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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Jarlway | LSE:JWY | London | Ordinary Share | GB00B09JC675 | ORD 0.25P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.375 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
RNS Number:5443Y Jarlway Holdings plc 18 June 2007 JARLWAY HOLDINGS PLC RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 Chairman's Statement Highlights * Pre-tax profits up 116.62% to #743,000 (2005: #343,000) * Sales up 47.62% to #7,164,000 (2005: #4,853,000) * Earnings per share increase to 2.59p (2005: 1.33p), up 94.74% * Tightened credit controls reduces average debtor turnover days from 386 to 191 * Broader product range, first overseas orders * Strong forward order book I am pleased to report on the results of Jarlway Holdings Plc (the "Company", the "Group" or "Jarlway") for the year ended 31 December 2006. During what was undoubtedly a successful year for the Company, we succeeded in strengthening our capabilities and our financial position, in order to exploit the opportunities facing the Company in the future. Although there are still many challenges ahead, our solid 2006 growth leaves us confident of tackling the challenges ahead, and increasing the net worth of the Company attributable to the shareholders. BUSINESS REVIEW The market for construction machinery in China turned around in 2006 after reaching a particularly low point in 2005. Increased demand for the continued development of large-scale national infrastructure projects such as the railway and highway networks, in addition to the booming property market, are now creating a ready market for construction machinery. Although the development of the national railway system has slowed slightly since January 2007, bringing some pricing pressure into the market, a strengthening order book for the second half of the year suggests the slowdown is temporary, and I believe the Company will continue to thrive in this market. I also believe the Company's success during 2006 reflects the hard work and dedication of my fellow directors and the staff in achieving excellent results on several key fronts, including improvement of our credit controls, improvements in product quality, effective recruitment and training programmes, and the introduction of tighter production and purchasing controls. Overall, I believe Jarlway is now solidly positioned to continue its growth in what remains an exciting but competitive market. We have achieved excellent results in the following areas. 1. The Company has made significant improvements in credit control and the management of trade receivables. We have implemented new credit control procedures and we are more cautious about accepting customers, granting credit terms and collecting settlements. As a result, the average period for the collection of trade receivables has dropped to 191 days in 2006 from 386 days in 2005. We continue to work to reduce this further still. However in the marketplace where we operate, many clients are State Owned Enterprises ("SOEs") and it requires much work on the part of the Company to ensure they understand that they too must act in a more commercial way when dealing with their suppliers, such as Jarlway, in the private sector. 2. Through our unstinting dedication to product quality, the Company has built up significant brand recognition and customer loyalty in the market. Jarlway is recognised as making quality products and providing first rate customer service. One of the most significant benefits of this is that it has significantly reduced the pressure on us to compete on price alone. Our customers are more willing to pay a fair price for a quality product. 3. The Company has implemented a new recruitment plan and training programme designed for the sales team to both train and retain quality staff. This in turns helps us to target and meet the expectations of high quality customers. Our sales staff has been targeting sizable private enterprises and medium to large-sized SOEs with significant success. Although the Chinese domestic banks tightened the supply of credit available to purchasers of construction machinery, we have succeeded in increasing our sales without suffering from undue pressure on our working capital by increasing our sales to more substantial customers who have a stronger financial profile. Overall, our sales strategy, built on our brand recognition and expanded and improved product range, has allowed us to transform our customer base and penetrate into this high end market comprising customers with greater financial strength. 4. We have strengthened our production and purchase management to raise product quality whilst lowering production costs. We have also been able to renegotiate more favorable component prices and terms from our major suppliers. However, as the Company does not want to jeopardise the quality of its products, we are currently still reliant on a few suppliers for the most important components of our products. This creates an urgent challenge to the Company as these few suppliers temporarily have some difficulties in keeping up with our demand for production. This has led to a back log of our customers' orders in the first half of 2007 and it is expected to have an effect on sales for the same period. Although the suppliers have indicated to us that this situation is temporary and have promised normal supply will resume in the second half of 2007, the Company is exploring other alternatives, including the possibility of finding other suppliers. This is the first time we have faced this situation and we will continue to seek alternative suppliers to ensure we can make timely delivery to our customers without compromising our product quality. All these efforts and improvements are reflected in the increased sales turnover, higher gross profit margin and lower trade receivable balances. FINANCIAL RESULTS The consolidated net profit after taxation attributable to shareholders for the year ended 31 December 2006 was #632,000 (2005: #294,000) and turnover was #7,164,000 (2005: #4,853,000). Administrative costs for the year ended 31 December 2006 were #1,044,000 (2005: #790,000). The increase was mainly due to the increase of costs of maintaining listing status of the Company as 2006 was the first full year of the Company after being listed on AIM in July 2005. In addition, additional administrative costs were incurred as 2006 was the first year of operation of Jarlway Xinxin Machinery Inc. (DT1) During the year, an additional provision for doubtful debts of #230,000 (2005: #360,000) and direct write-off of trade receivable of #48,000 (2005: Nil) were made. Total staff costs (including directors' emoluments) in 2006 were #734,000 (2005: #583,000). PROSPECTS As I have indicated, 2006 was a year of strengthening our foundations. The board is well aware that its business