For Immediate Release
30 June 2008
Jarlway Holdings plc ("the Company" or "Jarlway")
Results of the Company
for the year ended 31 December 2007
The Board of Jarlway announces the results of the Company for the year ended 31
December 2007, which are set out below. These have today been published and
will be despatched to shareholders.
Copies of these financial statements will be available from the offices of
Nabarro Wells & Co. Limited, Old Change House, 128 Queen Victoria Street,
London EC4V 4BJ.
The AGM will be held at the offices of Jarlway Machinery Inc. 41* Longhe Road,
Longgui Town, Baiyun District, Guangzhou, China on Friday 8 August 2008 at 10
a.m.
Chairman's Statement
Highlights
Sales down 4.6% to �6,831,000 (2006: � 7,164,000)
Pre-tax loss of �1,075,000 (2006: pre-tax profit of 743,000)
Broader product range by successful launch of tower cranes
Overseas orders with encouraging sales generated
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 2007. 2007 was a
challenging year for the Group. We have successfully developed and launched our
new tower crane product. Through our tower cranes, we have also expanded our
market coverage overseas. I believe our efforts in broadening the product range
and expanding our market overseas have started to pay off and will bring
encouraging achievements in sales and profit while improving our cash flow
position. Sales of tower cranes for 2007 amounted to �1,816,000 (2006: Nil).
BUSINESS REVIEW
As mentioned in the 2007 interim results, the unexpected supply shortage of a
major component used in the Group's trailer pumps undermined our ability to
develop this opportunity in the first half of 2007. We were not satisfied with
the quality of available alternative products or alternative suppliers for this
component. Although the supply level resumed in second half of 2007, the
shortage contributed to a decrease of 30% in trailer pump sales to �5,015,000
for 2007, compared to �7,164,000 the previous year. However, there is still
strong growth in the demand for construction machinery in China and overseas
markets, despite the world economic situation. I believe the Company is now
getting back on the right track to capture the growth in this industry.
During 2007, we have made progress in the following areas.
New sales initiatives
The Group successfully launched tower cranes and expanded the product range
into 10 models. As mentioned previously, total sales of tower cranes amounted
to �1,816,000 in 2007 or 26.6% of the total sales for the year.
During the year, we further broadened our product range, while maintaining our
focus on the same business sector and customer base. We established a new
subsidiary, Jarlway-Lishitong Machinery Inc. ("Lishitong") in March 2007 to
commence the new product design and trial production of placing booms. The
placing booms were successfully developed and launched to the market in October
2007. Lishitong also acts as a subcontractor for the Group for the production
of machine parts.
Development of overseas market
Although China remains the Group's strategic focus in the foreseeable future, I
believe expanding our international sales is a key priority of the Company, so
as to mitigate the risk of depending solely on a single market. In 2007, the
Company started export sales of tower cranes and other products to overseas
markets.
The Company attended the international trade fairs for construction machinery
held by Bauma in Shanghai and Germany in November 2006 and April 2007. The
response from these trade fairs was very positive and a number of orders were
received from the overseas markets of Middle Eastern countries (e.g. Qatar and
UAE), South America (e.g. Chile), Central Asia and South East Asia regions
(e.g. India and Thailand). Overseas sales amounted to �1,091,000, accounting
for 16.0% of the total sales for the Group in 2007. We believe the successful
development of these overseas markets will be a stepping stone to expand our
brand internationally.
FINANCIAL RESULTS
The consolidated net loss after taxation attributable to equity shareholders
for the year ended 31 December 2007 was �1,135,000 (2006: net profit after
taxation attributable to equity shareholders of �632,000) and turnover was �
6,831,000 (2006: �7,164,000). The loss was mainly caused by a provision for
doubtful receivables of �1,410,000 (2006: �230,000) as the Company was unable
to recover certain trade debts arising in and before 2005 when the Group's
credit control over customers was considered to be less stringent as we focused
our efforts on expansion and the promotion of our brand.
Though sales of new products have contributed to overall Group revenue in 2007,
sales of concrete pumps, our principal product, declined by �1,502,000. The
decrease in sales of concrete pumps was due to the shortage of supply of a
major component in the first half of 2007 and sales discount given to trade
agencies of the Company, resulting in the decrease in turnover by 4.9% when
compared to 2006.
The Company's gross margin reduced from 39.3% in 2006 to 26.1% in 2007. The
decrease in margin was due to:
Inflation in costs of raw materials and a drop in orders from high margin
customers (railway contractors)
Greater costs being incurred during the initial production of tower cranes but
sales only commenced in late 2007
Price discounts offered to trade agencies as well as customers with early
payment
Administrative costs increased by �961,000, an increase of 92.0% from �
1,044,000 in 2006 to �2,005,000 in 2007. The increase was mainly due to a
significant provision for doubtful receivables of �1,410,000 (2006: �230,000)
for the reasons outlined above. Other reasons for the increase include the
increase in costs in supporting the sales of tower cranes, for example staff
costs in 2007 amounted to �869,000 (2006: �733,000), as a result of recruiting
sales staff. Although a large provision for doubtful receivables was made, we
also successfully recovered debts which were previously provided for. Doubtful
debts of �334,000 (2006:Nil) provided for in prior years were recovered and
therefore written back in 2007.
On the other hand, selling and distribution costs decreased by �219,000, or
22.2% compared with 2006. The decrease was mainly caused by the closure of 11
sales branches , as the distribution channel has been replaced by the trade
agencies which the Company believes will lead to increased penetration of the
domestic customer base and is expected to be more cost-effective in the long
run.
During the year, the Company obtained additional bank loans of �3,324,000 due
within one to two years. These bank loans were mainly used to finance the
research and development, and manufacture of tower cranes and our new placing
booms.
PROSPECTS
Looking ahead, I am optimistic for the prospects of the construction machinery
industry in both China and in international markets. The Chinese government has
provided various incentives such as export custom duties, banking facilities
and grants of land for plant which signifies their support in this sector. With
this support, the Company can put a significant effort into the development of
new products and exploring new customers from overseas markets. We have defined
the following strategies for expansion and maximising our income base and
profitability.
Expansion in both domestic and international markets
With the launch of tower cranes and placing booms, we expect to receive more
orders from overseas markets. We strongly believe export sales will enhance the
cash flow position of the Group and lower the dependence on the local market,
which will in turn contribute to the Group's profit and scale of operations.
We will also continue to visit other regions and attend trade fairs held in
overseas markets to promote and explore new business opportunities in order to
capture the increasing demand for construction machinery in the global market.
Improvement of product quality
Having been conferred the honorary title of "Zero Defect Client", quality is
the life of the Group. We will continue to leverage on our research and
development capability to maintain the product quality, to diversify and
increase our product range, in order to better serve the different segments of
the market.
