26 Apr 2012 07:00
26 APRIL 2012
FORTUNE OIL PLC
("Fortune Oil", "the Company" or "the Group")
Annual Financial Report Announcement - Record Results
Fortune Oil (LSE: FTO.L) is a company focusing on oil, natural gas and resource supply operations and investments primarily in China. Fortune Oil has a Premium Listing, is quoted on the main market of the London Stock Exchange and has its headquarters in Hong Kong. Fortune Oil today reports its results for the financial year ending 31 December 2011.
FINANCIAL HIGHLIGHTS
§ Revenues including share of jointly controlled entities increased by 10% to £625 million (2010: £567 million).
§ Fortune Oil achieved record profit attributable to shareholders in 2011, up 39% to £18.2 million (2010: £13.1 million).
§ Operating profit increased by 11% to £27.4 million (2010: £24.6 million).
§ Basic earnings per share of 0.96 pence (2010: 0.69 pence) representing an increase of 40%.
§ Dividend of 0.18 pence per share declared, to be paid out on 27 June 2012 representing an increase of 39%.
§ Natural gas operating profit decreased by 3% to £10.5 million (2010: £10.8 million).
§ Share in Bluesky Aviation's net profit increased 32% to £11.6 million (2010: £8.8 million).
§ Single Point Mooring Facility's revenue increased by 15% to £17.2 million (2010: £15million).
OPERATIONAL HIGHLIGHTS
§ Bluesky Aviation jet fuel sales increased 14% to 2.6 million tonnes (2010: 2.3 million tonnes).
§ Single Point Mooring facility achieved record throughput of 11 million tonnes, 14% higher than the previous year (2010: 9.7 million tonnes).
§ Four new city natural gas projects launched. There was a 16% increase in number of new domestic gas customers connected; 212,000 total customers.
§ Three more lateral and four vertical wells were drilled and completed at Fortune's Coal Bed Methane project in Liulin. The gas gathering system has been designed, key equipment ordered, and contractors appointed.
§ Invested in the mining licenses for three iron ore mines in Armenia.
§ Post year end established a Joint venture to invest in China Gas Holdings Ltd.
OUTLOOK
§ China Gas Holdings investment is expected to yield significant commercial opportunities for the natural gas business.
§ Opportunities to expand the number of airports under the Bluesky joint venture.
§ Drilling programme at Liulin targets gas production of 100,000 cubic metres per day.
§ Continuing urbanisation and industrialisation of China will continue to require increased oil products and natural gas supplies.
§ China 12th Five Year Plan requires natural gas as proportion of China energy usage to double by 2015.
Mr. Qian Benyuan, Chairman of Fortune Oil, commented:
"Fortune Oil delivered another strong performance in 2011 and continued to make significant progress across all core businesses. The Company's strong position, significant industry experience and clear strategic focus has allowed us to benefit from opportunities that have arisen and we remain confident of continue success in the coming years.
"We are very excited about the growth prospects for Fortune Oil. We continue to strengthen our position in the China gas industry while still seeking opportunities in the oil sector. Given Fortune Oil's attractive position within China's expanding energy and resource markets, we remain confident of delivering further success in the future."
ENQUIRIES:
Fortune Oil PLC Tee Kiam Poon, Chief Executive Bill Mok, Chief Financial Officer
|
Tel: 00 852 2583 3125 Tel: 00 852 2583 3120 |
Pelham Bell Pottinger Archie Berens Zoë Sanders |
Tel: 020 7861 3112 Tel: 020 7861 3887 |
FORTUNE OIL PLC
ANNUAL FINANCIAL REPORT ANNOUNCEMENT 2011
In accordance with the Disclosure and Transparency Rules, we set out below the extracts from the 2011 Annual Report and Accounts in unedited full text. The Annual Report and Accounts is available on the Company's website www.fortune-oil.com and will be posted to shareholders who have elected to receive a hard copy of this document.
CHAIRMAN'S STATEMENT
Introduction
Fortune Oil delivered another strong performance in 2011 and continued to make significant progress across all core businesses. Steps have been taken to further strengthen the organisation and management is now focusing on delivery of the Company's growth ambitions and operational excellence. The Company's strong position, significant industry experience, and clear strategic focus allowed us to benefit from opportunities that have arisen and we remain confident of continued success in the coming years.
Operations and Results
The Group achieved excellent results in 2011. Revenues including share of jointly controlled entities increased by 10 per cent to £624.6 million (2010: £566.9 million), and operating profits were £27.4 million, 11 per cent higher than 2010 (£24.6 million). Profit attributable to shareholders increased by 39 per cent to £18.2 million (2010: £13.1 million).
Fortune Oil's strength lies in its relationships with its joint venture partners in developing growth opportunities and new projects. The natural gas project in Shijiazhuang demonstrates our capability of being able to team up with major Chinese companies; Petrochina and Xinao Gas to supply natural gas to eleven county level cities in Hebei province. Our partners recognise the core capabilities that Fortune Oil adds to these joint ventures, ensuring continued access to new growth opportunities. Another example is Bluesky where we have secured an opportunity to potentially double the number of airports under the Bluesky operation together with our partner China National Aviation Fuels. In addition, the strategic investment in China Gas Holdings Ltd (a Hong Kong listed company) is another exciting opportunity which we believe could open up further opportunities for the natural gas business. As a Group, we will continue to seek joint venture developments and strategic partnerships both domestically and internationally which will enable us to pursue attractive growth opportunities and to achieve the benefits of scale and materiality.
Dividend
The Board recommends the payment of a dividend to shareholders for 2011, of 0.18p per share (2010: 0.13p per share). This is in line with the Board's stated intention to make an annual dividend payment to shareholders. The dividend will be payable on 27 June 2012 to shareholders on the register as at 25 May 2012.
Market Opportunities
Fortune Oil's impressive performance continues to be underpinned by China's sustained economic growth and the associated demand for clean fuels from both consumers and commercial enterprises. China's GDP grew at 9.2 per cent in 2011, in line with government targets as it tightened fiscal policy to manage property prices and inflation. On the back of the strong economic growth China's energy consumption continued to expand and, according to the International Energy Agency, China will account for more than 50 per cent of global energy demand growth over the next five years.
China's 12th Five Year Plan, issued in March 2011, promoted the use of natural gas over higher carbon containing fuels, such as coal and fuel oil, and includes a series of targets aimed at reducing energy consumption per unit of GDP and slashing major pollutant emissions. Natural gas will play a key role in ensuring the achievement of these targets and the 12th Five Year Plan is to more than double the 2011 percentage of natural gas in the primary energy mix by 2015. Also, China will need to continue to reduce its dependence on coal for power and industrial use and demand even stricter exhaust emission standards on vehicles and natural gas will play a pivotal role in achieving this.
Within this context Fortune Oil is well placed to being able to provide the fuels that China is going to require in ever increasing volumes. Our focus remains on growing natural gas supply as this is the cleanest burning fossil fuel. We are leading projects to introduce this fuel into more cities across China and into new markets such as a fuel for ships, heavy duty trucks and long distance buses.
China Gas Price Reform
As part of the development of the gas industry, in December 2011 the China National Development Reform Committee ("NDRC") announced a fundamental reform to gas pricing in China. The reforms will take the form of a pilot project, initially in southern China, with the strategic intent to raise the price of gas in coastal Chinese cities to a price close to oil parity and thereafter adjust the gas price according to future movements in the oil price. Assuming the pilot is a success, China will then roll out the pricing reform to other provinces. Under the new mechanism, natural gas prices will be linked directly to LPG and fuel oil import prices. The expectation is that the move towards a more market based pricing mechanism is likely to push up the prices of natural gas although the impact of these reforms on the affordability and demand for natural gas remains to be seen. Well head prices of gas are also expected to increase with some projections indicating the well head prices could double. China is also reforming the pricing of other fuels and we continue to monitor these developments and evaluate the potential impact on our markets.
Management and Governance
We continue to maintain high standards of corporate governance. Board succession planning is an essential component of effective corporate governance and continued success of the business as is the composition of our key committees. We continue to review the structure of the Board, the membership and impartiality of key committees, the management team, and ensure there is the most appropriate balance of skills and experience to drive effective decision making. In line with this policy we have changed the representatives on the audit committee and are currently reviewing the composition of the remuneration committee to ensure there is sufficient independence. The management team has also been strengthened by the appointment of Mr Bill Mok to the position of Chief Financial Officer and Mr Jerry Gorman is leading our Resource development in Armenia.
