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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
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 | |
---|---|---|---|---|---|---|---|---|---|---|
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 |
For Immediate Release 30 June 2008 Jarlway Holdings plc ("the Company" or "Jarlway") Results of the Company for the year ended 31 December 2007 The Board of Jarlway announces the results of the Company for the year ended 31 December 2007, which are set out below. These have today been published and will be despatched to shareholders. Copies of these financial statements will be available from the offices of Nabarro Wells & Co. Limited, Old Change House, 128 Queen Victoria Street, London EC4V 4BJ. The AGM will be held at the offices of Jarlway Machinery Inc. 41* Longhe Road, Longgui Town, Baiyun District, Guangzhou, China on Friday 8 August 2008 at 10 a.m. Chairman's Statement Highlights Sales down 4.6% to £6,831,000 (2006: £ 7,164,000) Pre-tax loss of £1,075,000 (2006: pre-tax profit of 743,000) Broader product range by successful launch of tower cranes Overseas orders with encouraging sales generated Strong forward order book I am pleased to report on the results of Jarlway Holdings Plc (the "Company", the "Group" or "Jarlway") for the year ended 31 December 2007. 2007 was a challenging year for the Group. We have successfully developed and launched our new tower crane product. Through our tower cranes, we have also expanded our market coverage overseas. I believe our efforts in broadening the product range and expanding our market overseas have started to pay off and will bring encouraging achievements in sales and profit while improving our cash flow position. Sales of tower cranes for 2007 amounted to £1,816,000 (2006: Nil). BUSINESS REVIEW As mentioned in the 2007 interim results, the unexpected supply shortage of a major component used in the Group's trailer pumps undermined our ability to develop this opportunity in the first half of 2007. We were not satisfied with the quality of available alternative products or alternative suppliers for this component. Although the supply level resumed in second half of 2007, the shortage contributed to a decrease of 30% in trailer pump sales to £5,015,000 for 2007, compared to £7,164,000 the previous year. However, there is still strong growth in the demand for construction machinery in China and overseas markets, despite the world economic situation. I believe the Company is now getting back on the right track to capture the growth in this industry. During 2007, we have made progress in the following areas. New sales initiatives The Group successfully launched tower cranes and expanded the product range into 10 models. As mentioned previously, total sales of tower cranes amounted to £1,816,000 in 2007 or 26.6% of the total sales for the year. During the year, we further broadened our product range, while maintaining our focus on the same business sector and customer base. We established a new subsidiary, Jarlway-Lishitong Machinery Inc. ("Lishitong") in March 2007 to commence the new product design and trial production of placing booms. The placing booms were successfully developed and launched to the market in October 2007. Lishitong also acts as a subcontractor for the Group for the production of machine parts. Development of overseas market Although China remains the Group's strategic focus in the foreseeable future, I believe expanding our international sales is a key priority of the Company, so as to mitigate the risk of depending solely on a single market. In 2007, the Company started export sales of tower cranes and other products to overseas markets. The Company attended the international trade fairs for construction machinery held by Bauma in Shanghai and Germany in November 2006 and April 2007. The response from these trade fairs was very positive and a number of orders were received from the overseas markets of Middle Eastern countries (e.g. Qatar and UAE), South America (e.g. Chile), Central Asia and South East Asia regions (e.g. India and Thailand). Overseas sales amounted to £1,091,000, accounting for 16.0% of the total sales for the Group in 2007. We believe the successful development of these overseas markets will be a stepping stone to expand our brand internationally. FINANCIAL RESULTS The consolidated net loss after taxation attributable to equity shareholders for the year ended 31 December 2007 was £1,135,000 (2006: net profit after taxation attributable to equity shareholders of £632,000) and turnover was £ 6,831,000 (2006: £7,164,000). The loss was mainly caused by a provision for doubtful receivables of £1,410,000 (2006: £230,000) as the Company was unable to recover certain trade debts arising in and before 2005 when the Group's credit control over customers was considered to be less stringent as we focused our efforts on expansion and the promotion of our brand. Though sales of new products have contributed to overall Group revenue in 2007, sales of concrete pumps, our principal product, declined by £1,502,000. The decrease in sales of concrete pumps was due to the shortage of supply of a major component in the first half of 2007 and sales discount given to trade agencies of the Company, resulting in the decrease in turnover by 4.9% when compared to 2006. The Company's gross margin reduced from 39.3% in 2006 to 26.1% in 2007. The decrease in margin was due to: Inflation in costs of raw materials and a drop in orders from high margin customers (railway contractors) Greater costs being incurred during the initial production of tower cranes but sales only commenced in late 2007 Price discounts offered to trade agencies as well as customers with early payment Administrative costs increased by £961,000, an increase of 92.0% from £ 1,044,000 in 2006 to £2,005,000 in 2007. The increase was mainly due to a significant provision for doubtful receivables of £1,410,000 (2006: £230,000) for the reasons outlined above. Other reasons for the increase include the increase in costs in supporting the sales of tower cranes, for example staff costs in 2007 amounted to £869,000 (2006: £733,000), as a result of recruiting sales staff. Although a large provision for doubtful receivables was made, we also successfully recovered debts which were previously provided for. Doubtful debts of £334,000 (2006:Nil) provided for in prior years were recovered and therefore written back in 2007. On the other hand, selling and distribution costs decreased by £219,000, or 22.2% compared with 2006. The decrease was mainly caused by the closure of 11 sales branches , as the distribution channel has been replaced by the trade agencies which the Company believes will lead to increased penetration of the domestic customer base and is expected to be more cost-effective in the long run. During the year, the Company obtained additional bank loans of £3,324,000 due within one to two years. These bank loans were mainly used to finance the research and development, and manufacture of tower cranes and our new placing booms. PROSPECTS Looking ahead, I am optimistic for the prospects of the construction machinery industry in both China and in international markets. The Chinese government has provided various incentives such as export custom duties, banking facilities and grants of land for plant which signifies their support in this sector. With this support, the Company can put a significant effort into the development of new products and exploring new customers from overseas markets. We have defined the following strategies for expansion and maximising our income base and profitability. Expansion in both domestic and international markets With the launch of tower cranes and placing booms, we expect to receive more orders from overseas markets. We strongly believe export sales will enhance the cash flow position of the Group and lower the dependence on the local market, which will in turn contribute to the Group's profit and scale of operations. We will also continue to visit other regions and attend trade fairs held in overseas markets to promote and explore new business opportunities in order to capture the increasing demand for construction machinery in the global market. Improvement of product quality Having been conferred the honorary title of "Zero Defect Client", quality is the life of the Group. We will continue to leverage on our research and development capability to maintain the product quality, to diversify and increase our product range, in order to better serve the different segments of the market. At the same time, we will also continue to modify our existing product lines to strengthen our leading position in the market. Expansion of network by strategic alliance Apart from organic growth, we will also explore co-operation or alliance opportunities with other players in the market, with a view to improving our technical development and our share of the