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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Arko Hldgs | LSE:AKO | London | Ordinary Share | GB0003754743 | ORD 0.5P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 0.425 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
RNS Number:8256M Arko Energy Holdings PLC 26 June 2003 Press announcement Arko Energy Holdings PLC Preliminary Statement for the nine months ended 31st December 2002 Arko Energy Holdings PLC ("Arko") has announced its audited preliminary results for the year ended 31st December 2002 Chairman's Statement For the 9 months ended 31 December 2002 As a result of the acquisition of certain of the businesses and assets of Chin Dynasty Fund ("CDF"), Arko Energy Holdings plc (the "Company") decided on 1 July 2002 to alter its year-end date to 31 December from 31 March so as to be coterminous with that of its newly acquired subsidiaries. I am pleased to take this opportunity to review the business development of the Company together with its subsidiaries (collectively the "Group") in the financial period 2002 and to present a preview on future developments. FINANCIAL RESULTS This financial period has seen the emergence of the benefit resulting from the reverse take-over in May 2002 and the hard work of the management in 2002. The audited consolidated profit attributable to shareholders for the year ended 31 December 2002 was #2,594,107, representing a successful recovery from losses of #161,874 in the year ended 31 March 2002. Basic and diluted earnings per share were 0.1536 pence and 0.1532 pence respectively. Most encouraging of all, the reverse take-over has created a healthy balance sheet with a low gearing ratio and a steady income platform. At 31 December 2002, the consolidated total assets and shareholders' funds of the Group were #56,597,839 and #38,827,535 respectively, representing substantial increases in comparison to the previous year. This reflected the success of the Group's new strategy in power plant operation, logistics services and international trading. The positive financial results have apparently brought an immediate effect on the trading of the Company's shares. The number of transactions and share price have maintained a steady rise ever since the announcement of the interim results for the six months 30 September 2002. As at 31 December 2002, the market capitalization of the Company was #129.2 million. DIVIDENDS The directors do not recommend the payment of any dividend for the 9 months ended 31 December 2002. BUSINESS REVIEW With the support of the controlling shareholder, Chin Dynasty Fund, the Group focused on rationalizing and restructuring its businesses in 2002. In addition to the revenue generated from the operation of a power plant in Hubei Province, central China, and a container terminal in Guangzhou Province, southern China, the trading arm, Arko International Trading Limited and the shipping logistics company, Arko Logistics Limited, are the two major profit generators of the Group. Since CDF became the controlling shareholder of the Company in May 2002, the Group has realigned the management and introduced new members to the management team and also initiated a number of projects, including a new management structure, reorganization of assets and refinement of direction for business development. As I mentioned in the interim report for the period ended 30 September 2002, the process for undertaking the two major investment projects, the granite stone quarry in Fujian Province and the coal mine in Ningxia Province, are still under way. The Group will assess the investment progress from time to time depending on the cash resources of the Group as well as the climate of the capital markets for funding development projects. The management believes the Group can provide sufficient working capital for implementing the projects provided that income attributable from the existing businesses can be sustained. The Power Plant in Hubei Province The operation of the power plant in Hubei Province produced a satisfactory operating profit of #825,435 from sales of electricity and steam to the national grid. The record result reflects a stable income from the power plant. To formulate development strategies, the management of the power plant will enhance the quality of the technical team and is to conduct annual machinery examinations. It is anticipated that the construction of a pipeline network for regular steam supply and the upgrading of the local power transmission system will be completed on schedule. The Container Terminal in Guangdong Province Owing to fierce competition, the overall turnover for the period of Keen Chance Terminal (GZ) Company Limited ("KCT") has fallen compared to the previous year. The strike that hit the West Coast of the United States was an added reason for the set back in the marine industry in 2002. To cope with the current difficulties, the management of KCT will focus on streamlining resources, reducing in particular the overall operating cost, and expediting the expansion of logistics warehouses in the coming year. As a result of the favorable geographical location of the terminal and the rapid economic development of the Pearl River Delta region, it is anticipated that the throughput of the terminal will experience steady growth again in the year ahead. Shipping Logistics and Trading Business Based on the results of the period, the shipping logistics business was one of the important sources of income for the Group, contributing 10.35% of the total turnover of the Group. As with the logistics business, the trading has generated a satisfactory operating profit of #3,744,561 this period, before goodwill amortisation. The results were powered by a rise in ship brokerage service and the resumption of international trading activity by Arko International Trading Limited. It is envisaged that Hong Kong will continue to be a key platform in China from which the Group's global operations can be expanded. The Group will exploit opportunities arising from China's accession to the World Trade Organization ("WTO"). Mining exploitation rights in Fujian Province Fujian Sanko Mining Limited, a 70% owned subsidiary, has been granted the right to carry out exploitation and processing activities at the Chengao port of Sandu Ao Economic Development Zone in Ningde City, Fujian Province, China. The land covers an area of 0.9168km2 and the adjacent area of 5.0332km2. Total minable reserve of the quarry in the area are estimated to be approximately 2.7 billion tons. The mining right is 50 years and is extensible subject to government approval. Based on the assessment of an independent professional valuer, Beijing Jingwei Assets Appraisal Co., Ltd, the fair value of the mine is approximately #148 million (RMB1.9 billion), this fair value being calculated by reference to the net present value of the expected future cash flows. In accordance with current UK generally accepted accounting principles the right is recorded at nominal value in the consolidated balance sheet instead of the fair value of the asset. Asset Reorganization Since the completion of the reverse take-over of CDF's assets and businesses in May 2002, the management has continued the restructuring of the Group's business and improving the quality of the Group assets. In respect of operations, the logistics resources of the Group will be consolidated and placed under the control of the holding entity of Arko Logistics Limited, a