Outlook
The urbanisation and industrialisation of China continues and provides a strong platform for increasing demand for energy and resources. Although long-term fundamentals for growth are strong, there remains potential for volatility in the short to medium term due to persistent economic uncertainties both from local pressures in China to reduce residential property price escalation and control inflation and from the pressure on exports due to the lack of demand growth from the Organisation for Economic Co-operation and Development ("OECD") countries. We constantly seek to assess the potential impact of these factors on the Group's plans and enhance our capabilities to understand and invest accordingly in our chosen markets.
We are very excited about the future growth prospects for Fortune Oil. We continue to strengthen our position in the Chinese natural gas industry while still seeking opportunities in the oil sector. We continue to make good progress towards the production and gas sales from our CBM block at Liulin with China's natural gas price reforms potentially increasing the CBM well-head gas price. We expect demand in the oil sector to remain strong. Air travel will continue to increase in China and the Bluesky business is well positioned to participate in this anticipated growth in demand. Consumption of oil derived products such as diesel and petrol is expected to continue to grow to support the rapid expansion of the automotive sector. The resources activities are still at an early stage but 2012 will be a year where this business is able to get closer to value realisation.
I would like to thank the concerted efforts of our employees, who have enabled the Group to achieve another excellent performance, with the Group's businesses continuing to achieve strong profit growth. Given Fortune Oil's attractive position within China's growing energy and resource markets, we remain confident of delivering further success in the future.
Our commitment to our shareholders
We thank our shareholders for their continued support. Many have been steadfast investors in Fortune Oil and we are very appreciative of the loyalty. With our dedicated management team, compelling strategy and increasing momentum in our chosen sectors, we are well placed to thrive and grow as more customers in China demand cleaner fuels to power the country.
CHIEF EXECUTIVE'S REVIEW
2011 Results
In 2011 Fortune Oil recorded a strong performance as it sought to vigorously expand its core businesses of oil, gas and resources and move steadily towards its vision of being a leader in China's energy and resources supply. The Group continued its clear pathway for sustainable growth. We are now financially stronger and have greater operational flexibility thanks to significant progress with our established oil and gas assets and our new business developments.
Higher sales volumes drove a 10 per cent increase in revenues including share of joint control entities to £624.6 million in 2011 from £566.9 million in 2010. Group profit attributable to shareholders after taxation for the year amounted to £18.2 million, an increase of 39 per cent compared to £13.1 million in 2010. Group profit from operations increased by 11 per cent to £27.4 million (2010: £24.6 million). Earnings per share for the year increased to 0.96 pence compared to 0.69 pence in 2010, an increase of 40 per cent. Profit growth in 2011 was driven by a strong contribution from our Bluesky aviation business and one-off gains of £7.3 million from divestments (2010: £3.4 million). The net borrowing position stayed low at £5.7 million as at 31 December 2011.
As a result of the strategic investments we announced during the year we have significantly enhanced our position in key natural gas demand centres and in the downstream natural gas vehicle refuelling sector. During the year we invested £79.2 million including capital expenditure of £20.2 million, mainly to continue the development of our integrated natural gas business, the purchase of intangible assets of £34.3 million mainly paid for the acquisition of three iron ore mining licences in Armenia and £24.7 million paid to acquire shares in China Gas Holdings Limited, a Hong Kong listed company, as a long term investment. I am greatly encouraged by the Group's performance, which is a testament to our focus on creating shareholder value in the long term.
Strategy
Our strategy has remained consistent; we invest in and operate long-term cost competitive assets supplying oil, gas and resources to support China's growing economy. To achieve this we focus on a portfolio of assets with the intention of:
• Becoming a leading integrated natural gas supplier across our selected regions in China;
• Developing opportunities in the Chinese oil sector, in particular exploiting the Company's unique position in oil products supply and terminals; and
• Developing overseas resources supported by our strong relationships with major Chinese state owned enterprises.
Key Performance Indicators
We continue to apply the six principle Key Performance Indicators ("KPIs") that were adopted in 2004. We feel these continue to be valuable in assessing how well the Group has been performing against its strategic objectives. In 2011 we met or exceeded four out of the six KPIs (see the Annual Report and Accounts). Our gas supply growth target was missed due to disposals although underlying growth continued to be strong and whilst we achieved 12 per cent growth in profit attributable to equity shareholders (before other gains) this was lower than our target of 15 per cent.
2011 Key Achievements
In 2011 we focused the business on operational delivery of our oil and gas growth ambitions and we have made significant progress in all of our operational key areas. Our focus on our core operations helped us to achieve supply records in Maoming SPM and Bluesky's aviation refuelling businesses. We continued to optimise our financial position and grew our natural gas business organically, reflecting the confidence in the business and the outlook for our markets.
Looking into the future, China National Aviation Fuels has invited Bluesky to participate in the development and operation of refuelling infrastructure and fuel supply across fifteen new airports in southern and central China. The West Zhuhai oil products terminal is now part of Petrochina's strategic oil products reserve facilities. The trading business teamed up with Vitol S.A. and Huaneng Group in the first carbon asset investment fund in China, and we established a first mover advantage in the LNG vehicle refuelling market with our project in Liaoning province, again with strong partners.
In a year of considerable progress across the Group, several projects stand out: the progress we have made on the coal bed methane project in Liulin, establishing a joint venture to supply natural gas to eleven county level cities within Shijiazhuang municipal region, and the progress we have made in our Armenian iron ore project.
During 2011 we also explored options to make a step change in the development of our natural gas businesses and identified the opportunity to become a substantial shareholder, via a joint venture with other investors, in China Gas Holdings Ltd ("CGH"), the largest independent natural gas company in China in terms of city network, serving gas to over 150 cities. The strategic objectives for this joint venture are to explore the opportunities of combining CGH's strengths with those of Fortune Oil and to grow Fortune Oil's natural gas business in China. The joint venture we established in 2012 to effect this is a unique strategic investment, and together with its associates, is the largest shareholder of CGH. Our first step, were CGH open to such a cooperation, would be to explore synergistic opportunities benefiting both companies.
Meeting Rising Energy Demand
We remain optimistic about China's economy and, although China's GDP growth may be tempered slightly, we still expect continued strong growth for energy. Implementation of our strategy will enable us to take advantage of this increasing demand. In the long term, China continues to offer tremendous demand for energy and resources but we do not under estimate the competition for these customers. We intend to rise to the challenge and ensure that Fortune Oil is positioned as the preferred supplier of energy and resources to these new customers.
2012 Strategic Outlook
Although 2012 will be a challenging year we see tremendous opportunities ahead in the energy market, with cleaner energy sources offering enormous growth potential. The key objective in 2012 for the Group is to focus on execution of the investments announced over recent years and to drive maximum returns for the Company and for our shareholders.
Increased availability of natural gas from different supply sources and expansion of the gas infrastructure will continue to support the expansion of our natural gas business. Our upstream CBM project is progressing to plan and we look forward to the production and marketing of gas from the Liulin block in 2012. Under the 12th Five Year Plan China will continue to expand its airport infrastructure and Bluesky is well positioned to participate in this continued growth in domestic air travel in China.
The resource business made significant progress, we have a strong team and, together with our strategic partners, we are well placed to ensure our commercial success from our Armenian iron ore investment.
Our Employees
Fortune Oil has a dedicated and hard working team of employees which has been strengthened with the appointments of Mr Jerry Gorman, with more than 30 years mining and metals experience, as Project Director to lead the Armenia iron ore development and Mr Bill Mok as the Chief Financial Officer for the Group.
It is inspiring to see the way our team works together and strives for ways to improve our collective performance. Throughout the year, their commitment, talent and integrity have led to the delivery of our strong performance.
On behalf of the Board, I would like to thank all of our people for their hard work during the year. Our thanks also go to our shareholders as their continued support for Fortune Oil has helped us achieve such a strong performance in 2011.
FINANCIAL REVIEW
Revenue and Expenditure
Revenues including the Group's share of jointly controlled entities increased by 10 percent to £624.6 million (RMB 6,476 million) in 2011 from £566.9 million (RMB 5,891 million) in 2010, the increase is mainly due to the significant increase in Bluesky's turnover, which has been offset by the decrease in sales revenue in the natural gas sales and trading division. Group revenue excluding jointly controlled entities has dropped by 28 per cent in 2011 to £199.8 million (RMB2.1 billion) from £275.8 million (RMB2.9 billion) in 2010. This is mainly due to the decrease in natural gas sales, as a result of our divestment in 2010, as well as trading division due to the slowdown of oil products market in the PRC.