At the same time, we will also continue to modify our existing product lines to
strengthen our leading position in the market.
Expansion of network by strategic alliance
Apart from organic growth, we will also explore co-operation or alliance
opportunities with other players in the market, with a view to improving our
technical development and our share of the domestic as well as the
international market. We will update our shareholders as appropriate of any
such developments.
Cost management
The Company has invested heavily in the research and development of new
products during 2007 which required high capital financing. In the light of
tight cash flow in the Company, we will continue our efforts to reduce the cost
of production, selling and administrative costs in order to maintain our
competitiveness in the industry.
Overall, I believe that exploration of new markets and product range, as well
as improvement in financial and capital management will have a positive effect
on our financial performance. With the relentless pursuit of excellence, I
believe we will maintain and increase our competitive advantage in the
marketplace.
APPRECIATION
On behalf of the board of directors, I would like to take this opportunity to
express my gratitude to all shareholders and business partners for their
support and to all employees for their continued loyalty and support. With
their hard work and devotion in tackling the challenges faced by the Group, I
am looking forward to a return to improving performance in the coming year.
Wu Zhi Jia
Chairman
25 June 2008
Consolidated Income Statement
For the year ended 31 December 2007
2007 2006
Note �'000 �'000
Continuing operations:
Revenue 2 6,831 7,164
Cost of sales (5,046) (4,352)
Gross profit 1,785 2,812
Other income 2 70 13
Selling and distribution costs (767) (986)
Administrative expenses -doubtful (1,076) (278)
receivables
Administrative expenses -others (929) (766)
Finance costs 3 (158) (52)
(Loss) Profit before taxation 3 (1,075) 743
Taxation 4 (69) (111)
(Loss) Profit for the year (1,144) 632
Attributable to:
Equity holders of the Company (1,135) 632
Minority interest (9) -
(1,144) 632
(Loss) Earnings per share
Basic and diluted 7 (4.65p) 2.59p
Consolidated Statement of Changes in Equity
For the year ended 31 December 2007
Share Share Merger Exchange Retained Total Total
Share option premium reserve reserve profits Minority
capital reserve interests
�'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000 �'000
Balance at
1 January 61 6 228 (49) 337 3,240 3,823 - 3,823
2006
Profit for - - - - - 632 632 - 632
the year
Exchange - - - - (345) - (345) - (345)
differences
on
translating
foreign
operations
Total - - - - (345) 632 287 - 287
recognised
income and
expenses
Employee - 14 - - - 14 - 14
share
option
benefit
Balance at 61 20 228 (49) (8) 3,872 4,124 - 4,124
31 December
2006
Loss for - - - - - (1,135) (1,135) (9) (1,144)
the year
Exchange - - - - 159 - 159 - 159
differences
on
translating
foreign
operations
Total - - - - 159 (1,135) (976) (9) (985)
recognised
income and
expense
Minority - - - - - - - 30 30
interest
Employee - 14 - - - - 14 - 14
share
option
benefit
Balance at 61 34 228 (49) 151 2,737 3,162 21 3,183
31 December
2007
Company Statement of Changes in Equity
For the year ended 31 December 2007
Share Share Accumulated Total
Share option premium losses
capital reserve
�'000 �'000 �'000 �'000 �'000
Balance at 1 January 2006 61 6 228 (53) 242
Employee share option - 14 - - 14
benefit
Loss and total recognised - - (132) (132)
income and expenses for the -
year
Balance at 31 December 2006 61 20 228 (185) 124
Employee share option - 14 - - 14
benefit
Loss and total recognised - - - (115) (115)
income and expenses for the
year
Balance at 31 December 2007 61 34 228 (300) 23
Consolidated Balance Sheet
At 31 December 2007
2007 2006
Note �'000 �'000
Non-current assets
Property, plant and equipment 10 585 330
Intangible assets 11 27 46
Trade receivables 16 - 11
Restricted bank balances 12 - 78
Deferred tax assets 20 - 63
612 528
Current assets
Assets held for sale 9 763 312
Inventories 15 2,537 1,478
Trade and other receivables 16 4,571 4,670
Financial assets at fair value through 14 5 5
profit or loss
Cash and cash equivalents 115 374
Restricted bank balances, current 12 154 265
8,145 7,104
Total assets 8,757 7,632
2007 2006
Note �'000 �'000
Equity and liabilities
Capital and reserves
Share capital 21 61 61
Share premium 24 228 228
Share option reserve 24 34 20
Merger reserve 24 (49) (49)
Exchange reserve 24 151 (8)
Retained profits 24 2,737 3,872
Equity attributable to equity holders of 3,162 4,124
the Company
Minority interest 21 -
Total equity 3,183 4,124
Non-current liabilities
Non-current portion of long-term bank 18 183 11
borrowings
Current liabilities
Trade and other payables 19 3,109 2,697
Provisions 23 66 66
Short-term bank borrowings 28(e) 1,765 519
Current portion of long-term bank 18 366 100
borrowings
Income tax payable 85 115
5,391 3,497
Total liabilities 5,574 3,508
Total equity and liabilities 8,757 7,632
Company Balance Sheet
At 31 December 2007
2007 2006
Note �'000 �'000
Non-current assets
Interests in subsidiaries 13 50 50
Current assets
Bank balances 5 3
Due from subsidiaries 17 - 77
5 80
Total assets 55 130
Capital and reserves
Share capital 21 61 61
Share premium 24 228 228
Share option reserve 24 34 20
Accumulated losses (300) (185)
Total equity 23 124
Current liabilities
Other payables 19 20 6
Due to subsidiaries 17 12 -
Total equity and liabilities 55 130
Consolidated Cash Flow Statement
For the year ended 31 December 2007
2007 2006
Note �'000 �'000
OPERATING ACTIVITIES
(Loss) Profit before taxation (1,075) 743
Adjustment for:
Interest income (1) (5)
Interest expense 3 158 52
Depreciation 3 54 44
Amortisation of intangible assets 3 20 14
(Write-back) write-off of bad debts 3 (334) 48
Provision for doubtful debts 3 1,410 230
Employee share option benefit 3 14 14
Operating cash flows before changes in 246 1,140
working capital
Increase in assets held for sale (451) (10)
Increase in inventories (1,059) (706)
(Increase) decrease in trade and other (966) 134
receivables
Decrease in provisions - (14)
Increase (decrease) in trade and other 412 (99)
payables
Cash (used in) generated from operations (1,818) 445
Interest received 1 5
Taxation (3) (85)
Net cash (used in) generated from operating (1,820) 365
activities
Investing activities
Change in restricted bank balances 189 (13)
Purchase of property, plant and equipment (289) (138)
Net cash used in investing activities (100) (151)
Financing activities
Interest paid (158) (22)
Proceeds from (repayment of) bank borrowings 1,684 (35)
Net cash generated from (used in) financing 1,526 (57)
activities
Net (decrease) increase in cash and cash (394) 157
equivalents
Cash and cash equivalents at 1 January 374 298
Effect of foreign exchange rate changes 135 (81)
Cash and cash equivalents at 31 December 115 374
Company Cash Flow Statement
For the year ended 31 December 2007
2007 2006
Note �'000 �'000
OPERATING ACTIVITIES
Loss before taxation (115) (132)
Adjustment for:
Employee share option benefit 3 14 14
Operating cash flows before changes in (101) (118)
working capital
Decrease in amount due from / to subsidiaries 89 145
Increase (decrease) in other payables 14 (24)
Net cash from operating activities 2 3
Net increase in cash and cash equivalents 2 3
Cash and cash equivalents at 1 January 3 -
Cash and cash equivalents at 31 December 5 3
Notes to the Financial Statements
For the year ended 31 December 2007
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 registered office and principal place of business of the Company
are disclosed in the introduction to the annual report. The principal
activities of the Company and its subsidiaries (collectively referred
hereinafter the "Group") are described in note 13.