domestic as well as the international market. We will update our shareholders as appropriate of any such developments. Cost management The Company has invested heavily in the research and development of new products during 2007 which required high capital financing. In the light of tight cash flow in the Company, we will continue our efforts to reduce the cost of production, selling and administrative costs in order to maintain our competitiveness in the industry. Overall, I believe that exploration of new markets and product range, as well as improvement in financial and capital management will have a positive effect on our financial performance. With the relentless pursuit of excellence, I believe we will maintain and increase our competitive advantage in the marketplace. APPRECIATION On behalf of the board of directors, I would like to take this opportunity to express my gratitude to all shareholders and business partners for their support and to all employees for their continued loyalty and support. With their hard work and devotion in tackling the challenges faced by the Group, I am looking forward to a return to improving performance in the coming year. Wu Zhi Jia Chairman 25 June 2008 Consolidated Income Statement For the year ended 31 December 2007 2007 2006 Note £'000 £'000 Continuing operations: Revenue 2 6,831 7,164 Cost of sales (5,046) (4,352) Gross profit 1,785 2,812 Other income 2 70 13 Selling and distribution costs (767) (986) Administrative expenses -doubtful (1,076) (278) receivables Administrative expenses -others (929) (766) Finance costs 3 (158) (52) (Loss) Profit before taxation 3 (1,075) 743 Taxation 4 (69) (111) (Loss) Profit for the year (1,144) 632 Attributable to: Equity holders of the Company (1,135) 632 Minority interest (9) - (1,144) 632 (Loss) Earnings per share Basic and diluted 7 (4.65p) 2.59p Consolidated Statement of Changes in Equity For the year ended 31 December 2007 Share Share Merger Exchange Retained Total Total Share option premium reserve reserve profits Minority capital reserve interests £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 January 61 6 228 (49) 337 3,240 3,823 - 3,823 2006 Profit for - - - - - 632 632 - 632 the year Exchange - - - - (345) - (345) - (345) differences on translating foreign operations Total - - - - (345) 632 287 - 287 recognised income and expenses Employee - 14 - - - 14 - 14 share option benefit Balance at 61 20 228 (49) (8) 3,872 4,124 - 4,124 31 December 2006 Loss for - - - - - (1,135) (1,135) (9) (1,144) the year Exchange - - - - 159 - 159 - 159 differences on translating foreign operations Total - - - - 159 (1,135) (976) (9) (985) recognised income and expense Minority - - - - - - - 30 30 interest Employee - 14 - - - - 14 - 14 share option benefit Balance at 61 34 228 (49) 151 2,737 3,162 21 3,183 31 December 2007 Company Statement of Changes in Equity For the year ended 31 December 2007 Share Share Accumulated Total Share option premium losses capital reserve £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2006 61 6 228 (53) 242 Employee share option - 14 - - 14 benefit Loss and total recognised - - (132) (132) income and expenses for the - year Balance at 31 December 2006 61 20 228 (185) 124 Employee share option - 14 - - 14 benefit Loss and total recognised - - - (115) (115) income and expenses for the year Balance at 31 December 2007 61 34 228 (300) 23 Consolidated Balance Sheet At 31 December 2007 2007 2006 Note £'000 £'000 Non-current assets Property, plant and equipment 10 585 330 Intangible assets 11 27 46 Trade receivables 16 - 11 Restricted bank balances 12 - 78 Deferred tax assets 20 - 63 612 528 Current assets Assets held for sale 9 763 312 Inventories 15 2,537 1,478 Trade and other receivables 16 4,571 4,670 Financial assets at fair value through 14 5 5 profit or loss Cash and cash equivalents 115 374 Restricted bank balances, current 12 154 265 8,145 7,104 Total assets 8,757 7,632 2007 2006 Note £'000 £'000 Equity and liabilities Capital and reserves Share capital 21 61 61 Share premium 24 228 228 Share option reserve 24 34 20 Merger reserve 24 (49) (49) Exchange reserve 24 151 (8) Retained profits 24 2,737 3,872 Equity attributable to equity holders of 3,162 4,124 the Company Minority interest 21 - Total equity 3,183 4,124 Non-current liabilities Non-current portion of long-term bank 18 183 11 borrowings Current liabilities Trade and other payables 19 3,109 2,697 Provisions 23 66 66 Short-term bank borrowings 28(e) 1,765 519 Current portion of long-term bank 18 366 100 borrowings Income tax payable 85 115 5,391 3,497 Total liabilities 5,574 3,508 Total equity and liabilities 8,757 7,632 Company Balance Sheet At 31 December 2007 2007 2006 Note £'000 £'000 Non-current assets Interests in subsidiaries 13 50 50 Current assets Bank balances 5 3 Due from subsidiaries 17 - 77 5 80 Total assets 55 130 Capital and reserves Share capital 21 61 61 Share premium 24 228 228 Share option reserve 24 34 20 Accumulated losses (300) (185) Total equity 23 124 Current liabilities Other payables 19 20 6 Due to subsidiaries 17 12 - Total equity and liabilities 55 130 Consolidated Cash Flow Statement For the year ended 31 December 2007 2007 2006 Note £'000 £'000 OPERATING ACTIVITIES (Loss) Profit before taxation (1,075) 743 Adjustment for: Interest income (1) (5) Interest expense 3 158 52 Depreciation 3 54 44 Amortisation of intangible assets 3 20 14 (Write-back) write-off of bad debts 3 (334) 48 Provision for doubtful debts 3 1,410 230 Employee share option benefit 3 14 14 Operating cash flows before changes in 246 1,140 working capital Increase in assets held for sale (451) (10) Increase in inventories (1,059) (706) (Increase) decrease in trade and other (966) 134 receivables Decrease in provisions - (14) Increase (decrease) in trade and other 412 (99) payables Cash (used in) generated from operations (1,818) 445 Interest received 1 5 Taxation (3) (85) Net cash (used in) generated from operating (1,820) 365 activities Investing activities Change in restricted bank balances 189 (13) Purchase of property, plant and equipment (289) (138) Net cash used in investing activities (100) (151) Financing activities Interest paid (158) (22) Proceeds from (repayment of) bank borrowings 1,684 (35) Net cash generated from (used in) financing 1,526 (57) activities Net (decrease) increase in cash and cash (394) 157 equivalents Cash and cash equivalents at 1 January 374 298 Effect of foreign exchange rate changes 135 (81) Cash and cash equivalents at 31 December 115 374 Company Cash Flow Statement For the year ended 31 December 2007 2007 2006 Note £'000 £'000 OPERATING ACTIVITIES Loss before taxation (115) (132) Adjustment for: Employee share option benefit 3 14 14 Operating cash flows before changes in (101) (118) working capital Decrease in amount due from / to subsidiaries 89 145 Increase (decrease) in other payables 14 (24) Net cash from operating activities 2 3 Net increase in cash and cash equivalents 2 3 Cash and cash equivalents at 1 January 3 - Cash and cash equivalents at 31 December 5 3 Notes to the Financial Statements For the year ended 31 December 2007 1. PRINCIPAL ACCOUNTING POLICIES General information The Company is a public listed company incorporated in England and its shares are listed on the AIM Market, a market operated by the London Stock Exchange ("LSE"). The registered office and principal place of business of the Company are disclosed in the introduction to the annual report. The principal activities of the Company and its subsidiaries (collectively referred hereinafter the "Group") are described in note 13. Statement of compliance The consolidated and Company financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use in the European Union. These financial statements have been prepared on a basis consistent with the accounting polices adopted in 2006 financial statements except for the adoption for the first time of the following IFRS and revised International Accounting Standard (revised "IAS") In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures which is effective for annual reporting periods beginning on or after 1 January 2007, and the consequential amendments to IAS 1 Presentation of Financial Statements. The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Group's financial instruments and management of capital. Four Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are: IFRIC 7: Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies; IFRIC 8 Scope of IFRS 2; IFRIC 9 Reassessment of Embedded Derivatives; and IFRIC 10 Interim Financial Reporting and Impairment. The adoption of these Interpretations has not led to any changes in the Group's accounting policies. Basis of preparation The measurement basis used in the preparation of the financial statements is historical cost, except for financial assets at fair value through profit or loss, which have been measured at fair value. Going concern As disclosed in note 16 to the financial statements, the group incurred a net impairment loss during the year in respect of trade receivables of £1,086,000. The going concern basis of preparation of the financial statements is dependent upon a shortened overall receivable collection period, compared with historical experience. As set out in note 25, since 1 January 2008 the Group has implemented a tighter credit policy and management are confident that the Group will generate sufficient net cash inflows for the foreseeable future. On this basis, the directors have prepared the financial statements on the going concern basis. The accounts do not include any adjustments that would arise if this basis were inappropriate. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 December each year. The results of subsidiaries acquired or disposed of during the year are dealt with in the consolidated income statement from or up to their effective dates of acquisition or disposal respectively. All intra-group transactions, balances, income, expenses within the Group are eliminated on consolidation. The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries made up to 31 December each year. The results of subsidiaries acquired or disposed of are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. All intercompany transactions and balances and any unrealised gains or losses arising from intercompany transactions are eliminated on consolidation. Minority interests at the balance sheet date represent the portion of the net assets of subsidiaries attributable to equity interests that are not owned by the Company, whether directly or indirectly through subsidiaries, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Minority interests are presented in the consolidated balance sheet and consolidated statement of changes in equity within equity, separate from equity attributable to equity holders of the Company. Minority interests in the results of the Group are presented on the face of the consolidated income statement as an allocation of the total profit or loss for the year between minority interests and equity holders of the Company. Losses applicable to the minority in excess of the minority's interest in the subsidiary's equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. Subsidiaries Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies so as to obtain benefits from their activities. In assessing control, potential voting rights that presently are exercisable are taken into account. In the Company's balance sheet, an investment in a subsidiary is stated at cost less accumulated impairment losses. The carrying amount of the investment is reduced to its recoverable amount on an individual basis. Results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable. Property, plant and equipment Property, plant and equipment other than construction in progress are stated at cost less accumulated depreciation and impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Improvements are capitalised only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Expenditures incurred in restoring assets to their normal working condition and other repairs and maintenance costs are charged to the income statement. Depreciation is charged to the income statement on a straight-line basis over the estimated useful life of each component of an item of property, plant and equipment. The estimated useful lives are as follows: Leasehold improvements The shorter of the unexpired period of the lease and estimated useful life Plant and Machinery 5-10 years Motor vehicles 10 years Furniture, fittings and equipment 5-10 years No depreciation is provided in respect of construction in progress until it is completed and is put into commercial operation. Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the net sale proceeds and the carrying amount of the asset and are recognised as income or expense in the income statement. Intangible assets The initial cost of acquiring technology know-how intangible assets is capitalised. Technology know-how with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is provided on the straight-line basis over their estimated useful lives. Intangible assets that are not yet in use or having an indefinite useful live are reviewed for impairment annually or more frequently when an indicator of impairment arises during the reporting year indicating that the carrying value may not be recoverable. Financial instruments Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instruments and on the trade date basis. Financial asset and financial liabilities are measured as follows: Financial assets at fair value through profit or loss Financial instruments classified as financial assets at fair value through profit or loss include financial assets held for trading, and those designated at fair value through profit or loss at inception. These items are measured at fair value, with gains or losses recognised in the income statement. At the balance sheet date, the financial assets are measured at fair value by reference to the price quotation for equivalent instruments in an active market provided by financial institutions. Any changes in fair value are recognised in the income statements. Loans and receivables Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method less provision for impairment of doubtful debts, except where receivables are without fixed or determinable repayment terms or the effect of discounting would be immaterial. In that case, receivables are stated at cost less any provision for impairment loss of doubtful debts. A provision for impairment of doubtful debts is established when there is objective evidence that the Group will not be able to collect all the amounts due according to the original terms of receivables. The amount of the provision is the difference between the assets' carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate less the effect of discounting if immaterial. The amount of provision is recognised in the income statements. The derecognition of a financial asset takes place when the Group's contractual rights to future cash flows from the financial asset expire or the Group transfers the contractual rights to future cash flows to a third party. Impairment of financial assets Financial assets, other than financial assets at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For all other financial assets, including loans and receivables, objective evidence of impairment could include: * significant financial difficulty of the issuer or counterparty; or * default or delinquency in interest or principal payments; or * it becoming probable that the borrower will enter bankruptcy or financial re-organisation. For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate. The carrying amount of a financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. In a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Other financial liabilities Other financial liabilities including trade payables, other payables and borrowings are initially recognised at fair value and thereafter stated at amortised cost, using the effective interest method, unless the effect of discounting would be insignificant, in which case they are stated at cost. The Group derecognises a financial liability when, and only when the liability is extinguished. Financial guarantee contracts A financial guarantee contract is a contract that requires the issuer of the contract to make specified payments to reimburse the holder of the contract for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. A financial guarantee contract is initially recognised as deferred income within trade and other payable at fair value, where such information is available. Otherwise, it is recognised at consideration received and receivable. Subsequently, it is measured at the higher of the amount initially recognised, less accumulated amortisation, and the amount of the provision, if any, that is required to settle the commitment at the balance sheet date. Cash equivalents For the purpose of the consolidated cash flow statement, cash equivalents represent short-term, highly liquid investments which are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value, net of bank overdrafts. Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue and costs, if applicable, can be measured reliably and on the following bases. Sales of goods are recognised on the transfer of the risks and rewards of ownership, which generally coincides with the time when goods are delivered to customers and title has passed. Interest income is recognised by applying the effective interest method to the net carrying amount of the financial assets. Translation of foreign currencies Functional and presentation currency Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (`the functional currency'). The consolidated financial statements are presented in UK Pounds Sterling which is the Company's presentation currency. (b) Transactions and balances Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was determined. (c) Group companies The results of the subsidiary company in the PRC are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Balance sheet items are translated into Hong Kong dollars at the foreign exchange rates ruling at the balance sheet date. The resulting exchange differences are recognised directly in a separate component of equity. On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in equity which relate to that foreign operation is included in the calculation of the profit or loss on disposal. Impairment of non-current assets At each balance sheet date, the Group reviews internal and external sources of information to determine whether the carrying amounts of its property, plant and equipment, investment in subsidiaries and intangible assets, have suffered an impairment loss or if an impairment loss previously recognised no longer exists or may be reduced. If any such indication exists, any impairment loss is determined and recognised as follows: The recoverable amount of the asset is estimated, based on the higher of its fair value less costs to sell and value in use. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the smallest group of assets that generates cash flows independently (i.e. cash-generating unit). If the recoverable amount of an asset or a cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. Impairment losses are recognised as expense immediately. A reversal of impairment loss is limited to the carrying amount of the asset or cash-generating unit that would have been determined had no impairment loss been recognised in prior years. Reversal of impairment losses in respect of other assets is recognised as income immediately. Inventories Inventories are stated at the lower of cost and net realisable value. Cost, which comprises all costs of purchase and, where applicable, other costs that have been incurred in bringing the inventories to their present location and condition, is calculated using the weighted average method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Provisions A provision is recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Expenditures for which a provision has been recognised are charged against the related provision in the year in which the expenditures are incurred. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount provided is the present value of the expenditures expected to be required to settle the obligation. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Borrowing costs The borrowing costs are charged as expenses in the income statement in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale. The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete. Operating leases Rentals payable under operating leases are charged to income statement on a straight-line basis over the term of the relevant lease. Employee benefits Salaries, annual bonuses, paid annual leave, leave passage, contributions to defined contribution plans and the costs of non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values. Contributions to defined contribution retirement plans, are recognised as expense in the income statement as incurred. Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal. Share-based payment transactions The Company operates a share option scheme for granting share options, for the purpose of providing incentives and rewards to eligible employees of the Group. Employees (including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments ("equity-settled transactions"). The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. It is recognised, together with a corresponding increase in equity, over the vesting period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at each reporting date until the end of the vesting period reflects the extent to which the vesting period has expired and the number of equity instruments that in the opinion of the directors will ultimately vest. Taxation The charge for taxation is based on the results for the year, adjusted for items which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is provided using the liability method, on all temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The deferred tax liabilities or assets are measured at the tax rates that are expected to apply to the period when the asset is recovered or liability is settled, based on the tax rates and the tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences, tax losses and credits can be utilised. Related parties For the purpose of these financial statements, a party is considered to be related to the Group if: directly, or indirectly through one or more intermediaries, the party controls, is controlled by, or is under common control with, the Group; or has an interest in the Group that gives it significant influence over the Group; or has joint control over the Group; (ii) the party is an associate of the Group; (iii) the party is a joint venture in which the Group is a venturer; (iv) the party is a member of the key management personnel of the Group; the party is a close member of the family of any individual referred to in (i) or (iv); the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or the party is a post-employment benefit plan for the benefit of employees of the Group, or any entity that is a related party of the Group. Future changes in accounting standards At the date of authorisation of these financial statements, the International Accounting Standards Board (IASB) has issued the following new/revised IFRSs and IASs that are not yet effective. Effective for accounting periods beginning on or after IFRS 2 Amendents IFRS 2 Share-based Payment-Vesting 1 January 2009 Conditions and Cancellations IFRS 3 (Revised) Business Combinations 1 July 2009 IFRS 8 Operating Segments 1 January 2009 IAS 1 (Revised) Presentation of Financial Statements 1 January 2009 IAS 23 (Revised) Borrowing Costs 1 January 2009 IAS 27 (Revised) Consolidated and Separate Financial 1 July 2009 Statements IFRIC 11 IFRS 2 - Group and Treasury Share 1 March 2007 Transactions IFRIC 12 Service Concession Arrangements 1 January 2008 IFRIC 13 Customer Loyalty Programmes 1 July 2008 IFRIC - Int 14 IAS 19 - The Limited on a Defined Benefit 1 July 2008 Asset, Minimum Funding Requirements and their interaction The directors anticipate that the adoption of these new IFRSs in the future periods will have no material impact on the result of the Group. Critical accounting estimates and judgements Estimates and judgements are currently evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Apart from information disclosed elsewhere in these financial statements, the following summarise: (1) estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year and (2) significant judgements made in the process of applying the Group's accounting policies. (i) Income taxes The Group is subject to income taxes in the People's Republic of China (the "PRC"). Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. (ii) Provision for warranty As explained in note 23, the Group makes provision under the warranties it gives on sale of its large scale construction machineries taking into account the Group's recent claim experience. As the Group is continually upgrading its product designs, it is possible that the recent claims experience is not indicative of future claims that it will receive in respect of part sales. Any increase and decrease in the provision would affect income statements in future years. (iii) Provision for doubtful receivables The Group makes provision for doubtful receivables based on an assessment of the collectibility of trade receivables. Provisions for doubtful receivables are applied to trade receivables where events or changes in circumstances indicate that the balances may not be collectible. The identification of doubtful receivables requires the use of judgement and estimates. Where the expectation is different from the original estimates, such differences will impact on carrying value of receivables and doubtful debt expenses in the period in which such estimate has been changed. (iv) Assets held for sale The Group has seized building properties from customers in lieu of settlement when these customers fail to repay. Management assesses the net realisable value of these properties (which is the estimated selling price less all estimated costs of completion, if necessary, and costs to be incurred in marketing and selling these properties). Any deficiency of the net realisable value of these properties seized below the carrying value of the trade receivable is charged to income statement as write-off of bad debts. The management assesses constantly any change in the net realisable value. Any decline in valuation is charged to income statement. The assessment of the net realisable value requires the use of judgement and estimates of the property market. Where the expectation is different from the original estimates, such differences will impact on the carrying value of these properties. 