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