company registered in the British Virgin Islands. On the other hand, the Group will dispose of assets that have limited growth potential and build up its own fleet. In 2001, the interest in certain vessels that were old was realized in the market. Envisaging the potential growth of the trading business, the management has merged the power plant in Hubei into the entity of Arko International Trading Limited so as to enhance its balance sheet. All these measures have a positive impact on the profitability of the Group and are able to create synergy for the Group's businesses. PROSPECTS As most of the Company's businesses are in China, China's overall economic growth is a major factor that affects the performance of the Company. The impressive growth record of China's economy in recent years testifies to the wisdom of the management in investing in China. Over the course of the next decade it is expected that China will be on the path of high growth, this time on a more solid economic foundation and a legal framework. WTO will open China's markets to the world and corporations around the globe are eagerly preparing to enter China. With extensive business experience in the China market, the Group will continue to look for opportunities for projects in China so as to optimize the deployment of the Group's resources. On the other hand, in order to enhance returns to shareholders, the management will continue to evaluate and improve the Group's asset portfolio. The Group will gradually achieve stable operating results with promising growth potential and increase the Group's international profile. Change of the Company's Name A Resolution will be proposed at the forthcoming Annual General Meeting of the Company to approve the change of the name of the Company from "Arko Energy Holdings plc" to "Arko Holdings plc" in order to reflect more appropriately the nature and direction of the Group's businesses. APPRECIATION I would like to express my sincere gratitude on behalf of all shareholders to the Board of Directors and employees of the Group for their support, dedication and hard work throughout the financial period and in future. CHIN Kam Chiu Chairman 26 June 2003 Consolidated Profit and Loss Account For the 9 months ended 31 December 2002 9 months Year ended ended 31.12.2002 31.3.2002 Note # # Turnover 3 Acquisitions 8,082,189 - Continuing operations 29,728,567 186,602 37,810,756 186,602 Cost of sales Acquisitions (4,575,852) - Continuing operations (28,122,402) - (32,698,254) - Gross profit 5,112,502 186,602 Net operating expenses Acquisitions (915,176) - Continuing operations (861,761) (246,733) (1,776,937) (246,733) Operating profit/(loss) 3, 4 Acquisitions 2,591,161 - Continuing operations 744,404 (60,131) 3,335,565 (60,131) Exceptional items 6 Acquisitions Disposal of fixed assets 61,770 - Disposal of investments (131,353) - Discontinued operations Disposal of subsidiaries - (108,942) Interest receivable 7 460,637 7,199 Interest payable 8 (132,598) - Profit/(loss) on ordinary activities before taxation 3,594,021 (161,874) Taxation on profit on ordinary activities 9 (547,680) - Profit/(loss) on ordinary activities after taxation 3,046,341 (161,874) Minority interests (452,234) - Profit/(loss) for the financial period/year 2,594,107 (161,874) Earnings/(loss) per share (pence) 10 Basic 0.1536 (0.2267) Diluted 0.1532 N/A There were no material differences between the reported profit/(loss) and historical cost profit/(loss) on ordinary activities before taxation in any of the above financial period/year. The notes on the accompanying pages form part of these financial statements. Statement of Total Recognised Gains and Losses For the 9 months ended 31 December 2002 9 months Year ended ended 31.12.2002 31.3.2002 # # Profit/(loss) for the financial period/year 2,594,107 (161,874) Exchange adjustments (1,866,052) - Total gains/(losses) recognised in the period/year 728,055 (161,874) Balance Sheets At 31 December 2002 Group Company At At At At 31.12.2002 31.3.2002 31.12.2002 31.3.2002 Note # # # # FIXED ASSETS Intangible asset 11 18,311,445 - - - Tangible assets 12 27,935,410 - - - Investments 13 - - 38,000,001 - 46,246,855 - 38,000,001 - CURRENT ASSETS Stocks 14 230,281 - - - Debtors 15 - due within one year 4,616,262 392,307 8,671 392,307 - due after more than one year 5,236,727 - - - Cash at bank and in hand 267,714 18,466 2,722 18,466 10,350,984 410,773 11,393 410,773 CREDITORS Amounts falling due within one year 16 (7,503,296) (18,386) (440,064) (18,386) NET CURRENT ASSETS/(LIABILITIES) 2,847,688 392,387 (428,671) 392,387 TOTAL ASSETS LESS CURRENT LIABILITIES 49,094,543 392,387 37,571,330 392,387 CREDITORS Amounts falling due after more than one year 16 (994,353) - - - MINORITY INTERESTS (9,272,655) - - - 38,827,535 392,387 37,571,330 392,387 CAPITAL AND RESERVES Called up share capital 18 8,910,380 357,880 8,910,380 357,880 Shares to be issued 19 3,800,000 - 3,800,000 - Share premium 19 7,687,203 - 7,687,203 - Merger relief reserve 19 17,667,390 - 17,667,390 - Profit and loss account 19 762,562 34,507 (493,643) 34,507 SHAREHOLDERS' FUNDS 38,827,535 392,387 37,571,330 392,387 These financial statements were approved by the board of directors and signed on their behalf by: Mr. CHIN Kam Chiu Mr. LEUNG Tze Kin Consolidated Cash Flow Statement For the 9 months ended 31 December 2002 9 months Year ended ended 31.12.2002 31.3.2002 Note # # NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 20 4,177,273 (397,334) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 18,037 7,199 Interest paid (132,254) - Interest element of finance lease payments (344) - NET CASH (OUTFLOW)/INFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (114,561) 7,199 CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Payments to acquire fixed assets (4,068,157) - Deposits paid for fixed assets (2,152,723) - Receipts from sale of assets 1,089,943 - Receipts from sale of current investments 1,390,386 - NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (3,740,551) - ACQUISITIONS AND DISPOSALS Purchase of subsidiary undertakings (1,547) - Net cash acquired with subsidiaries 222,213 - Sale of subsidiaries - (108,942) NET CASH INFLOW/(OUTFLOW) FROM ACQUISITIONS AND DISPOSALS 220,666 (108,942) CASH INFLOW/(OUTFLOW) BEFORE FINANCING 542,827 (499,077) FINANCING Issue of equity share capital 10,000 1,753 Share issue expenses paid (302,907) - Capital element of finance lease payments (672) - INCREASE/(DECREASE) IN CASH 249,248 (497,324) 9 months Year ended ended 31.12.2002 31.3.2002 Note # # RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 21 Increase/(decrease) in cash in the period/year 249,248 (497,324) Cash outflow from decrease in lease financing 672 - Bank loan acquired with subsidiaries (1,309,317) - Other loan acquired with subsidiaries (245,336) - Advances from fellow investors acquired with subsidiaries (845,615) - New finance leases (4,196) - Translation differences 217,765 - Movement in net debt in the period/year (1,936,779) (497,324) Net funds at beginning of period/year 18,466 515,790 Net debt at end of period/year (1,918,313) 18,466 Reconciliation of Movement In Shareholders' Funds For the 9 months ended 31 December 2002 9 months Year ended ended 31.12.2002 31.3.2002 # # Profit/(loss) for the financial period/year 2,594,107 (161,874) Issue of new shares 34,210,000 1,753 Shares issue expenses (302,907) - Shares to be issued as deferred consideration 3,800,000 - Other movements in shareholders' funds Exchange