RNS Number:2858F
Arko Holdings PLC
29 June 2006
FOR RELEASE AT 0700 ON 29 JUNE 2006
ANNOUNCEMENT TO THE LONDON STOCK EXCHANGE
Arko Holdings plc ("the Company" or "Arko")
Results of the Company
for the year ended 31 December 2005
The Board of Arko announces the results of the Company for the year ended 31
December 2005, which are set out below. These have today been published and will
be despatched to Arko shareholders.
Copies of these financial statements will be available from the offices of
Nabarro Wells & Co. Limited, Saddlers House, Cheapside, London EC2V 6HS.
Chairman's Statement for the year ended 31 December 2005
I am pleased to make my report to you for the financial year ended 31 December 2005.
2005 has been another difficult year with continuing losses at the Company's
principal subsidiary, Hubei Changzhou Power Development Co. Limited (which
operates the power generation plant), although our two other major operating
subsidiaries, Guangzhou Keen Chance Terminal Limited and Arko Logistics Limited,
continue to contribute profits to the Group.
To stem operating losses, the Company has taken further measures to reduce
overheads, including the reduction of headcount in Hong Kong, the
implementation of a new department cost-control scheme and a new remuneration
policy. The Board believes that the actions taken will improve the Company's
financial strength and allow available resources to be concentrated more
effectively on restoring profitability.
FINANCIAL OVERVIEW
During the 12 months ended 31 December 2005, the Group made a loss of
US$5,907,500 on turnover of US$8,093,986, after allowing for amortisation of
goodwill and depreciation of US$3,722,529 and an exceptional write off of
US$4,858,465. Whilst this loss was disappointing it is driven by two factors;
firstly, income generated from the power plant cannot cover the depreciation
cost of that plant, and secondly, the decrease in the profit margin achieved in
the container terminal business. The exceptional write off arises as a result
of the irrecoverability of certain trade debts which arose in connection with
discontinued trading activities. The loss before tax and the loss per share for
the period amounted to US$5,566,150 and US0.2985 cents respectively, the
comparative figures for 2004 being US$7,195,665 and US0.3624 cents.
During 2005 revenues from terminal and shipping logistics activities amounted to
US$8,093,986 reflecting the step change in operating performance following the
re-structuring of the Company in 2004, which I reported on in my last annual
report.
As at 31 December 2005 equity shareholders' funds were US$47,565,739.
DIVIDENDS
The Board does not recommend the payment of a dividend (2004: nil).
OPERATIONAL REVIEW
Market conditions in the terminal and shipping logistics sectors in mainland
China remained difficult and challenging. Handling of TEUs was up by 30% and
turnover up by 34.4% compared to 2004 but overall contribution remained broadly
unchanged due to increases in fixed costs and the effect of competition on
pricing. Market conditions in the terminal and shipping logistics sectors in
mainland China remained difficult and challenging. Margins remained under
pressure from increasing and intense competition for market share to fill
excess industry capacity. Management of the container terminal have taken a
number of measures to reduce operating and administrative costs in 2006, and at
the same time TEUs are ahead of the comparative period in 2005.
As mentioned in my interim report, an agreement has been reached between the
power plant company and a PRC privately-owned enterprise. The operation of the
power plant has been contracted to this PRC privately-owned enterprise since
July 2005 and in return the Company will receive a fixed rental for a term of
five years. Having considered the past unsatisfactory performance of the power
plant, the Board is of the view that this arrangement is in the best interests
of the Company.
PERSONNEL
Having served the Company for almost three years, Mr Shi Yan, Finance Director,
has decided to retire from the board for health reasons and he will not be
seeking re-appointment at the forthcoming Annual General Meeting. The new
Finance Director is Mr Zhang Jing who joined the board on 1August 2005.
OUTLOOK
After recent years of considerable change, the Board views the future with
cautious optimism. Market conditions in 2006 continue to be challenging and we
expect to achieve increased volumes but with pressure on pricing continuing. The
Board will continue to renew any opportunities and possibilities that will
improve the performance of the Company, in particular, the possible introduction
of strategic partners.
APPRECIATION
The Board would again like to thank all staff for the commitment,
professionalism and loyalty they have shown during the last twelve months.
Qin Shun Chao
Chairman
Consolidated Profit and Loss Account
Year ended 31 December 2005
Notes 2005 2004
US$ US$
TURNOVER 1
Continuing operations 8,093,986 16,056,581
Discontinued operations - 27,639,250
---------- ----------
8,093,986 43,695,831
Cost of sales (4,783,470) (37,593,388)
---------- ----------
GROSS PROFIT 3,310,516 6,102,443
Other operating income 2 809,137 201,774
Net operating expenses
- exceptional (4,858,465) (9,555,999)
- other (4,586,887) (3,332,972)
---------- ----------
OPERATING (LOSS)/PROFIT 3 (5,325,699)
Continuing operations (467,234) (6,895,786)
Discontinued operations (4,858,465) 311,032
---------- ----------
(5,325,699) (6,584,754)
Interest receivable 5 - 406,594
Interest payable 6 (240,451) (1,017,505)
---------- ----------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (5,566,150) (7,195,665)
Taxation 7 (183,757) (378,151)
---------- ----------
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (5,749,907) (7,573,816)
Minority interests (157,593) 405,234
---------- ----------
LOSS FOR THE YEAR TRANSFERRED FROM RESERVES 22 (5,907,500) (7,168,582)
========== ==========
US cents US cents
LOSS PER SHARE
Basic 8 (0.2985) (0.3624)
Diluted (0.2985) (0.3624)
======== ========
There were no material differences between the reported profit and historical
cost profit on ordinary activities before taxation in either of the above
financial years.