is exposed to risks in certain areas, such as our relatively limited product range, our heavy reliance on the domestic market in China, and our small size. The board has been addressing these risks and has started and will continue to develop the following strategies to deal with these challenges. Expansion of product variety Limited product variety limits the Company's opportunities. As we believe we have successfully established brand recognition, we consider the next step is to expand our product range, while maintaining our focus on the same business sector and customer base. The Company successfully produced its first tower crane in November 2006 and obtained the production license from the Chinese government in April 2007 by satisfying all the exacting national requirements and standards in developing this new product. This new product has been well received by customers and the Company has started receiving orders, both domestic and from overseas. Development of overseas market In addition to the tower crane, research on a concrete placing boom is underway and it is expected the research will be completed and the new product will be launched in 2007. We will also continue to diversify the spectrum of our existing products and modify our existing product lines by continuous efforts in research and development. We believe it is important to ensure our products are market leaders. Although we foresee our future development in the China market remaining very strong, we believe it is always to the benefit of the Company and its shareholders to minimise the risk of depending solely on a single market, as sudden economic or political changes in policy or instability can affect the Company's prospects adversely. With this in mind, the Company has decided to expand into the overseas market. To prepare for this, the Company has recruited personnel who have a strong background in international trade in construction machinery. The Company has also attended the international trade fair for construction machinery held by Bauma in Shanghai and Germany in November 2006 and April 2007, respectively. The feedback from potential overseas customers at the trade fairs was very positive and orders were received, with shipments to commence in 2007. The directors have also visited our target overseas markets to explore business opportunities and assess customer requirements. These are the initial steps we have taken to build up an international network by introducing our products to overseas customers and trading agents. Having assessed the needs of overseas customers for our type of construction machinery, we will seek where appropriate to develop models or variants of our products that will fit the needs of overseas customers. Expansion of Company's size Being small in size is a risk in today's market with its intense competition amongst suppliers. It also hinders our development and expansion. With the planned developments I have mentioned, we have been actively exploring the possibility to co-operate with companies that have well equipped plant and machinery and skilled human resources. In March 2007, the Company formed a subsidiary with the participation of Guangdong Lishitong Machinery Co. Ltd., a company which has manufactured spare parts for the Company for many years, and with whom we have a very good relationship. The registered capital of the subsidiary, Jarlway-Lishitong Machinery Inc., is RMB5 million (approximately #330,000). The Company has contributed cash of RMB3.5 million (approximately #230,000) as capital in return for a 70% interest, and Guangdong Lishitong Machinery Co. Ltd. will contribute cash of RMB1.5 million (or approximately #100,000) for a 30% interest. It is expected that the new subsidiary will give the Company greatly expanded production capacity to enable us to cope with the future development of the Company. APPRECIATION I wish to thank my fellow directors and all our staff who have worked so hard for the Company during 2006. Their hard work and dedication are the basis of the Company's success in the year. I strongly believe that the Company's prospects are very exciting and bear great promise. I would like to pay a special tribute to David Steeds who resigned as a director of the Company on 19 February 2007. David has provided much valuable advice to the Company as an independent director and chairman of the audit committee. At the same time I am pleased to welcome Stephen Wong who was appointed a non-executive director on 14 June 2007. Stephen is a Hong Kong chartered accountant and we look forward to working with him. I would also like to pay a special tribute to Xu Jia Jin who is retiring and will not be standing for re-election. Jia Jin has made a significant contribution to the management of the Company. I wish him well in his retirement. Wu Zhi Jia Chairman 18 June 2007 For further information, please contact: Jarlway Holdings PLC Nabarro Wells & Co. Limited First City Financial David Thomas Robert Lo/Jonathan Naess Public Relations Director Director Jiang Lei +44 7753 457931 +44 (0) 20 7710 7400 +44 (0)20 7424 2666 Consolidated Income Statement Year ended 31 December 2006 2006 2005 Note #'000 #'000 Turnover 2 7,164 4,853 Cost of sales (4,352) (3,091) Gross profit 2,812 1,762 Other revenue 2 13 7 Selling and distribution costs (986) (636) Administrative expenses (1,044) (790) Finance costs 3 (52) - Profit before taxation 3 743 343 Taxation 4 (111) (49) Profit for the year 632 294 Attributable to: Shareholders of the Company 6 632 294 Earnings per share Basic and diluted 7 2.59p 1.33p Consolidated Statement of Changes in Equity Year ended 31 December 2006 Share Share option Share Merger Exchange Retained capital reserve premium reserve reserve profits Total #'000 #'000 #'000 #'000 #'000 #'000 #'000 Balance at 1 January 2005 - - - - (101) 2,946 2,845 Profit for the - - - - - 294 294 year Exchange differences on translating foreign - - - - 438 - 438 operations Total recognised income and expenses 438 294 732 Ordinary shares issued 61 - 228 - - - 289 Employee share - 6 - - - - 6 option benefit Merger reserve arising on - - - (49) - - (49) consolidation Balance at 31 December 2005 61 6 228 (49) 337 3,240 3,823 Profit for the - - - - - 632 632 year Exchange differences on translating foreign - - - - (345) - (345) operations Total recognised income and expenses - - - - (345) 632 287 Employee share - 14 - - - 14 option benefit Balance at 31 December 2006 carried forward 61 20 228 (49) (8) 3,872 4,124 Company Statement of Changes in Equity Year ended 31 December 2006 Share Share option Share Accumulated capital reserve premium losses Total #'000 #'000 #'000 #'000 #'000 Balance at 1 January 2005 Ordinary shares issued 61 - 228 - 289 Employee share option benefit - 6 - - 6 Loss and total recognised income and expenses for the year - - - (53) (53) Balance at 31 December 2005 61 6 228 (53) 242 Employee