adjustments (1,866,052) - Net addition to funds 38,435,148 (160,121) Opening shareholders' funds 392,387 552,508 Closing shareholders' funds 38,827,535 392,387 Notes to the Financial Statements Notes to the Financial Statements For the 9 months ended 31 December 2002 1. CORPORATE INFORMATION On 16 April 2002, the Company entered into two acquisition agreements with Keen Lloyd (Holdings) Limited ("KLHL") and Winko Investments Limited ("WIL") both of which are wholly owned subsidiaries of Chin Dynasty Foundation Limited ("CDFL") (formerly Chun Dynasty Investments Limited), which is wholly owned by the Chin Dynasty Fund and who are a party to each of the acquisition agreements by having given warranties in addition to those given by the selling company. Under an acquisition agreement with KLHL, the Company acquired the following by issue of 810,000,000 ordinary shares of 0.5p each in the Company as initial consideration and by further issue of 90,000,000 ordinary shares of 0.5p each in the Company as deferred consideration subject to the achievement of profit targets: a. 100% of the shares in Long Prosperity Industrial Limited ("LPI") which holds 59.2% equity interest in Changzhou Power Development Company Limited ("CZPD"). CZPD owns and operates a power plant with two sets of 27.5MW generators in Suizhou City, Hubei Province, the People's Republic of China ("PRC"); b. 40% equity interests in Keen Chance Terminal (GZ) Company Limited ("KCT"), the benefit of an Agreement to exercise voting rights over a further 20% of the capital of KCT and the right to convert a loan of approximately Renminbi ("RMB") 78 million (equivalent to #5.9 million) into the further registered capital of KCT. KCT owns and operates a container terminal at Miaotou, Huangpu, Guangzhou, PRC (the "Terminal"); and c. Eight oil storage tanks for edible oil which are installed at the Terminal. Under an acquisition agreement with WIL, the Company acquired the following by issue of 900,000,000 ordinary shares of 0.5p each in the Company as initial consideration and by further issue of 100,000,000 ordinary shares of 0.5p each in the Company as deferred consideration subject to the achievement of a profit target (which is detailed below): a. 100% of Sanko Mineral Limited ("SML") (formerly Arko Industrial Limited), which provides shipping services in Hong Kong; b. 100% of Arko Satellite Limited, which owns the intellectual property to a real time satellite tracking system for vessels; and c. 100% of Arko Shipping Limited, which provides mid-stream shipping services, transporting cargoes between international ships in Hong Kong and ports and terminals in PRC. On the basis of a closing mid-market price of 2p per ordinary share on 24.1.2002, being the date of suspension of trading in the Company's shares on the Alternative Investment Market of The London Stock Exchange (the "AIM"), the initial and deferred considerations for acquiring the various entities amounted to #34.2 million and #3.8 million respectively which in the opinion of the directors was considered to be their fair value. Given the size of these acquisitions, the transaction was classified as a reverse takeover under the AIM Rules. The acquisitions were completed on 10 May 2002. The Company has issued 1,710,000,000 ordinary shares of 0.5p each to satisfy the initial consideration of #34.2 million for the acquisition of various entities. Pursuant to the acquisition agreements, the Company is obliged to issue a further 190,000,000 ordinary shares of 0.5p each to KLHL and WIL to satisfy the deferred consideration of #3.8 million, if the audited net profit before tax and before amortisation or impairment of goodwill of the business of the various entities for the year ended 31 March 2003 is not less than #3.8 million. Based on the management accounts of the various entities as at 31 March 2003 the aforesaid profit target was achieved and the directors consider that the Company will be obliged to issue and allot the 190,000,000 ordinary shares of 0.5p each to KLHL and WIL as deferred consideration. Accordingly, the investment cost of #38 million was recorded for acquiring the various entities as at the balance sheet date after accruing for the deferred consideration of #3.8 million as " shares to be issued". The results of the entities will be subject to audit prior to the shares being issued as required by the acquisition agreement. During the period, the Group disposed of its 100% equity interests in Arko Shipping Limited, which was treated as a current asset investment, to Zhejiang Yicheng Industrial Company Limited ("ZYCIL") at a consideration of #1,332,556 resulting in a loss of #131,353. ZYCIL is a minority shareholder in Fujian Sanko Mining Limited ("FSML"). 2. ACCOUNTING POLICIES The financial statements have been prepared under the historical cost convention, and in accordance with applicable UK accounting standards. (a) Basis of consolidation On the acquisition of a subsidiary, its assets and liabilities are recorded at their fair value, reflecting their condition at the date of acquisition. All changes to those assets and liabilities, and the resulting gains and losses, that arise after the Group has gained control of the subsidiary are taken to the profit and loss account. The consolidated profit and loss account and consolidated balance sheet include the financial statements of the Company and its subsidiary undertakings up to 31 December. The results of subsidiaries acquired are included in the consolidated profit and loss account from the date on which control passes. Intra-group sales and profits are eliminated on consolidation. As permitted by Section 230 of the Companies Act 1985, a separate profit and loss account is not presented in respect of the Company. (b) Turnover Turnover comprises the invoiced value of sales relating to the period in respect of trading, operation of a power plant, and a terminal and provision of shipping logistic services. In the previous accounting period, turnover represented commission only. (c) Goodwill Goodwill arising on consolidation represents the excess of the fair value of the consideration paid over the fair value of the identifiable net assets acquired and will be amortised through the profit and loss account over its estimated useful economic life of 20 years on a straight line basis. Provision is made for any impairment in the carrying value of the goodwill to the extent that an asset's recoverable value in use is reduced below its carrying value. (d) Tangible assets Expenditure on additions and improvements is capitalised as incurred. Fixed assets are included at historical cost less accumulated depreciation and any impairment losses. Tangible fixed assets, other than construction in progress, are depreciated over their estimated useful lives on a straight line basis. The following annual rates of depreciation have been used. Land and buildings 20 - 30 years Plant and machinery 10 - 20 years Equipment, furniture and fixtures 5 - 10 years Motor vehicles 5 - 10 years Oil storage tanks 15 years Vessels 10 years Construction in progress represents a building under construction, which is stated at cost less any impairment. Cost comprises the direct cost of construction. Construction in progress is reclassified to the appropriate category of tangible fixed assets when completed and ready for use. (e) Stocks Stock is valued at the lower of cost and estimated net realisable value. (f) Foreign currencies Monetary assets and liabilities