Statement of Total Recognised Gains and Losses
For the Year ended 31 December 2005
2005 2004
US$ US$
LOSS FOR THE FINANCIAL YEAR (5,907,500) (7,168,582)
Currency translation gains and losses on foreign
currency net investment (247,768) 115,280
--------- ---------
TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR (6,155,268) (7,053,302)
========= =========
Balance Sheets
At 31 December 2005
Notes Group Company
2005 2004 2005 2004
US$ US$ US$ US$
FIXED ASSETS
Intangible asset 9 22,807,051 24,201,053 - -
Tangible assets 10 33,878,745 36,097,832 - -
Investments in
subsidiaries 12 - - 56,014,662 56,014,662
Investments in
associate 12 12,082 12,082 - -
---------- ---------- ---------- ----------
56,697,878 60,310,967 56,014,662 56,014,662
---------- ---------- ---------- ----------
CURRENT ASSETS
Stocks and work
in progress 13 144,686 263,971 - -
Debtors 14
- due within one
year 8,809,812 12,711,830 26,111 444,218
- due after more
than one year - 55,580 - -
Cash at bank and
in hand 653,062 421,203 147,978 104,052
---------- ---------- ---------- ----------
9,607,560 13,452,584 174,089 548,270
CREDITORS:
amounts falling
due within one
year 15a (3,494,156) (4,997,141) (1,590,462) (1,480,517)
---------- ---------- ---------- ----------
NET CURRENT
ASSETS/(LIABILITIES) 6,113,404 8,455,443 (1,416,373) (932,247)
---------- ---------- ---------- ----------
TOTAL ASSETS
LESS CURRENT
LIABILITIES 62,811,282 68,766,410 54,598,289 55,082,415
CREDITORS:
amounts falling
due after more
than one year 15b (2,701,923) (2,694,844) - -
---------- ---------- ---------- ----------
NET ASSETS 60,109,359 66,071,566 54,598,289 55,082,415
========== ========== ========== ==========
CAPITAL AND RESERVES
Called up share
capital 20 14,921,520 14,921,520 14,921,520 14,921,520
Share premium 21 15,662,031 15,662,031 15,662,031 15,662,031
Merger reserve 21 26,042,970 26,042,970 26,042,970 26,042,970
Other reserve 21 1,681,573 1,681,573 - -
Profit and loss
account 21 (10,742,355) (4,587,087) (2,028,232) (1,544,106)
---------- ---------- ---------- ----------
EQUITY SHAREHOLDERS'
FUNDS 22 47,565,739 53,721,007 54,598,289 55,082,415
MINORITY INTERESTS 12,543,620 12,350,559 - -
---------- ---------- ---------- ----------
60,109,359 66,071,566 54,598,289 55,082,415
========== ========== ========== ==========
Approved and authorised for issue by the board on 27 June 2006 and signed on
its behalf by:
QIN Shun Chao ZHANG Jing
Director Director
Consolidated Cash Flow Statement
Year ended 31 December 2005
Notes 2005 2004
------- US$ US$
Net cash inflow from operating activities 17 1,548,244 2,135,322
Returns on investments and servicing of 18 (240,451) (610,911)
finance
Taxation (163,011) (991,678)
Capital expenditure 18 176,062 (1,411,454)
Acquisitions and disposals 18 - 1,080,754
CASH INFLOW BEFORE FINANCING 1,320,844 202,033
--------- ---------
Financing 18 (1,088,985) (30,139)
--------- ---------
INCREASE IN CASH IN THE YEAR 231,859 171,894
========= =========
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2005 2004
US$ US$
Increase in cash in the period 231,859 171,894
Cash outflow from decrease in lease financing 1,735 22,183
Net cash outflow/(inflow) from net
repayment/(receipt) of loan 1,089,311 (11,576)
Cash (inflow)/outflow from (increase
in)/repayment of advances from investors (2,061) 417,599
--------- ---------
Change in net debt resulting from cash flows 1,320,844 600,100
NET DEBT AT 1 JANUARY 2005 (3,369,705) (3,969,175)
--------- ---------
NET DEBT AT 31 DECEMBER 2005 19 (2,048,861) (3,369,705)
========= =========
Notes to the Financial Statements
Year ended 31 December 2005
ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial information has been prepared under the historical cost convention
and in accordance with applicable United Kingdom accounting standards.
BASIS OF CONSOLIDATION
On the acquisition of a subsidiary, the assets and liabilities of that
subsidiary are recorded at their fair value, reflecting their condition at the
date of acquisition.
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.
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.
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 the asset's recoverable value in use is reduced below its
carrying value.
TANGIBLE ASSETS
Expenditure on additions and improvements is capitalized 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.
STOCK
Stock is valued at the lower of cost and estimated net realisable value.
FOREIGN CURRENCIES
Monetary assets and liabilities expressed in foreign currencies are translated
at the rate of exchange ruling at the balance sheet date. Revenues, costs and
non-monetary assets are translated at the exchange rates ruling at the
transaction date.
