Exchange ("LSE"). The principal place of business of the Company is in the
People's Republic of China. The principal activities of the Company and
its subsidiaries (the Group) are described in note 13.
Statement of compliance
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted for use in
the European Union.
Basis of preparation
The measurement basis used in the preparation of the financial statements
is historical cost, except for financial assets at fair value through
profit or loss, which have been measured at fair value.
Basis of consolidation
The consolidated financial statements incorporate the financial statements
of the Company and its subsidiaries made up to 31 December each year. The
results of subsidiaries acquired or disposed of during the year are dealt
with in the consolidated income statement from or up to their effective
dates of acquisition or disposal respectively.
All inter-company transactions and balances within the Group are eliminated
on consolidation.
A share for share exchange agreement between Jarlway Holdings Plc and
Jarlway International Limited took place on 19 April 2005. The business
combination has been accounted for as a Group reconstruction and therefore
the results of Jarlway Holdings Plc and Jarlway International Limited are
consolidated on a merger basis, whereby the results and cashflows of the
relevant entities are combined from the beginning of the year in which the
merger occurred, and their assets and liabilities combined at the amounts
at which they were previously recorded.
Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when
the Company has the power, directly or indirectly, to govern the financial
and operating policies of an entity so as to obtain benefits from its
activities. In assessing control, potential voting rights that presently
are exercisable or convertible are taken into account.
Property, plant and equipment
Property, plant and equipment other than construction in progress are
stated at cost less accumulated depreciation and impairment losses.
The cost of an item of property, plant and equipment comprises its purchase
price and any directly attributable costs of bringing the asset to its
working condition and location for its intended use. Improvements are
capitalised only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the item
can be measured reliably. Expenditures incurred in restoring assets to
their normal working condition and other repairs and maintenance costs are
charged to the income statement.
1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment
Depreciation is charged to the income statement on a straight-line basis
over the estimated useful life of each component of an item of property,
plant and equipment.
The estimated useful lives are as follows:
Machinery 5-10 years
Motor vehicles 10 years
Furniture, fittings and equipment 5-10 years
No depreciation is provided in respect of construction in progress until it
is completed and is put into commercial operation.
Gains or losses arising from the retirement or disposal of property, plant
and equipment are determined as the difference between the net sale
proceeds and the carrying amount of the asset and are recognised as income
or expense in the income statement.
Intangible assets
The initial cost of acquiring technology know-how intangible assets is
capitalised. Technology know-how with finite useful lives are carried at
cost less accumulated amortisation and accumulated impairment losses.
Amortisation is provided on the straight-line basis over their estimated
useful lives.
Intangible assets that are not yet in use or having an indefinite useful
live are reviewed for impairment annually or more frequently when indicator
of impairment arises during the reporting year indicating that the carrying
value may not be recoverable.
Financial instruments
Financial assets and financial liabilities are recognised when the Group
becomes a party to the contractual provisions of the instruments and on the
trade date basis. Financial asset and financial liabilities are measured as
follows:
Financial assets at fair value through profit or loss
Financial instruments classified as financial assets at fair value through
profit or loss include financial assets held for trading, and those
designated at fair value through profit or loss at inception. These items
are measured at fair value, with gains or losses recognised in the income
statement.
At the balance sheet date, the financial assets are measured at fair value
by reference to the price quotation for equivalent instruments in an active
market provided by financial institutions. Any changes in fair value are
recognised in the income statements.
1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Financial instruments (Continued)
Trade and other receivables
Trade and other receivables are initially recognised at fair value and
thereafter stated at amortised cost less provision for impairment. Loans
and receivables without fixed or determinable repayment terms are stated at
cost less any accumulated impairment loss. A provision for impairment of
receivables is established when there is objective evidence that the Group
will not be able to collect all the amounts due according to the original
terms of receivables. The amount of the provision is the difference between
the assets' carrying amount and the present value of estimated future cash
flows, discounted at the effective interest rate. The amount of provision
is recognised in the income statements.
Trade and other payables
Trade and other payables are initially recognised at fair value and
thereafter stated at amortised cost.
The derecognition of a financial asset takes place when the Group's
contractual rights to future cash flows from the financial asset expire or
the Group transfers the contractual rights to future cash flows to a third
party. The Group derecognises a financial liability when, and only when the
liability is extinguished.
Cash equivalents
For the purpose of the consolidated cash flow statement, cash equivalents
represent short-term, highly liquid investments which are readily
convertible to known amounts of cash and subject to an insignificant risk
of changes in value, net of bank overdrafts.
Revenue recognition
Revenue is recognised when it is probable that the economic benefits will
flow to the Group and when the revenue and costs, if applicable, can be
measured reliably and on the following bases.