Before the gain on disposal of interests in a subsidiary of £7.3 million (the gain on disposal of interests in subsidiaries in 2010: £3.4 million), the operating profit was £27.4 million (RMB284 million) in 2011, compared with £24.6 million (RMB 256 million) in 2010, an increase of 11 per cent. This increase is mainly due to continuing growth in the aviation refuelling business.
The after tax net profit attributable to equity shareholders was £18.2 million (RMB188 million), an increase of 39 per cent compared to £13.1 million (RMB136 million) in 2010. Earnings per share increased to 0.96 pence compared with 0.69 pence in 2010. Administrative expenses remained at £11.7 million (RMB121 million) in 2011 (2010: £12.5 million or RMB129 million).
Capital expenditure and acquisitions
During the year we invested £79.2 million including capital expenditure of £20.2 million, mainly to continue the development of our integrated natural gas business, the purchase of intangible assets of £34.3 million mainly paid for the acquisition of three iron ore mining licences in Armenia and £24.7 million paid to acquire shares in China Gas Holdings Limited, a Hong Kong listed company, as a long term investment. The capex mainly consisted of the expansion of gas pipeline networks, development costs in Liulin CBM block and acquisition of three new subsidiaries, Liaoning Jianping Fortune Gas Company Limited, Fu Song Jin Run Natural Gas Limited and Beijing Fortune Power Technology Company Limited.
Financial Position
The net assets of the Group at 31 December 2011 were £196.5 million (RMB1.9 billion), compared with £166.3 million (RMB1.7 billion) in 2010. The Group had a net borrowing position of £5.7 million (RMB56 million) as at 31 December 2011, compared to a net cash position of £28.9 million (RMB293 million) in the previous year. With a gross cash balance of £128.4 million, the Group envisages no difficulties in meeting both current loan repayment obligations and investment commitments.
Financial Costs and Tax
Finance expenses for the Group were £5.3 million in 2011, compared to £3.0 million in 2010, it is mainly due to the increase in Group's borrowing and settlement of an interest rate swap during the year. Group's borrowings at 31 December 2011 totalled £134.1 million compared to £71.5 million at the end of 2010. The increase was mainly due to the drawdown of a US$180 million Morgan Stanley syndicated bank loan in 2011, which has been partly used to repay the US$80 million Standard Chartered Bank syndicated bank loan. The net gearing ratio (after deduction of cash) for the Group was 4 per cent as of 31 December 2011 (negative as of 31 December 2010).
The Group's tax charge in 2011 was £6.8 million (2010: £6.5 million) representing an effective tax rate of 21.5 per cent compared with 25.0 per cent in 2010. Since 2008 the corporate tax rate has been unified for both domestic and foreign companies at 25 per cent, being previously 15 per cent for foreign enterprises and 33 per cent for domestic corporations. Also since 2008, dividends distributed overseas by foreign invested enterprises in China were subject to tax. The tax rate is 10 per cent if there is a tax treaty concluded between China and the country of which the investor is a tax resident. It is 5 per cent for Hong Kong companies, and 10 per cent if share ownership is below 25 per cent. Dividends from Maoming Single Point Mooring, Bluesky and West Zhuhai Terminal to the holding companies in Hong Kong are subject to this tax rule.
Foreign Exchange
The revenues and expenses of the Group are primarily denominated in China's renminbi (RMB). Some expenses are denominated in pound sterling (£) and in Hong Kong dollar (HK$), which is pegged to the US dollar (US$). On average from 2010 to 2011, the RMB appreciated against the US$ by 4.2 per cent and the pound sterling appreciated by 4.1 per cent against the US$, hence there was an overall 0.2 per cent depreciation of the pound sterling against the RMB. This currency movement has had the effect of increasing our profits as measured in pound sterling.
The assets and liabilities of the Group are also primarily denominated in RMB, although a small proportion are denominated in pound sterling, HK$ and Armenian Dram. In line with the average annual rates, the closing pound sterling exchange rate depreciated against the RMB by 3.6 per cent.
The Company does not have a policy to hedge currency risk and therefore any changes in the RMB/£ exchange rate are likely to affect the Group's results as denominated in pound sterling.
Capital Structure
Most of the Group's investments and expenses take place in the PRC and are held through Fortune Oil PRC Holdings Limited, a 100 per cent-owned Hong Kong based subsidiary of the Company. To facilitate inter-company restructuring most of the investments in China are held through subsidiary Hong Kong registered companies. The Company's UK operations consist only of local representation as a direct expense to the Company.
Dividend Policy
Subject to the shareholder approval, the directors recommend a final dividend of 0.18p per ordinary share (2010: 0.13p per ordinary share) to be paid on 27 June 2012 to ordinary shareholders on the register on 25 May 2012.
Directors' Statement
The Directors of Fortune Oil confirm that the financial statements in this report to shareholders are true and fair and the Directors' Report includes a fair review of the development and performance of the business, its position and description of the principal risks and uncertainties faced.
FORTUNE OIL PLC
Annual Financial Report Announcement
Condensed Consolidated Income Statement
for the Year Ended 31 December 2011
Amount in £'000 | Notes | 2011 | 2010 |
Revenue including share of jointly controlled entities | 2 | 624,634 | 566,886 |
Share of revenue of jointly controlled entities | 2 | (424,861) | (291,132) |
Group revenue | 2 | 199,773 | 275,754 |
Cost of sales | (169,894) | (236,817) | |
Gross profit | 29,879 | 38,937 | |
Distribution expenses | (5,528) | (13,007) | |
Administrative expenses | (11,679) | (12,453) | |
Share of results of jointly controlled entities | 8 | 14,824 | 11,171 |
Share of results of associates | (72) | - | |
Profit from operations | 27,424 | 24,648 | |
Other gains | 7,323 | 3,404 | |
Finance costs | (5,281) | (2,954) | |
Investment revenue | 2,186 | 970 | |
Profit before tax | 31,652 | 26,068 | |
Income tax charge | 3 | (6,801) | (6,526) |
Profit for the year | 24,851 | 19,542 | |
Attributable to: | |||
Owners of the parent | 18,164 | 13,083 | |
Non-controlling interests | 6,687 | 6,459 | |
24,851 | 19,542 | ||
Earnings per share | |||
Basic | 5 | 0.96 | 0.69 |
Diluted | 5 | 0.95 | 0.69 |
All results shown are from continuing operations. |
FORTUNE OIL PLC
Annual Financial Report Announcement
Condensed Consolidated Statement of Comprehensive Income
for the Year Ended 31 December 2011
Amount in £'000 | 2011 | 2010 | |
Profit for the year | 24,851 | 19,542 | |
| |||
Exchange differences arising on translation of foreign operations | 6,699 | 14,891 | |
Net gain in fair value of available-for-sale investments | 3,180 | - | |
Loss on cash flow hedges arising during the year | (111) | (564) | |
Loss on cash flow hedges transferred to income statement | 675 | - | |
Other comprehensive income for the year | 10,443 | 14,327 | |
Total comprehensive income for the year | 35,294 | 33,869 | |
Attributable to: | |||
Owners of the parent | 27,282 | 23,368 | |
Non-controlling interests | 8,012 | 10,501 | |
35,294 |
33,869 |
FORTUNE OIL PLC
Annual Financial Report Announcement
Condensed Consolidated Statement of Financial Position
at 31 December 2011
Amount in £'000 | Note | 2011 | 2010 |
Assets | |||
Non-current assets | |||
Property, plant and equipment | 6 | 58,580 | 65,194 |
Goodwill | 3,109 | 4,068 | |
Intangible assets | 7 | 46,602 | 14,473 |
Prepaid lease payments | 1,731 | 1,616 | |
Investments in jointly controlled entities | 8 | 71,643 | 47,717 |
Investments in associates | 945 | - | |
Available for sale investments | 29,860 | - | |
Other non-current receivables | 3,958 | - | |