share option benefit - 14 - - 14 Loss and total recognised income and expenses for the year - - - (132) (132) Balance at 31 December 2006 carried forward 61 20 228 (185) 124 Consolidated Balance Sheet At 31 December 2006 2006 2005 Note #'000 #'000 Non-current assets Property, plant and equipment 10 330 261 Intangible assets 11 46 - Trade receivables 16 11 165 Restricted bank balance 12 78 257 Deferred tax assets 20 63 81 528 764 Current assets Assets held for sale 9 312 332 Inventories 15 1,478 812 Trade and other receivables 16 4,670 5,484 Financial assets at fair value through profit or 14 5 5 loss Cash and cash equivalents 374 298 Restricted bank balance, current 12 265 104 7,104 7,035 Total assets 7,632 7,799 2006 2005 Note #'000 #'000 Equity and liabilities Capital and reserves Share capital 21 61 61 Share option reserve 20 6 Share premium 228 228 Merger reserve (49) (49) Exchange reserve (8) 337 Retained profits 24 3,872 3,240 Total equity 4,124 3,823 Non-current liabilities Non-current portion of long-term bank borrowings 18 11 89 Current liabilities Trade and other payables 19 2,697 3,053 Provisions 23 66 80 Short-term bank borrowings 27(d) 519 - Current portion of long-term bank borrowings 18 100 642 Income tax payable 115 112 3,497 3,887 Total liabilities 3,508 3,976 Total equity and liabilities 7,632 7,799 Company Balance Sheet At 31 December 2006 2006 2005 Note #'000 #'000 Non-current assets Interests in subsidiaries 13 50 50 Current assets Bank balances 3 - Amount due from a subsidiary 17 77 222 80 222 Total assets 130 272 Capital and reserves Share capital 21 61 61 Share option reserve 22 20 6 Share premium 22 228 228 Accumulated losses 22 (185) (53) Total equity 124 242 Current liabilities Other payables 19 6 30 Total equity and liabilities 130 272 Consolidated Cash Flow Statement At 31 December 2006 2006 2005 Note #'000 #'000 OPERATING ACTIVITIES Profit before taxation 743 343 Adjustment for: Interest income (5) (7) Interest expense 52 - Depreciation 3 44 29 Amortisation of intangible assets 3 14 - Write-off of bad debts 3 48 - Provision for doubtful debts 3 230 360 Employee share-based compensation payment 3 14 6 1,140 731 Operating profit before changes in working capital Increase in assets held for sale (10) (332) Increase in inventories (706) (445) Decrease in trade and other receivables 134 685 (Decrease) / Increase in provisions (14) 7 (Decrease) / Increase in trade and other payables (99) 125 Cash generated from operations 445 771 Interest received 5 7 Taxation (85) (107) Net cash inflow from operating activities 365 671 Investing activities Change in Restricted bank balances (13) 726 Purchase of property, plant and equipment (138) (187) Net cash (used in) from investing activities (151) 539 Financing activities Interest paid (22) - (Repayment)/proceeds in bank borrowings (35) (1,285) Issue for share capital - 239 Net cash used in financing activities (57) (1,046) Net increase in cash and cash equivalents 157 164 Cash and cash equivalents at 1 January 298 121 Effect of foreign exchange rate changes (81) 13 Cash and cash equivalents at 31 December 374 298 Company Cash Flow Statement At 31 December 2006 2006 2005 Note #'000 #'000 OPERATING ACTIVITIES Loss before taxation (132) (53) Adjustment for: Employee share-based compensation payment 3 14 6 (118) (47) Operating profit before changes in working capital Decrease / (Increase) in amount due from a 145 (222) subsidiary (Decrease) / Increase in other payables (24) 30 Net cash inflow (outflow) from operating activities 3 (239) Financing activities Issue for share capital - 239 Net cash used in financing activities - 239 Net increase in cash and cash equivalents 3 - Cash and cash equivalents at 1 January - - Cash and cash equivalents at 31 December 3 - Notes to the Financial Statements Year ended 31 December 2006 1. PRINCIPAL ACCOUNTING POLICIES General information The Company is a public listed company incorporated in England and its shares are listed on the AIM Market, a market operated by the London Stock Exchange ("LSE"). The principal place of business of the Company is in the People's Republic of China. The principal activities of the Company and its subsidiaries (the Group) are described in note 13. Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted for use in the European Union. Basis of preparation The measurement basis used in the preparation of the financial statements is historical cost, except for financial assets at fair value through profit or loss, which have been measured at fair value. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year. The results of subsidiaries acquired or disposed of during the year are dealt with in the consolidated income statement from or up to their effective dates of acquisition or disposal respectively. All inter-company transactions and balances within the Group are eliminated on consolidation. A share for share exchange agreement between Jarlway Holdings Plc and Jarlway International Limited took place on 19 April 2005. The business combination has been accounted for as a Group reconstruction and therefore the results of Jarlway Holdings Plc and Jarlway International Limited are consolidated on a merger basis, whereby the results and cashflows of the relevant entities are combined from the beginning of the year in which the merger occurred, and their assets and liabilities combined at the amounts at which they were previously recorded. Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. Property, plant and equipment Property, plant and equipment other than construction in progress are stated at cost less accumulated depreciation and impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Improvements are capitalised only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Expenditures incurred in restoring assets to their normal working condition and other repairs and maintenance costs are charged to the income statement. 1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Property, plant and equipment Depreciation is charged to the income statement on a straight-line basis over the estimated useful life of each component of an item of property, plant and equipment. The estimated useful lives are as follows: Machinery 5-10 years Motor vehicles 10 years Furniture, fittings and equipment 5-10 years No depreciation is provided in respect of construction in progress until it is completed and is put into commercial operation. Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the net sale proceeds and the carrying amount of the asset and are recognised as income or expense in the income statement. Intangible assets The initial cost of acquiring technology know-how intangible assets is capitalised. Technology know-how with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is provided on the straight-line basis over their estimated useful lives. Intangible assets that are not yet in use or having an indefinite useful live are reviewed for impairment annually or more frequently when indicator of impairment arises during the reporting year indicating that the carrying value may not be recoverable. Financial instruments Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instruments and on the trade date basis. Financial asset and financial liabilities are measured as follows: Financial assets at fair value through profit or loss Financial instruments classified as financial assets at fair value through profit or loss include financial assets held for trading, and those designated at fair value through profit or loss at inception. These items are measured at fair value, with gains or losses recognised in the income statement. At the balance sheet date, the financial assets are measured at fair value by reference to the price quotation for equivalent instruments in an active market provided by financial institutions. Any changes in fair value are recognised in the income statements. 1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Financial instruments (Continued) Trade and other receivables Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less provision for impairment. Loans and receivables without fixed or determinable repayment terms are stated at cost less any accumulated impairment loss. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all the amounts due according to the original terms of receivables. The amount of the provision is the difference between the assets' carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of provision is recognised in the income statements. Trade and other payables Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost. The derecognition of a financial asset takes place when the Group's contractual rights to future cash flows from the financial asset expire or the Group transfers the contractual rights to future cash flows to a third party. The Group derecognises a financial liability when, and only when the liability is extinguished. Cash equivalents For the purpose of the consolidated cash flow statement, cash equivalents represent short-term, highly liquid investments which are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value, net of bank overdrafts. Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue and costs, if applicable, can be measured reliably and on the following bases. Sales of goods are recognised on the transfer of the risks and rewards of ownership, which generally coincides with the time when goods are delivered to customers and title has passed. Interest income is recognised by applying the effective interest method to the net carrying amount of the financial assets. Foreign currencies Net assets of overseas subsidiaries are translated into sterling at the rate of exchange ruling at the year end. Differences arising from the retranslation of net assets at the beginning of the year are dealt with through reserves. The results of overseas subsidiaries are translated into sterling using the average rates of exchange during the year, the difference between the results translated at average rates and closing rates is taken to reserves. 1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Foreign currencies (Continued) All other translation differences are taken to income statement, with the exception of differences on foreign currency borrowings, which are taken to reserves to the extent that they are used to finance foreign equity investments. Impairment of assets At each balance sheet date, the Group reviews internal and external sources of information to determine whether the carrying amounts of its property, plant and equipment, investment in subsidiaries, have suffered an impairment loss or if an impairment loss previously recognised no longer exists or may be reduced. If any such indication exists, any impairment loss is determined and recognised as follows: The recoverable amount of the asset is estimated, based on the higher of its fair value less costs to sell and value in use. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the smallest group of assets that generates cash flows independently (i.e. cash-generating unit). If the recoverable amount of an asset or a cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. Impairment losses are recognised as expense immediately. A reversal of impairment loss is limited to the carrying amount of the asset or cash-generating unit that would have been determined had no impairment loss been recognised in prior years. Reversal of impairment losses in respect of other assets is recognised as income immediately. Inventories Inventories are stated at the lower of cost and net realisable value. Cost, which comprises all costs of purchase and, where applicable, other costs that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Provisions A provision is recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Expenditures for which a provision has been recognised are charged against the related provision in the year in which the expenditures are incurred. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount provided is the present value of the expenditures expected to be required to settle the obligation. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. 1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Borrowing costs The borrowing costs are charged as expenses in the income statement in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete. Operating leases Rentals payable under operating leases are charged to income statement on a straight-line basis over the term of the relevant lease. Employee benefits Salaries, annual bonuses, paid annual leave, leave passage, contributions to defined contribution plans and the costs of non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values. Contributions to defined contribution retirement plans, are recognised as expense in the income statement as incurred. Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal. Share-based payment transactions The Company operates a share option scheme for granting share options, for the purpose of providing incentives and rewards to eligible employees of the Group. Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments ("equity-settled transactions"). The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. It is recognised, together with a corresponding increase in equity, over the vesting period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the end of the vesting period reflects the extent to which the vesting period has expired and the number of equity instruments that in the opinion of the directors of the Group at that date will ultimately vest. 1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Taxation The charge for taxation is based on the results for the year, adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is provided using the liability method, on all temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The deferred tax liabilities or assets are measured at the tax rates that are expected to apply to the period when the asset is recovered or liability is settled, based on the tax rates and the tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences, tax losses and credits can be utilised. Related parties For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group. Future changes in IFRS At the date of authorisation of these financial statements, the International Accounting Standards Board (IASB) has issued the following new/revised IFRSs that are not yet effective. IAS 1 (Amendment) Capital disclosures IFRS 7 Financial instruments: Disclosures IFRS 8 Operating segments IFRIC 7 Applying the restatement approach under IAS 29 Financial Reporting in Hyperinflationary Economies IFRIC 8 Scope of IFRS 2 IFRIC 9 Reassessment of embedded derivatives IFRIC 10 Interim financial reporting and impairment IFRIC 11 IFRS 2: Group and treasury share transactions IFRIC 12 Service concession arrangements The directors anticipate that the adoption of these new IFRSs in the future periods will have no material impact on the result of the Group. 1. PRINCIPAL ACCOUNTING POLICIES (CONTINUED) Critical accounting estimates and judgements Estimates and judgements are currently evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Apart from information disclosed elsewhere in these financial statements, the following summarise: (1) estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year and (2) significant judgements made in the process of applying the Group's accounting policies. (i) Income taxes The Group is subject to income taxes in the People's Republic of China (the "PRC"). Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. (ii) Provision for warranty As explained in note 23, the Group makes provision under the warranties it gives on sale of its large scale construction machineries taking into account the Group's recent claim experience. As the Group is continually upgrading its product designs, it is possible that the recent claims experience is not indicative of future claims that it will receive in respect of part sales. Any increase and decrease in the provision would affect income statements in future years. (iii)Provision for doubtful debts of trade receivables The Group makes provision for doubtful debts based on an assessment of the collectibility of trade receivables. Provisions for doubtful debts are applied to trade receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of doubtful debts requires the use of judgement and estimates. Where the expectation is different from the original estimates, such differences will impact on carrying value of receivables and doubtful debt expenses in the period in which such estimate has been changed. 2. TURNOVER AND OTHER REVENUE The principal activities of the Group are developing, manufacturing and selling large-scale construction machineries. The Group 2006 2005 #'000 #'000 Turnover Sales of goods 7,164 4,853 Other revenue Interest income 5 7 Sundry income 8 - 13 7 7,177 4,860 The turnover for 31 December 2006 and 31 December 2005 is wholly attributable to activities in the People's Republic of China ("PRC"). 3. PROFIT BEFORE TAXATION The Group 2006 2005 This is arrived at after charging / (crediting): #'000 #'000 Finance costs Interest on bank borrowings 22 - Interest on advances from a director 30 - 52 - Other items Auditors' remuneration Predecessor auditors and its associate - For audit of the Company's annual financial statements - 24 - Other services - limited review on the Company's interim 16 7 financial report Successor auditors and its associate - Audit services 33 - - Non-audit services - - Staff costs including directors' emoluments - Contributions to defined contribution retirement 39 35 plans (note 8) - Salaries, bonus and other benefits (note 5) 694 513 Cost of inventories 4,257 2,898 Cost of employee share options 14 6 Research 14 4 Depreciation 44 29 Amortisation of intangible assets 14 - Operating leases in respect of - land and building 42 70 - equipment - 10 Provision for warranty (Note 23) 73 47 Write-off of accounts receivable 48 - Provision for doubtful debts 230 360 Net foreign exchange loss/(gain) 18 (6) 4. TAXATION Taxation on profits arising in the People's Republic of China (the "PRC") have been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC. The Group The charge comprises: 2006 2005 #'000 #'000 Current tax PRC enterprise income tax 100 86 Deferred taxation: Origination and reversal of temporary differences 11 (37) 111 49 No provision for UK or Hong Kong taxation has been made as the Company and its Hong Kong subsidiaries have no estimated profits for the year. The subsidiaries operating in the PRC are subject to state and local income taxes in the PRC at their respective tax rates based on the taxable income reported in their statutory financial statements in accordance with applicable state and local income tax laws. Following approval by the charge tax bureau, pursuant to the relevant PRC income tax rules and regulations, being a foreign investment enterprise, Jarlway Machinery Inc. "Jarlway Machinery" was entitled to exemption from PRC foreign enterprise income tax for the two years ended 31 December 2003 and is entitled to a 50% reduction from PRC foreign enterprise income tax for the three years ending 31 December 2006 ("tax holiday"). Jarlway Machinery Inc. is subject to state and local income taxes in the PRC at standard rates of 12% and 3% respectively in accordance with the PRC foreign enterprise income tax law, applicable to wholly owned foreign enterprise. Jarlway Machinery is exempted from local income tax during the tax holiday. As a result, the effective foreign enterprise income tax rate for Jarlway Machinery was 12% for the year ended 31 December 2006 (2005: 12%). Pursuant to the Income Tax Law and the Detailed Rules for the Implementation of the Income Tax Law of the PRC for Foreign Investment Enterprises and Foreign Enterprises, Jarlway Xinxin Machinery Inc. ("Jarlway Xinxin") is entitled to a two-year exemption from the PRC foreign enterprise income tax starting from its first profit making year and followed by a 50% reduction from the PRC foreign enterprise income tax for the subsequent three years. Jarlway Xinxin has suffered losses since its incorporation. 