expressed in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Differences on exchange arising from the translation of the opening balance sheets of foreign subsidiaries at the period end are taken directly to exchange reserve. Revenues, costs and non-monetary assets are translated at the exchange rates ruling at the transaction date. Profits and losses arising from currency transactions and on settlement of amounts receivable and payable in foreign currencies are dealt with through the profit and loss account. (g) Deferred taxation As required by FRS 19 "Deferred tax", full provision is made for deferred tax assets and liabilities arising from all timing differences between the recognition of gains and losses in the financial statements and recognition in the tax computation, except for those timing differences in respect of which the standard specifies that deferred tax should not be recognised. Deferred tax assets and liabilities are calculated at the tax rates expected to be effective at the time the timing differences are expected to reverse. (h) Liquid resources In accordance with FRS 1 "Cash Flow Statements", for cash flow purposes, cash includes net cash in hand and bank deposits payable on demand within one working day, and liquid resources include all of the Group's other bank deposits. (i) Pension costs The Group operates defined contribution pension schemes including the Hong Kong Mandatory Provident Fund Scheme and the PRC Central Pension Scheme. Contributions are charged to the profit and loss account in the period as incurred. (j) Leases Assets acquired under finance leases are treated as tangible fixed assets and depreciation is provided accordingly. The present value of future rentals is shown as a liability and the interest element of rental obligations is charged to the profit and loss account over the period of the lease in proportion to the capital balance outstanding. Rentals paid under operating leases are charged to the profit and loss account as incurred. 3. SEGMENTAL INFORMATION Turnover Operating profit/(loss) Net operating 9 months Year 9 months Year assets/(liabilities) ended ended ended ended At At 31.12.2002 31.3.2002 31.12.2002 31.3.2002 31.12.2002 31.3.2002 # # # # # # Acquisitions: Terminal and shipping logistics 3,914,726 - 1,776,818 - 13,445,598 - Power plant 4,167,463 - 825,435 - 19,569,299 - Others - - (11,092) - (2,037,322) - Continuing operations: Trading and 29,728,567 186,602 806,137 (60,131) 6,309,765 392,387 others Mining - - (61,733) - 1,540,195 - Group 37,810,756 186,602 3,335,565 (60,131) 38,827,535 392,387 Analysis by destination: Hong Kong 2,779,305 - 2,575,610 - 14,159,087 - PRC excluding Hong Kong 35,031,451 - 1,305,509 - 25,097,119 - United Kingdom - - (545,554) - (428,671) 392,387 ("UK") Others - 186,602 - (60,131) - - Group 37,810,756 186,602 3,335,565 (60,131) 38,827,535 392,387 The analysis of turnover by destination is not materially different to the analysis of turnover by origin. 4. OPERATING PROFIT/(LOSS) 9 months Year ended ended 31.12.2002 31.3.2002 # # Operating profit/(loss) is stated after charging/(crediting): Auditors' remuneration - UK 15,000 5,000 - Overseas 5,820 - Depreciation of tangible assets - owned assets 1,319,686 - - leased assets 354 - Amortisation of positive goodwill 609,059 - Rentals under operating leases - land and buildings 192,288 - - barges and containers 617,259 - - motor vehicles 96,468 - Directors' remuneration (see below) - - Staff costs (Note 5) 1,182,491 - Exchange loss/(gain), net 6,110 (2,959) Write back of negative goodwill (Note a) (481,031) - Fees of #121,739 were paid to the directors through Winbest Resources Limited, a company in which Mr. Chin is a director and which is ultimately controlled by CDFL. Note a: Negative goodwill of #481,031 arose on the acquisition of Arko Logistics Limited from KLHL which is controlled by CDFL, a company wholly owned by the Chin Dynasty Fund. This was written back in the period because the fair value of Arko Logistics Limited consisted of only monetary assets at the date of acquisition. Accordingly, the directors opined that it was appropriate to write back the whole amount of negative goodwill in the year of acquisition. 5. PARTICULARS OF EMPLOYEES 9 months Year ended ended 31.12.2002 31.3.2002 # # Staff costs are analysed as below: Wages and salaries - included in cost of sales 391,422 - - included in operating expenses 676,528 - Social security costs 59,704 - Pension costs 20,599 - Other staff welfare 34,238 - 1,182,491 - Average number of staff employed during the period/year was as follows: Management and administration 142 5 Sales and distribution 23 - Operations 386 - 551 5 6. EXCEPTIONAL ITEMS (a) Gain of #61,770 on disposal of tangible fixed assets. (b) Loss on disposal of investments of #131,353 arising from the disposal of Arko Shipping Limited to ZYCIL, a fellow investor in FSML, at a consideration #1,332,556. (c) Additional costs associated with the sale of the Company's former subsidiaries in the prior period. 7. INTEREST RECEIVABLE 9 months Year ended ended 31.12.2002 31.3.2002 # # Interest income - Bank 633 7,199 - Other 460,004 - 460,637 7,199 8. INTEREST PAYABLE 9 months Year ended ended 31.12.2002 31.3.2002 # # Bank loans wholly repayable within five years 103,074 - Other loans wholly repayable within five years 29,180 - Finance charges payable under finance leases 344 - 132,598 - 9. TAXATION (a) Analysis of tax charge 9 months Year ended ended 31.12.2002 31.3.2002 # # Current tax: UK corporation tax on profits of the - - period Adjustment in respect of prior periods - - Foreign tax 547,680 - Total current tax (note 9(b)) 547,680 - Deferred tax - - Tax on profit on ordinary activities 547,680 - (b) Factors affecting tax charge for the period The tax assessed for the period/year is lower than the standard rate of corporation tax in the UK (30%). The differences are explained below : 9 months Year ended ended 31.12.2002 31.3.2002 # # Profit/(loss) on ordinary activities before tax 3,594,021 (161,874) Profit/(loss) on ordinary activities at standard rate of corporation tax in the UK of 30% (Year ended 31.3.2002 : 30%) 1,078,206 (48,562) Effects of : Expenses not deductible for tax purposes 77,249 48,562 Capital allowances in excess of depreciation (22,392) - Lower tax rates on overseas earnings (653,574) - Non-taxable income (52,381) - Utilisation of tax losses (43,974) - Increase in tax losses to be carried forward 164,546 - Current tax charge for period/year 547,680 - (c) Factors that may affect future tax charges In respect of subsidiaries operating in Hong Kong, provision for Hong Kong profits tax is calculated at 16% (Year ended 31.3.2002: Nil) of the estimated assessable profits for the period. In respect of subsidiaries operating in PRC, they are subject to enterprise income tax ("EIT") at rates from 15% to 33%. However, certain of them obtained tax holidays from the local authorities under the income tax law of PRC whilst certain had tax losses brought forward from previous years. Accordingly, no provision for EIT has been made for the period. No deferred tax is recognised on the unremitted earnings of the overseas subsidiaries, as no dividends payments, due to the UK parent company are expected to be made in the foreseeable future. At At 31.12.2002 31.3.2002 Deferred tax - Unprovided for # # Accelerated capital allowances (11,942) - Tax losses carried forward 157,247 - 145,305 - 10. EARNINGS/(LOSS) PER SHARE Basic earnings/(loss) per share for the period is based on a profit of #2,594,107 (Year ended 31.3.2002: loss of #161,874) and the weighted average number of shares in issue and to be issued of 1,688,444,775 (Year ended 31.3.2002: 71,400,724). Diluted earnings per share for the period is based on a profit of #2,594,107. The weighted average number of shares used to calculate diluted earnings per share incorporates the weighted average number of shares in issue and to be issued of 1,688,444,775 plus dilutive potential ordinary shares arising from share options of 4,669,811 totalling 1,693,114,586. 