2. REVENUE AND OTHER INCOME The principal activities of the Group are developing, manufacturing and selling large-scale construction machineries. The Group 2007 2006 £'000 £'000 Revenue Sales of goods 6,831 7,164 Other income Interest income 1 5 Sundry income 69 8 70 13 6,901 7,177 Since the launch of tower cranes in 2007, for management purposes, the Group is organised into two major operating divisions; the manufacture and sale of concrete pumps and manufacture and sale of tower cranes. These divisions are the basis on which the Group reports its primary segment information. Segment revenue and results Segment revenue Segment result 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Manufacture and sale of 5,662 7,164 (872) 928 concrete pumps and others Manufacture and sale of 1,169 - (95) - tower cranes 6,831 7,164 (967) 928 Unallocated costs net of (108) (185) unallocated income (Loss) Profit before (1,075) 743 taxation Taxation (69) (111) (Loss) Profit for the year (1,144) 632 Revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the year. (2006: Nil). Segment assets and liabilities Assets Liabilities 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Manufacture and sale of 6,667 7,604 4,821 3,466 concrete pumps and others Manufacture and sale of 2,079 - 245 - tower cranes Total of all segments 8,746 7,604 5,066 3,466 Unallocated 11 28 508 42 Consolidated 8,757 7,632 5,574 3,508 Depreciation and Additions to capital amortisation assets 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Manufacture and sale of 62 58 83 138 concrete pumps and others Manufacture and sale of 12 - 206 - tower cranes Consolidated 74 58 289 138 As the Group's activities are all conducted in the People's Republic of China ("PRC"), no geographical segment information is presented. Revenue by destination The Group 2007 2006 £'000 £'000 Destination PRC 5,740 7,164 Non-PRC areas 1,091 - 6,831 7,164 3. (LOSS) PROFIT BEFORE TAXATION The Group 2007 2006 This is arrived at after charging (crediting): £'000 £'000 Finance costs Interest on bank borrowings 123 22 Interest on advances from a director 35 30 158 52 Other items Auditors' remuneration MRI Moores Rowland LLP - For audit of the Company's annual financial - - statements - Other services - limited review on the Company's - 16 interim financial report Baker Tilly UK Audit LLP and its associates - Audit services 50 33 Staff costs including directors' emoluments - Contributions to defined contribution retirement 69 39 plans (Note 8) - Salaries, bonus and other benefits (Note 5) 800 694 Cost of inventories 3,151 4,257 Cost of employee share options (Note 22) 14 14 Research - 14 Depreciation of property, plant and equipment 54 44 (Note 10) Amortisation of intangible assets (Note 11) 20 14 Rentals under operating leases in respect of land 128 42 and buildings Provision for warranty (Note 23) 45 73 (Write-back) write-off of trade receivables (Note (324) 48 16) Provision for doubtful receivables (Note 16) 1,410 230 Net foreign exchange (gain) loss (37) 18 4. TAXATION Taxation on profits arising in the People's Republic of China (the "PRC") have been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the PRC. The Group The charge comprises: 2007 2006 £'000 £'000 Current tax PRC enterprise income tax 3 100 Deferred taxation: Origination and reversal of temporary differences 66 11 69 111 No provision for UK or Hong Kong taxation has been made as the Company and its Hong Kong subsidiaries have no estimated taxable profits for the year. The subsidiaries operating in the PRC are subject to state and local income taxes in the PRC at their respective tax rates based on the taxable income reported in their statutory financial statements in accordance with applicable state and local income tax laws. Following approval by the charge Taxation authorities, pursuant to the relevant PRC income tax rules and regulations, being a foreign investment enterprise, Jarlway Machinery Inc. ("Jarlway Machinery") was entitled to exemption from PRC foreign enterprise income tax for the two years ended 31 December 2003 and is entitled to a 50% reduction from PRC foreign enterprise income tax for the three years ending 31 December 2006 ("tax holiday"). Jarlway Machinery is subject to state and local income taxes in the PRC at standard rates of 12% and 3% respectively in accordance with the PRC foreign enterprise income tax law, applicable to wholly owned foreign enterprises. Jarlway Machinery is exempt from local income tax during the tax holiday. As a result, the effective foreign enterprise income tax rate for Jarlway Machinery was 15% for the year ended 31 December 2007 (2006: 7.5%). Pursuant to the Income Tax Law and the Detailed Rules for the Implementation of the Income Tax Law of the PRC for Foreign Investment Enterprises and Foreign Enterprises, Jarlway Xinxin Machinery Inc. ("Jarlway Xinxin") is entitled to a two-year exemption from the PRC foreign enterprise income tax starting from its first profit making year and followed by a 50% reduction from the PRC foreign enterprise income tax for the subsequent three years. Jarlway Xinxin has incurred profits for the year ended 31 December 2007 since its incorporation. As a result, Jarlway Xinxin is entitled to exemption from PRC foreign enterprise income tax for the two years ended 31 December 2008 and is entitled to a 50% reduction from PRC foreign enterprise income tax for the three years ended 31 December 2011 ("tax holiday"). Pursuant to the Income Tax Law and the Detailed Rules for the Implementation of the Income Tax Law of the PRC for Foreign Investment Enterprises and Foreign Enterprises, , the effective foreign enterprise income tax rate for Jarlway Lishitong Machinery Inc. ("Jarlway Lishitong") is 30% for the year ended 31 December 2007. 2007 2006 Deferred tax recognised in the income statement £'000 £'000 Types of temporary differences: Depreciation allowances - 2 Reverse of deferred tax assets recognised in 66 - prior years Others - 9 66 11 A reconciliation between tax expense and accounting profit using the weighted average taxation rate of the companies within the Group is as follows: 2007 2006 £'000 £'000 (Loss) Profit before taxation (1,075) 743 Tax at the small companies rate of Corporation tax (215) 141 in the UK of 20% (2006:19%) Non-taxable income (3) - Non-deductible expenses 4 67 Tax effect of unrecognised tax losses 82 - Temporary differences 37 20 Reversal of deferred tax assets recognised in 66 - previous years Effect of overseas tax rates differences 102 (124) Other (4) 7 Tax expense for the year 69 111 5. DIRECTORS' AND EMPLOYEES' EMOLUMENTS Particulars of the emoluments of the directors are as follows: (a) Directors' emoluments 2007 2006 £'000 £'000 Fees: Executive directors 26 27 Non-executive directors 11 20 Other emoluments: Salaries 48 32 85 79 (b) Information regarding directors and employees 2007 2006 No. No. The average number of persons employed by the Group 378 253 (including directors) during the year was: £'000 £'000 Aggregate staff costs (including directors) during the year were: Wages and salaries 728 629 Social security costs 69 39 Share-based payment 14 14 Other benefits 72 65 883 747 Of the above staff costs, £319,000 (2006: £114,000) is included in cost of production/ manufacturing, £338,000 (2006: £299,000) is included in administrative expenses and £226,000 (2006: £334,000) is included in selling and distribution costs in the Income Statement. 6. LOSS attributable to equity holders OF THE COMPANY The consolidated loss attributable to equity holders of the Company includes a loss of approximately £115,000 (2006: £132,000) which has been dealt with in the financial statements of the Company for the year ended 31 December 2007. 7. (LOSS) EARNINGS PER SHARE The calculation of basic loss per share is based on the loss for the year attributable to equity holders of the Company of £1,135,000 (2006: profit of £ 632,000) and the weighted average number of 24,413,333 shares (2006: 24,413,333 shares) in issue during the year. Diluted (loss) earnings per share for the year ended 31 December 2007 and 31 December 2006 are equal to the basic (loss) earnings per shares as the exercise price of the share options granted by the Company was higher than the average market price for shares for both years. 8. RETIREMENT SCHEMES Under the Mandatory Provident Fund Schemes Ordinance regulated by the Mandatory Provident Fund Schemes Authority in Hong Kong, with effect from 1 December 2001, the Group participates in a Mandatory Provident Fund scheme (the "MPF scheme") operated by an approved trustee in Hong Kong and makes contributions for its eligible employees. Under the MPF scheme, the employer and its employees are each required to make contributions to the scheme at 5% of the employees' relevant income, subject to a cap of monthly relevant income of HK$20,000. Contributions to the scheme vest immediately. The employees of the Group's subsidiaries in the PRC are members of a state-managed retirement benefits scheme being operated by the local PRC government. The subsidiaries are required to contribute specified percentages of the average basic salary to the retirement benefits scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefits scheme is to make the specified contributions. During the year ended 31 December 2007, the aggregate amount of employer's contribution made by the Group was £69,000 (2006: £39,000). 