Sales of goods are recognised on the transfer of the risks and rewards of
ownership, which generally coincides with the time when goods are delivered
to customers and title has passed.
Interest income is recognised by applying the effective interest method to
the net carrying amount of the financial assets.
Foreign currencies
Net assets of overseas subsidiaries are translated into sterling at the
rate of exchange ruling at the year end. Differences arising from the
retranslation of net assets at the beginning of the year are dealt with
through reserves. The results of overseas subsidiaries are translated into
sterling using the average rates of exchange during the year, the
difference between the results translated at average rates and closing
rates is taken to reserves.
1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Foreign currencies (Continued)
All other translation differences are taken to income statement, with the
exception of differences on foreign currency borrowings, which are taken to
reserves to the extent that they are used to finance foreign equity
investments.
Impairment of assets
At each balance sheet date, the Group reviews internal and external sources
of information to determine whether the carrying amounts of its property,
plant and equipment, investment in subsidiaries, have suffered an
impairment loss or if an impairment loss previously recognised no longer
exists or may be reduced. If any such indication exists, any impairment
loss is determined and recognised as follows:
The recoverable amount of the asset is estimated, based on the higher of
its fair value less costs to sell and value in use. Where it is not
possible to estimate the recoverable amount of an individual asset, the
Group estimates the recoverable amount of the smallest group of assets that
generates cash flows independently (i.e. cash-generating unit).
If the recoverable amount of an asset or a cash-generating unit is
estimated to be less than its carrying amount, the carrying amount of the
asset or cash-generating unit is reduced to its recoverable amount.
Impairment losses are recognised as expense immediately.
A reversal of impairment loss is limited to the carrying amount of the
asset or cash-generating unit that would have been determined had no
impairment loss been recognised in prior years. Reversal of impairment
losses in respect of other assets is recognised as income immediately.
Inventories
Inventories are stated at the lower of cost and net realisable value.
Cost, which comprises all costs of purchase and, where applicable, other
costs that have been incurred in bringing the inventories to their present
location and condition, is calculated using the weighted average method.
Net realisable value represents the estimated selling price in the ordinary
course of business less the estimated costs of completion and the estimated
costs necessary to make the sale.
Provisions
A provision is recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable that an
outflow of resources embodying economic benefits will be required to settle
the obligation, and a reliable estimate of the amount of the obligation can
be made. Expenditures for which a provision has been recognised are charged
against the related provision in the year in which the expenditures are
incurred. Provisions are reviewed at each balance sheet date and adjusted
to reflect the current best estimate. Where the effect of the time value
of money is material, the amount provided is the present value of the
expenditures expected to be required to settle the obligation. Where the
Group expects a provision to be reimbursed, the reimbursement is recognised
as a separate asset but only when the reimbursement is virtually certain.
1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Borrowing costs
The borrowing costs are charged as expenses in the income statement in the
period in which they are incurred, except to the extent that they are
capitalised as being directly attributable to the acquisition, construction
or production of an asset which necessarily takes a substantial period of
time to get ready for its intended use or sale.
The capitalisation of borrowing costs as part of the cost of a qualifying
asset commences when expenditure for the asset is being incurred, borrowing
costs are being incurred and activities that are necessary to prepare the
asset for its intended use or sale are in progress. Capitalisation of
borrowing costs is suspended or ceases when substantially all the
activities necessary to prepare the qualifying asset for its intended use
or sale are interrupted or complete.
Operating leases
Rentals payable under operating leases are charged to income statement on a
straight-line basis over the term of the relevant lease.
Employee benefits
Salaries, annual bonuses, paid annual leave, leave passage, contributions
to defined contribution plans and the costs of non-monetary benefits are
accrued in the year in which the associated services are rendered by
employees of the Group. Where payment or settlement is deferred and the
effect would be material, these amounts are stated at their present values.
Contributions to defined contribution retirement plans, are recognised as
expense in the income statement as incurred.
Termination benefits are recognised when, and only when, the Group
demonstrably commits itself to terminate employment or to provide benefits
as a result of voluntary redundancy by having a detailed formal plan which
is without realistic possibility of withdrawal.
Share-based payment transactions
The Company operates a share option scheme for granting share options, for
the purpose of providing incentives and rewards to eligible employees of
the Group.
Employees (including directors) of the Group receive remuneration in the
form of share-based payment transactions, whereby employees render services
as consideration for equity instruments ("equity-settled transactions").
The cost of equity-settled transactions with employees is measured by
reference to the fair value at the date at which they are granted. It is
recognised, together with a corresponding increase in equity, over the
vesting period in which the performance and/or service conditions are
fulfilled. The cumulative expense recognised for equity-settled
transactions at each reporting date until the end of the vesting period
reflects the extent to which the vesting period has expired and the number
of equity instruments that in the opinion of the directors of the Group at
that date will ultimately vest.