216,428 | 133,068 | ||
Current assets | |||
Inventories | 9,697 | 4,280 | |
Trade and other receivables | 33,203 | 45,132 | |
Cash and cash equivalents | 128,440 | 100,349 | |
Assets classified as held for sale | - | 10,625 | |
171,340 | 160,386 | ||
Total Assets | 387,768 | 293,454 | |
Liabilities | |||
Current liabilities | |||
Borrowings | 9 | 21,905 | 15,276 |
Trade and other payables | 41,109 | 47,033 | |
Current tax liabilities | 3,881 | 3,196 | |
66,895 | 65,505 | ||
Liabilities directly associated with assets classified as held for sale | - | 2,874 | |
66,895 | 68,379 | ||
Non-current liabilities | |||
Borrowings | 9 | 112,222 | 56,185 |
Deferred tax liabilities | 2,767 | 2,006 | |
Others non-current liabilities | 9,392 | - | |
Financial liabilities - cash flow hedges | - | 564 | |
124,381 | 58,755 | ||
Total Liabilities | 191,276 | 127,134 | |
Net Assets | 196,492 | 166,320 | |
Equity | |||
Capital and reserves | |||
Ordinary shares | 10 | 19,875 | 19,875 |
Treasury shares | (878) | (898) | |
Share premium | 10,129 | 10,129 | |
Other reserves | 3,180 | 3,422 | |
Hedging reserves | - | (564) | |
Foreign currency translation reserve | 28,534 | 23,653 | |
Retained earnings | 80,241 | 60,316 | |
Equity attributable to owners of the parent | 141,081 | 115,933 | |
Non-controlling interests | 55,411 | 50,387 | |
Total Equity | 196,492 | 166,320 |
FORTUNE OIL PLC
Annual Financial Report Announcement
Condensed Consolidated Cash Flow Statement
for the year ended 31 December 2011
Amount in £'000 | Note | 2011 | 2010 |
Net cash from operating activates | 13 | 12,679 | 20,372 |
Interest received | 2,186 | 970 | |
Dividend received from jointly controlled entities | 11,104 | 2,413 | |
Payment for property, plant and equipment | (19,552) | (15,381) | |
Payment for intangible assets | (11,395) | (195) | |
Payment for prepaid lease payments | (91) | (36) | |
Receipt from disposal of subsidiary undertakings | 12 | 1,255 | 12,952 |
Payment for acquisition of subsidiary undertakings | 11 | (1,326) | (2,703) |
Consideration for disposal of interest in a subsidiary | - | 6,252 | |
Receipt from disposal of property, plant and equipment | 1,135 | 3,052 | |
Receipt from disposal of prepaid lease payment | - | 13 | |
Acquisition of investments in jointly controlled entities | - | (507) | |
Acquisition of investments in associate | (1,023) | - | |
Acquisition of available-for-sale investments | (26,680) | - | |
Loan to jointly controlled entities | (1,623) | (4,857) | |
Net cash (used in)/from investing activities | (46,010) | 1,973 | |
Dividend payment to owners of the parent | (2,468) | - | |
Net loans from /(repayment of loans) to non-controlling shareholders | 190 | (1,838) | |
Dividend paid to non-controlling shareholders | (3,873) | (3,852) | |
Net capital contribution to non-controlling shareholders | 871 | - | |
Net proceeds from issue of new borrowings | 113,230 | 46,117 | |
Repayment of borrowings | (50,723) | (23,106) | |
Net cash from financing activities | 57,227 | 17,321 | |
Net increase in cash and cash equivalents | 23,896 | 39,666 | |
Cash and cash equivalents at beginning of the year | 100,349 | 55,766 | |
Cash flow effect of foreign exchange rate changes | 4,195 | 4,917 | |
Cash and cash equivalents at end of the year | 128,440 | 100,349 |
FORTUNE OIL PLC
Annual Financial Report Announcement
Condensed Consolidated Statement of Changes in Equity
for the Year Ended 31 December 2011
Foreign | ||||||||||
Issued capital | currency | Attributable | Non- | |||||||
Ordinary | Treasury | Share | Other | Hedging | translation | Retained | to owners of | controlling | ||
Amount in £'000 | shares | shares | premium | reserve | reserve | reserve | earnings | the parent | interests | Total |
Balance at 1 January 2010 | 19,875 | (929) | 10,129 | - | - | 13,854 | 47,157 | 90,086 | 44,110 | 134,196 |
Profit for the year | - | - | - | - | - | - | 13,083 | 13,083 | 6,459 | 19,542 |
Exchange differences arising on translation of foreign operations | - | - | - | - | - | 10,849 | - | 10,849 | 4,042 |
14,891 |
Loss on cash flow hedges arising during the year | - | - | - | - | (564) | - | - | (564) | - | (564) |
Total comprehensive income for the year | - | - | - | - | (564) | 10,849 | 13,083 | 23,368 | 10,501 | 33,869 |
Payment of dividends to non-controlling interests | - | - | - | - | - | - | - | - | (3,852) | (3,852) |
Exercise of share options | - | - | - | - | - | - | 5 | 5 | - | 5 |
Movement in treasury shares | - | 31 | - | - | - | - | (29) | 2 | - | 2 |
Acquisition of a subsidiary | - | - | - | - | - | - | - | - | 4,857 | 4,857 |
Deemed gain on disposal of 41.3% interest in a subsidiary | - | - | - | 3,422 | - | - | - | 3,422 | (3,422) | - |
Non-controlling interest on consideration for disposal of 41.3% interest in a subsidiary | - | - | - | - | - | - | - | - | 11,831 | 11,831 |
Disposal of subsidiaries | - | - | - | - | - | (1,050) | - | (1,050) | (13,638) | (14,688) |
Share-based payments | - | - | - | - | - | - | 100 | 100 | - | 100 |
Balance at 1 January 2011 | 19,875 | (898) | 10,129 | 3,422 | (564) | 23,653 | 60,316 | 115,933 | 50,387 | 166,320 |
FORTUNE OIL PLC
Annual Financial Report Announcement
Condensed Consolidated Statement of Changes in Equity
for the Year Ended 31 December 2011 (cont.)
Foreign | ||||||||||
Issued capital | currency | Attributable | Non- | |||||||
Ordinary | Treasury | Share | Other | Hedging | translation | Retained | to owners of | controlling | ||
Amount in £'000 | shares | shares | premium | reserve | reserve | reserve | earnings | the parent | interests | Total |
Profit for the year | - | - | - | - | - | - | 18,164 | 18,164 | 6,687 | 24,851 |
Exchange differences arising on translation of foreign operations | - | - | - | - | - | 5,374 | - | 5,374 | 1,325 |
6,699 |
Net gain in fair value of available-for-sale investment | - | - | - | 3,180 | - | - | - | 3,180 | - | 3,180 |
Cash flow hedges | - | - | - | - | 564 | - | - | 564 | - | 564 |
Total comprehensive income for the year | - | - | - | 3,180 | 564 | 5,374 | 18,164 | 27,282 | 8,012 | 35,294 |
Payment of dividends to non-controlling interest | - | - | - | - | - | - | - | - | (3,873) | (3,873) |
Dividend paid to owners of the parent | - | - | - | - | - | - | (2,468) | (2,468) | - | (2,468) |
Movement in treasury shares | - | 20 | - | - | - | - | (17) | 3 | - | 3 |
Acquisition of subsidiaries | - | - | - | - | - | - | - | - | 20,211 | 20,211 |
Net capital contribution from non-controlling interest | - | - | - | - | - | - | - | - | 871 | 871 |
Disposal of subsidiaries | - | - | - | (3,422) | - | (493) | 3,422 | (493) | (10,818) | (11,311) |
Adjustment arising from change in non-controlling interest | - | - | - | - | - | - | - | - | (9,379) | (9,379) |
Issuance of warrants | 424 | 424 | - | 424 | ||||||
Share-based payments | - | - | - | - | - | - | 400 | 400 | - | 400 |
Balance at 31 December 2011 | 19,875 | (878) | 10,129 | 3,180 | - | 28,534 | 80,241 | 141,081 | 55,411 | 196,492 |
Basis of preparation
The financial information set out in the announcement is extracted from the Company's full financial statements for the year ended 31 December 2011. Whilst the financial reporting included in this dissemination announcement has been computed in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company has published full financial statements that comply with IFRSs at the same day of this announcement. The accounting policies applied are consistent with those adopted and disclosed in the Company's financial statements for the year ended 31 December 2011.
2. Segmental Reporting
The Group has adopted IFRS 8 Operating Segments to identify seven operating segments on the basis of internal reports about components of the Group which are reviewed regularly by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.
The Group has classified the operating divisions and the reportable segments under IFRS 8 as "Natural Gas", "Single point mooring facility", "Aviation Refuelling", "Trading", "Products Terminal", "Resources" and "Others".
Information regarding these segments is presented below.