Statement of compliance
The consolidated and Company financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRSs") as
adopted for use in the European Union.
These financial statements have been prepared on a basis consistent with the
accounting polices adopted in 2006 financial statements except for the adoption
for the first time of the following IFRS and revised International Accounting
Standard (revised "IAS")
In the current year, the Group has adopted IFRS 7 Financial Instruments:
Disclosures which is effective for annual reporting periods beginning on or
after 1 January 2007, and the consequential amendments to IAS 1 Presentation of
Financial Statements.
The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to
expand the disclosures provided in these financial statements regarding the
Group's financial instruments and management of capital.
Four Interpretations issued by the International Financial Reporting
Interpretations Committee are effective for the current period. These are:
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; and IFRIC 10 Interim Financial Reporting and Impairment.
The adoption of these Interpretations has not led to any changes in the Group's
accounting policies.
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.
Going concern
As disclosed in note 16 to the financial statements, the group incurred a net
impairment loss during the year in respect of trade receivables of �1,086,000.
The going concern basis of preparation of the financial statements is dependent
upon a shortened overall receivable collection period, compared with historical
experience. As set out in note 25, since 1 January 2008 the Group has
implemented a tighter credit policy and management are confident that the Group
will generate sufficient net cash inflows for the foreseeable future.
On this basis, the directors have prepared the financial statements on the
going concern basis. The accounts do not include any adjustments that would
arise if this basis were inappropriate.
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 intra-group transactions, balances, income, expenses within the Group are
eliminated on consolidation.
The consolidated financial statements of the Group include the financial
statements of the Company and its subsidiaries made up to 31 December each
year.
The results of subsidiaries acquired or disposed of are included in the
consolidated income statement from the effective date of acquisition or up to
the effective date of disposal, as appropriate.
All intercompany transactions and balances and any unrealised gains or losses
arising from intercompany transactions are eliminated on consolidation.
Minority interests at the balance sheet date represent the portion of the net
assets of subsidiaries attributable to equity interests that are not owned by
the Company, whether directly or indirectly through subsidiaries, and in
respect of which the Group has not agreed any additional terms with the holders
of those interests which would result in the Group as a whole having a
contractual obligation in respect of those interests that meets the definition
of a financial liability. Minority interests are presented in the consolidated
balance sheet and consolidated statement of changes in equity within equity,
separate from equity attributable to equity holders of the Company.
Minority interests in the results of the Group are presented on the face of the
consolidated income statement as an allocation of the total profit or loss for
the year between minority interests and equity holders of the Company.
Losses applicable to the minority in excess of the minority's interest in the
subsidiary's equity are allocated against the interests of the Group except to
the extent that the minority has a binding obligation and is able to make an
additional investment to cover the losses.
Subsidiaries
Subsidiaries are those entities controlled by the Group. Control exists when
the Group has the power to govern the financial and operating policies so as to
obtain benefits from their activities. In assessing control, potential voting
rights that presently are exercisable are taken into account.
In the Company's balance sheet, an investment in a subsidiary is stated at cost
less accumulated impairment losses. The carrying amount of the investment is
reduced to its recoverable amount on an individual basis. Results of
subsidiaries are accounted for by the Company on the basis of dividends
received and receivable.
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.
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:
Leasehold improvements The shorter of the unexpired period of the lease and
estimated useful life
Plant and 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 an 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.
Loans and receivables
Trade and other receivables are initially recognised at fair value and
thereafter stated at amortised cost using the effective interest method less
provision for impairment of doubtful debts, except where receivables are
without fixed or determinable repayment terms or the effect of discounting
would be immaterial. In that case, receivables are stated at cost less any
provision for impairment loss of doubtful debts. A provision for impairment of
doubtful debts 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 less the effect of discounting if
immaterial. The amount of provision is recognised in the income statements.
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.
Impairment of financial assets
Financial assets, other than financial assets at fair value through profit or
loss, are assessed for indicators of impairment at each balance sheet date.
Financial assets are impaired where there is objective evidence that, as a
result of one or more events that occurred after the initial recognition of the
financial asset, the estimated future cash flows of the investment have been
impacted.
For all other financial assets, including loans and receivables, objective
evidence of impairment could include:
* significant financial difficulty of the issuer or counterparty; or
* default or delinquency in interest or principal payments; or
* it becoming probable that the borrower will enter bankruptcy or financial
re-organisation.
For certain categories of financial asset, such as trade receivables, assets
that are assessed not to be impaired individually are subsequently assessed for
impairment on a collective basis. Objective evidence of impairment for a
portfolio of receivables could include the Group's past experience of
collecting payments, an increase in the number of delayed payments in the
portfolio past the average credit period of 60 days, as well as observable
changes in national or local economic conditions that correlate with default on
receivables.
For financial assets carried at amortised cost, the amount of the impairment is
the difference between the asset's carrying amount and the present value of
estimated future cash flows, discounted at the financial asset's original
effective interest rate.
The carrying amount of a financial asset is reduced by the impairment loss
directly for all financial assets with the exception of trade receivables,
where the carrying amount is reduced through the use of an allowance account.
When a trade receivable is considered uncollectible, it is written off against
the allowance account. Subsequent recoveries of amounts previously written off
are credited against the allowance account. Changes in the carrying amount of
the allowance account are recognised in profit or loss.