4. TAXATION (CONTINUED) 2006 2005 Deferred tax recognised in the income statement #'000 #'000 Types of temporary differences: Depreciation allowances 2 2 Others 9 (39) 11 (37) A reconciliation between tax expense and accounting profit using the weighted average taxation rate of the companies within the Group is as follows: 2006 2005 #'000 #'000 Profit before taxation 743 343 Calculation at the effective foreign enterprise income tax rate 89 41 of Jarlway Machinery Inc. of 12% (2005: 12%) Non-deductible expenses 67 35 Temporary differences 20 - Effect of overseas tax rates differences (72) (17) Other 7 (10) Tax expense for the year 111 49 5. DIRECTORS' AND EMPLOYEE'S EMOLUMENTS Particulars of the emoluments of the director are as follows: (a) Directors' emoluments The Group 2006 2005 #'000 #'000 Fees: Executive directors 27 5 Non-executive directors 20 9 Other emoluments: Salaries and other emoluments 32 54 79 68 Details of the directors' emoluments are disclosed on page 11 (b) Information regarding directors and employees 2006 2005 No. No. The average number of persons employed by the Group (including directors) during the year was: 253 233 #'000 #'000 Aggregate staff costs (including directors) during the year were: Wages and salaries 629 485 Social security costs 39 35 Other benefits 65 28 733 548 6. PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY The consolidated profit attributable to shareholders of the Company includes a loss of approximately #132,000 (2005: #53,000) which has been dealt with in the financial statements of the Company for the year ended 31 December 2006. 7. EARNINGS PER SHARE The calculation of basic earnings per share is based on the profit for the year attributable to shareholders of the Company of #632,000 (2005: #294,000) and the weighted average number of 24,413,333 shares (2005: 22,007,160 shares) in issue during the year, as adjusted to reflect the subdivision of share during the year and as if the events had occurred at the beginning of the earlier period reported. Diluted earnings per share for the year ended 31 December 2006 and 31 December 2005 are equal to the basic earnings per shares as the exercise price of the share options granted by the Company was higher than the average market price for shares during the year. 8. RETIREMENT SCHEMES Under the Mandatory Provident Fund Schemes Ordinance regulated by the Mandatory Provident Fund Schemes Authority in Hong Kong, with effect from 1 December 2001, the Group participates in a Mandatory Provident Fund scheme (the "MPF scheme") operated by an approved trustee in Hong Kong and makes contributions for its eligible employees. Under the MPF scheme, the employer and its employees are each required to make contributions to the scheme at 5% of the employees' relevant income, subject to a cap of monthly relevant income of HK$20,000. Contributions to the scheme vest immediately. The employees of the Group's subsidiaries in the PRC are members of a state-managed retirement benefits scheme being operated by the local PRC government. The subsidiaries are required to contribute specified percentage of the average basic salary to the retirement benefits scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefits scheme is to make the specified contributions. During the year ended 31 December 2006, the aggregate amount of employer's contribution made by the Group was #40,000 (2005: #35,000). 9. ASSETS HELD FOR SALE Assets held for sale represent properties received from trade debtors in lieu of settlement which are carried at the lower of cost and net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be the incurred in marketing and selling. 10. PROPERTY, PLANT AND EQUIPMENT Furniture, fittings Construction Plant and Motor and in progress machinery vehicles equipment Total #'000 #'000 #'000 #'000 #'000 The Group Cost At 1 January 2005 - 76 21 16 113 Addition during the year - 1 179 7 187 Exchange rate movement - 9 3 2 14 At 1 January 2006 - 86 203 25 314 Reallocation - (2) - 2 - Addition during the year 20 34 76 8 138 Exchange rate movement (1) (8) (20) (2) (31) At 31 December 2006 19 110 259 33 421 Accumulated depreciation At 1 January 2005 16 2 4 22 Charge for the year 9 16 4 29 Exchange rate movement 2 - - 2 At 1 January 2006 - 27 18 8 53 Reallocation - (1) - 1 - Charge for the year - 9 30 5 44 Exchange rate movement - (2) (3) (1) (6) At 31 December 2006 - 33 45 13 91 Net book value At 31 December 2006 19 77 214 20 330 At 31 December 2005 - 59 185 17 261 11. INTANGIBLE ASSETS The Group 2006 2005 #'000 #'000 Transfer from deposits 62 - Amortisation (14) - Exchange rate movement (2) - 46 - In 2005, the Company paid deposits for acquiring technology know-how for the manufacture of placing booms and improving the manufacture of concrete pumps at cost of #21,000 and #41,000, respectively. As the technology know-how for the placing booms has not been put into use, no amortisation was provided. The cost of the technology know-how for concrete pumps will be amortised on straight-line basis over the expected useful life of 3 years. 12. RESTRICTED BANK BALANCES The Group 2006 2005 #'000 #'000 Current 265 104 Non-current 78 257 343 361 The restricted bank balance was pledged to secure bank borrowings granted to Jarlway Machinery Inc. Amounts that will be released back to Jarlway Machinery Inc. within one year have been classified as current. 13. INTERESTS IN SUBSIDIARIES The Company 2006 2005 #'000 #'000 Unlisted shares, at cost 50 50 Details of the Company's subsidiaries, which are all wholly-owned, are as follows: Issued and Place of share capital/ incorporation paid-up and registered Principal Name of company operation capital activities Jarlway International Limited Hong Kong HK$10,000 Investment ordinary shares holding Jarlway Machinery Inc. The People's US$2,000,000 Developing, Republic of registered manufacturing China capital and selling of large scale construction machineries Jarlway Xinxin Machinery Inc. The People's RMB20,000,000 Developing, Republic of registered manufacturing China capital and selling large scale construction machineries Other than Jarlway International Limited, which is held directly by the Company, all subsidiaries are held indirectly. Jarlway Machinery Inc. and Jarlway Xinxin Machinery Inc. are wholly owned foreign enterprises established in the People's Republic of China. 14. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS The Group 2006 2005 #'000 #'000 Investment in unit trust, at fair value 5 5 The fair value of these securities is based on quoted market prices at 31 December 2006. 15. INVENTORIES The Group 2006 2005 #'000 #'000 Raw materials 629 423 Finished goods 849 389 1,478 812 16. TRADE AND OTHER RECEIVABLES The Group 2006 2005 #'000 #'000 Trade receivables From third parties 3,746 5,139 Less : Non-current portion (11) (165) Current portion 3,735 4,974 Other receivables Deposits, prepayment and other debtors 935 510 4,670 5,484 Trade receivables are shown net of accumulated provision for doubtful debts amounting to #687,000 (2005: #543,000). Included in trade receivables are amounts relating to the bank financing arrangements. These comprise non-current and current portion of #11,000 (2005: #89,000) and #100,000 (2005: #642,000) respectively. The fair value of trade and other receivables approximates the carrying value. 17. AMOUNT DUE FROM A SUBSIDIARY The amount due from a subsidiary is unsecured, interest-free and has no fixed repayment terms. The carrying amount is stated at fair value. 