(a) Operating segments
Oil | ||||||||
| Natural Gas | Single point mooring facility | Aviation Refuelling | Trading | ||||
Amount in £'000 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
Revenue including share of jointly controlled entities | 70,560 | 96,677 | 17,224 | 15,007 | 403,745 | 273,925 | 121,487 | 170,479 |
Share of revenue of jointly controlled entities | (9,498) | (6,409) |
- | - | (403,745) | (273,925) | - | - |
Group revenue | 61,062 | 90,268 | 17,224 | 15,007 | - | - | 121,487 | 170,479 |
Profit from operations (including share of results of jointly controlled entities) |
10,460 |
10,839 |
5,849 |
5,554 |
11,606 |
8,782 |
1,037 |
1,105 |
Office overheads * | ||||||||
Operating profit, net of overheads | ||||||||
Other gains or losses | 7,323 | 3,404 | - | - | - | - | - | - |
Finance costs | ||||||||
Investment revenue | ||||||||
Profit before taxation | ||||||||
Taxation | ||||||||
Profit for the year | ||||||||
Attributable to |
| |||||||
Owners of the parent | ||||||||
Non-controlling interests | ||||||||
Additions to non-current assets | ||||||||
Capital expenditure | 17,695 | 14,715 | 2,395 | 1,107 | - | - | 24 | 14 |
Additions to intangibles | 3,877 | 7,847 | - | - | - | - | - | - |
Depreciation | 2,555 | 4,891 | 3,925 | 3,445 | 7 | 8 | 51 | 59 |
Net assets: by class of business | ||||||||
Assets | ||||||||
Segment assets | 172,474 | 174,532 | 19,910 | 19,248 | 33,531 | 27,907 | 107,204 | 69,925 |
Unallocated assets | ||||||||
Consolidated total assets | ||||||||
| ||||||||
Liabilities | ||||||||
Segment liabilities | (40,276) | (42,673) | (3,178) | (2,089) | (1,661) | (36) | (9,656) | (20,323) |
Unallocated liabilities *** | ||||||||
Consolidated total liabilities | ||||||||
(a) Operating segments (cont.)
Oil | ||||||||
|
Products Terminal |
Resources |
Others** |
Group | ||||
Amount in £'000 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 |
Revenue including share of jointly controlled entities | 2,606 | 2,758 |
- |
- | 9,012 | 8,040 | 624,634 | 566,886 |
Share of revenue of jointly controlled entities | (2,606) | (2,758) |
- |
- | (9,012) | (8,040) | (424,861) | (291,132) |
Group revenue | - | - | - | - | - | - | 199,773 | 275,754 |
Profit from operations (including share of results of jointly controlled entities) | 1,063 | 1,224 |
- |
- | 423 | 588 | 30,438 | 28,092 |
Office overheads * | (3,014) | (3,444) | ||||||
Operating profit, net of overheads | 27,424 | 24,648 | ||||||
Other gains or losses | - | - | - | - | - | - | 7,323 | 3,404 |
Finance costs | (5,281) | (2,954) | ||||||
Investment revenue | 2,186 | 970 | ||||||
Profit before taxation | 31,652 | 26,068 | ||||||
Taxation | (6,801) | (6,526) | ||||||
Profit for the year | 24,851 | 19,542 | ||||||
Attributable to | ||||||||
Owners of the parent | 18,164 | 13,083 | ||||||
Non-controlling interests | 6,687 | 6,459 | ||||||
Additions to non-current assets | ||||||||
Capital expenditure | - | - | 139 | - | - | - | 20,253 | 15,836 |
Additions to intangibles | - | - | 30,436 | - | - | - | 34,313 | 7,847 |
Depreciation | - | - | 18 | - | - | - | 6,556 | 8,403 |
Net assets: by class of business | ||||||||
Assets | ||||||||
Segment assets | 5,171 | 1,700 | 47,004 | - | 2,156 | (133) | 387,450 | 293,179 |
Unallocated assets | 318 | 275 | ||||||
Consolidated total assets | 387,768 | 293,454 | ||||||
Liabilities | ||||||||
Segment liabilities | - | - | (8,525) | - | (1,016) | - | (64,312) | (65,121) |
Unallocated liabilities *** | (126,964) | (62,013) | ||||||
Consolidated total liabilities | (191,276) | (127,134) | ||||||
196,492 | 166,320 | |||||||
* | Includes overheads in United Kingdom, Hong Kong and PRC offices. |
** | Others include retail and distribution. |
*** | Includes bank loan, deferred tax and dividend withholding tax. |
b) Geographical operations
All Group's revenues are attributed to PRC and Hong Kong. Except for £31.2 million (2010: £nil) which are located in Armenia, all of the Group's non-current assets, excluding the available for sale investments, are held in PRC and Hong Kong. The Directors are of the opinion that the PRC and Hong Kong form one geographic segment.
c) Analysis of group revenue
Amount in £'000 | 2011 | 2010 | |
Sales of goods | 185,822 | 262,078 | |
Income from gas connection contracts | 10,946 | 11,794 | |
Rental income | 950 | 1,207 | |
Others | 2,055 | 675 | |
199,773 | 275,754 | ||
Investment revenue | 2,186 | 970 | |
201,959 | 276,724 |
d) Major customers
None of the customers individually account for more than 10% of the Group's revenues during the current and previous year.
e) Segment information
(i) Revenues attributable to the natural gas segment are derived from the sale of gas, connection fees and the operation of gas stations in the PRC;
(ii) Revenues attributable to the single point mooring facility are based on volume throughput;
(iii) Revenues attributable to the aviation refueling segment are derived from the sale and storage of jet fuel in the PRC;
(iv) Revenues attributable to the trading segment are derived from the trading of petroleum products in the PRC and Hong Kong; and
(v) Revenues attributable to the product terminal segment are derived from the storage of petroleum products in the PRC.
3. Taxation
The taxation charge for the year is analysed below:
Amount in £'000 | 2011 | 2010 |
Withholding tax | ||
Group withholding tax | 1,396 | 1,170 |
Total withholding tax | 1,396 | 1,170 |
Current tax | ||
Group current tax | ||
UK tax | 300 | - |
Foreign tax | 6,821 | 6,132 |
Total current tax | 7,121 | 6,132 |
Deferred tax | ||
Group deferred tax | (1,716) | (776) |
Total deferred tax | (1,716) | (776) |
Tax on profit on ordinary activities | 6,801 | 6,526 |
The tax charge for the year differs from the standard rate of corporation tax and is explained below. | ||
Amount in £'000 | 2011 | 2010 |
Profit on ordinary activities before taxation | 31,652 | 26,068 |
Theoretical tax at PRC corporation tax rate 25% (2009: 25%) | 7,913 | 6,517 |
Effects of: | ||
- Share of results of jointly controlled entities | (3,706) | (2,793) |
- Nil or lower tax in PRC | (75) | (724) |
- Tax losses not recognized | 225 | 1 |
- Utilization of tax losses credit not previously recognized | (234) | (281) |
- Other expenditure that is not tax deductible | 3,429 | 3,292 |
- Income not taxable | (2,123) | (508) |
- Withholding tax on dividend income | 1,396 | 1,170 |
- Enterprise income tax deduction on acquisition of domestically manufactured equipment | - | (38) |
- Different tax rate | (24) | (110) |
Total tax | 6,801 | 6,526 |
The above reconciliation uses a 25% (2010: 25%) standard rate of tax, being the standard rate of tax payable in the PRC, where the majority of the Group's activities take place.
Pursuant to the relevant laws and regulations in the PRC, certain of the Group's PRC subsidiaries are entitled to exemption from PRC income tax for two years starting from their first profit-making year, followed by a 50% reduction for the next three years. In 2011, there is one PRC subsidiary entitled to the above tax holiday. The subsidiary enjoyed the second year of 50% reduction.
The Group tax charge above does not include any amounts for jointly controlled entities, whose results are disclosed in the income statement net of tax.