Profit 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.
Differences on exchange arising from the translation of the assets, liabilities
and results of foreign subsidiaries are taken directly to exchange reserve.
DEFERRED TAXATION
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right to
pay less tax in the future have occurred at the balance sheet date. Timing
differences are differences between the group's taxable profits and its results
as stated in the financial statements that arise from the inclusion of gains and
losses in tax assessments in periods different from those in which they are
recognised in the financial statements.
Deferred tax is measured at the average tax rates that are expected to apply in
the periods in which timing differences are expected to reverse, based on tax
rates and laws that have been enacted or substantially enacted by the balance
sheet date. Deferred tax is measured on a non-discounted basis.
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.
PENSION COSTS
The Group contributes to defined contribution pension schemes including the Hong
Kong Mandatory Provident Fund Scheme and the People's Republic of China Central
Pension Scheme. Contributions are charged to the profit and loss account in the
period as incurred.
LEASED ASSETS AND OBLIGATIONS
Where assets are financed by leasing agreements that give rights approximating
to ownership ("finance leases"), the assets are treated as if they had been
purchased outright. The amount capitalised is the present value of the minimum
lease payments payable during the lease term. The corresponding leasing
commitments are shown as obligations to the lessor.
Lease payments are treated as consisting of capital and interest elements, and
the interest is charged to the profit and loss account in proportion to the
remaining balance outstanding.
All other leases are "operating leases" and the annual rentals are charged to
profit and loss on a straight line basis over the lease term.
1 SEGMENTAL ANALYSIS
Turnover Operating (loss)/profit Net assets/(liabilities)
2005 2004 2005 2004 2005 2004
US$ US$ US$ US$ US$ US$
Continuing
operations:
Terminal and
shipping
logistics 8,076,571 7,356,794 2,463,348 286,748 27,702,720 24,961,672
Power plant - 8,699,787 (1,228,426) (1,017,694) 27,694,570 29,689,890
Trading and
others 17,415 - (1,702,156) (3,763,555) 8,481,621 10,360,821
Mining - - - (2,401,285) 1,088,913 1,059,183
--------- ---------- ---------- ---------- ---------- ----------
8,093,986 16,056,581 (467,234) (6,895,786) 64,967,824 66,071,566
Discontinued
operations:
Trading and
others - 27,639,250 (4,858,465) 311,032 (4,858,465) -
--------- ---------- ---------- ---------- ---------- ----------
GROUP 8,093,986 43,695,831 (5,325,699) (6,584,754) 60,109,359 66,071,566
========= ========== ========== ========== ========== ==========
Analysis by
origin:
Hong Kong 1,227,130 30,456,098 (1,245,673) (1,710,376) 24,221,058 26,501,322
People's
Republic of
China,
excluding
Hong Kong 6,866,856 13,239,733 (3,918,817)8 (4,591,806) 36,925,369 40,531,565
United
Kingdom - (161,209) (282,572) (1,037,068) (961,321)
--------- ---------- ---------- ---------- ---------- ----------
GROUP 8,093,986 43,695,831 (5,325,699) (6,584,754) 60,109,359 66,071,566
========= ========== ========== ========== ========== ==========
The analysis of turnover by destination is not materially different from the
analysis of turnover by origin.
2 OTHER OPERATING INCOME 2005 2004
US$ US$
Other 809,137 201,774
------- -------
809,137 201,774
======= =======
3 OPERATING LOSS 2005 2004
US$ US$
Operating loss is stated after charging/(crediting):
Auditors' remuneration 27,027 34,666
- UK
- Overseas 49,551 75,471
Depreciation of tangible fixed assets
- owned assets 2,130,181 2,062,330
- leased assets 1,014 450
Amortisation of goodwill 1,591,334 1,396,792
(Gain)/loss on disposal of fixed assets (4,290) 125,608
Rentals under operating leases
- land and buildings 83,254 343,555
- barges and containers 275,541 695,842
- motor vehicles 28,846 2,157
Directors' remuneration 54,009 107,848
Staff costs (including directors' remuneration)
- note 4 1,078,886 1,641,410
Exchange gains - (85,480)
Exceptional items
Provision against debtor 4,858,465 -
Write off of amount due from a former employee of
subsidiary - 1,208,250
Loss on cancellation of projects - 2,416,480
Write off of deposit for the acquisition of vessels - 1,080,145
Write off of deposit for mining equipment - 2,374,211
Write off of debtor relating to disposal of land use
rights - 2,476,913
========= =========
4 EMPLOYEES 2005 2004
No. No.
The average monthly number of persons (including
directors) employed by the Group during the year was:
Management and administration 32 101
Sales and distribution - 5
Operations 518 424
--- ---
550 530
=== ===
2005 2004
US$ US$
Staff costs for above persons:
Wages and salaries
- included in costs of sales 581,471 644,424
- included in operating expenses 474,582 965,446
Other pension costs 16,978 24,685
Other staff welfare 5,855 6,855
--------- ---------
1,078,886 1,641,410
========= =========
DIRECTORS' REMUNERATION
Fees of US$55,598 (2004: US$nil) were paid to certain directors through Winbest
Resources Limited, a company which is ultimately controlled by Chin Dynasty
Foundation Limited (see note 27). These fees are in addition to fees of
US$54,009 (2004: US$107,848) that were paid to the directors by Group companies,
as disclosed in note 3.