1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Taxation
The charge for taxation is based on the results for the year, adjusted for
items which are non-assessable or disallowed. It is calculated using tax
rates that have been enacted or substantively enacted by the balance sheet
date.
Deferred tax is provided using the liability method, on all temporary
differences between the tax bases of assets and liabilities and their
carrying amounts in the financial statements.
The deferred tax liabilities or assets are measured at the tax rates that
are expected to apply to the period when the asset is recovered or
liability is settled, based on the tax rates and the tax laws that have
been enacted or substantively enacted by the balance sheet date. Deferred
tax assets are recognised to the extent that it is probable that future
taxable profit will be available against which the deductible temporary
differences, tax losses and credits can be utilised.
Related parties
For the purposes of these financial statements, parties are considered to
be related to the Group if the Group has the ability, directly or
indirectly, to control the party or exercise significant influence over the
party in making financial and operating decisions, or vice versa, or where
the Group and the party are subject to common control or common significant
influence. Related parties may be individuals (being members of key
management personnel, significant shareholders and/or their close family
members) or other entities and include entities which are under the
significant influence of related parties of the Group where those parties
are individuals, and post-employment benefit plans which are for the
benefit of employees of the Group or of any entity that is a related party
of the Group.
Future changes in IFRS
At the date of authorisation of these financial statements, the
International Accounting Standards Board (IASB) has issued the following
new/revised IFRSs that are not yet effective.
IAS 1 (Amendment) Capital disclosures
IFRS 7 Financial instruments: Disclosures
IFRS 8 Operating segments
IFRIC 7 Applying the restatement approach under IAS 29
Financial Reporting in Hyperinflationary
Economies
IFRIC 8 Scope of IFRS 2
IFRIC 9 Reassessment of embedded derivatives
IFRIC 10 Interim financial reporting and impairment
IFRIC 11 IFRS 2: Group and treasury share transactions
IFRIC 12 Service concession arrangements
The directors anticipate that the adoption of these new IFRSs in the future
periods will have no material impact on the result of the Group.
1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
Critical accounting estimates and judgements
Estimates and judgements are currently evaluated and are based on
historical experience and other factors including expectations of future
events that are believed to be reasonable under the circumstances. Apart
from information disclosed elsewhere in these financial statements, the
following summarise: (1) estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year and (2) significant judgements
made in the process of applying the Group's accounting policies.
(i) Income taxes
The Group is subject to income taxes in the People's Republic of
China (the "PRC"). Significant judgment is required in determining the
provision for income taxes. There are many transactions and
calculations for which the ultimate tax determination is uncertain
during the ordinary course of business. The Group recognises
liabilities for anticipated tax audit issues based on estimates of
whether additional taxes will be due. Where the final tax outcome
of these matters is different from the amounts that were initially
recorded, such differences will impact the income tax and deferred tax
provisions in the period in which such determination is made.
(ii) Provision for warranty
As explained in note 23, the Group makes provision under the
warranties it gives on sale of its large scale construction
machineries taking into account the Group's recent claim experience.
As the Group is continually upgrading its product designs, it is
possible that the recent claims experience is not indicative of future
claims that it will receive in respect of part sales. Any increase
and decrease in the provision would affect income statements in future
years.
(iii)Provision for doubtful debts of trade receivables
The Group makes provision for doubtful debts based on an assessment
of the collectibility of trade receivables. Provisions for doubtful
debts are applied to trade receivables where events or changes in
circumstances indicate that the balances may not be collectible. The
identification of doubtful debts requires the use of judgement and
estimates. Where the expectation is different from the original
estimates, such differences will impact on carrying value of
receivables and doubtful debt expenses in the period in which such
estimate has been changed.
2. TURNOVER AND OTHER REVENUE
The principal activities of the Group are developing, manufacturing and
selling large-scale construction machineries.
The Group
2006 2005
#'000 #'000
Turnover
Sales of goods 7,164 4,853
Other revenue
Interest income 5 7
Sundry income 8 -
13 7
7,177 4,860
The turnover for 31 December 2006 and 31 December 2005 is wholly
attributable to activities in the People's Republic of China ("PRC").