11. INTANGIBLE FIXED ASSET Goodwill on acquisition of Group subsidiaries # Cost: Arising on acquisition of subsidiaries during the period and at 31.12.2002 18,920,504 Accumulated amortisation: Charge for the period and at 31.12.2002 (609,059) Net book value: At 31.12.2002 18,311,445 12. TANGIBLE FIXED ASSETS Furniture, Land and Plant and fixtures Oil Motor Construction Group buildings machinery equipment tanks Vessels vehicles in progress Total # # # # # # # # Cost: Acquired with subsidiaries 13,661,181 12,331,371 1,459,275 - 3,898,000 405,638 680,849 32,436,314 Additions 832,588 3,160,800 143,598 1,088,925 - 8,156 12,199 5,246,266 Disposals - - - - (1,199,424) - -(1,199,424) Exchange (1,239,413) (1,118,766) (132,391) - (313,561) (36,802) (61,770)(2,902,703) differences At 13,254,356 14,373,405 1,470,482 1,086,925 2,385,015 376,992 631,278 33,580,453 31.12.2002 Accumulated depreciation: Acquired with subsidiaries 1,525,634 2,487,104 472,308 - 320,122 184,852 - 4,990,020 Charge for the 331,803 628,384 101,765 43,917 176,394 37,777 - 1,320,040 period Disposals - - - - (171,251) - - (171,251) Exchange (151,686) (245,405) (44,298) (1,570) (32,789) (18,018) - (493,766) differences At 1,705,751 2,870,083 529,775 42,347 292,476 204,611 - 5,645,043 31.12.2002 --------- --------- --------- --------- --------- --------- --------- --------- Net book value: At 11,548,605 11,503,322 940,707 1,046,578 2,092,539 172,381 631,278 27,935,410 31.12.2002 At 31.3.2002 - - - - - - - - At 31 December 2002, the net book values of land and building, plant and machinery, furniture, fixtures and equipment are further analysed as follows: In PRC HK Power Mining Terminal plant zone Others Total # # # # # Land - short leases 1,804,104 - - - 1,804,104 - unspecified 903,627 - - - 903,627 leases 2,707,731 - - - 2,707,731 Buildings 4,982,231 - 625,812 - 5,608,043 Land and - 3,232,831 - - 3,232,831 buildings 7,689,962 3,232,831 625,812 - 11,548,605 Plant and 1,240,719 10,249,193 13,410 - 11,503,322 machinery Furniture, fixtures and equipment 28,962 814,619 3,039 94,087 940,707 The oil storage tanks are situated in PRC. At 31 December 2002, the plant and machinery and other equipment of the power plant with a carrying value of #11,063,812 were pledged as security for bank loans granted to the CZPD. In addition, various assets of the terminal with a carrying amount of #1,560,535 were pledged as a guarantee given by KCT for banking facilities granted to a fellow investor, Miaotou Economic Development Company Limited ("MEDCL"), in KCT (see note 26(b)). The Group obtained land use right and real estates certificates on the terminal's land under short leases from the local land authority. Land with a value of #903,627 held under unspecified leases of the terminal is land held for industrial use for which the relevant land use right certificate was not obtained and thus the term of the lease has yet to be agreed. Included in the land and buildings of the power plant are short leases land on which the power plant, related ash storage pools and ancillary facilities are located. In addition, they also include land held for industrial use in respect of which the Group has not obtained the relevant land use right certificate. Due to the lack of historic accounting records, the Group has no record of the split of the net book value between land and buildings. The Group did not obtain any building ownership certificate in respect of the buildings of the Group. Under the Law of PRC, the land held for industrial use and the buildings without building ownership certificate can only be used for identified industrial purposes. The Group cannot legally sell or mortgage such properties until the relevant land taxes are paid to the local land authority. However there is no binding agreement for the taxes to be paid. At 31 December 2002, the net book value of fixed assets held under finance leases amounted to #3,184. 13. INVESTMENTS HELD AS FIXED ASSETS Total # Company Interest in subsidiary undertakings Cost Additions and at 31.12.2002 38,000,001 Included in the above is the initial consideration of #34.2 million and deferred consideration of #3.8 million for acquiring the various investments as set out in note 1 to the financial statements. Following a Group restructuring, all of the Company's subsidiaries are indirectly owned through a directly owned subsidiary, Arko Investments Limited (formerly known as Arko Holdings Limited). At 31 December 2002, the Company held 100% of the ordinary shares of Arko Investments Limited, a company incorporated in the Republic of Seychelles ("RS"), whose principal activity was that of a holding company. Arko Investments Limited had the following subsidiary undertakings: Holding ordinary Country of shares/registered incorporation/ Name capital Business activities establishment Arko Enterprises Limited 100% Investment holding RS (formerly known as Arko Energy Limited) Arko Management Limited 100% Providing management RS services Arko Logistics Limited 100% Investment holding RS Long Prosperity Industrial Limited 100% Investment holding RS Holding ordinary Country of shares/registered incorporation/ Name capital Business activities establishment Arko Terminal Limited ("ATL") 100% Investment holding RS Arko Energy Limited 100% Investment holding British Virgin Islands Sanko Mineral Limited 100% Investment holding British Virgin Islands Arko Satellite Limited 100% Holding intellectual British Virgin Islands property relating to a satellite tracking system for vessels Arko International Trading 100% Trading Hong Kong Limited Arko Logistics Limited 100% Providing logistics Hong Kong services Changzhou Power Development 59.2% Operating a coal-fired PRC Company Limited thermal power plant Keen Chance Terminal (GZ) 40% Investing in and PRC Company Limited (Note 1) operation of a terminal and providing logistics services Fujian Sanko Mining Limited 70% Investing in a granite PRC stone quarry mine Linko Mineral (Ningxia) Limited 60% Not yet commenced PRC ("LMNL") (Note 2) business Notes: 1. At 31 December 2002 and up to the date of this report, the 40% equity interest in KCT was still held by Keen Lloyd Energy Limited ("KLEL"), which is a subsidiary of KLHL. KLEL is in the process of transferring its interests to ATL. In the opinion of the directors, the transfer of the 40% equity interests in KCT will be successful and hence the latter is regarded as an investment of Arko Energy Holdings plc. Pursuant to an agreement dated 5 April 2002 entered into between KLEL and MEDCL, a shareholder of KCT who held a 30% equity interest in KCT, MEDCL agreed to vote in accordance with the instructions of KLEL at board meetings in view of its indebtedness to KLEL, for an approximate sum of RMB78 million (equivalent to #5.9 million), and KLEL intended to convert the outstanding loan into the registered capital of KCT. On 22 April 2003, KLEL entered into a shareholder agreement with MEDCL