4. Dividends
Amount in £'000 | 2011 | 2010 |
Amounts recognised as distributions to equity holders in the year: | ||
Final dividend for the year ended 31 December 2010 of 0.13p (2009: nil) per share | 2,468 | - |
Proposed final dividend for the year ended 31 December 2011 of 0.18p (2010: 0.13p) per share | 3,633 | 2,468 |
3,633 | 2,468 |
5. Earnings per share
Earnings per share have been calculated on the earnings activities after taxation and non-controlling interest of £18,164,000 (2010: profit of £13,083,000)
2011 | 2010 | |||
No. | No. | |||
'000 | pence | '000 | pence | |
Basic | 1,898,617 | 0.95 | 1,896,089 | 0.69 |
Share option and warrants adjustment | 14,320 | - | 724 | - |
Diluted | 1,912,937 | 0.95 | 1,896,813 | 0.69 |
6. Property, plant and equipment
Group | Motor | Single | Short | ||||
Assets in | vehicles, | point | leasehold | Oil and gas | |||
the course of | fixtures | mooring | property & | development | |||
Amount in £'000 | construction | & fittings | buoy | improvements | Pipelines | assets | Total |
Cost | |||||||
At 1 January 2010 | 5,829 | 10,707 | 29,974 | 8,473 | 60,670 | 9,397 | 125,050 |
Exchange differences | 479 | 935 | 2,417 | 781 | 5,696 | 807 | 11,115 |
Additions | 6,679 | 776 | 1,105 | 157 | 987 | 5,677 | 15,381 |
Acquisition | 234 | 221 | - | - | - | 455 | |
Disposal of subsidiaries | (1,511) | (4,062) | - | (5,364) | (27,280) | - | (38,217) |
Transfer to Assets held for sale | (957) | (324) | - | (210) | (9,537) | - | (11,028) |
Other disposals | - | (3,800) | (928) | (6) | (250) | - | (4,984) |
Reclassification | (3,237) | (268) | - | 484 | 3,021 | - | - |
At 31 December 2010 | 7,516 | 4,185 | 32,568 | 4,315 | 33,307 | 15,881 | 97,772 |
Exchange differences | 293 | 100 | 1,032 | 160 | 1,169 | (51) | 2,703 |
Additions | 11,768 | 1,117 | 2,394 | - | 1,805 | 3,018 | 20,102 |
Acquisition | 135 | 16 | - | - | - | - | 151 |
Disposal of subsidiaries | - | (511) | - | - | - | (18,848) | (19,359) |
Other disposals | - | (242) | (3,070) | - | (1,287) | - | (4,599) |
Reclassification | (8,120) | (9) | - | 2,306 | 5,823 | - | - |
At 31 December 2011 | 11,592 | 4,656 | 32,924 | 6,781 | 40,817 | - | 96,770 |
Depreciation | |||||||
At 1 January 2010 | - | 3,852 | 18,429 | 1,454 | 7,189 | - | 30,924 |
Exchange differences | - | 403 | 1,585 | 215 | 1,397 | - | 3,600 |
Charge for the year | - | 1,096 | 3,347 | 366 | 3,354 | - | 8,163 |
Acquisition | - | 57 | - | - | - | - | 57 |
Disposal of subsidiaries | - | (1,441) | - | (939) | (4,733) | - | (7,113) |
Transfer to assets held for sale | - | (200) | - | (49) | (1,103) | - | (1,352) |
Other disposals | - | (1,336) | (168) | (2) | (195) | - | (1,701) |
Reclassification | - | (95) | - | 35 | 60 | - | |
At 31 December 2010 | - | 2,336 | 23,193 | 1,080 | 5,969 | - | 32,578 |
Exchange differences | - | 78 | 886 | 50 | 298 | - | 1,312 |
Charge for the year | - | 488 | 3,862 | 193 | 1,509 | - | 6,052 |
Disposal of subsidiaries | - | (168) | - | - | - | - | (168) |
Other disposals | - | (133) | (1,185) | - | (266) | - | (1,584) |
Reclassification | - | (12) | - | - | 12 | - | - |
At 31 December 2011 | - | 2,589 | 26,756 | 1,323 | 7,522 | - | 38,190 |
Net book value | |||||||
At 31 December 2011 | 11,592 | 2,067 | 6,168 | 5,458 | 33,295 | - | 58,580 |
At 31 December 2010 | 7,516 | 1,849 | 9,375 | 3,235 | 27,338 | 15,881 | 65,194 |
7. Intangible assets
Intangible assets increased to £46.6 million (2010: £14.5 million) during the year. The increase is largely attributable to the acquisition of 3 mining licences in Armenia (£30.4 million).
8. Investment in jointly controlled entities
Amount in ￡'000 |
Interest in jointly controlled entities |
Net loans to jointly controlled entities |
Total jointly controlled entities | ||||
Share of net assets/cost | |||||||
At 1 January 2011 | 39,066 | 8,651 | 47,717 | ||||
Exchange rate difference | 2,450 | (61) | 2,389 | ||||
Advances | - | 1,623 | 1,623 | ||||
Investment in Fortune Liulin Gas Company Limited | 16,562 | (58) | 16,504 | ||||
Capital increase | 1,287 | - | 1,287 | ||||
Part disposal of investment | (1,597) | - | (1,597) | ||||
Dividends | (11,104) | - | (11,104) | ||||
Share of profit from jointly controlled entities | 14,824 | - | 14,824 | ||||
At 31 December 2011 | 61,488 | 10,155 | 71,643 | ||||
9. Borrowings
Amount in £'000 | 2011 | 2010 | |
Current liabilities | |||
Bank loans | 16,077 | 10,347 | |
Other loans | 5,828 | 4,929 | |
21,905 | 15,276 | ||
Non-current liabilities | |||
Bank loans | 110,618 | 53,904 | |
Other loans | - | 917 | |
Loan from non-controlling interests | 1,604 | 1,364 | |
112,222 | 56,185 | ||
Total borrowings | 134,127 | 71,461 |
Bank loans amounting to £7,157,000 (2010: £3,943,000) are secured, interest bearing at the range from 6.14% p.a. and are repayable within 12 months. Bank loans of £6,308,000 are unsecured, and interest bearing at 7.05%. From this amount £3,129,000 are repayable within 12 months and £3,179,000 is repayable after 12 months.
During the year, the Group restructured its facility arrangement. In April 2011, Fortune PRC Holdings Limited, a wholly owned subsidiary of the Company, entered into a new loan facility with Morgan Stanley Asia Limited ("Morgan Stanley") amounting to £113 million (US$180 million) which is guaranteed by the Company, secured over its various of the Group's subsidiaries and bears interest at a margin of 2.6% above LlBOR (the "Morgan Stanley syndicated loan"). £5,791,000 of the Morgan Stanley syndicated loan is repayable within 12 months and the remaining balance is repayable after 12 months. The proceeds were used to repay the 3-year US$80 million loan facility (£52 million) arranged by Standard Chartered Bank (Hong Kong) in April 2010.
10. Issued capital
Issued capital as at 30 June 2011 amounted to £19.9 million. There were no movements in the issued capital of the Company during the period.
11. Acquisition of subsidiaries
In May 2011, the Group acquired 51% of the issued share capital of Liaoning Jianping Fortune Gas Company Limited ("Liaoning") and Fu Song Jin Run Natural Gas Limited ("Fu Song") for cash consideration of £1.1million.
In June 2011, the Group acquired 55% of the issued share capital of Beijing Fortune Power Technology Company Limited ("Fortune Power") for cash consideration of £0.4 million.
The Group obtained control of these subsidiaries as a result of being able to exercise control over the respective board of directors.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out below:
Amount in ￡'000 |
Liaoning Jianping Fortune Gas Company Limited |
Fu Song Jin Run Natural Gas Limited | Beijing Fortune Power Technology Company Limited |
Total | |||
Net assets acquired: | |||||||
Property, plant and equipment | 102 | 48 | 1 | 151 | |||
Intangible assets | 2,220 | 123 | 1,032 | 3,375 | |||
Other receivables | 973 | 103 | 123 | 1,199 | |||
Bank balance and cash | 140 | - | 29 | 169 | |||
Borrowings | (935) | - | - | (935) | |||
Other payables | (12) | (87) | (173) | (272) | |||
Deferred tax liabilities | (555) | - | (258) | (813) | |||
1,933 | 187 | 754 | 2,874 | ||||
Non-controlling interest | (947) | (92) | (340) | (1,379) | |||
Consideration satisfied in cash | 986 | 95 | 414 | 1,495 | |||
Net cash outflows arising on acquisition: | |||||||
Cash consideration paid | 986 | 95 | 414 | 1,495 | |||
Bank balance and cash acquired | (140) | - | (29) | (169) | |||
846 | 95 | 385 | 1,326 | ||||
Liaoning, Fu Song and Fortune Power contribution to the Group's revenue and net profit for the period was negligible between the date of acquisition and the balance sheet date. If the acquisition of these subsidiaries had been completed on the first day of the financial year, the Group's revenues and net profit would have not materially changed.