5 INTEREST RECEIVABLE 2005 2004
US$ US$
Bank interest receivable - 3,220
Other interest receivable - 403,374
--- -------
- 406,594
=== =======
6 INTEREST PAYABLE 2005 2004
US$ US$
Bank loans 113,093 125,698
Other loans 127,276 891,465
Finance charges payable under finance lease 82 342
------- ---------
240,451 1,017,505
======= =========
7 TAXATION 2005 2004
US$ US$
Foreign tax
Current year 183,757 378,151
------- -------
Tax on profit on ordinary 183,757 378,151
activities ======= =======
Factors affecting tax 2005 2004
charge for the year: US$ US$
The tax assessed differs
from the standard rate of
corporation tax in the UK
(30%). The differences
are explained below:
Loss on ordinary (5,566,150) (7,195,665)
activities before tax --------- ---------
Loss on ordinary (1,669,845) (2,158,700)
activities multiplied by
standard rate of
corporation tax in the UK
of 30% (2004: 30%)
Effects of:
Addition to tax losses 55,075 16,864
Expenses not deductible 2,397,109 2,732,717
for tax purposes
Different tax rates on (184,295) 184,362
overseas earnings
Non-taxable income (414,287) (397,092)
--------- ---------
Tax charge for the year 183,757 378,151
========= =========
In respect of subsidiary companies operating in Hong Kong, provisions for Hong
Kong profits tax are calculated at 17.5% (2004: 17.5%) of the estimated
assessable profits for the year.
Subsidiary companies operating in the People's Republic of China are subject to
Enterprise Income Tax ('EIT') at rates ranging from 15% to 33%. However, certain
subsidiaries are subject to tax holidays from the local tax authorities under
income tax law. Others had tax losses brought forward from previous years.
Accordingly, no provision for EIT has been made for the year.
No deferred tax is recognised on the unremitted earnings of the overseas
subsidiary companies, as no dividend payments due to UK parent company are
expected to be made in the foreseeable future. A deferred tax asset of US$71,939
(2004: US$16,864) has not been recognised in respect of tax losses carried
forward due to the uncertainty of the timing of future taxable profits against
which these losses can be offset.
8 LOSS PER SHARE
Basic loss per share for the year is based on a loss of US$5,907,500 (2004:
US$7,168,582) and the weighted average number of shares in issue of
1,978,895,097 (2004: 1,978,017,406).
Dilutive loss per share for 2005 and 2004 is equivalent to basic loss per share
as the effect of dilutive potential ordinary shares would decrease the net loss
per share and so the potential ordinary shares are not treated as dilutive in
accordance with FRS22 Earnings per share.
9 INTANGIBLE FIXED ASSET - GROUP Goodwill on
acquisition of
subsidiaries
US$
Cost
At 1 January 2005 and 31 December 2005 27,890,148
-----------
Amortisation
At 1 January 2005 3,689,095
Exchange difference (197,332)
Charge for the year 1,591,334
-----------
At 31 December 2005 5,083,097
-----------
Net book value
At 31 December 2005 22,807,051
===========
At 31 December 2004 24,201,053
===========
10 TANGIBLE Land and Plant and Furniture, Oil Vessels Motor Construction Total
FIXED ASSETS buildings machinery fixtures storage vehicles in progress
and tanks
equipment
GROUP US$ US$ US$ US$ US$ US$ US$ US$
Cost
At 1 January 21,752,518 20,922,215 8,050,561 173,053 3,105,591 677,715 1,755,414 56,437,067
2005
Exchange 32,989 41,949 (1,436) - - 2,719 74,258 150,479
differences
Transfers - 65,769 - - - - (65,769) -
Additions 279,602 9,421 73,697 - - 27,016 - 389,736
Disposals - - (175,445) - (659,272) (20,509) - (855,226)
---------- ---------- --------- -------- --------- -------- ---------- -----------
At 31 December 22,065,109 21,039,354 7,947,377 173,053 2,446,319 686,941 1,763,903 56,122,056
2005 ========== ========== ========= ======== ========= ======== ========== ===========
Depreciation
At 1 January 6,153,407 8,554,555 4,110,806 13,460 1,035,722 471,285 - 20,339,235
2005
Exchange 28,713 40,970 (770) - - (2,314) - 66,599
differences
Charge for the 402,006 875,282 543,810 - 257,133 52,731 - 2,131,195
year
Disposals - - (72,801) - (213,867) (7,050) - (293,718)
---------- ---------- --------- -------- --------- -------- ---------- -----------
At 31 December 6,584,126 9,470,807 4,581,045 13,460 1,079,221 514,652 - 22,243,311
2005 ========== ========== ========= ======== ========= ======== ========== ===========
At 31 December 15,480,983 11,658,547 3,366,332 159,593 1,367,098 172,289 1,763,903 33,878,745
2005 ========== ========== ========= ======== ========= ======== ========== ===========
At 31 December 15,599,111 12,367,660 3,939,755 159,593 2,069,869 206,430 1,755,414 36,097,832
2004 ========== ========== ========= ======== ========= ======== ========== ===========
10 TANGIBLE FIXED ASSETS (continued)
At 31 December 2005, the net book values of land and buildings, plant and
machinery, fixtures and equipment are further analysed as follows:
Terminal Power plant Mining zone Others Total
US$ US$ US$ US$ US$
Land
- short leases 2,756,615 - - - 2,756,615
- unspecified leases 1,378,309 - - - 1,378,309
---------- ------------ ----------- --------- -----------
4,134,924 - - - 4,134,924
Buildings 8,586,987 1,874,644 884,428 - 11,346,059
---------- ------------ ----------- --------- -----------
Land and buildings 12,721,911 1,874,644 884,428 - 15,480,983
========== ============ =========== ========= ==========
Plant and machinery 4,656,414 6,912,133 - - 11,568,547
========== ============ =========== ========= ==========
Furniture, fixtures and equipment 110,172 2,204,723 10,544 1,040,893 3,366,332
========== ============ =========== ========= ==========
At 31 December 2003, a guarantee was given by the Company's subsidiary, Keen
Chance Terminal (GZ) Company Limited ("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 US$ 1,378,309 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.