9. ASSETS HELD FOR SALE Assets held for sale represent properties received from customers in lieu of settlement which are carried at the lower of cost and net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing and selling. 10. PROPERTY, PLANT AND EQUIPMENT Construction Plant and Motor Furniture, Total in progress machinery vehicles fittings Leasehold and improvements equipment £'000 £'000 £'000 £'000 £'000 £'000 The Group Cost At 1 January - - 86 203 25 314 2006 Reallocation - - (2) - 2 - Addition 20 34 76 8 138 during the - year Exchange (1) - (8) (20) (2) (31) rate movement At 1 January 19 - 110 259 33 421 2007 Reallocation (53) 17 36 - - - Addition 48 191 - 16 289 during the 34 year Exchange 1 2 11 12 - 26 rate movement At 31 15 53 348 271 49 736 December 2007 Accumulated depreciation At 1 January - - 27 18 8 53 2006 Reallocation - - (1) - 1 - Charge for - - 9 30 5 44 the year Exchange - - (2) (3) (1) (6) rate movement At 1 January - - 33 45 13 91 2007 Charge for - - 15 33 6 54 the year Exchange - - 2 3 1 6 rate movement At 31 - - 50 81 20 151 December 2007 Net book value At 31 15 298 190 29 585 December 53 2007 At 31 19 77 214 20 330 December - 2006 At 31 - 59 185 17 261 December - 2005 Depreciation of £39,000 (2006: £31,000) is included in administrative expenses and £15,000 (2006: £13,000) is included in selling and distribution costs in the Income Statement. 11. INTANGIBLE ASSETS The Group 2007 2006 £'000 £'000 At 1 January 46 - Transfer from deposits - 62 Amortisation (20) (14) Exchange rate movement 1 (2) At 31 December 27 46 In 2005, the Company acquired technology know-how for the manufacture of placing booms and improving the manufacture of concrete pumps at cost of £ 21,000 and £41,000, respectively. The cost of the technology know-how for placing booms and concrete pumps are amortised on straight-line basis over the expected useful life of 3 years. 12. RESTRICTED BANK BALANCES The Group 2007 2006 £'000 £'000 Current 154 265 Non-current - 78 154 343 The restricted bank balances were pledged to secure bank borrowings granted to Jarlway Machinery Inc. Amounts that will be released back to Jarlway Machinery Inc. within one year have been classified as current. 13. INTERESTS IN SUBSIDIARIES The Company 2007 2006 £'000 £'000 Unlisted shares, at cost 50 50 Details of the Company's subsidiaries are as follows: Name of company Place of Issued and Principal incorporation fully paid Proportion activities and share capital/ of ownership operation paid-up interest/ registered voting power capital Jarlway International Hong Kong HK$10,000 100% Investment Limited ordinary holding shares Jarlway Machinery The People's US$2,000,000 100% Developing, Inc. Republic of registered manufacturing China capital and selling of large scale construction machineries Jarlway Xinxin The People's RMB20,000,000 100% Developing, Machinery Inc. Republic of registered manufacturing China capital and selling large scale construction machineries Jarlway Lishitong The People's RMB5,000,000 70% Developing, Machinery Inc. Republic of registered manufacturing China capital, and selling RMB1,535,400 large scale issued and construction fully paid machineries Other than Jarlway International Limited, which is held directly by the Company, all subsidiaries are held indirectly. Jarlway Machinery Inc. and Jarlway Xinxin Machinery Inc. are wholly owned foreign enterprises established in the People's Republic of China. Jarlway Lishitong Machinery Inc. is a Sino Joint Venture established in the People's Republic of China in March 2007. 14. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT AND LOSS The Group 2007 2006 £'000 £'000 Investment in unit trusts, at fair 5 5 value The fair value of these securities is based on quoted market prices at 31 December 2007. 15. INVENTORIES The Group 2007 2006 £'000 £'000 Raw materials 1,304 629 Work in progress 301 - Finished goods 932 849 2,537 1,478 16. TRADE AND OTHER RECEIVABLES The Group 2007 2006 £'000 £'000 Trade receivables From third parties 3,141 3,746 Less : Non-current portion - (11) Current portion 3,141 3,735 Deposits 8 - Prepayment 316 262 Other taxes recoverable 293 134 Other receivables 813 539 4,571 4,670 Trade receivables (net of provision for impairment loss of doubtful receivables) at 31 December 2007 amounted to £3,141,000 (2006: £3,735,000). The Group's credit policy is as detailed in note 25. Due to the unhealthy domestic construction market in the People's Republic of China, there were considerable balances of outstanding trade receivables carried forward at 31 December 2005. After a review of the recoverability of individual trade receivables, an impairment loss of £1,410,000 (2006: £230,000) was recognised in the year. The movement in provision for doubtful trade receivables during the year, including both specific and collective loss components, is as follows: The Group 2007 2006 £'000 £'000 At 1 January 687 543 Impairment loss recognised 1,410 230 Amount written off as uncollectible - (48) Write-back of previously recognised impairment (324) - loss Exchange differences 47 (38) 1,820 687 The Group provides in full for trade receivables where no settlement has been received for more than a year because historical experience is such that trade receivables with no settlement after more than a year are generally not recoverable. As market conditions deteriorated and an increased value trade receivables became uncollectible, an impairment loss of £1,410,000 was required. Included in the Group's trade receivables are receivables with a carrying value of £555,000 (2006: £1,051,000) which are past due at the reporting date for which the Group has not made provision as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The Group 2007 2006 £'000 £'000 Over 1 year but less than 2 years 451 292 Over 2 years 104 759 555 1,051 In determining the recoverability of trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the provision for doubtful debts. Included in the provision for doubtful debts are individually impaired trade receivable with balances of £1,590,000 (2006: £697,000). There was no settlement of these receivables over a period of one year and the Group has decided to make a full provision accordingly. The aging of these impaired trade receivables is as follows: The Group 2007 2006 £'000 £'000 Over 1 year but less than 2 years 343 44 Over 2 years 1,247 653 1,590 697 17. DUE TO / FROM SUBSIDIARIES The amount due to / from subsidiaries is unsecured, interest-free and has no fixed repayment terms. The carrying amount is stated at fair value. 18. LONG-TERM BANK BORROWINGS The Group 2007 2006 £'000 £'000 The long-term bank borrowings are repayable: - within one year and classified under current 366 100 liabilities - over one year and classified under non-current 183 11 liabilities 549 111 The long-term bank borrowings are secured by a third party corporate guarantee and personal guarantee by a director of the Company (Note 28(e)). Interest on the long-term bank loan is calculated at 7 - 8% per annum. TRADE AND OTHER PAYABLES The Group The Company 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Trade payables To third parties 1,476 1,505 - - Other payables Accruals 233 163 20 6 Other taxes payable 128 64 Other payables 1,272 965 - - 3,109 2,697 20 6 The average credit period on purchases of goods is 3 - 6 months. No interest is charged on the trade payable for settlement after due date. Included in other payables of the Group is an amount due to a director of £ 442,000 (2006: £441,000). The amount due is unsecured, interest bearing at 10% per annum (2006: 6%) and has no fixed terms of repayment. The fair value of trade and other payables approximates their carrying value. 20. DEFERRED TAXATION Recognised deferred tax assets The Group 2007 2006 £'000 £'000 Reversal of deferred assets (66) - Exchange rate movement 3 (7) Other short-term temporary differences 63 70 Net recognised deferred tax assets - 63 The Company At the balance sheet date, the Company had no unprovided deferred taxation. 