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 through
profit or loss to the extent that the carrying amount of the investment at the
date the impairment is reversed does not exceed what the amortised cost would
have been had the impairment not been recognised.
Other financial liabilities
Other financial liabilities including trade payables, other payables and
borrowings are initially recognised at fair value and thereafter stated at
amortised cost, using the effective interest method, unless the effect of
discounting would be insignificant, in which case they are stated at cost.
The Group derecognises a financial liability when, and only when the liability
is extinguished.
Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer of the
contract to make specified payments to reimburse the holder of the contract for
a loss the holder incurs because a specified debtor fails to make payment when
due in accordance with the terms of a debt instrument. A financial guarantee
contract is initially recognised as deferred income within trade and other
payable at fair value, where such information is available. Otherwise, it is
recognised at consideration received and receivable. Subsequently, it is
measured at the higher of the amount initially recognised, less accumulated
amortisation, and the amount of the provision, if any, that is required to
settle the commitment at the balance sheet date.
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.
Translation of foreign currencies
Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates (`the functional currency'). The consolidated financial
statements are presented in UK Pounds Sterling which is the Company's
presentation currency.
(b) Transactions and balances
Foreign currency transactions during the year are translated at the foreign
exchange rates ruling at the transaction dates. Monetary assets and liabilities
denominated in foreign currencies are translated at the foreign exchange rates
ruling at the balance sheet date. Exchange gains and losses are recognised in
profit or loss.
Non-monetary assets and liabilities that are measured in terms of historical
cost in a foreign currency are translated using the foreign exchange rates
ruling at the transaction dates. Non-monetary assets and liabilities
denominated in foreign currencies that are stated at fair value are translated
using the foreign exchange rates ruling at the dates the fair value was
determined.
(c) Group companies
The results of the subsidiary company in the PRC are translated into Hong Kong
dollars at the exchange rates approximating the foreign exchange rates ruling
at the dates of the transactions. Balance sheet items are translated into Hong
Kong dollars at the foreign exchange rates ruling at the balance sheet date.
The resulting exchange differences are recognised directly in a separate
component of equity.
On disposal of a foreign operation, the cumulative amount of the exchange
differences recognised in equity which relate to that foreign operation is
included in the calculation of the profit or loss on disposal.
Impairment of non-current 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 and intangible assets, 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.
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 will ultimately vest.
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 purpose of these financial statements, a party is considered to be
related to the Group if:
directly, or indirectly through one or more intermediaries, the party controls,
is controlled by, or is under common control with, the Group; or has an
interest in the Group that gives it significant influence over the Group; or
has joint control over the Group;
(ii) the party is an associate of the Group;
(iii) the party is a joint venture in which the Group is a venturer;
(iv) the party is a member of the key management personnel of the Group;
the party is a close member of the family of any individual referred to in (i)
or (iv);
the party is an entity that is controlled, jointly controlled or significantly
influenced by, or for which significant voting power in such entity resides
with, directly or indirectly, any individual referred to in (iv) or (v); or
the party is a post-employment benefit plan for the benefit of employees of the
Group, or any entity that is a related party of the Group.
Future changes in accounting standards
At the date of authorisation of these financial statements, the International
Accounting Standards Board (IASB) has issued the following new/revised IFRSs
and IASs that are not yet effective.
Effective for
accounting
periods
beginning on or
after
IFRS 2 Amendents IFRS 2 Share-based Payment-Vesting 1 January 2009
Conditions and Cancellations
IFRS 3 (Revised) Business Combinations 1 July 2009
IFRS 8 Operating Segments 1 January 2009
IAS 1 (Revised) Presentation of Financial Statements 1 January 2009
IAS 23 (Revised) Borrowing Costs 1 January 2009
IAS 27 (Revised) Consolidated and Separate Financial 1 July 2009
Statements
IFRIC 11 IFRS 2 - Group and Treasury Share 1 March 2007
Transactions
IFRIC 12 Service Concession Arrangements 1 January 2008
IFRIC 13 Customer Loyalty Programmes 1 July 2008
IFRIC - Int 14 IAS 19 - The Limited on a Defined Benefit 1 July 2008
Asset, Minimum Funding Requirements and
their interaction
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.
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 receivables
The Group makes provision for doubtful receivables based on an assessment of
the collectibility of trade receivables. Provisions for doubtful receivables
are applied to trade receivables where events or changes in circumstances
indicate that the balances may not be collectible. The identification of
doubtful receivables 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.
(iv) Assets held for sale
The Group has seized building properties from customers in lieu of settlement
when these customers fail to repay. Management assesses the net realisable
value of these properties (which is the estimated selling price less all
estimated costs of completion, if necessary, and costs to be incurred in
marketing and selling these properties). Any deficiency of the net realisable
value of these properties seized below the carrying value of the trade
receivable is charged to income statement as write-off of bad debts. The
management assesses constantly any change in the net realisable value. Any
decline in valuation is charged to income statement. The assessment of the net
realisable value requires the use of judgement and estimates of the property
market. Where the expectation is different from the original estimates, such
differences will impact on the carrying value of these properties.
2. REVENUE AND OTHER INCOME
The principal activities of the Group are developing, manufacturing and selling
large-scale construction machineries.
The Group
2007 2006
�'000 �'000
Revenue
Sales of goods 6,831 7,164
Other income
Interest income 1 5
Sundry income 69 8
70 13
6,901 7,177
Since the launch of tower cranes in 2007, for management purposes, the Group is
organised into two major operating divisions; the manufacture and sale of
concrete pumps and manufacture and sale of tower cranes. These divisions are
the basis on which the Group reports its primary segment information.
Segment revenue and results
Segment revenue Segment result
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Manufacture and sale of 5,662 7,164 (872) 928
concrete pumps and others
Manufacture and sale of 1,169 - (95) -
tower cranes
6,831 7,164 (967) 928
Unallocated costs net of (108) (185)
unallocated income
(Loss) Profit before (1,075) 743
taxation
Taxation (69) (111)
(Loss) Profit for the year (1,144) 632
Revenue reported above represents revenue generated from external customers.
There were no inter-segment sales in the year. (2006: Nil).
Segment assets and liabilities
Assets Liabilities
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Manufacture and sale of 6,667 7,604 4,821 3,466
concrete pumps and others
Manufacture and sale of 2,079 - 245 -
tower cranes
Total of all segments 8,746 7,604 5,066 3,466
Unallocated 11 28 508 42
Consolidated 8,757 7,632 5,574 3,508
Depreciation and Additions to capital
amortisation assets
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Manufacture and sale of 62 58 83 138
concrete pumps and others
Manufacture and sale of 12 - 206 -
tower cranes
Consolidated 74 58 289 138
As the Group's activities are all conducted in the People's Republic of China
("PRC"), no geographical segment information is presented.