Under the law of the People's Republic of China, the land held for industrial
use and the buildings without building ownership certificates can only be used
for identified industrial purposes. The Group did not obtain any building
ownership certificates in respect of the buildings of the Group. The Group
cannot legally sell or mortgage such properties until the relevant land taxes
have been paid to the local land authority. However there is no binding
agreement for the taxes to be paid.
At 31 December 2005, the net book value of fixed assets held under finance
leases amounted to US$Nil (2004:US$3,368).
11 INVESTMENTS Investment in
subsidiaries
COMPANY US$
Cost
At 1 January 2005 and 31 December 2005 56,014,662
At 31 December 2005, the Company held 100% of the ordinary shares of Arko
Offshore Holdings Limited, a company incorporated in the British Virgin Island
("BVI"), whose principal activity was that of a holding company. Arko Offshore
Holdings Limited had the following subsidiary undertakings:
Name Holding ordinary Business activities Country of incorporation
shares/registered capital
Arko Energy Limited 100% Investment holding British Virgin Islands
Arko Consultants Limited 100% Providing management British Virgin Islands
services
Arko Pacific Limited 100% Investment holding British Virgin Islands
Long Prosperity Industrial 100% Investment holding Republic of Seychelles
Limited*
Arko Silicon (Hubei) 100% Dormant People's Republic
Limited* of China
Sanko Mineral Limited* 100% Sub-letting of yachts, British Virgin Islands
ships
and vessels
Arko Logistics Limited* 100% Providing logistics Hong Kong
and related services
Arko Satellite Limited* 100% Dormant British Virgin Islands
Arko Terminal Limited 100% Investment holding Republic of Seychelles
("ATL")*
Changzhou Power 59.2% Operating a coal-fired People's Republic
Development Company thermal power plant of China
Limited*
Keen Chance Terminal (GZ) 40% Investing in and People's Republic
Company Limited* operation of China
of a terminal and
providing
logistics services
Fujian Sanko Mining 70% Dormant People's Republic
Limited* of China
* held by a subsidiary of Arko Offshore Holdings Limited
The 40% equity interest in Keen Chance Terminal (GZ) Company Limited "KCT"
previously held by Keen Lloyd Energy Limited ("KLEL"), a subsidiary of Keen
Lloyd Holdings Limited ("KLHL"), has been transferred to ATL. The transfer has
been submitted for registration to the relevant PRC authorities.
Pursuant to an agreement dated 5 April 2002 entered into between KLEL and
Miaotou Economic Development Company Limited "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 US$9.4 million), and KLEL
intended to convert the outstanding loan into the registered capital of KCT.
On 22 April 2003, KLEL entered into a shareholder agreement with MEDCL and
Harbour Economic Development Company Limited ("HEDCL"), another shareholder of
KCT, whereby all parties agreed that MEDCL has unconditionally transferred the
authority empowered to its directors representative (including their rights and
obligations) to KLEL until KLEL transferred the 40% equity interests in KCL to
ATL to reiterate the aforesaid agreement dated 5 April 2002.
11 INVESTMENTS (continued)
On 16 May 2003, a supplemental agreement was entered into between ATL, KLEL,
MEDCL and HEDCL by which all parties agreed that the above authority transferred
to KLEL would be vested in ATL after KLEL completed the transfer of equity
interests in KCT to ATL.
In accordance with the terms and conditions set out in the above agreements,
KLEL effectively controls the board of KCT and this arrangement has been
confirmed by the shareholders of KCT. In 2002, a Hong Kong lawyer expressed his
view that KCT is a subsidiary of KLEL under Hong Kong Company Law. Control of
KLEL has been transferred to ATL and therefore in the opinion of the directors,
KCT is a subsidiary of ATL under UK Companies Act 1985.
In addition, KCT will be a legal subsidiary of ATL immediately upon the
registration of the transfer of the 40% of equity in KCT from KLEL to ATL.
12 INVESTMENT IN ASSOCIATE 2005 2004
US$ US$
Share of net assets 12,082 12,082
====== ======
The investment in associate represents 20% of the ordinary shares in a company
incorporated in the People's Republic of China, Guangzhou Keen Lloyd Shipping
Agents Limited, at consideration of RMB 100,000 (US$12,082). The associate is
principally engaged in provision of logistics and related services.
13 STOCKS
Stocks represent coal and consumables. There was no significant difference
between the replacement cost and the value shown in the balance sheet.