and Harbour Economic Development Company Limited ("HEDCL"), another shareholder of KCL, whereby all parties agreed that MEDCL has unconditionally transferred the authority empowered to its directors representative (including their rights and obligations) to KLEL until KLEL transferred the 40% equity interests in KCL to ATL to reiterate the aforesaid agreement dated 5 April 2002. On 16 May 2003, a supplemental agreement was entered into between ATL, KLEL, MEDCL and HEDCL by which all parties agreed that the above authority transferred to KLEL would be vested to ATL after KLEL completed the transfer of equity interests in KCL to ATL. As per a legal opinion from a Hong Kong lawyer, in accordance with the terms and conditions set forth in the above agreements, KLEL effectively controlled the board of KCT and this arrangement was confirmed by the shareholders of KCT. They have expressed their view that KCT is a subsidiary of KLEL under the Hong Kong Companies Ordinance however, KLEL has transferred beneficial control to ATL and therefore in the opinion of the directors, KCT is a subsidiary of ATL under UK Companies Act 1985. In addition, KCT will be a legal subsidiary of ATL immediately upon the completion of transfer of the 40% of equity in KCT from KLEL to ATL. 2. LMNL is a sino-foreign joint venture company which was established on 18 May 2001 for investing in a coal mine in the Ningxia Province of China. The business licence of LMNL expired on 18 May 2002. As at 31 December 2002 and up to the date of this report, the business licence has not been renewed. In the opinion of the directors, the joint venture parties intend to renew the business licence in due course. Pursuant to the agreement and supplementary agreements, the group and the PRC partner had agreed to make the first contributions of RMB60,000,000 (equivalent to #4,518,135) and RMB40,000,000 (equivalent to #3,012,090) respectively to LMNL before 27 October 2002. However, both parties have not yet injected any capital as at the date of this report. The directors opined that LMNL still exists at 31 December 2002. The directors further advised that due to the restructuring of the Chinese party of LMNL, they are considering to restructure the shareholding structure of LMNL. Therefore the directors are of the view that there will be a potential change in the equity interest of the Company in LMNL. All material subsidiaries are included in the consolidated financial statements. In the opinion of the directors, the aggregate value of shares in subsidiary undertakings is not less than the amount at which they are stated in these financial statements. 14. STOCKS Stocks represent coal and consumables. There were no significant differences between the replacement cost and the value shown in the balance sheet. 15. DEBTORS Group Company At At At At 31.12.2002 31.3.2002 31.12.2002 31.3.2002 # # # # (a) Amounts falling due within one year: Trade debtors (Note 3,775,764 - - - i) Other debtors (Note 444,488 310,253 - 310,253 i) Prepayments 396,010 82,054 8,671 82,054 4,616,262 392,307 8,671 392,307 (b) Amounts falling due after more than one year: Trade debtors 1,126,145 - - - Security deposit 1,957,859 - - - (Note ii) Deposits for fixed assets (Note 2,152,723 - - - iii) 5,236,727 - - - Notes: (i) Included in trade and other debtors is an amount due from Guangzhou Keen Lloyd Copper Industry Company Limited ("KLCICL") aggregating to #727,585, a company of which Mr. Chin is a director and ultimately controlled by CDFL. It is interest-free, unsecured and repayable on demand. (ii) The security deposit was paid to a local supplier for stabilising the sourcing of coal supply during the period from 5.3.2002 to 4.3.2005. The deposit is not repayable until the last 6 months of the sourcing period. (iii)Deposits for fixed assets include #1,480,006 in respect of the acquisition of mining equipment and #672,717 in respect of the acquisition of vessels. Due to the length of time it may take for the Group to take delivery of these assets, these debtors may not be recoverable within one year. 16. CREDITORS Group Company At At At At 31.12.2002 31.3.2002 31.12.2002 31.3.2002 # # # # (a) Amounts falling due within one year: Bank loans (Note 1,190,529 - - - i) Trade creditors 475,601 4,348 - 4,348 Amount due to immediate holding company 3,724,981 - 303,136 - (Note ii) Obligations under finance leases 1,145 - - - Profits tax 547,059 - - - Other creditors 1,061,071 9,038 80,000 9,038 Dividends payable to minority 384,159 - - - interests Accruals and 118,751 5,000 56,928 5,000 deferred income 7,503,296 18,386 440,064 18,386 (b) Amounts falling due after one year: Obligations under finance leases 2,379 - - - (Note iii) Other loan (Note 223,078 - - - iv) Advances from fellow investors (Note v) 768,896 - - - 994,353 - - - Notes: (i) The bank loans originate from the PRC and are secured by certain tangible fixed assets of a power plant owned by the Group (see note 12). Interest accrues at the rate of 5.85% per annum. (ii) This amount is due to KLHL, and is interest-free, unsecured and has no fixed terms of repayment. (iii) Obligations under finance leases are secured on the underlying assets and repayable between two to five years (iv) The other loan was advanced from Keen Chance Logistics Company Limited in which Mr. Chin is a director and ultimately controlled by CDFL. It is interest-free, unsecured and repayable by monthly instalment of RMB50,000 (equivalent to #3,765). The first instalment will be repayable on 1.1.2004. (v) They are advances from MEDCL of #687,283 and HEDCL of #81,613 respectively. Both loans are interest-free, unsecured and not repayable until 1.1.2005. 17. BANK, OTHER LOANS AND FINANCIAL INSTRUMENTS At At 31.12.2002 31.3.2002 # # Bank and other loans instalments by reference to the balance sheet date: Under one year 1,191,674 - One to two years 46,480 - Two to five years 905,515 - Over five years 42,358 2,186,027 - Bank and other loans analysis by origin: Hong Kong 3,524 - PRC 2,185,503 - 2,186,027 - The Company had no financial liabilities. The Group holds financial instruments in order to finance its operations and to manage interest rate and currency risks. Group operations are financed by means of retained profits and a mixture of both short and medium term debts. The Group borrows, through local banks and from related parties in PRC, in local currencies at fixed rates. The Group does not trade in any way in financial instruments. The principal risks arising from the Group's financial instruments are interest rate risk, liquidity risk and exchange rate risk. The Group board reviews and agrees policies for managing each of these risks and these are summarised below. These policies have been developed during the current accounting period as a consequence of the Group's expansion. Interest rate risk Group borrowings are held in local currencies. Current loans are at fixed rates. The Group's policy for future borrowings will be to take floating rates unless fixed rate financing is available at particularly attractive rates. Interest rate risk The interest rate risk profile of the Group's financial assets and liabilities are as follows: Financial liabilities Fixed rate Fixed rate weighted weighted average time average for which rate Total Interest-free Fixed rate interest rate is fixed at 31.12.2002 31.12.2002 31.12.2002 31.12.2002 31.12.2002 # # # Currency Hong Kong 3,524 - 3,524 11.96 3 dollars RMB 2,182,503 991,974 1,190,529 5.85 1 2,186,027 991,974 1,194,053 