The fair value of the above assets and liabilities have been determined on a provisional basis.
Acquisition related costs incurred are immaterial and have been recognised in the income statement.
12. Disposal of interest in subsidiaries
The Group disposed of its interest in Beijing Fu Hua Dadi Gas Limited ("Dadi") in January 2011. The assets and liabilities attributable to Dadi were presented as held for sale as at 31 December 2010.
Further to the Subscription and Shareholders Agreement dated 18 December 2009, Dart Energy (Previously Arrow Energy International) was able to exercise a series of options to increase its shareholding in Fortune Liulin Gas Company Limited ("FLG'). On 30 June 2011, Dart Energy was able to exercise an option to acquire a further 5% interest in FLG (increasing interest up to 50% in aggregate) giving joint control of FLG. The Group is therefore deemed to have lost control over FLG and from that date it is considered to be a jointly controlled entity of the Group.
The net assets of Dadi and FLG at the date of disposal were as follows:
Amount in £'000 | Beijing Fu Hua Dadi Gas Limited | Fortune Liulin Gas Company Limited | Total | ||
Goodwill | - | 979 | 979 | ||
Property, plant and equipment | 9,417 | 19,191 | 28,608 | ||
Intangible assets | 1 | 3 | 4 | ||
Prepaid lease payment | 55 | - | 55 | ||
Inventories | 39 | - | 39 | ||
Trade and other receivables | 822 | 44 | 866 | ||
Cash and cash equivalents | 296 | 2,685 | 2,981 | ||
Trade and other payables | (2,416) | (4,234) | (6,650) | ||
Borrowings | (383) | - | (383) | ||
Due (to)/from owners | (2,081) | 58 | (2,023) | ||
5,750 | 18,726 | 24,476 | |||
Exchange reserves | 113 | (402) | (289) | ||
Non-controlling interests | (2,211) | (8,607) | (10,818) | ||
3,652 | 9,717 | 13,369 | |||
Exchange difference | (114) | (90) | (204) | ||
Gain on disposal | 698 | 6,935 | 7,633 | ||
Total consideration | 4,236 | 16,562 | 20,798 | ||
Total consideration | 4,236 | - | 4,236 | ||
Fair value of retained interest in a jointly controlled entity | - | 17,097 | 17,097 | ||
4,236 | 17,097 | 21,333 | |||
Satisfied by | |||||
Cash and cash equivalent | 4,236 | - | 4,236 | ||
Net cash inflow arising on disposal: | |||||
Consideration received in cash and cash equivalents | 4,236 | - | 4,236 | ||
Less: cash and cash equivalent disposed of | (296) | (2,685) | (2,981) | ||
3,940 | (2,685) | 1,255 |
On 30 June 2011, being the date that the Group is deemed to have lost control of FLG, £3.4 million was transferred from other reserve to retained earnings. This represents the gain on previous partial disposals of FLG, which was originally recorded directly in other reserve as control was retained at that time.
The Group disposed of its interest in Shuozhou Jingping Natural Gas Limited on 1 August 2010 and Henan Green Energy Development Company Limited on 31 October 2010, recognising a gain on disposal of £3,404,000. The net cash inflow arising from these disposals was £12,952,000.
13. Notes to the cash flow statement
Amount in £'000 | 2011 | 2010 |
Net cash from operating activities | ||
Profit for the year | 24,851 | 19,542 |
Adjustments for: | ||
Share of post-tax results of jointly controlled entities | (14,824) | (11,171) |
Share of post-tax results of associates | 72 | - |
Taxation | 6,801 | 6,526 |
Amortisation | 579 | 359 |
Depreciation | 6,052 | 8,163 |
Loss on disposal of property, plant and equipment | 1,832 | 302 |
Loss on disposal of prepaid lease payment | - | 45 |
Gain on disposal of subsidiary undertakings | (7,633) | (3,404) |
Loss on disposal of jointly controlled entities | 310 | - |
Share-based payments | 400 | 100 |
Investment revenue | (2,186) | (970) |
Finance costs | 5,281 | 2,954 |
(Increase)/decrease in inventories | (5,257) | 593 |
Decrease/(increase) in trade and other receivables | 17,476 | (38,149) |
(Decrease)/increase in trade and other payables | (10,596) | 42,406 |
Net cash from operations | 23,158 | 27,296 |
Interest paid | (4,243) | (2,954) |
Taxation paid | (6,236) | (3,970) |
Net cash from operating activities | 12,679 | 20,372 |
Cash and cash equivalents Cash and bank balances | 128,440 | 100,349 |
14. Related party transactions and significant contracts
The Group's related parties, the nature of the relationship and the extent of transactions with them are summarised below:
Amount in £'000 | Sub note | 2011 | 2010 |
Loans from equity non-controlling interests in subsidiaries | 1 | (1,604) | (1,364) |
Loans to equity non-controlling interests in subsidiaries | 1 | 5,451 | 3,574 |
Interest paid and payable to major shareholders | 2 | - | 32 |
Trade account receivable from non-controlling shareholders | 3 | 4,208 | 3,161 |
Shareholder loans to jointly controlled entities | 4 | 10,155 | 8,651 |
Sales of goods to Vitol Asia | 5 | 3,212 | - |
Sales of goods to jointly controlled entities | 5 | 3,456 | 2,832 |
Purchase of goods from Vitol Asia | 5 | 6,852 | 9,692 |
Purchase of goods from jointly controlled entities | 5 | 1,629 | 1,150 |
Current account with Vitol Asia | 5 | (490) | (456) |
Current account with jointly controlled entities | 5 | (37) | (32) |
Sub notes
1. The loans of £1,604,000 (2010: £1,364,000), comprised loans from the non-controlling shareholders of Shuozhou Jingshuo Natural Gas Limited, Luquan Fu Xin Gas Company Limited, Shuozhou Fu Hua Natural Gas Limited and Qufu Fu Hua Gas Company Limited which are unsecured, interest free and without fixed payment terms, except for the loan of £235,000 which was interest bearing at 2.5% p.a. and repayable in 2024. Loans of £5,451,000 (2010: £3,574,000) comprised mainly loans to the non-controlling shareholders. A £1,494,000 (2010: £977,000) loan to the non-controlling shareholders of Beijing Everthriving Energy Technology Company Limited is unsecured, interest free and without fixed payment terms. A £3,958,000 (2010: Nil) loan to the non-controlling shareholders of Bounty Resources Armenia Limited is guaranteed, interest bearing at a margin of 4% over LIBOR p.a. and repayable in June 2014.
2. The interest paid and payable to First Level Holdings Limited was £32,000 in 2010 of which was paid at 31December 2010.
3. Maoming Petrochemical Corporation (MPCC) is a corporate shareholder of the Group's subsidiary, Maoming King Ming Petroleum. Throughputting turnover from MPCC amounted to £16,311,000 (2010: £14,366,000) of which. £4,208,000 (2010: £3,161,000) was owed at 31 December 2011.
4. The shareholder loans are part of shareholders' investment in the jointly controlled entities. These are common methods of making an investment in jointly controlled entities in the PRC. £10,155,000(2010: £8,651,000) was due from Tianjin Tianhui Natural Gas Limited, Jining Qufu New Fu Hong Gas Limited, Beijing Fuhua Natural Gas Logistics Limited and Fortune Liulin Gas Company Limited.
5. Vitol Energy (Bermuda) Limited is a shareholder of the Company. Sales from a Group's subsidiary, Fortune Oil Holdings Limited, to Vitol Asia Pte Limited amounted to £3,212,000 (2010: £nil). Purchases from Vitol Asia Pte Ltd amounted to £6,852,000 (2010: £9,692,000) and purchases from a jointly controlled entity, Jining Qufu New Fu Hong Gas Limited, amounted to £1,629,000 (2010: £1,150,000) respectively. Sales from Group's subsidiary, Xinyang Fortune Gas Company Limited to Group's jointly controlled entity, Xinyang Fortune Vehichle Gas Company Limited, amounted to £3,456,000 (2010: £2,832,000).
Current account due to Vitol Energy (Bermuda) Limited amounted to £490,000 (2010: £456,000). Current account due to a jointly controlled entity, Jining Qufu New Fu Hong Gas Limited, amounted to £42,000 (2010: £32,000). Current account due from jointly controlled entity, Beijing Fortune Natural Gas Logistics, Limited, amounted to £5,000 (2010: £nil).