14 DEBTORS Group Company
2005 2004 2005 2004
US$ US$ US$ US$
Amounts falling due within one
year:
Trade debtors 4,511,313 4,001,613 - -
Other debtors (note i) 4,298,499 8,710,217 26,111 -
--------- ---------- ------ -------
8,809,812 12,711,830 26,111 444,218
========= ========== ====== =======
Amounts falling due after more
than one year:
Security deposit (note ii) - 55,580 - -
--------- ---------- ------ -------
- 55,580 - -
========= ========== ====== =======
14 DEBTORS (continued)
Notes:
(i) Included in other debtors at 31 December 2005 are amounts
due from (non-group) related companies as follows:
- Tanko Electronics Limited - US$14,114 (2004: US$6,318)
- Guangzhou Tung Lloyd Shipping Agency Company Limited - US$170,172
(2004: US$Nil)
- Guangzhou Winko Investment Ltd - US$91,776 (2004: US$Nil)
- Guangzhou Keen Lloyd Copper Industry Company Limited - US$130,351
(2004: US$Nil)
The amounts are interest free, unsecured and repayable on demand.
(ii) From 2002, prepayments were made to local suppliers for stabilizing the
sourcing of coal supply during the period from 5 March 2002 to 4 March 2004.
During the year the remainder of the payment has been utilised by the Group.
15 CREDITORS Group Company
2005 2004 2005 2004
US$ US$ US$ US$
(a) Amounts falling due
within one year:
Bank loans - 9,449 - -
Obligations under finance - 1,735 - -
leases (note iii)
Trade creditors 739,070 1,673,686 - -
Amount due to immediate
holding company (note i) - 1,000,000 - -
Amount due to related
companies (note ii) - 84,880 - -
Amount due to subsidiary - - 1,493,649 1,362,872
Corporation taxes 710,683 689,937 - -
Other creditors and accruals 2,044,403 1,537,454 96,813 117,645
--------- --------- --------- ---------
3,494,156 4,997,141 1,590,462 1,480,517
========= ========= ========= =========
(b) Amounts falling due
after one year:
Bank loan (note iv) 1,915,246 1,910,228 - -
Advances from fellow
investors
in subsidiary companies 786,677 784,616 - -
(note v) --------- --------- --------- ---------
2,701,923 2,694,844 - -
========= ========= ========= =========
15 CREDITORS (continued)
Notes
(i) Amount is due to Keen Lloyd Holdings Limited and is interest-free and
unsecured.
(ii) Amounts is due to Arko Management Limited and Guangzhou Keen Lloyd Copper
Industry Company Limited. The amounts due are unsecured and interest free.
(iii) Obligations under finance leases are secured on the underlying assets and
repayable between two to five years.
(iv) The bank loan is unsecured. Interest accrues at the rate of 5.85% per
annum.
(v) An amount was advanced from Miaotou Economic Development Company
Limited of US$718,004 (2004: US$716,123) and a further amount from Walton
Enterprises Limited of US$68,673 (2004: US$68,493).
16 BANK LOANS, OTHER LOANS AND FINANCIAL INSTRUMENTS 2005 2004
US$ US$
Analysis of debt maturity
Amounts payable
In one year or less or on demand - 9,449
Two to five years 2,701,923 2,694,844
--------- ---------
2,701,923 2,704,293
========= =========
Obligations under finance leases
Amounts payable:
Within one year - 1,735
========= =========
Bank, overdrafts, loans and
finance leases analysis by origin:
Hong Kong - 11,184
People's Republic of China 2,701,923 2,694,844
--------- ---------
2,701,923 2,706,028
========= =========
The Company had no other 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 banks and from related parties, 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.
Financial instruments such as investments in and advances to subsidiary
undertakings and short term debtors and creditors have been excluded from the
disclosures below.
Details of security are given in note 15.
16 BANK LOANS, OTHER LOANS AND FINANCIAL INSTRUMENTS (continued)
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 finance is available at particularly attractive rates.
The interest rate risk profile of the Group's financial liabilities and assets
are as follows:
Financial liabilities
Currency Total Interest-free Fixed rate Fixed rate Fixed rate
weighted weighted
average interest average period
rate at for which rate
is fixed
US$ US$ US$ % Years
2005
RMB 2,701,923 786,677 1,915,246 5.85 1
--------- ------- ---------
2,701,923 786,677 1,915,246
========= ======= =========
2004
Hong Kong
dollars 11,184 - 11,184 11.96 2
RMB 2,694,844 784,616 1,910,228 5.85 1
--------- ------- ---------
2,706,028 784,616 1,921,412
========= ======= =========
Financial assets
Currency Floating rate Floating rate
2005 2004
US$ US$
Hong Kong dollars 396,712 375,114
RMB 256,350 46,089
------- -------
653,062 421,203
======= =======
Financial assets represent cash at bank and in hand. There were no fixed rate
financial assets.
The directors consider that the fair value of the Group's financial assets and
liabilities was the same as their carrying value.
Liquidity risk
The Group's policy is to ensure that sufficient facilities would be available to
satisfy its peak borrowing requirements. As at 31 December 2005, the Group was
within its bank borrowing facilities. The Group had drawn down all committed
borrowing facilities at the year 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.