Revenue by destination
The Group
2007 2006
�'000 �'000
Destination
PRC 5,740 7,164
Non-PRC areas 1,091 -
6,831 7,164
3. (LOSS) PROFIT BEFORE TAXATION
The Group
2007 2006
This is arrived at after charging (crediting): �'000 �'000
Finance costs
Interest on bank borrowings 123 22
Interest on advances from a director 35 30
158 52
Other items
Auditors' remuneration
MRI Moores Rowland LLP
- For audit of the Company's annual financial - -
statements
- Other services - limited review on the Company's - 16
interim
financial report
Baker Tilly UK Audit LLP and its associates
- Audit services 50 33
Staff costs including directors' emoluments
- Contributions to defined contribution retirement 69 39
plans (Note 8)
- Salaries, bonus and other benefits (Note 5) 800 694
Cost of inventories 3,151 4,257
Cost of employee share options (Note 22) 14 14
Research - 14
Depreciation of property, plant and equipment 54 44
(Note 10)
Amortisation of intangible assets (Note 11) 20 14
Rentals under operating leases in respect of land 128 42
and buildings
Provision for warranty (Note 23) 45 73
(Write-back) write-off of trade receivables (Note (324) 48
16)
Provision for doubtful receivables (Note 16) 1,410 230
Net foreign exchange (gain) loss (37) 18
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: 2007 2006
�'000 �'000
Current tax
PRC enterprise income tax 3 100
Deferred taxation:
Origination and reversal of temporary differences 66 11
69 111
No provision for UK or Hong Kong taxation has been made as the Company and its
Hong Kong subsidiaries have no estimated taxable 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 Taxation authorities, 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 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 enterprises.
Jarlway Machinery is exempt from local income tax during the tax holiday. As a
result, the effective foreign enterprise income tax rate for Jarlway Machinery
was 15% for the year ended 31 December 2007 (2006: 7.5%).
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
incurred profits for the year ended 31 December 2007 since its incorporation.
As a result, Jarlway Xinxin is entitled to exemption from PRC foreign
enterprise income tax for the two years ended 31 December 2008 and is entitled
to a 50% reduction from PRC foreign enterprise income tax for the three years
ended 31 December 2011 ("tax holiday").
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, , the effective foreign enterprise income tax rate for Jarlway
Lishitong Machinery Inc. ("Jarlway Lishitong") is 30% for the year ended 31
December 2007.
2007 2006
Deferred tax recognised in the income statement �'000 �'000
Types of temporary differences:
Depreciation allowances - 2
Reverse of deferred tax assets recognised in 66 -
prior years
Others - 9
66 11
A reconciliation between tax expense and accounting profit using the weighted
average taxation rate of the companies within the Group is as follows:
2007 2006
�'000 �'000
(Loss) Profit before taxation (1,075) 743
Tax at the small companies rate of Corporation tax (215) 141
in the UK of 20% (2006:19%)
Non-taxable income (3) -
Non-deductible expenses 4 67
Tax effect of unrecognised tax losses 82 -
Temporary differences 37 20
Reversal of deferred tax assets recognised in 66 -
previous years
Effect of overseas tax rates differences 102 (124)
Other (4) 7
Tax expense for the year 69 111
5. DIRECTORS' AND EMPLOYEES' EMOLUMENTS
Particulars of the emoluments of the directors are as follows:
(a) Directors' emoluments
2007 2006
�'000 �'000
Fees:
Executive directors 26 27
Non-executive directors 11 20
Other emoluments:
Salaries 48 32
85 79
(b) Information regarding directors and employees
2007 2006
No. No.
The average number of persons employed by the Group 378 253
(including directors) during the year was:
�'000 �'000
Aggregate staff costs (including directors) during
the year were:
Wages and salaries 728 629
Social security costs 69 39
Share-based payment 14 14
Other benefits 72 65
883 747
Of the above staff costs, �319,000 (2006: �114,000) is included in cost of
production/ manufacturing, �338,000 (2006: �299,000) is included in
administrative expenses and �226,000 (2006: �334,000) is included in selling
and distribution costs in the Income Statement.
6. LOSS attributable to equity holders OF THE COMPANY
The consolidated loss attributable to equity holders of the Company includes a
loss of approximately �115,000 (2006: �132,000) which has been dealt with in
the financial statements of the Company for the year ended 31 December 2007.
7. (LOSS) EARNINGS PER SHARE
The calculation of basic loss per share is based on the loss for the year
attributable to equity holders of the Company of �1,135,000 (2006: profit of �
632,000) and the weighted average number of 24,413,333 shares (2006: 24,413,333
shares) in issue during the year.
Diluted (loss) earnings per share for the year ended 31 December 2007 and 31
December 2006 are equal to the basic (loss) earnings per shares as the exercise
price of the share options granted by the Company was higher than the average
market price for shares for both years.
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 percentages
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 2007, the aggregate amount of employer's contribution made by the
Group was �69,000 (2006: �39,000).
9. ASSETS HELD FOR SALE
Assets held for sale represent properties received from customers 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 incurred in marketing and selling.
10. PROPERTY, PLANT AND EQUIPMENT
Construction Plant and Motor Furniture, Total
in progress machinery vehicles fittings
Leasehold and
improvements equipment
�'000 �'000 �'000 �'000 �'000 �'000
The Group
Cost
At 1 January - - 86 203 25 314
2006
Reallocation - - (2) - 2 -
Addition 20 34 76 8 138
during the -
year
Exchange (1) - (8) (20) (2) (31)
rate
movement
At 1 January 19 - 110 259 33 421
2007
Reallocation (53) 17 36 - - -
Addition 48 191 - 16 289
during the 34
year
Exchange 1 2 11 12 - 26
rate
movement
At 31 15 53 348 271 49 736
December
2007
Accumulated
depreciation
At 1 January - - 27 18 8 53
2006
Reallocation - - (1) - 1 -
Charge for - - 9 30 5 44
the year
Exchange - - (2) (3) (1) (6)
rate
movement
At 1 January - - 33 45 13 91
2007
Charge for - - 15 33 6 54
the year
Exchange - - 2 3 1 6
rate
movement
At 31 - - 50 81 20 151
December
2007
Net book
value
At 31 15 298 190 29 585
December 53
2007
At 31 19 77 214 20 330
December -
2006
At 31 - 59 185 17 261
December -
2005
Depreciation of �39,000 (2006: �31,000) is included in administrative expenses
and �15,000 (2006: �13,000) is included in selling and distribution costs in
the Income Statement.