The Group had no financial liabilities as at 31 March 2002. Financial assets Floating Floating rate rate 31.12.2002 31.3.2001 # # Currency -Sterling 1,699 258 Hong Kong dollars 159,545 18,208 RMB 106,470 - 267,714 18,466 The Group had no financial liabilities as at 31 March 2002. Financial assets Floating Floating rate rate 31.12.2002 31.3.2001 # # Currency -Sterling 1,699 258 Hong Kong dollars 159,545 18,208 RMB 106,470 - 267,714 18,466 Financial assets represent cash at bank and in hand. Liquidity risk The Group's policy is to ensure that is has available sufficient facilities to enable it to satisfy its peak borrowing requirements with an appropriate level of headroom. As at 31 December 2002, the Group was within its bank borrowing facilities. The Group had no undrawn committed facilities at the period end. Foreign currency risk All trading is undertaken in local currencies. Funding is also in local currencies other than inter-company investments and loans and it is not the Group's policy to cover these amounts as the date of repayment is uncertain. The Group's net assets by currency of operations at 31 December 2002 were as follows: At At 31.12.2002 31.3.2002 # # Currency Sterling (428,671) 392,387 Hong Kong dollars 14,159,087 - RMB 25,097,119 - 38,827,535 392,387 Fair value The directors estimate the fair value of all financial instruments at 31 December, 2002 are not significantly different from their book value. As permitted under FRS 13, where appropriate short term debtors and creditors have not been included in the above analysis. 18. SHARE CAPITAL At 31.12.2002 At 31.3.2002 Number # Number # Authorised: Ordinary shares of 0.5p each 30,000,000,000 150,000,000 100,000,000 500,000 Alloted, called up and fully paid: Ordinary shares of 0.5p each 1,782,076,048 8,910,380 71,576,048 357,880 On 10 May 2002, the authorised share capital was increased to #150,000,000 by the creation of 29,900,000,000 ordinary shares of 0.5p each. On 10 May 2002, 1,710,000,000 new ordinary shares were issued at 2p as initial consideration for the acquisition of the various entities as set out in note 1. On 7 October 2002, 100,000 new ordinary shares were issued at 2p on the exercise of share options granted to the Company's legal advisers as a part of their remuneration for the services provided. On 16 October 2002, 400,000 new ordinary shares were issued at 2p on the exercise of share options granted to the Company's nominated advisers as a part of their remuneration for the services provided. Share options The Company operates a share option scheme. During the period, the Company granted share options to its advisors as part of their remuneration for the services provided. Details of share options granted are set out below: Number Number Number of shares Exercisable Exercise of shares of shares outstanding Date of granted From To price granted exercised at 31.12.2002 10.5.2002 10.5.2002 9.5.2004 2p 2,000,000(Note 1) - 2,000,000 10.5.2002 10.5.2003 9.5.2004 2p 1,500,000 - 1,500,000 10.5.2002 10.5.2004 10.5.2005 2p 1,500,000 - 1,500,000 10.5.2002 27.6.2002 10.5.2007 2p 2,500,000(Note 2) (500,000) 2,000,000 7,500,000 (500,000) 7,000,000 Notes: (1) Subsequent to 31.12.2002, 200,000 share options were exercised. (2) Subsequent to 31.12.2002, 964,706 further share options were exercised. 19. RESERVES Shares Merger Profit Share to be relief and loss premium issued reserve account # # # # Group Balance at 1.4.2002 - - - 34,507 Issue of new shares 7,990,110 - 17,667,390 - Share issue expenses (302,907) - - - Deferred consideration for acquisition of various entities - 3,800,000 - - Exchange differences on the translation of net equity investments in foreign enterprises - - - (1,866,052) Profit for the period - - - 2,594,107 Balance at 31.12.2002 7,687,203 3,800,000 17,667,390 762,562 Company Balance at 1.4.2002 - - - 34,507 Issue of new shares 7,990,110 - 17,667,390 - Share issue expenses (302,907) - - - Deferred consideration for acquisition of various entities - 3,800,000 - - Loss for the period - - - (528,150) Balance at 31.12.2002 7,687,203 3,800,000 17,667,390 (493,643) In accordance with the law of PRC and the articles of association of the Company's subsidiaries operating in PRC, their directors can at their discretion make appropriations to a statutory surplus reserve at 10% of their net profits and to a statutory public welfare reserve at 5% to 10% of their net profits. Distribution of their profits to shareholders can only be made after such appropriations. The statutory surplus reserve may be used to reduce any losses incurred or be capitalised as paid up capital. The use of the statutory public welfare reserve is restricted to capital expenditure incurred for staff welfare facilities. The statutory public welfare reserve is not available for distribution. The appropriations to such reserves in previous years are dealt with as pre-acquisition reserves. At 31.12.2002, the Group had no such reserves. 20. RECONCILIATION OF OPERATING PROFIT/(LOSS) TO NET CASH INFLOW/ (OUTFLOW) FROM OPERATING ACTIVITIES 9 months Year ended ended 31.12.2002 31.3.2002 # # Operating profit/(loss) 3,335,565 (60,131) Depreciation charges 1,320,040 - Amortisation of goodwill 609,059 - Negative goodwill written back (481,031) - Decrease in stocks 112,264 - Decrease/(increase) in debtors 3,024,000 (317,079) Decrease in creditors (3,690,901) (20,124) Exchange adjustments (51,723) - Net cash inflow/(outflow) from operating activities 4,177,273 (397,334) 21. ANALYSIS OF CHANGES IN NET DEBT Acquisition with subsidiaries excluding Other At Cash cash non-cash Exchange At 1.4.2002 flows balances changes adjustments 31.12.2002 # # # # # # Bank 18,466 249,248 - - - 267,714 balances Obligations under finance - 672 - (4,196) - (3,524) leases Bank loan - - (1,309,317) - 118,788 (1,190,529) Other - - (245,336) - 22,258 (223,078) loan Advances from fellows - - (845,615) - 76,719 (768,896) investors Total 18,466 249,920 (2,400,268) (4,196) 217,765 (1,918,313) 22. ACQUISITION OF SUBSIDIARY UNDERTAKINGS Arko Arko Arko LPI Satellite Energy Logistics (Note 1) KCT SML Limited Limited Limited Total # # # # # # # Date of 10.5.2002 10.5.2002 10.5.2002 10.5.2002 14.5.2002 14.5.2002 acquisition Controlling interest 100% 40% 100% 100% 100% 100% Fixed assets Tangible 12,990,814 10,877,602 3,577,878 - - - 27,446,294 assets Current assets Stocks 278,703 98,020 - - - - 376,723 Debtors 8,619,789 1,570,659 729,760 26,485 131,113 724,429 11,802,235 Cast at bank and in hand 85,337 48,286 7,837 - 87 80,666 222,213 Total assets 21,974,643 12,594,567 4,315,475 26,485 131,200 805,095 39,847,465 Creditors due within one year (5,194,442) (9,713,458) (4,374,466) - (178,078) (323,195) (19,783,639) Minority (7,925,538) (1,728,665) - - - - (9,654,203) interests Net assets/ 8,854,663 1,152,444 (58,991) 26,485 (46,878) 481,900 10,409,623 (liabilities) Positive goodwill -arising on 9,927,945 1,521,193 7,015,512 408,298 47,556 - 18,920,504 acquisition Negativegoodwill arising on - - - - - (481,031) (481,031) acquisition 18,782,608 2,673,637 6,956,521 434,783 678 869 28,849,096 Satisfied by: Issue of shares 16,904,347 1,760,594 6,260,869 391,304 - - 25,317,114 (Note 2) Deferred consideration by shares to be issued (Note 3) 1,878,261 913,043 695,652 43,479 - - 3,530,435 Cash - - - - 678 869 1,547 18,782,608 2,673,637 6,956,521 434,783 678 869 28,849,096 Notes: 1. LPI held 59.2% equity interests in CZPD. 2. Initial consideration of #8,882,886 for the acquisition of eight oil storage tanks, Arko Shipping Limited and a convertible loan in KCT of RMB78 million (equivalent to approximately #5.9 million) are excluded. 