17 RECONCILIATION OF OPERATING LOSS TO NET CASH FLOW FROM OPERATING ACTIVITIES
2005 2004
US$ US$
Operating loss (5,325,699) (6,584,754)
Depreciation of tangible fixed assets 2,131,195 2,062,780
Amortisation of goodwill 1,591,334 1,396,792
(Gain)/loss on disposal of tangible fixed assets (4,290) 125,608
Decrease in stocks 119,285 9,965
Decrease in debtors 3,957,598 5,903,021
Decrease in creditors (427,667) (1,016,449)
Exchange adjustments (493,512) 238,359
---------- -----------
Net cash flow from operating activities 1,548,244 2,135,322
========== ===========
18 ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE 2005 2004
CASH FLOW STATEMENT US$ US$
Returns on investment and servicing of finance
Interest received - 406,594
Interest paid (240,451) (1,017,505)
---------- -----------
Net cash outflow from returns on investment and
servicing of finance (240,451) (610,911)
=========== ===========
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (389,736) (1,846,807)
Sale of tangible fixed assets 565,798 435,353
----------- -----------
Net cash inflow/(outflow) from capital expenditure 176,062 (1,411,454)
=========== ===========
Acquisitions and disposals
Purchase of associate - (12,082)
Sale of associate - 1,092,836
---------- -----------
Net cash outflow from acquisitions and disposals - 1,080,754
=========== ===========
Financing
Issue of equity share capital - 398,067
Capital element of finance lease rental payments (1,735) (22,183)
Net (decrease)/increase in bank and other borrowings (1,089,311) 11,576
Increase/(decrease) in advances from investors 2,061 (417,599)
---------- -----------
Net cash inflow from financing (1,088,985) (30,139)
=========== ===========
19 ANALYSIS OF CHANGES IN NET DEBT
At Cash At
1 January flows 31 December
2005 2005
US$ US$ US$
Cash in hand and at bank 421,203 231,859 653,062
Obligations under finance leases (1,735) 1,735 -
Advances from investors (784,616) (2,061) (786,677)
Other loans (3,004,557) 1,089,311 (1,915,246)
----------- ---------- -----------
Total (3,369,705) 1,320,844 (2,048,861)
=========== ========== ===========
20 SHARE CAPITAL 2005 2004
Number # Number #
Authorised:
Ordinary shares of 0.5p 30,000,000,000 150,000,000 30,000,000,000 150,000,000
each ============== =========== ============== ===========
Equivalent to: US$ US$
265,395,280 265,395,280
=========== ===========
Allotted, called
up and fully
paid:
Ordinary shares US$ US$
of 0.5p each 1,978,895,097 14,921,520 1,978,895,097 14,921,520
============= ========== ============= ==========
Share options
The Company operates a share option scheme. During the year ended 31 December
2002, the Company granted share options to its advisors as part of the
remuneration for the services provided. Details of share options transactions
during the year ended 31 December 2005 are set out below:
Number of Number of Number of
Date granted Exercisable Exercise shares shares shares
From To price At 1 January granted/lapsed At 31 December
2005 2005
10.5.2002 27.6.2002 10.5.2007 2p 300,000 - 300,000
======= ====== =======
21 RESERVES Statutory
Share surplus Profit
Premium Merger Reserve and loss
account reserve (note i) account
US$ US$ US$ US$
GROUP
At 1 January
2005 15,662,031 26,042,970 1,681,573 (4,587,087)
Loss for the
year - - - (5,907,500)
Exchange
movements - - - (247,768)
Appropriations - - - -
---------- ---------- --------- ----------
At 31 December 2005 15,662,031 26,042,970 1,681,573 (10,742,355)
========== ========== ========= ==========
COMPANY
At 1 January 2005 15,662,031 26,042,970 - (1,544,106)
Exchange
movements - - - (286,862)
Loss for the
year - - - (197,264)
---------- ---------- --------- ----------
At 31 December 2005 1,566,031 2,604,970 - (2,028,232)
========== ========== ========= ==========
Note:
(i) Statutory surplus reserve:
In accordance with the law of the People's Republic of China and the articles of
association of certain of the Company's subsidiaries, directors of these
subsidiaries may at their discretion make appropriations to a statutory surplus
reserve equivalent to 10% of the subsidiaries' net profits. Appropriations may
also be made to statutory public welfare reserve equivalent to 5 to 10% of the
net profits of these operating subsidiaries. Distribution of 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.
22 RECONCILIATION OF MOVEMENT IN EQUITY
SHAREHOLDERS' FUNDS 2005 2004
US$ US$
Loss for the financial year (5,907,500) (7,168,582)
Other recognised gains and losses (247,768) 115,280
New share capital subscribed - 398,067
----------- ----------
Net reduction in shareholders' funds (6,155,268) (6,655,235)
Opening shareholders' funds 53,721,007 60,376,242
---------- ----------
Closing shareholders' funds 47,565,739 53,721,007
========== ==========
23 RELATED PARTY TRANSACTIONS
Other than transactions otherwise disclosed in the financial statements, the
Group had the following material transactions which were carried out on an arm's
length basis with related parties during the year:
Year ended Year ended
Name of company Note Nature 31 December 31 December
2005 2004
US$ US$
Guangzhou Tung Lloyd (a) Barge hire charges - 300,914
Shipping Company Limited Agency charges - 133,606
Guangzhou Tung Lloyd Shipping
Agency Limited (a) Agency charges 72,587 73,367
Winko Metal Limited (c) Hiring charges for Motor Vehicle 23,144 49,215
Winko Resources Limited (c) Hiring charges for Motor Vehicle - 63,981
Keen Lloyd Holdings Limited Management fee received - 27,101
Young Crystal Limited (b) Hiring charges for Motor Vehicle - 7,931
Tanko Electronics Limited (c) Management fee received 17,414 51,158
Arko Harbour Limited (d) Acquisition of companies - 106,348,646
Arko Investment Limited (d) Disposal of subsidiary - 20,029,841
Arko Management Limited (d) Acquisition of fixed assets - 73,040
Keen Lloyd Copper Ind (Guangdong) (c) Sales - 12,499,441
Limited Purchases - 12,079,983
Guangdong Winko Investment Limited (e) Management fee paid - 26,526
The Company has taken advantage of the exemption conferred in FRS8 Related
parties from disclosing transactions with Group companies.