11. INTANGIBLE ASSETS
The Group
2007 2006
�'000 �'000
At 1 January 46 -
Transfer from deposits - 62
Amortisation (20) (14)
Exchange rate movement 1 (2)
At 31 December 27 46
In 2005, the Company acquired 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. The cost of the technology know-how for
placing booms and concrete pumps are amortised on straight-line basis over the
expected useful life of 3 years.
12. RESTRICTED BANK BALANCES
The Group
2007 2006
�'000 �'000
Current 154 265
Non-current - 78
154 343
The restricted bank balances were 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
2007 2006
�'000 �'000
Unlisted shares, at cost 50 50
Details of the Company's subsidiaries are as follows:
Name of company Place of Issued and Principal
incorporation fully paid Proportion activities
and share capital/ of ownership
operation paid-up interest/
registered voting power
capital
Jarlway International Hong Kong HK$10,000 100% Investment
Limited ordinary holding
shares
Jarlway Machinery The People's US$2,000,000 100% Developing,
Inc. Republic of registered manufacturing
China capital and selling
of large
scale
construction
machineries
Jarlway Xinxin The People's RMB20,000,000 100% Developing,
Machinery Inc. Republic of registered manufacturing
China capital and selling
large scale
construction
machineries
Jarlway Lishitong The People's RMB5,000,000 70% Developing,
Machinery Inc. Republic of registered manufacturing
China capital, and selling
RMB1,535,400 large scale
issued and construction
fully paid 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. Jarlway
Lishitong Machinery Inc. is a Sino Joint Venture established in the People's
Republic of China in March 2007.
14. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS
The Group
2007 2006
�'000 �'000
Investment in unit trusts, at fair 5 5
value
The fair value of these securities is based on quoted market prices at 31
December 2007.
15. INVENTORIES
The Group
2007 2006
�'000 �'000
Raw materials 1,304 629
Work in progress 301 -
Finished goods 932 849
2,537 1,478
16. TRADE AND OTHER RECEIVABLES
The Group
2007 2006
�'000 �'000
Trade receivables
From third parties 3,141 3,746
Less : Non-current portion - (11)
Current portion 3,141 3,735
Deposits 8 -
Prepayment 316 262
Other taxes recoverable 293 134
Other receivables 813 539
4,571 4,670
Trade receivables (net of provision for impairment loss of doubtful
receivables) at 31 December 2007 amounted to �3,141,000 (2006: �3,735,000).
The Group's credit policy is as detailed in note 25. Due to the unhealthy
domestic construction market in the People's Republic of China, there were
considerable balances of outstanding trade receivables carried forward at 31
December 2005. After a review of the recoverability of individual trade
receivables, an impairment loss of �1,410,000 (2006: �230,000) was recognised
in the year. The movement in provision for doubtful trade receivables during
the year, including both specific and collective loss components, is as
follows:
The Group
2007 2006
�'000 �'000
At 1 January 687 543
Impairment loss recognised 1,410 230
Amount written off as uncollectible - (48)
Write-back of previously recognised impairment (324) -
loss
Exchange differences 47 (38)
1,820 687
The Group provides in full for trade receivables where no settlement has been
received for more than a year because historical experience is such that trade
receivables with no settlement after more than a year are generally not
recoverable. As market conditions deteriorated and an increased value trade
receivables became uncollectible, an impairment loss of �1,410,000 was
required.
Included in the Group's trade receivables are receivables with a carrying value
of �555,000 (2006: �1,051,000) which are past due at the reporting date for
which the Group has not made provision as there has not been a significant
change in credit quality and the amounts are still considered recoverable. The
Group does not hold any collateral over these balances.
The Group
2007 2006
�'000 �'000
Over 1 year but less than 2 years 451 292
Over 2 years 104 759
555 1,051
In determining the recoverability of trade receivables, the Group considers any
change in the credit quality of the trade receivable from the date credit was
granted up to the reporting date. The concentration of credit risk is limited
due to the customer base being large and unrelated. Accordingly, the directors
believe that there is no further credit provision required in excess of the
provision for doubtful debts.
Included in the provision for doubtful debts are individually impaired trade
receivable with balances of �1,590,000 (2006: �697,000). There was no
settlement of these receivables over a period of one year and the Group has
decided to make a full provision accordingly. The aging of these impaired trade
receivables is as follows:
The Group
2007 2006
�'000 �'000
Over 1 year but less than 2 years 343 44
Over 2 years 1,247 653
1,590 697
17. DUE TO / FROM SUBSIDIARIES
The amount due to / from subsidiaries 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
2007 2006
�'000 �'000
The long-term bank borrowings are repayable:
- within one year and classified under current 366 100
liabilities
- over one year and classified under non-current 183 11
liabilities
549 111
The long-term bank borrowings are secured by a third party corporate guarantee
and personal guarantee by a director of the Company (Note 28(e)). Interest on
the long-term bank loan is calculated at 7 - 8% per annum.
TRADE AND OTHER PAYABLES
The Group The Company
2007 2006 2007 2006
�'000 �'000 �'000 �'000
Trade payables
To third parties 1,476 1,505 - -
Other payables
Accruals 233 163 20 6
Other taxes payable 128 64
Other payables 1,272 965 - -
3,109 2,697 20 6
The average credit period on purchases of goods is 3 - 6 months. No interest is
charged on the trade payable for settlement after due date.
Included in other payables of the Group is an amount due to a director of �
442,000 (2006: �441,000). The amount due is unsecured, interest bearing at 10%
per annum (2006: 6%) and has no fixed terms of repayment.
The fair value of trade and other payables approximates their carrying value.
20. DEFERRED TAXATION
Recognised deferred tax assets
The Group
2007 2006
�'000 �'000
Reversal of deferred assets (66) -
Exchange rate movement 3 (7)
Other short-term temporary differences 63 70
Net recognised deferred tax assets - 63
The Company
At the balance sheet date, the Company had no unprovided deferred taxation.
21. ISSUED CAPITAL
2007 2006
Number Amount Number Amount
of shares of shares
�'000 �'000
Authorised:
At 1 January and 31 December 50,000,000 125 50,000,000 125
Issued and fully paid:
At 1 January and 31 December 24,413,333 61 24,413,333 61
Capital management
The Group's primary objectives when managing capital are to safeguard the
Group's ability to continue as a going concern, so that it can continue to
provide returns for shareholders and benefits for other stakeholders, by
pricing products and services commensurate with the level of risk and by
securing access to financing at a reasonable cost.
The Group actively and regularly reviews and manages its capital structure to
maintain a balance between the higher shareholder returns that might be
possible with higher levels of borrowings and the advantages securely afforded
by a sound capital position, and makes adjustments to the capital structure in
light of changes in economic conditions.