18. LONG-TERM BANK BORROWINGS The Group 2006 2005 #'000 #'000 The long-term bank borrowings are repayable: - in one year and classified under current liabilities 100 642 - over one year and classified under non-current liabilities 11 89 111 731 The long-term bank borrowings are secured by certain trade receivables as well as restricted bank balances (Note 12). Interest on long-term bank loan is calculated at 6% to 7% per annum and is borne by the relevant customers. 19 TRADE AND OTHER PAYABLES The Group The Company 2006 2005 2006 2005 #'000 #'000 #'000 #'000 Trade payables To third parties 1,505 1,514 - - Other payables Accrued charges and other 1,192 1,539 6 30 creditors 2,697 3,053 6 30 Included in other payables of the Group is an amount due to a director of #441,000 (2005: #547,000). The amount due is unsecured, interest bearing at 6% per annum (2005: interest-free) and has no fixed terms of repayment. The fair value of trade and other payables approximate the carrying value. 20. DEFERRED TAXATION Recognised deferred tax assets The Group 2006 2005 #'000 #'000 Depreciation allowances - 2 Others 70 71 Exchange rate movement (7) 8 Net recognised deferred tax assets 63 81 The Company At the balance sheet date, the Company had no unprovided deferred taxation. 21. ISSUED CAPITAL 2006 2005 Number Number of shares Amount of shares Amount #'000 #'000 Authorised: At 1 January 50,000,000 125 50,000 50 Increase (Note 1) - - 75,000 75 50,000,000 125 125,000 125 Share subdivision (Note 1) - - 49,875,000 - At 31 December 50,000,000 125 50,000,000 125 Issued and fully paid: At 1 January 24,413,333 61 2 - Issue 49,998 ordinary share of #1 each (Note 2) - - 49,998 50 24,413,333 61 50,000 50 Share subdivision effective on 7 June 2006 (Note 1) - - 19,950,000 - 24,413,333 61 20,000,000 50 Share allotment of 4,413,333 ordinary shares of #0.0025 each (Note 3) - - 4,413,333 11 At 31 December 24,413,333 61 24,413,333 61 21. ISSUED CAPITAL (CONTINUED) Note : 1. By ordinary resolutions passed on 7 June 2005, the authorised share capital was increased to #125,000 by the creation of 75,000 new ordinary shares of #1 each. Each of the ordinary shares of #1 in the capital of the Company, both issued and unissued, were then subdivided into 400 ordinary shares of 0.25p each. 2. Pursuant to a share exchange agreement entered into on 19 April 2005, the Company acquired the entire issued share capital of Jarlway International Limited for a consideration which was satisfied by the issue and allotment to the vendors of an aggregate of 50,000 Ordinary Shares, each of which was credited as fully paid. 3. On 18 July 2005, trading of the ordinary shares of the Company commenced on AIM, a market operated by the London Stock Exchange. 4,166,667 new Ordinary Shares were issued in the Placing at the Placing Price of 30p per share. A further 246,666 new Ordinary Shares of 0.25p each were issued as part of the settlement of adviser fees and commission. 22. EMPLOYEE SHARE-BASED PAYMENT TRANSACTIONS On 12 July 2005, the Company granted a number of share options to the directors and senior employees of the Group. Unless otherwise cancelled or amended, the share option scheme will remain in force for 10 years from 12 July 2005. The purpose of granting the share options is to provide incentives and/or rewards to eligible persons for their contribution to, and continuing efforts in promoting the interests of the Group. No options were granted in 2006 and the weighted average value per option granted in 2005 by the Company was #0.16, estimated as at the date of grant based on Black-Scholes option pricing model using the following assumptions: Share price at the option grant date #0.30 Exercise price #0.30 Risk-free interest rate per annum 4% Expected stock price volatility 35% Expected option life 10 years The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Such an option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility. The volatility could not be determined by reference to historical volatility, but instead was derived by reference to publicly available information concerning the volatility of listed manufacturing companies. Because the share options of the Company have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, the Black-Scholes option pricing model does not necessarily provide a reliable measure of the fair value of the share options of the Company. 22. EMPLOYEE SHARE-BASED PAYMENT TRANSACTIONS (CONTINUED) (a) Number, terms and conditions of the options granted by the Company: Number of Value of options options granted at grant date on 12 July 2005 #000 Options granted to Directors 122,067 20 Option granted to employees other than Directors 219,720 35 341,787 55 Notes: The Group has recognised these share options in the income statement with a corresponding increase in employee share-based compensation reserve in equity. 2006 2005 Employee share-based payments recognised under IFRS 2 #'000 #'000 In respect of non-performance based options granted to 5 2 directors In respect of options without vesting schedule granted to 9 4 employees other than directors 14 6 (b) The following share options were outstanding at 31 December 2006 under the share option scheme: Share options granted during the year and outstanding as at 31 December 2006 ___________________________________________ Exercise At Granted At price of 1 January during the 31 December Exercise period share Name of participant Date of grant 2006 year 2006 of share options options # Directors Xu Jia Jin 12 July 2006 122,067 - 122,067 12 July 2008 to 0.30 11 July 2015 Other employees In aggregate 12 July 2006 219,720 - 219,720 12 July 2008 to 0.30 11 July 2015 341,787 - 341,787 The weighted average remaining contractual life for the share options outstanding at the balance sheet date was 9 years. 23. PROVISIONS The Group 2006 2005 #'000 #'000 Provision for warranties At 1 January 80 73 Provision made for the year 73 47 Provision used during the year (87) (40) 66 80 Under the terms of the Group's sales agreements, the Group will rectify any product defects arising within one year of the date of sale. Provision is therefore made for the best estimate of the expected settlement under these agreements in respect of sales made within one year prior to the balance sheet date. The amount of provision takes into account the Group's recent claim experience and is only made where a warranty claim is probable. The amount is included in other payables. 