21. ISSUED CAPITAL 2007 2006 Number Amount Number Amount of shares of shares £'000 £'000 Authorised: At 1 January and 31 December 50,000,000 125 50,000,000 125 Issued and fully paid: At 1 January and 31 December 24,413,333 61 24,413,333 61 Capital management The Group's primary objectives when managing capital are to safeguard the Group's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurate with the level of risk and by securing access to financing at a reasonable cost. The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be possible with higher levels of borrowings and the advantages securely afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions. The Group's strategy is to maintain capital at a higher proportion of at least double to its financing by reference to its debt-to-equity ratio. In order to maintain or adjust the ratio, the Group found it difficult to raise equity financing for the new business operation in the year of 2007. Without any better alternatives, the Group thus raised its funding by increasing the short-term bank loans as transitional measures. The Group will make every effort to reduce the debt-to-equity ratio to the optimum level. The debt-to-equity ratio of the Group at 31 December 2007 was as follows: 2007 2006 £'000 £'000 Short-term bank borrowings 1,765 519 Long-term bank borrowings 549 111 Due to a director 442 441 Total financing 2,756 1,071 Shareholders' equity 3,183 4,124 Debt-to-equity ratio 87% 26% 22. EMPLOYEE SHARE-BASED PAYMENT TRANSACTIONS On 12 July 2005, the Company granted a number of share options to the directors and senior employees of the Group. Unless otherwise cancelled or amended, the share option scheme will remain in force for 10 years from 12 July 2005. The purpose of granting the share options is to provide incentives and/or rewards to eligible persons for their contribution to, and continuing efforts in promoting the interests of the Group. No options were granted in 2006 and 2007 and the weighted average value per option granted in 2005 by the Company was £0.16, estimated as at the date of grant based on Black-Scholes option pricing model using the following assumptions: Share price at the option grant date £0.30 Exercise price £0.30 Risk-free interest rate per annum 4% Expected stock price volatility 35% Expected option life 10 years The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Such an option pricing model requires the input of highly subjective assumptions, including the expected stock price volatility. The volatility could not be determined by reference to historical volatility, but instead was derived by reference to publicly available information concerning the volatility of listed manufacturing companies. Number, terms and conditions of the options granted by the Company: Number of Value of options options at granted grant on date 12 July 2005 £000 Options granted to Directors 122,067 20 Option granted to employees other than 219,720 35 Directors 341,787 55 Notes: The Group has recognised these share options in the income statement with a corresponding increase in employee share-based compensation reserve in equity. 2007 2006 Employee share-based payments recognised under IFRS £'000 £'000 2 In respect of non-performance based options granted to 5 5 directors In respect of options granted to employees other 9 9 than directors 14 14 The following share options were outstanding at 31 December 2007 under the share option scheme: Share options granted during the year and outstanding as at 31 December 2007 Name of Date of At Granted At Exercise Exercise participant grant 1 during Lapsed 31 period of price of January the year during December share share 2007 the year 2007 options options £ Directors 12 July 12 July 2008 to 11 Xu Jia Jin 2005 122,067 - (122,067) - July 2015 0.30 Other employees 12 July 12 July 2008 to 11 In 2005 219,720 - - 219,720 July 2015 0.30 aggregate 341,787 - (122,067) 219,720 The weighted average remaining contractual life for the share options outstanding at the balance sheet date was 8 years. PROVISIONS The Group 2007 2006 £'000 £'000 Provision for warranties At 1 January 66 80 Provision made in the year 45 73 Provision used during the year (47) (87) Exchange differences 2 - At 31 December 66 66 Under the terms of the Group's sales agreements, the Group will rectify any product defects arising within one year of the date of sale. Provision is therefore made for the best estimate of the expected settlement under these agreements in respect of sales made within one year prior to the balance sheet date. The amount of provision takes into account the Group's recent claim experience and is only made where a warranty claim is probable. The amount is included in other payables. 24. RESERVES Share Share Merger Exchange Retained Total option premium reserve reserve profits reserve (Note 1) (Note 2) £'000 £'000 £'000 £'000 £'000 £'000 The Group At 1 January 2006 6 228 (49) 337 3,240 3,762 Exchange reserve - - - (345) - (345) arising on translation of financial statements of overseas subsidiaries Profit for the year - - - - 632 632 Employee share option 14 - - - 14 benefit At 31 December 2006 20 228 (49) (8) 3,872 4,063 Exchange reserve - - - 159 - 159 arising on translation of financial statements of overseas subsidiaries Loss for the year - - - - (1,135) (1,135) Employee share option 14 - - - - 14 benefit At 31 December 2007 34 228 (49) 151 2,737 3,101 Share Share Accumulated Total option premium losses reserve (Note 2) £'000 £'000 £'000 £'000 The Company At 1 January 2006 6 228 (53) 181 Loss for the year - - (132) (132) Employee share option benefit 14 - - 14 At 31 December 2006 20 228 (185) 63 Loss for the year - - (115) (115) Employee share option benefit 14 - - 14 At 31 December 2007 34 228 (300) (38) Note: 1. The merger reserve represents the difference between the nominal value of shares of the subsidiary company acquired, and the nominal value of the Company's shares issued in 2005. The Group's accumulated profits include an amount of approximately £138,000 (2006: £138,000) reserved by the subsidiary in the PRC in accordance with the relevant PRC regulations. This reserve is only distributable in the event of liquidation of this PRC subsidiary. an amount of approximately £1,751,400 (2006: £2,108,000) was capitalised as additional paid-up registered capital of the subsidiaries of the Company in the PRC as approved by the PRC government. This amount is only distributable in the event of liquidation of these PRC subsidiaries. 25. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Risk management is integral to the whole business of the Group. The Group has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risks. Group management continually monitors the Group's risk management process to ensure that an appropriate balance between risk and control is achieved. This section provides details of the Group's exposure to financial risks and describes the methods used by management to control such risk. Credit risk Credit risk is the potential financial loss resulting from the failure of a customer or counterparty in setting their financial and contractual obligations to the Company, as and when they fall due. The Company's primary exposure to credit risk arises through its trade receivables. Other financial assets of the Company with exposure to credit risk include cash and deposits that are placed with financial institutions which are regulated. In order to minimise credit risk, the Group has implemented a tighter credit policy since 1 January 2008. Credit history and background of new customers are checked and deposits of 10 percent of sales value are required before goods are delivered for domestic sales. Credit limits with credit terms of 30 days to 90 days are set for customers and designated staff monitors accounts receivable and follow-up collection with customers. For overseas sales, all settlements are through letter of credit. The Group reviews regularly the recoverable amount of each individual receivable and adequate provision is made for balance determined to be unrecoverable. Management has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. At the balance sheet date, there was no significant concentration of credit risk. Liquidity risk The management monitors the Group's liquidity risk and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group's operations and to mitigate the effects of fluctuations in its cash flows. The Group has started obtaining banking financing to maintain its liquidity. The management monitors the utilisation of borrowings and ensures compliance with loan covenants. As at 31 December 2007 and 31 December 2006, the remaining contractual maturities of the Group's and the Company's financial liabilities, based on undiscounted cash flows, are summarised below: Carrying Within 1 More More More amount year or than 1 than 2 than 5 The Group on year but years years demand less but less than 2 than 5 years years £'000 £'000 £'000 £'000 £'000 As at 31 December 2007 Trade payables 1,476 1,476 - - - Other liabilities 1,191 1,191 - - - Amount due to a 442 442 - - - director Short-term bank 1,765 1,765 - - - borrowings Long-term bank borrowings 549 366 183 - - 5,423 5,240 183 - - Carrying Within 1 More More More amount year or than 1 than 2 than 5 on year but years years demand less but less than 2 than 5 years years £'000 £'000 £'000 £'000 £'000 As at 