The Group's strategy is to maintain capital at a higher proportion of at least
double to its financing by reference to its debt-to-equity ratio. In order to
maintain or adjust the ratio, the Group found it difficult to raise equity
financing for the new business operation in the year of 2007. Without any
better alternatives, the Group thus raised its funding by increasing the
short-term bank loans as transitional measures. The Group will make every
effort to reduce the debt-to-equity ratio to the optimum level.
The debt-to-equity ratio of the Group at 31 December 2007 was as follows:
2007 2006
�'000 �'000
Short-term bank borrowings 1,765 519
Long-term bank borrowings 549 111
Due to a director 442 441
Total financing 2,756 1,071
Shareholders' equity 3,183 4,124
Debt-to-equity ratio 87% 26%
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 2007 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.
Number, terms and conditions of the options granted by the Company:
Number of Value of
options options at
granted grant
on date
12 July 2005 �000
Options granted to Directors 122,067 20
Option granted to employees other than 219,720 35
Directors
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.
2007 2006
Employee share-based payments recognised under IFRS �'000 �'000
2
In respect of non-performance based options granted
to 5 5
directors
In respect of options granted to employees other 9 9
than directors
14 14
The following share options were outstanding at 31 December 2007 under the
share option
scheme:
Share options granted during the year
and outstanding as at 31 December
2007
Name of Date of At Granted At Exercise Exercise
participant grant 1 during Lapsed 31 period of price of
January the year during December share share
2007 the year 2007 options options
�
Directors
12 July
12 July 2008 to 11
Xu Jia Jin 2005 122,067 - (122,067) - July 2015 0.30
Other
employees
12 July
12 July 2008 to 11
In 2005 219,720 - - 219,720 July 2015 0.30
aggregate
341,787 - (122,067) 219,720
The weighted average remaining contractual life for the share options
outstanding at the balance sheet date was 8 years.
PROVISIONS
The Group
2007 2006
�'000 �'000
Provision for warranties
At 1 January 66 80
Provision made in the year 45 73
Provision used during the year (47) (87)
Exchange differences 2 -
At 31 December 66 66
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
Share Share Merger Exchange Retained Total
option premium reserve reserve profits
reserve (Note 1) (Note 2)
�'000 �'000 �'000 �'000 �'000 �'000
The Group
At 1 January 2006 6 228 (49) 337 3,240 3,762
Exchange reserve - - - (345) - (345)
arising on
translation of
financial statements
of overseas
subsidiaries
Profit for the year - - - - 632 632
Employee share option 14 - - - 14
benefit
At 31 December 2006 20 228 (49) (8) 3,872 4,063
Exchange reserve - - - 159 - 159
arising on
translation of
financial statements
of overseas
subsidiaries
Loss for the year - - - - (1,135) (1,135)
Employee share option 14 - - - - 14
benefit
At 31 December 2007 34 228 (49) 151 2,737 3,101
Share Share Accumulated Total
option premium losses
reserve (Note 2)
�'000 �'000 �'000 �'000
The Company
At 1 January 2006 6 228 (53) 181
Loss for the year - - (132) (132)
Employee share option benefit 14 - - 14
At 31 December 2006 20 228 (185) 63
Loss for the year - - (115) (115)
Employee share option benefit 14 - - 14
At 31 December 2007 34 228 (300) (38)
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.
The Group's accumulated profits include
an amount of approximately �138,000 (2006: �138,000) 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.
an amount of approximately �1,751,400 (2006: �2,108,000) 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. Group management
continually monitors the Group's risk management process to ensure that an
appropriate balance between risk and control is achieved. This section provides
details of the Group'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. Other financial assets of the
Company with exposure to credit risk include cash and deposits that are placed
with financial institutions which are regulated.
In order to minimise credit risk, the Group has implemented a tighter credit
policy since 1 January 2008. Credit history and background of new customers are
checked and deposits of 10 percent of sales value are required before goods are
delivered for domestic sales. Credit limits with credit terms of 30 days to 90
days are set for customers and designated staff monitors accounts receivable
and follow-up collection with customers. For overseas sales, all settlements
are through letter of credit.
The Group reviews regularly the recoverable amount of each individual
receivable and adequate provision is made for balance determined to be
unrecoverable.
Management has a credit policy in place and exposure to credit risk is
monitored on an ongoing basis.
At the balance sheet date, there was no significant concentration of credit
risk.
Liquidity risk
The management monitors the Group's liquidity risk and maintains a level of
cash and cash equivalents deemed adequate by the management to finance the
Group's operations and to mitigate the effects of fluctuations in its cash
flows. The Group has started obtaining banking financing to maintain its
liquidity. The management monitors the utilisation of borrowings and ensures
compliance with loan covenants.
As at 31 December 2007 and 31 December 2006, the remaining contractual
maturities of the Group's and the Company's financial liabilities, based on
undiscounted cash flows, are summarised below:
Carrying Within 1 More More More
amount year or than 1 than 2 than 5
The Group on year but years years
demand less but less
than 2 than 5
years years
�'000 �'000 �'000 �'000 �'000
As at 31 December
2007
Trade payables 1,476 1,476 - - -
Other liabilities 1,191 1,191 - - -
Amount due to a 442 442 - - -
director
Short-term bank 1,765 1,765 - - -
borrowings
Long-term bank borrowings 549 366 183 - -
5,423 5,240 183 - -
Carrying Within 1 More More More
amount year or than 1 than 2 than 5
on year but years years
demand less but less
than 2 than 5
years years
�'000 �'000 �'000 �'000 �'000
As at 31 December
2006
Trade payables 1,505 1,505 - - -
Other liabilities 751 751
Amount due to a 441 441 - - -
director
Short-term bank borrowings 519 519 - - -
Long-term bank borrowings 111 11 100 - -
3,327 3,227 100 - -
Carrying Within 1 More More More
amount year or than 1 than 2 than 5
The Company on year but years years
demand less but less
than 2 than 5
years years
�'000 �'000 �'000 �'000 �'000
As at 31 December
2007
Other liabilities 20 20 - - -
Due to subsidiaries 12 12 - - -
32 32 - - -
Carrying Within 1 More More More
amount year or than 1 than 2 than 5
on year but years years
demand less but less
than 2 than 5
years years
�'000 �'000 �'000 �'000 �'000
As at 31 December
2006
Other liabilities 6 6 - - -
Foreign Currency risk
The Group's business is principally conducted in Chinese Renminbi ("RMB") with
overseas sales denominated in US Dollars and some overseas expenses in UK
Pounds Sterling and Hong Kong Dollar. Accordingly, the Group is exposed to
foreign currency risk with respect to primarily US Dollar, UK Pounds Sterling
and the Hong Kong Dollar. Foreign exchange risk mainly arises from recognised
assets and liabilities and net investment denominated in those currencies. The
appreciating RMB is favourable to the Group in managing foreign currency risk.