3. PROFIT BEFORE TAXATION
The Group
2006 2005
This is arrived at after charging / (crediting): #'000 #'000
Finance costs
Interest on bank borrowings 22 -
Interest on advances from a director 30 -
52 -
Other items
Auditors' remuneration
Predecessor auditors and its associate
- For audit of the Company's annual financial statements - 24
- Other services - limited review on the Company's interim 16 7
financial report
Successor auditors and its associate
- Audit services 33 -
- Non-audit services - -
Staff costs including directors' emoluments
- Contributions to defined contribution retirement 39 35
plans (note 8)
- Salaries, bonus and other benefits (note 5) 694 513
Cost of inventories 4,257 2,898
Cost of employee share options 14 6
Research 14 4
Depreciation 44 29
Amortisation of intangible assets 14 -
Operating leases in respect of
- land and building 42 70
- equipment - 10
Provision for warranty (Note 23) 73 47
Write-off of accounts receivable 48 -
Provision for doubtful debts 230 360
Net foreign exchange loss/(gain) 18 (6)
4. TAXATION
Taxation on profits arising in the People's Republic of China (the "PRC")
have been calculated on the estimated assessable profits for the year at
the rates of taxation prevailing in the PRC.
The Group
The charge comprises: 2006 2005
#'000 #'000
Current tax
PRC enterprise income tax 100 86
Deferred taxation:
Origination and reversal of temporary differences 11 (37)
111 49
No provision for UK or Hong Kong taxation has been made as the Company and
its Hong Kong subsidiaries have no estimated profits for the year.
The subsidiaries operating in the PRC are subject to state and local income
taxes in the PRC at their respective tax rates based on the taxable income
reported in their statutory financial statements in accordance with
applicable state and local income tax laws.
Following approval by the charge tax bureau, pursuant to the relevant PRC
income tax rules and regulations, being a foreign investment enterprise,
Jarlway Machinery Inc. "Jarlway Machinery" was entitled to exemption from
PRC foreign enterprise income tax for the two years ended 31 December 2003
and is entitled to a 50% reduction from PRC foreign enterprise income tax
for the three years ending 31 December 2006 ("tax holiday").
Jarlway Machinery Inc. is subject to state and local income taxes in the
PRC at standard rates of 12% and 3% respectively in accordance with the PRC
foreign enterprise income tax law, applicable to wholly owned foreign
enterprise. Jarlway Machinery is exempted from local income tax during the
tax holiday. As a result, the effective foreign enterprise income tax rate
for Jarlway Machinery was 12% for the year ended 31 December 2006 (2005:
12%).
Pursuant to the Income Tax Law and the Detailed Rules for the
Implementation of the Income Tax Law of the PRC for Foreign Investment
Enterprises and Foreign Enterprises, Jarlway Xinxin Machinery Inc.
("Jarlway Xinxin") is entitled to a two-year exemption from the PRC
foreign enterprise income tax starting from its first profit making year
and followed by a 50% reduction from the PRC foreign enterprise income tax
for the subsequent three years. Jarlway Xinxin has suffered losses since
its incorporation.
4. TAXATION (CONTINUED)
2006 2005
Deferred tax recognised in the income statement #'000 #'000
Types of temporary differences:
Depreciation allowances 2 2
Others 9 (39)
11 (37)
A reconciliation between tax expense and accounting profit using the
weighted average taxation rate of the companies within the Group is as
follows:
2006 2005
#'000 #'000
Profit before taxation 743 343
Calculation at the effective foreign enterprise income tax rate 89 41
of Jarlway Machinery Inc. of 12% (2005: 12%)
Non-deductible expenses 67 35
Temporary differences 20 -
Effect of overseas tax rates differences (72) (17)
Other 7 (10)
Tax expense for the year 111 49
5. DIRECTORS' AND EMPLOYEE'S EMOLUMENTS
Particulars of the emoluments of the director are as follows:
(a) Directors' emoluments
The Group
2006 2005
#'000 #'000
Fees:
Executive directors 27 5
Non-executive directors 20 9
Other emoluments:
Salaries and other emoluments 32 54
79 68
Details of the directors' emoluments are disclosed on page 11
(b) Information regarding directors and employees
2006 2005
No. No.
The average number of persons employed by the Group
(including directors) during the year was: 253 233
#'000 #'000
Aggregate staff costs (including directors) during the
year were:
Wages and salaries 629 485
Social security costs 39 35
Other benefits 65 28
733 548
6. PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY
The consolidated profit attributable to shareholders of the Company
includes a loss of approximately #132,000 (2005: #53,000) which has been
dealt with in the financial statements of the Company for the year ended
31 December 2006.
7. EARNINGS PER SHARE
The calculation of basic earnings per share is based on the profit for the
year attributable to shareholders of the Company of #632,000 (2005:
#294,000) and the weighted average number of 24,413,333 shares (2005:
22,007,160 shares) in issue during the year, as adjusted to reflect the
subdivision of share during the year and as if the events had occurred at
the beginning of the earlier period reported.