6. As 24 April 2012, the date of this Report, China Gas Group Limited (CGGL) and its associates, which include Fortune Max Limited, a company controlled and beneficially owned by Mr. Daniel Chiu, hold a total of 491,462,000 ordinary shares of China Gas Holdings Limited (CGH), representing 11.21% of its total issued shares. This makes CGGL and its associates the largest shareholder of CGH.
15. Subsequent Events
Additional Interest in China Gas Group Limited
In January 2012, the Group established a 50/50 joint venture company, China Gas Group Limited, ("CGGL") with Mr. LIU Minghui to invest in a Hong Kong listed company, China Gas Holdings Limited ("CGH"). The committed investment amount from each joint venture party was HKD700 million. At the time of the signing the joint venture agreement, the Group owned 94,040,000 ordinary shares of CGH which formed part of its committed investment amount with an agreed price of HKD3.50 per share.
As of 24 April 2012, CGGL and its associate, Fortune Max Holdings Limited, a company controlled and beneficially owned by Mr. Daniel Chiu, hold a total of 692,890,000 ordinary shares of CGH, representing 15.81% of its total issued shares. This makes CGGL and its associates the largest shareholder of CGH.
Increase in Armenia iron ore mining licenses interest
Post year and the Group has increased its effective interest in the three Armenian iron ore mining licences acquiring during the year to 73.34%. No additional consideration was paid for this, as the parties agreed to early settle £1.29 million of the deferred payment in April 2012.
16. Copies of this report are available from the Group's Registered Office at 6/F, Belgrave House, 76 Buckingham Palace Road, London SW1W 9TQ.
GOING CONCERN STATEMENT
The Group's business activities and associated opportunities and risks are set out in the business review of the Annual Report and Accounts. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review set out in the Annual Report and Accounts. In addition, note 27 to the group financial statements includes the Group's objectives, policies and processes for its capital; its financial risk management objectives; details of its financial instruments; and its exposure to credit risk and liquidity risk.
As explained in note 21 to the group financial statements, the Group meets part of its capital expenditure requirements from medium term loan facilities. On 4 April 2011, the Group signed a US$180 million (£113 million) loan agreement and the proceeds were used to repay the 3-year US$80 million (£52 million) loan facility arranged by Standard Chartered Bank (Hong Kong) in April 2010 and the balance of US$100 million (£60 million) has been providing further capital development.
The Group faces uncertainty over (a) the level of demand for the Group's products and services; (b) international commodity prices and the rate of change of such prices; (c) international exchange rates that affect commodity prices and hence the Group's revenues in China as denominated in US dollars or sterling; (d) the availability of bank or equity finance in the foreseeable future; and (e) counterparty credit risk.
As at 31 December 2011, the Group had a cash balance of £128.4 million and a net borrowing of £5.7 million. Nonetheless, the Group expects to generate positive cash flow from operations. The Group's current forecasts and projections, adjusting for reasonably possible changes in trading conditions, show that the Group will be able to meet its obligations under the loan agreements and to operate within the required covenants.
After making enquiries, the Directors therefore have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.
PRINCIPAL RISKS AND UNCERTAINTIES
Our core business is supplying China with energy and resources, principally oil and natural gas. We are also pursuing overseas investment opportunities and have invested in three Armenian iron ore mining licences. We face many risks and whilst we can manage some, we have to accept others as part of doing business. We face the usual economic risks - prices, interest rates, supply and demand for the products we produce and deliver which we cannot control. Outlined below are the principal risk factors that may affect the Group's business. Any of these risks, as well as the other risks and uncertainties discussed in this document, could have a material adverse effect on the business. In addition, the risks set out below may not be exhaustive, and additional risks and uncertainties may arise or become material in the future.
Concentration risk
Our principal assets and operations are located in China and we sell all our products and services to China. Any adverse change in the economic or political environment in China would seriously affect the profitability and possibly viability of our entire business. We seek, through maintaining high level contacts and through providing high quality services, to minimise any adverse consequences. Development of resources outsides of China reduces the concentration risk.
Pricing risks
Our business sells products where we have little or no control over the price we achieve. The price we pay for product we on-sell is also largely out of our control. The interest rate we pay for debt and the interest we receive on surplus cash, and the exchange rates applying to transactions where we need to exchange currencies, are all set by international markets or by governmental regulation. Adverse movements in prices, interest rates or exchange rates can result in actual losses on transactions, increased costs or decreased revenues or losses on translation into our reporting currency. We seek to mitigate the effects of these risks through management of stocks of product in storage or transit, through currency matching of the costs of products sold to revenue produced and through holding cash in the currencies where expenditure is expected. We do not carry out hedging transactions in respect of these risks.
Regulatory and relationships risks
The energy sector in China is subject to a variety of regulatory regimes covering many of the Group's operations, both at the national and local government levels. The regulatory environment continues to evolve but includes restrictions on foreign ownership and participation in certain activities; land use and industry permitting; and health, safety and environmental obligations. Our operations in China are often carried out in joint ventures or through associated companies or, in the case of gas production, through production sharing contracts (PSC) or rely on medium term and long term supply agreements with state owned enterprises. If regulations change, or we or our partners fail to abide by regulations or meet the requirements of PSC or supply agreements, then we may lose rights or suffer fines or other penalties. Our management aims to be aware of any prospective changes in regulation and to ensure we comply, and to seeks to maintain a positive and constructive working relationship with our partners and with state owned companies so that decisions can be taken together to ensure compliancy with regulation and PSC and supply agreements. We rely on gas supply from the state owned companies and we maintain a positive and constructive working relationship with these companies to minimise any supply risks.
Health, Safety and the Environment (HSE)
The Group operates facilities in the oil and gas industry where there is an inherent risk of accidents that may harm employees, assets, the community or the environment. Such accidents may have an adverse impact on the ongoing operations, revenues and profits of the Group. We seek through the Group's HSE policies to observe all local and national legal and regulatory requirements. We also carry out pre-project and regular review risk assessments to ensure where possible that processes and procedures are in place to reduce and manage such incidents. Attraction and retention of key employees We rely heavily on a small number of key individuals, in particular the Executive Directors at Group and subsidiary levels, for the operation of Group`s day-to-day activities and implementation of its growth strategy. If a key employee left we could suffer disruption to projects or a business area until a replacement was recruited. We seek to set remuneration policies which will attract and retain suitably qualified employees but also seek to facilitate succession planning and ensure that there is a sharing of knowledge and contacts to minimise the impact of any one person's departure.
Development risks
As we grow the business we need to take on new developments of a long-term nature; these can be exploring and developing new reserves of gas or minerals, building pipelines, storage and delivery facilities or converting existing transport equipment to use gas. All these require national and/or local government consents and need to obtain finance, to source appropriate equipment and services and to build the necessary infrastructure. Whilst we seek to take the investment decision based on the best available information, the actual process will be affected by delays or changes in regulation, reserves proving smaller or more complex than predicted, delays in delivery or construction, or facilities or technology not reaching expected performance. This may extend the completion of projects and delay the start of their income production beyond that planned or even make them uneconomic. To mitigate this we seek not only at the start but during project implementation to work with regulators, financiers, partners and contractors to ensure that delays are minimised and projects are kept economically viable.
Uninsured risks
We operate with hazardous products and we are not in control of all operations in which we participate. In the event of an accident, substantial damages may be claimed against us due to our actions or omissions or those of a partner or sub-contractor. Any indemnities the Group may receive from such partners or sub-contractors may be difficult to enforce if they lack adequate resources or have themselves not put in place adequate insurance cover. We seek to manage this risk by selecting good quality, financially secure partners and sub-contractors and ensuring they confirm that they have appropriate safety procedures and insurance cover, and by seeing that our insurance cover is reasonable based on the costs of cover and the risks associated with our business and industry practice.
Investment risks
We are committing substantial resources in acquiring a material interest in China Gas Holdings Limited ("CGH"), a Hong Kong listed company. The objective is to create a long term relationship which adds value to our gas business. At the same time there is a general offer for all the shares of CGH which may result in control of that company being vested in third parties. We face the risk that we will not succeed in agreeing a cooperation or other relationship with CGH and remain a minority shareholder of CGH. If this occurs we may be unable for a period to realize our investment and if and when we do such realisation may be at less than we paid. The market value of CGH's shares varies from day-to-day as a result of the market's view of the general offer, general China economic conditions and the trading conditions for CGH's underlying business.