On the other hand, as the Group had started its overseas sales which are
expected to increase in the future, the strengthening RMB will have a negative
impact on the Group in the future. The management is considering all possible
measures to minimise foreign currency risk in relation to overseas sales in the
future.
The Group did not use any forward contracts or currency borrowings to hedge its
exposure to foreign currency risk.
As at 31 December 2007, had the RMB weakened/strengthened by 5 percent against
all foreign currencies with all other variables held constant, post-tax loss of
the year would have been �117,000 (2006: �40,000) lower/higher, mainly as a
result of foreign exchange loss/gain on translation of its assets and
liabilities mainly denominated in RMB into Pounds Sterling.
Interest rate risk
The Group's exposure to market risk for changes in interest rates relates
primarily to the Group's interest-bearing bank borrowing and borrowing from a
director.
Funds not required by the Group in the short-term are kept as temporary demand
or time deposits in commercial banks and the Group does not hold any market
risk-sensitive instruments for speculative purposes.
Assuming the cash and cash equivalents, restricted bank balances, bank
borrowings and amount due to a director as outstanding at 31 December 2007 were
outstanding for the whole year, a 50 basis point increase or decrease would
increase or decrease the loss after tax of the Group for the year by
approximately �1,000 (2006: would decrease or increase profit by approximately
�Nil). The 50 basis point increase or decrease represents management's
assessment of a reasonably possible change in interest rates over the period
until the next annual balance sheet date. The analysis is performed on the same
basis for 2006.
Summary of financial instruments by category
The carrying amounts of the Group's and the Company's financial assets and
liabilities are categorised as follows:
The Group 2007 2006
Loans and Fair Loans and Fair
receivables value receivables value
through through
profit or profit
loss or loss
�'000 �'000 �'000 �'000
Financial assets
Trade receivables 3,141 - 3,735 -
Deposits 8 - - -
Other receivables 813 - 539 -
Financial assets at fair - 5 - 5
value through profit or
loss
Cash and cash equivalents 115 - 374 -
Restricted bank balances 154 - 265 -
4,231 5 4,913 5
The Company 2007 2006
Loans and Fair Loans and Fair
receivables value receivables value
through through
profit or profit
loss or loss
�'000 �'000 �'000 �'000
Financial assets
Cash and cash equivalents 5 - 3 -
Due from subsidiaries - - 77 -
5 - 80 -
The Group 2007 2006
Financial Other Financial Other
liabilities financial liabilities financial
at liabilities at liabilities
amortised amortised
cost cost
�'000 �'000 �'000 �'000
Financial liabilities
Trade payables 1,476 - 1,505 -
Other payables 958 - 588 -
Short term bank borrowings - 1,765 - 519
Long term bank borrowings - 549 - 111
Amount due to a director 442 - 441 -
2,876 2,314 2,534 630
The Company 2007 2006
Financial Other Financial Other
liabilities financial liabilities financial
at liabilities at liabilities
amortised amortised
cost cost
�'000 �'000 �'000 �'000
Financial liabilities
Due to subsidiaries 12 - - -
26. COMMITMENTS
Capital commitments
The Group formed a subsidiary, Jarlway-Lishitong Machinery Inc.
("Jarlway-Lishitong"), with with Guangdong Lishitong Machinery Co. Ltd., a
predominantly state-owned Chinese manufacturer of engineering machinery during
the year (see note 13). According to the formation document, the registered
capital of Jarlway-Lishitong is RMB5 million (approximately �330,000) and the
Group is required to contribute RMB3.5 million (approximately �231,000) in
return for a 70% interest. Up to the balance sheet date, the amount contracted
but not yet injected by the Group amounted to RMB2.4 million (approximately �
158,000). The amount has been paid up subsequently in May 2008.
Commitments under operating leases
The Group leases a number of properties under operating leases, which typically
run for an initial period of 1 - 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:
2007 2006
�'000 �'000
Within 1 year 115 83
2 to 5 years 222 284
337 367
27. CONTINGENT LIABILITIES
Financial guarantee issued
At the balance sheet date, the company have issued guarantee in respect of
loans made by finance companies to a subsidiary of the company with amounting
to RMB20,000,000.
28. 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:
2007 2006
�'000 �'000
Directors' fees 37 47
Salaries and other benefits 48 32
Employee share-based payments 5 5
90 84
(b) During the year, the Company accrued interest expense of �35,000 (2006: �
30,000) to a director, Ng Chi Chor, in respect of the amount due to him. At 31
December 2007, �442,000 (2006: �441,000) 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 �2,400 (2006: �
15,000) in favour of Steeds & Co., of which David Steeds, a director of the
Group until his resignation on 19 February 2007, is a partner of the Company.
(d) During the year, the Group had incurred a retainer fee of �6,500 (2006:
Nil) in favour of a company of which Stephen Chun Hong Wong, a director of the
Group, is a partner of the Company.
The Group's short-term and long-term borrowings which bear interest rates
ranging from 7.02% to 8.3835% per annum are secured by a third party corporate
guarantee of approximately �1,921,000 (2006: �985,000) and third party and
directors' guarantee of approximately �988,000 (2006: Nil).
During the year, the Company accrued service charge of �4,000 (2006: �4,000)
and expenses of �60,000 (2006: �137,000) to its subsidiaries. At 31 December
2007, amount due to subsidiaries amounted to �12,000 (2006: amount due from
subsidiaries �77,000).
29. POST BALANCE SHEET EVENT
Included in assets held for sale are properties with a carrying value of �
67,486 situated in Sichuan Province of China, which was hit by an earthquake in
May 2008. Although the Group's properties were not directly affected by the
earthquake, the management consider that the earthquake may have a negative
impact on the local property market. However, up to the date of this report,
there was insufficient information for management to estimate any possible
decline in value of the properties held. The Group will keep track of market
conditions and recognise a provision if necessary.
The announcement set out above does not constitute a full financial statement
of the Company's affairs for the year ended 31 December 2007. The Company's
auditors have reported on the full accounts for the said year and have
accompanied them with an unqualified report. The accounts have yet to be
delivered to the Registrar of Companies. The annual report and accounts will be
available from the Company's nominated adviser, Nabarro Wells & Co. Limited,
Old Change House, 128 Queen Victoria Street, London EC4V 4BJ.
Enquiries:
Jarlway Holdings plc David Thomas Tel: +44 7753 457 931
Ng Chi Chor Tel: +86 13316269616
Nominated Adviser, Robert Lo Tel: +44 20 7634 4705
Nabarro Wells & Co. Richard Swindells
Limited
END
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