Diluted earnings per share for the year ended 31 December 2006 and
31 December 2005 are equal to the basic earnings per shares as the exercise
price of the share options granted by the Company was higher than the
average market price for shares during the year.
8. RETIREMENT SCHEMES
Under the Mandatory Provident Fund Schemes Ordinance regulated by the
Mandatory Provident Fund Schemes Authority in Hong Kong, with effect from
1 December 2001, the Group participates in a Mandatory Provident Fund
scheme (the "MPF scheme") operated by an approved trustee in Hong Kong and
makes contributions for its eligible employees. Under the MPF scheme, the
employer and its employees are each required to make contributions to the
scheme at 5% of the employees' relevant income, subject to a cap of monthly
relevant income of HK$20,000. Contributions to the scheme vest immediately.
The employees of the Group's subsidiaries in the PRC are members of a
state-managed retirement benefits scheme being operated by the local PRC
government. The subsidiaries are required to contribute specified
percentage of the average basic salary to the retirement benefits scheme to
fund the benefits. The only obligation of the Group with respect to the
retirement benefits scheme is to make the specified contributions. During
the year ended 31 December 2006, the aggregate amount of employer's
contribution made by the Group was #40,000 (2005: #35,000).
9. ASSETS HELD FOR SALE
Assets held for sale represent properties received from trade debtors in
lieu of settlement which are carried at the lower of cost and net
realisable value. Net realisable value represents the estimated selling
price less all estimated costs of completion and costs to be the incurred
in marketing and selling.
10. PROPERTY, PLANT AND EQUIPMENT
Furniture,
fittings
Construction Plant and Motor and
in progress machinery vehicles equipment Total
#'000 #'000 #'000 #'000 #'000
The Group
Cost
At 1 January 2005 - 76 21 16 113
Addition during the year - 1 179 7 187
Exchange rate movement - 9 3 2 14
At 1 January 2006 - 86 203 25 314
Reallocation - (2) - 2 -
Addition during the year 20 34 76 8 138
Exchange rate movement (1) (8) (20) (2) (31)
At 31 December 2006 19 110 259 33 421
Accumulated depreciation
At 1 January 2005 16 2 4 22
Charge for the year 9 16 4 29
Exchange rate movement 2 - - 2
At 1 January 2006 - 27 18 8 53
Reallocation - (1) - 1 -
Charge for the year - 9 30 5 44
Exchange rate movement - (2) (3) (1) (6)
At 31 December 2006 - 33 45 13 91
Net book value
At 31 December 2006 19 77 214 20 330
At 31 December 2005 - 59 185 17 261
11. INTANGIBLE ASSETS
The Group
2006 2005
#'000 #'000
Transfer from deposits 62 -
Amortisation (14) -
Exchange rate movement (2) -
46 -
In 2005, the Company paid deposits for acquiring technology know-how for
the manufacture of placing booms and improving the manufacture of concrete
pumps at cost of #21,000 and #41,000, respectively.
As the technology know-how for the placing booms has not been put into use,
no amortisation was provided. The cost of the technology know-how for
concrete pumps will be amortised on straight-line basis over the expected
useful life of 3 years.
12. RESTRICTED BANK BALANCES
The Group
2006 2005
#'000 #'000
Current 265 104
Non-current 78 257
343 361
The restricted bank balance was pledged to secure bank borrowings granted
to Jarlway Machinery Inc. Amounts that will be released back to Jarlway
Machinery Inc. within one year have been classified as current.
13. INTERESTS IN SUBSIDIARIES
The Company
2006 2005
#'000 #'000
Unlisted shares, at cost 50 50
Details of the Company's subsidiaries, which are all wholly-owned, are as
follows:
Issued and
Place of share capital/
incorporation paid-up
and registered Principal
Name of company operation capital activities
Jarlway International Limited Hong Kong HK$10,000 Investment
ordinary shares holding
Jarlway Machinery Inc. The People's US$2,000,000 Developing,
Republic of registered manufacturing
China capital and selling of
large scale
construction
machineries
Jarlway Xinxin Machinery Inc. The People's RMB20,000,000 Developing,
Republic of registered manufacturing
China capital and selling
large scale
construction
machineries
Other than Jarlway International Limited, which is held directly by the
Company, all subsidiaries are held indirectly.
Jarlway Machinery Inc. and Jarlway Xinxin Machinery Inc. are wholly owned
foreign enterprises established in the People's Republic of China.
14. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS
The Group
2006 2005
#'000 #'000
Investment in unit trust, at fair value 5 5
The fair value of these securities is based on quoted market prices at 31
December 2006.