24. RESERVES Merger Retained Share option Share reserve Exchange profits reserve premium (Note 1) reserve (Note 2) Total #'000 #'000 #'000 #'000 #'000 #'000 The Group At 1 January 2005 - - - (101) 2,946 2,845 Exchange reserve arising on translation of financial statements of overseas - - - 438 - 438 subsidiaries Profit for the - - - - 294 294 year Share - 1,239 - - - 1,239 allotment Share admission expense - (1,011) - - - (1,011) Employee share 6 - - - - 6 option benefit Merger reserve arising on - - (49) - - (49) consolidation At 31 December 6 228 (49) 337 3,240 3,762 2005 Exchange reserve arising on translation of financial statements of overseas - - - (345) - (345) subsidiaries Profit for the - - - - 632 632 year Employee share 14 - - - 14 option benefit At 31 December 20 228 (49) (8) 3,872 4,063 2006 24. RESERVES (CONTINUED) Note: 1. The merger reserve represents the difference between the nominal value of shares of the subsidiary company acquired, and the nominal value of the Company's shares issued in 2005. 2. The Group's accumulated profits include (a) an amount of approximately #138,000 (2005: #172,000) reserved by the subsidiary in the PRC in accordance with the relevant PRC regulations, this reserve is only distributable in the event of liquidation of this PRC subsidiary. (b) an amount of approximately #2,108,000 (2005: Nil) was capitalised as additional paid-up registered capital of the subsidiaries of the Company in the PRC as approved by the PRC government. This amount is only distributable in the event of liquidation of these PRC subsidiaries. 25. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Risk management is integral to the whole business of the Group. The Group has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risks. Company management continually monitors the Company's risk management process to ensure that an appropriate balance between risk and control is achieved. This section provides details of the Company's exposure to financial risks and describes the methods used by management to control such risk. Credit risk Credit risk is the potential financial loss resulting from the failure of a customer or counterparty in setting their financial and contractual obligations to the Company, as and when they fall due. The Company's primary exposure to credit risk arises through its trade receivables. Management has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. Other financial assets of the Company with exposure to credit risk include cash and deposits that are placed with financial institutions which are regulated. At the balance sheet date, there was no significant concentration of credit risk. Liquidity risk The Company monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Company's operations and to mitigate the effects of fluctuations in its cash flows. Foreign exchange risk The Group's businesses are principally conducted in Renminbi ("RMB"). The Group is exposed to foreign currency risk with respect to primarily sterling and the Hong Kong Dollar. Foreign exchange risk mainly arises from recognsied assets and liabilities and net investments in foreign operation. The Group did not use any forward contracts or currency borrowings to hedge its exposure to foreign currency risk. 25. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Fair value estimation The fair value of the Group's financial assets at fair value through profit and loss is determined by reference to the quoted market price when the related investment is traded in an active market. The fair value of the Group's trade receivables is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. The carrying amounts of the Group's financial assets, including cash and cash equivalents, other receivables and financial liabilities, including trade and other payables and bank borrowings approximate their fair values. 26. COMMITMENTS Capital expenditure commitments 2006 2005 #'000 #'000 Contracted but not provided net of deposit paid in the financial statements - 15 Commitments under operating leases The Group leases a number of properties under operating leases, which typically run for an initial period of 2 - 5 years, with an option to renew the lease when all terms are renegotiated. None of the lease includes contingent rentals. At the balance sheet date, the Company had total future minimum lease payments under non-cancellable operating leases, which are payable as follows: 2006 2005 #'000 #'000 Within 1 year 83 55 2 to 5 years 284 35 367 90 27. RELATED PARTY TRANSACTIONS Save as disclosed elsewhere in these financial statements, the Group has the following related party transactions: (a) The directors of the Company are the only key management personnel of the Group and compensation to the directors of the Company for the year are as follows: 2006 2005 #'000 #'000 Directors' fees 47 14 Salaries and other benefits 32 54 Employee share-based payments 5 2 84 70 (b) During the year, the Company accrued interest expense of #30,000 (2005: NIL) to a director, Ng Chi Chor, in respect of the amount due to him. At 31 December 2006, At 31 December 2006, #441,000 (2005: #547,000) was due to this director. The details of the terms of the amount due are set out in Note 19. (c) During the year, the Group had incurred a retainer fee of #15,000 (2005: #11,800) Steeds & Co., of which David Steeds, a director of the Company until his resignation on 19 February 2007, is a partner of the Company. (d) The Group's short-term borrowings which bear interest rates ranging from 6.696% to 7.605% per annum are secured by a third party corporate guarantee of approximately #985,000 (2005: Nil). In return, this corporate guarantee is supported by a joint and several guarantee of the same amount from several parties including a corporate guarantee from two other subsidiaries of the Company, Wu Zhi Jia (who also pledges his personal properties for this guarantee) and Xu Yi Chuang. 28. POST BALANCE SHEET EVENTS Subsequent to the balance sheet date, the Group formed a subsidiary, Jarlway-Lishitong Machinery Inc. ("Jarlway-Lishitong"), with Guangdong Lishitong Machinery Co. Ltd., a predominantly state-owned Chinese manufacturer of engineering machinery. The purpose of setting up Jarlway-Lishitong is to expand the Group's production capacity and develop a market for line construction machinery products. The registered capital of Jarlway-Lishitong is RMB5 million (approximately #330,000) and the Group will contribute RMB3.5 million (approximately #230,000) in return for a 70% interest. Guangdong Lishitong Machinery Co. Ltd. has to contribute the remaining RMB1.5 million (or approximately #100,000). CONTENTS Pages ----- Chairman's Statement 2-5 Report of Directors 6-8 Corporate Governance Report 9-12 Statement of Directors' Responsibilities 13 Report of the Independent Auditors 14-15 Consolidated Income Statement 16 Consolidated Statement of Changes in Equity 17 Company Statement of Changes in Equity 18 Consolidated Balance Sheet 19-20 Company Balance Sheet 21 Consolidated Cash Flow Statement 22 Company Cash Flow Statement 23 Notes to the Financial Statements 24-49 This information is provided by RNS The company news service from the London Stock Exchange END FR SFSFDASWSEFM
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