31 December 2006 Trade payables 1,505 1,505 - - - Other liabilities 751 751 Amount due to a 441 441 - - - director Short-term bank borrowings 519 519 - - - Long-term bank borrowings 111 11 100 - - 3,327 3,227 100 - - Carrying Within 1 More More More amount year or than 1 than 2 than 5 The Company on year but years years demand less but less than 2 than 5 years years £'000 £'000 £'000 £'000 £'000 As at 31 December 2007 Other liabilities 20 20 - - - Due to subsidiaries 12 12 - - - 32 32 - - - Carrying Within 1 More More More amount year or than 1 than 2 than 5 on year but years years demand less but less than 2 than 5 years years £'000 £'000 £'000 £'000 £'000 As at 31 December 2006 Other liabilities 6 6 - - - Foreign Currency risk The Group's business is principally conducted in Chinese Renminbi ("RMB") with overseas sales denominated in US Dollars and some overseas expenses in UK Pounds Sterling and Hong Kong Dollar. Accordingly, the Group is exposed to foreign currency risk with respect to primarily US Dollar, UK Pounds Sterling and the Hong Kong Dollar. Foreign exchange risk mainly arises from recognised assets and liabilities and net investment denominated in those currencies. The appreciating RMB is favourable to the Group in managing foreign currency risk. On the other hand, as the Group had started its overseas sales which are expected to increase in the future, the strengthening RMB will have a negative impact on the Group in the future. The management is considering all possible measures to minimise foreign currency risk in relation to overseas sales in the future. The Group did not use any forward contracts or currency borrowings to hedge its exposure to foreign currency risk. As at 31 December 2007, had the RMB weakened/strengthened by 5 percent against all foreign currencies with all other variables held constant, post-tax loss of the year would have been £117,000 (2006: £40,000) lower/higher, mainly as a result of foreign exchange loss/gain on translation of its assets and liabilities mainly denominated in RMB into Pounds Sterling. Interest rate risk The Group's exposure to market risk for changes in interest rates relates primarily to the Group's interest-bearing bank borrowing and borrowing from a director. Funds not required by the Group in the short-term are kept as temporary demand or time deposits in commercial banks and the Group does not hold any market risk-sensitive instruments for speculative purposes. Assuming the cash and cash equivalents, restricted bank balances, bank borrowings and amount due to a director as outstanding at 31 December 2007 were outstanding for the whole year, a 50 basis point increase or decrease would increase or decrease the loss after tax of the Group for the year by approximately £1,000 (2006: would decrease or increase profit by approximately £Nil). The 50 basis point increase or decrease represents management's assessment of a reasonably possible change in interest rates over the period until the next annual balance sheet date. The analysis is performed on the same basis for 2006. Summary of financial instruments by category The carrying amounts of the Group's and the Company's financial assets and liabilities are categorised as follows: The Group 2007 2006 Loans and Fair Loans and Fair receivables value receivables value through through profit or profit loss or loss £'000 £'000 £'000 £'000 Financial assets Trade receivables 3,141 - 3,735 - Deposits 8 - - - Other receivables 813 - 539 - Financial assets at fair - 5 - 5 value through profit or loss Cash and cash equivalents 115 - 374 - Restricted bank balances 154 - 265 - 4,231 5 4,913 5 The Company 2007 2006 Loans and Fair Loans and Fair receivables value receivables value through through profit or profit loss or loss £'000 £'000 £'000 £'000 Financial assets Cash and cash equivalents 5 - 3 - Due from subsidiaries - - 77 - 5 - 80 - The Group 2007 2006 Financial Other Financial Other liabilities financial liabilities financial at liabilities at liabilities amortised amortised cost cost £'000 £'000 £'000 £'000 Financial liabilities Trade payables 1,476 - 1,505 - Other payables 958 - 588 - Short term bank borrowings - 1,765 - 519 Long term bank borrowings - 549 - 111 Amount due to a director 442 - 441 - 2,876 2,314 2,534 630 The Company 2007 2006 Financial Other Financial Other liabilities financial liabilities financial at liabilities at liabilities amortised amortised cost cost £'000 £'000 £'000 £'000 Financial liabilities Due to subsidiaries 12 - - - 26. COMMITMENTS Capital commitments The Group formed a subsidiary, Jarlway-Lishitong Machinery Inc. ("Jarlway-Lishitong"), with with Guangdong Lishitong Machinery Co. Ltd., a predominantly state-owned Chinese manufacturer of engineering machinery during the year (see note 13). According to the formation document, the registered capital of Jarlway-Lishitong is RMB5 million (approximately £330,000) and the Group is required to contribute RMB3.5 million (approximately £231,000) in return for a 70% interest. Up to the balance sheet date, the amount contracted but not yet injected by the Group amounted to RMB2.4 million (approximately £ 158,000). The amount has been paid up subsequently in May 2008. Commitments under operating leases The Group leases a number of properties under operating leases, which typically run for an initial period of 1 - 5 years, with an option to renew the lease when all terms are renegotiated. None of the lease includes contingent rentals. At the balance sheet date, the Company had total future minimum lease payments under non-cancellable operating leases, which are payable as follows: 2007 2006 £'000 £'000 Within 1 year 115 83 2 to 5 years 222 284 337 367 27. CONTINGENT LIABILITIES Financial guarantee issued At the balance sheet date, the company have issued guarantee in respect of loans made by finance companies to a subsidiary of the company with amounting to RMB20,000,000. 28. RELATED PARTY TRANSACTIONS Save as disclosed elsewhere in these financial statements, the Group has the following related party transactions: (a) The directors of the Company are the only key management personnel of the Group and compensation to the directors of the Company for the year are as follows: 2007 2006 £'000 £'000 Directors' fees 37 47 Salaries and other benefits 48 32 Employee share-based payments 5 5 90 84 (b) During the year, the Company accrued interest expense of £35,000 (2006: £ 30,000) to a director, Ng Chi Chor, in respect of the amount due to him. At 31 December 2007, £442,000 (2006: £441,000) was due to this director. The details of the terms of the amount due are set out in Note 19. (c) During the year, the Group had incurred a retainer fee of £2,400 (2006: £ 15,000) in favour of Steeds & Co., of which David Steeds, a director of the Group until his resignation on 19 February 2007, is a partner of the Company. (d) During the year, the Group had incurred a retainer fee of £6,500 (2006: Nil) in favour of a company of which Stephen Chun Hong Wong, a director of the Group, is a partner of the Company. The Group's short-term and long-term borrowings which bear interest rates ranging from 7.02% to 8.3835% per annum are secured by a third party corporate guarantee of approximately £1,921,000 (2006: £985,000) and third party and directors' guarantee of approximately £988,000 (2006: Nil). During the year, the Company accrued service charge of £4,000 (2006: £4,000) and expenses of £60,000 (2006: £137,000) to its subsidiaries. At 31 December 2007, amount due to subsidiaries amounted to £12,000 (2006: amount due from subsidiaries £77,000). 29. POST BALANCE SHEET EVENT Included in assets held for sale are properties with a carrying value of £ 67,486 situated in Sichuan Province of China, which was hit by an earthquake in May 2008. Although the Group's properties were not directly affected by the earthquake, the management consider that the earthquake may have a negative impact on the local property market. However, up to the date of this report, there was insufficient information for management to estimate any possible decline in value of the properties held. The Group will keep track of market conditions and recognise a provision if necessary. The announcement set out above does not constitute a full financial statement of the Company's affairs for the year ended 31 December 2007. The Company's auditors have reported on the full accounts for the said year and have accompanied them with an unqualified report. The accounts have yet to be delivered to the Registrar of Companies. The annual report and accounts will be available from the Company's nominated adviser, Nabarro Wells & Co. Limited, Old Change House, 128 Queen Victoria Street, London EC4V 4BJ. Enquiries: Jarlway Holdings plc David Thomas Tel: +44 7753 457 931 Ng Chi Chor Tel: +86 13316269616 Nominated Adviser, Robert Lo Tel: +44 20 7634 4705 Nabarro Wells & Co. Richard Swindells Limited END
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