15. INVENTORIES
The Group
2006 2005
#'000 #'000
Raw materials 629 423
Finished goods 849 389
1,478 812
16. TRADE AND OTHER RECEIVABLES
The Group
2006 2005
#'000 #'000
Trade receivables
From third parties 3,746 5,139
Less : Non-current portion (11) (165)
Current portion 3,735 4,974
Other receivables
Deposits, prepayment and other debtors 935 510
4,670 5,484
Trade receivables are shown net of accumulated provision for doubtful debts
amounting to #687,000 (2005: #543,000).
Included in trade receivables are amounts relating to the bank financing
arrangements. These comprise non-current and current portion of #11,000
(2005: #89,000) and #100,000 (2005: #642,000) respectively.
The fair value of trade and other receivables approximates the carrying
value.
17. AMOUNT DUE FROM A SUBSIDIARY
The amount due from a subsidiary is unsecured, interest-free and has no
fixed repayment terms. The carrying amount is stated at fair value.
18. LONG-TERM BANK BORROWINGS
The Group
2006 2005
#'000 #'000
The long-term bank borrowings are repayable:
- in one year and classified under current liabilities 100 642
- over one year and classified under non-current
liabilities 11 89
111 731
The long-term bank borrowings are secured by certain trade receivables
as well as restricted bank balances (Note 12). Interest on long-term bank
loan is calculated at 6% to 7% per annum and is borne by the relevant
customers.
19 TRADE AND OTHER PAYABLES
The Group The Company
2006 2005 2006 2005
#'000 #'000 #'000 #'000
Trade payables
To third parties 1,505 1,514 - -
Other payables
Accrued charges and other 1,192 1,539 6 30
creditors
2,697 3,053 6 30
Included in other payables of the Group is an amount due to a director of
#441,000 (2005: #547,000). The amount due is unsecured, interest bearing at
6% per annum (2005: interest-free) and has no fixed terms of repayment.
The fair value of trade and other payables approximate the carrying value.
20. DEFERRED TAXATION
Recognised deferred tax assets
The Group
2006 2005
#'000 #'000
Depreciation allowances - 2
Others 70 71
Exchange rate movement (7) 8
Net recognised deferred tax assets 63 81
The Company
At the balance sheet date, the Company had no unprovided deferred taxation.
21. ISSUED CAPITAL
2006 2005
Number Number
of shares Amount of shares Amount
#'000 #'000
Authorised:
At 1 January 50,000,000 125 50,000 50
Increase (Note 1) - - 75,000 75
50,000,000 125 125,000 125
Share subdivision (Note 1) - - 49,875,000 -
At 31 December 50,000,000 125 50,000,000 125
Issued and fully paid:
At 1 January 24,413,333 61 2 -
Issue 49,998 ordinary share
of #1 each (Note 2) - - 49,998 50
24,413,333 61 50,000 50
Share subdivision effective
on 7 June 2006 (Note 1) - - 19,950,000 -
24,413,333 61 20,000,000 50
Share allotment of
4,413,333 ordinary
shares of #0.0025 each
(Note 3) - - 4,413,333 11
At 31 December 24,413,333 61 24,413,333 61
21. ISSUED CAPITAL (CONTINUED)
Note :
1. By ordinary resolutions passed on 7 June 2005, the authorised share
capital was increased to #125,000 by the creation of 75,000 new
ordinary shares of #1 each. Each of the ordinary shares of #1 in the
capital of the Company, both issued and unissued, were then subdivided
into 400 ordinary shares of 0.25p each.
2. Pursuant to a share exchange agreement entered into on 19 April 2005,
the Company acquired the entire issued share capital of Jarlway
International Limited for a consideration which was satisfied by the
issue and allotment to the vendors of an aggregate of 50,000 Ordinary
Shares, each of which was credited as fully paid.
3. On 18 July 2005, trading of the ordinary shares of the Company
commenced on AIM, a market operated by the London Stock Exchange.
4,166,667 new Ordinary Shares were issued in the Placing at the
Placing Price of 30p per share. A further 246,666 new Ordinary Shares
of 0.25p each were issued as part of the settlement of adviser fees
and commission.
22. EMPLOYEE SHARE-BASED PAYMENT TRANSACTIONS
On 12 July 2005, the Company granted a number of share options to the
directors and senior employees of the Group. Unless otherwise cancelled or
amended, the share option scheme will remain in force for 10 years from
12 July 2005. The purpose of granting the share options is to provide
incentives and/or rewards to eligible persons for their contribution to,
and continuing efforts in promoting the interests of the Group.