3. Deferred consideration of #269,565 for acquisition of eight oil storage tanks and Arko Shipping Limited are excluded. The directors are satisfied that the net assets acquired were equivalent to the fair values at the dates of acquisition. Results of acquisitions prior to this acquisition Arko Satellite Arko Energy Arko Logistics LPI KCT SML Limited Limited Limited Total # # # # # # # From the beginning of financial year of acquired entities 1.1.2002 1.1.2002 1.4.2002 1.4.2002 1.4.2002 1.4.2002 To the effective date of acquisition 10.5.2002 10.5.2002 10.5.2002 10.5.2002 14.5.2002 14.5.2002 Turnover 1,459,876 823,175 56,928 33,816 - 419,888 2,793,683 Cost of sales (525,022) (524,073) - - - (244,179) (1,293,274) Gross profit 934,854 299,102 56,928 33,816 - 175,709 1,500,409 Net operating expenses (82,781) (340,436) (64,096) (5,158) (31,391) (26,659) (550,521) Operating profit/(loss) 852,073 (41,334) (7,168) 28,658 (31,391) 149,050 949,888 Minority interests (347,646) 24,800 - - - - (322,846) Profit/(loss) for the period 504,427 (16,534) (7,168) 28,658 (31,391) 149,050 627,042 For previous financial year From 1.1.2001 1.1.2001 1.4.2001 1.4.2001 1.4.2001 1.4.2001 To 31.12.2001 31.12.2001 31.3.2002 31.3.2002 31.3.2002 31.3.2002 Turnover 4,270,042 2,640,076 280,223 14,987 - 1,043,931 8,249,259 Operating profit/(loss) 802,533 (1,101,239) (39,033) 14,367 (14,987) 334,727 (3,632) Minority interests (327,433) 660,743 - - - - 333,310 Profit/(loss) for the year 475,100 (440,496) (39,033) 14,367 (14,987) 334,727 329,678 Contribution to group's cashflows: Operating cashflows 3,423,717 278,357 (111,426) - - 611,937 4,202,585 Returns on investments and servicing of finance (102,795) 347 - - - - (102,448) Capital expenditure (3,369,900) (244,996) 105,237 - - (672,717) (4,182,376) (48,978) 33,708 (6,189) - - (60,780) (82,239) 23. RELATED PARTY TRANSACTIONS Apart from the transactions as disclosed in notes 1, 4(a), 6(b), 7(a), 13.1, 15 (i), 16(ii), (iv) and (v) and 26, to the financial statements, the Group had the following material transactions which were carried out on an arm's length basis with its related parties during the period/year: 9 months Year ended ended Name of companies Note Nature 31.12.2002 31.3.2002 # # Guangzhou Tung Lloyd (a) Barge hire charges 311,987 - Shipping Company Limited Agency charges 168,473 - Guangzhou Tung Lloyd (a) Agency charges 31,199 - Shipping Agency Limited KLCICL (b) Sale of raw metals 18,142,208 - Purchase of processed 6,767,183 - metals Winbest Resources Limited (b) Management fee paid 121,739 - KLEL (b) Interest income 392,205 - Notes: (a) A company in which Mr. Chin's father is a director. (b) A company in which Mr. Chin is a director and which is ultimately controlled by CDFL. In accordance with Financial Reporting Standard No. 8, the Company has utilised the exemption of not disclosing details of transactions with wholly owned group companies. 24. OPERATING LEASE COMMITMENTS At 31 December, 2002, the Group was committed to making the following payments during the next year in respect of land and buildings under operating leases: At At 31.12.2002 31.3.2002 # # Leases which expire: in the next year 36,554 - in the second to fifth years 247,314 - 283,868 - The Company had no operating lease commitments. 25. CAPITAL COMMITMENTS At 31 December 2002, the Group had capital commitments contracted for in respect of: - acquisition of eight vessels amounting to USD49,320,000 (equivalent to #30,756,971); and - acquisition of plant, machinery and equipment amounting to USD40,399,000 (equivalent to #25,193,651), primarily mining equipment intended for use by a subsidiary, FSML. The Company had no capital commitments. 26. CONTINGENT LIABILITIES (a) On 23 July 1998, a subsidiary of the Company, KCT, gave a guarantee for RMB50 million (equivalent to approximately #3.8 million) in favour of the Huangpu branch of the Industry and Commercial Bank of China for banking facilities granted to HEDCL, a fellow investor in KCT and its ultimate controlling party, Guangzhou Huangpu Foreign Trade Group Company Limited and secured over their equity interests in KCT. HEDCL was unable to repay the loans due to the bank. The bank took action against KCT to enforce the guarantee for the outstanding loan. KCT claimed that the guarantee given was invalid based on the following grounds: (1) such guarantee did not have approval from the board of directors of KCT; (2) in accordance with the PRC Company Law, the board of directors and the management of KCT cannot give KCT's properties for guarantee to its shareholder; and (3) the controlling party of HEDCL has not obtained a valid business license since 1998 and has ceased operations since 1999. In accordance with the PRC banking regulations, the bank cannot lend money to enterprises which do not have a valid business license. The legal proceedings are still in progress. Based on the legal opinion from a PRC lawyer, the loan agreement was void because it was illegal and accordingly, the guarantee contract was also invalid. Further KLHL has indemnified the Group against any loss KCT will suffer should the guarantee be enforceable. Accordingly, the directors opined that no provision should be made in the financial statements for any possible claim from the bank for the litigation. (b) On 9 November 1999, KCT gave a guarantee for RMB18 million (equivalent to approximately #1.4 million) in favour of Nangang Rural Credit Co-operation Bank for banking facilities granted to MEDCL, a fellow investor in KCT, secured over its equity interests in KCT. MEDCL was unable to repay the outstanding loan. On 27 September 2001, the Guangzhou Law Court delivered an order and notice that the guarantee was invalid and MEDCL's equity interests in KCT was frozen. As per legal opinion, the equity interests frozen had no material impact on the operations of KCT and the directors consider that no provision is required. (c) On 22 January 1999, KCT gave a guarantee in favour of the Huangpu branch of the Bank of China for banking facilities granted to MEDCL, secured over various property assets of KCT. At the date of the subsequent default, the amount outstanding on the loan was RMB6 million (equivalent of approximately #440,000). On 22 January 2002, the bank applied to the Huangpu Law Court for the enforcement of the guarantee and during the period, KCT paid approximately RMB1.7 million (equivalent of #125,000) on behalf of MDECL. On 24 March 2003, KCT objected to the court for the enforcement. On 9 April 2003, the court terminated the enforcement. Based on the directors' opinion, no provision should be made in the financial statements for any possible claim in relation to the guarantee. 27. ULTIMATE CONTROLLING PARTY The directors consider that CDFL, a company incorporated in the British Virgin Islands is the ultimate holding company. CDFL is controlled by Chin Dynasty Fund, a family trust of which members of Mr. Chin's family are potential beneficiaries. No group financial statements are published. Press enquiries Arko Clement Leung (Chief Executive) 00852 2558 6666 Angela Leung (Director) David Thomas (Director) 07753 457 931 Nabarro Wells & Co. Limited Nigel Atkinson Robert Lo 020 7710 7400 26 June 2003 This information is provided by RNS The company news service from the London Stock Exchange FR SEISUMSDSELM
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