23 RELATED PARTY TRANSACTIONS (continued)
Notes:
(a) A company in which the Chairman, Mr Qin Shun Chao, is a director.
(b) A company in which Ms Angela Leung Suk Ching is a director.
(c) A company controlled by Keen Lloyd Holdings Limited (see note 27).
(d) Subsidiary company disposed during the year ended 31 December 2004.
(e) A company in which Mr Qin Shun Chao is a director
24 OPERATING LEASE COMMITMENTS
At 31 December 2005, the Group was committed to make the following payments
during the next year in respect of land and building under operating leases:
2005 2004
US$ US$
Leases which expire:
in the next year 58,896 207,826
in the second to fifth years - 55,369
------ -------
58,896 263,195
====== =======
25 CAPITAL COMMITMENTS
At 31 December 2005, the Group had capital commitments contracted for as
follows:
- in respect of the acquisition of a gantry from an non-related supplier in
the sum of RMB 4,700,000 intended for use by a subsidiary company, Keen
Chance Terminal (GZ) Company Limited.
- in respect of the acquisition of eight vessels amounting to US$Nil
(2004: US$49,320,000).
- in respect of the acquisition of plant, machinery and equipment
amounting to US$Nil, primarily mining equipment intended for use by a
subsidiary, Fujian Sanko Mining Limited (2004: US$40,399,000)
The Company had no capital commitments.
26 CONTINGENT LIABILITIES
(a) On 23 July 1998, a subsidiary of the Company, Keen Chance Terminal (GZ)
Company Limited ("KCT"), gave a guarantee for RMB50 million (equivalent to
approximately US$5.9 million) in favour of the Huangpu Branch of the Industry
and Commercial Bank of China for banking facilities granted to Harbour Economic
Development Company Limited ("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.
(b) On 9 November 1999, KCT gave a guarantee for RMB18 million (equivalent to
approximately US$2.1 million) in favour of Nangang Rural Credit Co-operation
Bank for banking facilities granted to Miaotou Economic Development Company
Limited ("MEDCL"), a fellow investor in KCT, secured over its equity interests
in KCT. MEDCL was unable to repay the outstanding loan.
26 CONTINGENT LIABILITIES (continued)
On 27 September 2001, the Guangzhou Law Court delivered an order and notice that
the guarantees above were invalid and MEDCL's equity interest in KCT was frozen.
Based on legal advice, the equity interests had no material impact on the
operations of KCT and the directors consider that no provision is required.
KCT maintains that the guarantee given was invalid on the following grounds:
(1) such guarantee did not have approval from the board of directors of KCT;
(2) in accordance with the law of the People's Republic of China, 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 held a valid business licence
since 1998 and ceased operations in 1999. In accordance with the banking
regulations of the People's Republic of China, the bank cannot lend money
to enterprises which do not have a valid business licence.
The legal proceedings are still in progress. Based on legal advice, the
directors are of the opinion that, the loan agreement was void because it was
illegal and accordingly, the guarantee contract was also invalid.
Furthermore, Keen Lloyd Holdings Limited, the Company's parent company, has
indemnified the Group against any loss KCT will suffer should the guarantee be
enforceable.
Accordingly, the directors are of the opinion that no provision should be made
in the financial statements for any possible claim from the bank in respect of
the litigation.
27 ULTIMATE CONTROLLING PARTY
The directors consider that Chin Dynasty Foundation Limited ("CDFL"), a company
incorporated in the British Virgin Islands is the ultimate holding company. CDFL
is controlled by the Chin Dynasty Fund.
The Chin Dynasty Fund is a discretionary trust where Mr Qin Shun Chao is the
settlor. Members of Mr Qin's family are the potential beneficiaries of the
trust.
No group financial statements for CDFL are published.
The company's immediate parent company is Keen Lloyd Holdings Limited, a company
incorporated in the British Virgin Islands.
28 EXCHANGE RATE
The US dollar to sterling exchange rate at 31 December 2005 was US$1.7168/#
(2004: US$1.199/#)
The announcement set out above does not constitute a full financial statement of
the Company's affairs for the year ended 31 December 2005. 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,
Saddlers House, Cheapside, London EC2V 6HS.
Enquiries:
Angela Leung - Arko Holdings plc
Tel: 00 852 2219 9999 Email: angelal@arkoholdings.com
Robert Lo - Nabarro Wells & Co. Limited
Tel: 020 7710 7407 Email: robertlo@nabarro-wells.co.uk
This information is provided by RNS
The company news service from the London Stock Exchange
END
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