No options were granted in 2006 and the weighted average value per option
granted in 2005 by the Company was #0.16, estimated as at the date of grant
based on Black-Scholes option pricing model using the following
assumptions:
Share price at the option grant date #0.30
Exercise price #0.30
Risk-free interest rate per annum 4%
Expected stock price volatility 35%
Expected option life 10 years
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. Such an option pricing model requires the input of
highly subjective assumptions, including the expected stock price
volatility. The volatility could not be determined by reference to
historical volatility, but instead was derived by reference to publicly
available information concerning the volatility of listed manufacturing
companies. Because the share options of the Company have characteristics
significantly different from those of traded options and because changes
in the subjective input assumptions can materially affect the fair value
estimate, the Black-Scholes option pricing model does not necessarily
provide a reliable measure of the fair value of the share options of the
Company.
22. EMPLOYEE SHARE-BASED PAYMENT TRANSACTIONS (CONTINUED)
(a) Number, terms and conditions of the options granted by the Company:
Number of Value of options
options granted at grant date
on 12 July 2005 #000
Options granted to Directors 122,067 20
Option granted to employees other than Directors 219,720 35
341,787 55
Notes:
The Group has recognised these share options in the income statement with
a corresponding increase in employee share-based compensation reserve in
equity.
2006 2005
Employee share-based payments recognised under IFRS 2 #'000 #'000
In respect of non-performance based options granted to 5 2
directors
In respect of options without vesting schedule granted to 9 4
employees other than directors
14 6
(b) The following share options were outstanding at 31 December 2006 under
the share option scheme:
Share options
granted during
the year and
outstanding as
at 31 December 2006
___________________________________________
Exercise
At Granted At price of
1 January during the 31 December Exercise period share
Name of participant Date of grant 2006 year 2006 of share options options
#
Directors
Xu Jia Jin 12 July 2006 122,067 - 122,067 12 July 2008 to 0.30
11 July 2015
Other employees
In aggregate 12 July 2006 219,720 - 219,720 12 July 2008 to 0.30
11 July 2015
341,787 - 341,787
The weighted average remaining contractual life for the share options
outstanding at the balance sheet date was 9 years.
23. PROVISIONS
The Group
2006 2005
#'000 #'000
Provision for warranties
At 1 January 80 73
Provision made for the year 73 47
Provision used during the year (87) (40)
66 80
Under the terms of the Group's sales agreements, the Group will rectify any
product defects arising within one year of the date of sale. Provision is
therefore made for the best estimate of the expected settlement under these
agreements in respect of sales made within one year prior to the balance
sheet date. The amount of provision takes into account the Group's recent
claim experience and is only made where a warranty claim is probable. The
amount is included in other payables.
24. RESERVES
Merger Retained
Share option Share reserve Exchange profits
reserve premium (Note 1) reserve (Note 2) Total
#'000 #'000 #'000 #'000 #'000 #'000
The Group
At 1 January
2005 - - - (101) 2,946 2,845
Exchange
reserve
arising on
translation
of
financial
statements of
overseas - - - 438 - 438
subsidiaries
Profit for
the - - - - 294 294
year
Share - 1,239 - - - 1,239
allotment
Share
admission
expense - (1,011) - - - (1,011)
Employee
share 6 - - - - 6
option
benefit
Merger
reserve
arising on - - (49) - - (49)
consolidation
At 31
December 6 228 (49) 337 3,240 3,762
2005
Exchange
reserve
arising on
translation
of
financial
statements of
overseas - - - (345) - (345)
subsidiaries
Profit for
the - - - - 632 632
year
Employee
share 14 - - - 14
option
benefit
At 31
December 20 228 (49) (8) 3,872 4,063
2006
24. RESERVES (CONTINUED)
Note:
1. The merger reserve represents the difference between the nominal value
of shares of the subsidiary company acquired, and the nominal value of
the Company's shares issued in 2005.
2. The Group's accumulated profits include
(a) an amount of approximately #138,000 (2005: #172,000) reserved by
the subsidiary in the PRC in accordance with the relevant PRC
regulations, this reserve is only distributable in the event of
liquidation of this PRC subsidiary.
(b) an amount of approximately #2,108,000 (2005: Nil) was capitalised
as additional paid-up registered capital of the subsidiaries of
the Company in the PRC as approved by the PRC government. This
amount is only distributable in the event of liquidation of these
PRC subsidiaries.
25. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Risk management is integral to the whole business of the Group. The Group
has a system of controls in place to create an acceptable balance between
the cost of risks occurring and the cost of managing the risks. Company
management continually monitors the Company's risk management process to
ensure that an appropriate balance between risk and control is achieved.
This section provides details of the Company's exposure to financial risks
and describes the methods used by management to control such risk.
Credit risk
Credit risk is the potential financial loss resulting from the failure of a
customer or counterparty in setting their financial and contractual
obligations to the Company, as and when they fall due.
The Company's primary exposure to credit risk arises through its trade
receivables. Management has a credit policy in place and exposure to credit
risk is monitored on an ongoing basis. Other financial assets of the
Company with exposure to credit risk include cash and deposits that are
placed with financial institutions which are regulated.
At the balance sheet date, there was no significant concentration of credit
risk.
Liquidity risk
The Company monitors its liquidity risk and maintains a level of cash and
cash equivalents deemed adequate by the management to finance the Company's
operations and to mitigate the effects of fluctuations in its cash flows.
Foreign exchange risk
The Group's businesses are principally conducted in Renminbi ("RMB"). The
Group is exposed to foreign currency risk with respect to primarily
sterling and the Hong Kong Dollar. Foreign exchange risk mainly arises
from recognsied assets and liabilities and net investments in foreign
operation.
The Group did not use any forward contracts or currency borrowings to hedge
its exposure to foreign currency risk.
25. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
Fair value estimation
The fair value of the Group's financial assets at fair value through profit
and loss is determined by reference to the quoted market price when the
related investment is traded in an active market.
The fair value of the Group's trade receivables is estimated by discounting
the future contractual cash flows at the current market interest rate that
is available to the Group for similar financial instruments.
The carrying amounts of the Group's financial assets, including cash and
cash equivalents, other receivables and financial liabilities, including
trade and other payables and bank borrowings approximate their fair values.
26. COMMITMENTS
Capital expenditure commitments
2006 2005
#'000 #'000
Contracted but not provided net of deposit paid in the
financial statements - 15
Commitments under operating leases
The Group leases a number of properties under operating leases, which
typically run for an initial period of 2 - 5 years, with an option to renew
the lease when all terms are renegotiated. None of the lease includes
contingent rentals.
At the balance sheet date, the Company had total future minimum lease
payments under non-cancellable operating leases, which are payable as
follows:
2006 2005
#'000 #'000
Within 1 year 83 55
2 to 5 years 284 35
367 90
27. RELATED PARTY TRANSACTIONS
Save as disclosed elsewhere in these financial statements, the Group has
the following related party transactions:
(a) The directors of the Company are the only key management personnel of
the Group and compensation to the directors of the Company for the
year are as follows:
2006 2005
#'000 #'000
Directors' fees 47 14
Salaries and other benefits 32 54
Employee share-based payments 5 2
84 70
(b) During the year, the Company accrued interest expense of #30,000
(2005: NIL) to a director, Ng Chi Chor, in respect of the amount due
to him. At 31 December 2006, At 31 December 2006, #441,000
(2005: #547,000) was due to this director. The details of the terms of
the amount due are set out in Note 19.
(c) During the year, the Group had incurred a retainer fee of #15,000
(2005: #11,800) Steeds & Co., of which David Steeds, a director of the
Company until his resignation on 19 February 2007, is a partner of the
Company.
(d) The Group's short-term borrowings which bear interest rates ranging
from 6.696% to 7.605% per annum are secured by a third party corporate
guarantee of approximately #985,000 (2005: Nil). In return, this
corporate guarantee is supported by a joint and several guarantee of
the same amount from several parties including a corporate guarantee
from two other subsidiaries of the Company, Wu Zhi Jia (who also
pledges his personal properties for this guarantee) and Xu Yi Chuang.
28. POST BALANCE SHEET EVENTS
Subsequent to the balance sheet date, the Group formed a subsidiary,
Jarlway-Lishitong Machinery Inc. ("Jarlway-Lishitong"), with Guangdong
Lishitong Machinery Co. Ltd., a predominantly state-owned Chinese
manufacturer of engineering machinery. The purpose of setting up
Jarlway-Lishitong is to expand the Group's production capacity and develop
a market for line construction machinery products. The registered capital
of Jarlway-Lishitong is RMB5 million (approximately #330,000) and the Group
will contribute RMB3.5 million (approximately #230,000) in return for a
70% interest. Guangdong Lishitong Machinery Co. Ltd. has to contribute the
remaining RMB1.5 million (or approximately #100,000).
CONTENTS
Pages
-----
Chairman's Statement 2-5
Report of Directors 6-8
Corporate Governance Report 9-12
Statement of Directors' Responsibilities 13
Report of the Independent Auditors 14-15
Consolidated Income Statement 16
Consolidated Statement of Changes in Equity 17
Company Statement of Changes in Equity 18
Consolidated Balance Sheet 19-20
Company Balance Sheet 21
Consolidated Cash Flow Statement 22
Company Cash Flow Statement 23
Notes to the Financial Statements 24-49
This information is provided by RNS
The company news service from the London Stock Exchange
END
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