FTO.L Regulatory News (FTO)

27 Apr 2006 07:01

Fortune Oil PLC27 April 2006 27 APRIL 2006 FORTUNE OIL PLC ("Fortune Oil" or "the Company") Announcement of Preliminary Results for Year Ended 31 December 2005 Fortune Oil invests in and manages oil and gas infrastructure projects in China. Fortune Oil is quoted on the full list of the London Stock Exchange and hasits headquarters in Hong Kong. KEY POINTS • Turnover increased by 21 per cent to £143.1 million (2004: £118.1 million). • Retained profit (after exceptionals) increased to £2.8 million (2004: £2.6 million). • Excluding the impact of an exceptional credit in 2004 and an exceptional debit in 2005, underlying retained profit increased by 87 per cent from £1.8 million to £3.4 million. • Earnings per share on retained profit of 0.16 pence (2004: 0.17 pence). • Bluesky aviation refuelling continues to perform strongly, increasing sales volume by 20 per cent and net profit by 68 per cent. • Installed replacement SPM buoy, increasing the efficiency of crude oil delivery to the Maoming refinery. • Total natural gas sales volume increased by 42 per cent to 34 million cubic metres (2004: 24 million cubic metres). Fortune Oil now operates 468 km of gas distribution pipelines with 71,600 contracted customers. New developments include the supply of gas to Tianjin suburbs. • Post 2005 investment in a Coal Bed Methane block at Liulin, Shanxi Province. Mr Qian Benyuan, Chairman of Fortune Oil, commented: "Fortune Oil performed strongly in 2005. After discounting the impact ofexceptional items in both years, net profits almost doubled. This reflects thecontinued underlying growth in the Chinese economy and in the demand for energy,a trend we expect to continue. The diversity of our investment portfolio acrossthe oil and gas industry provides a hedge against supply constraints and othershort term issues. Our recent entry into Coal Bed Methane demonstrates ourability to execute such a strategy. We are confident of the opportunities forgrowth in energy and infrastructure in China." ENQUIRIES: Fortune Oil PLCJohn Pexton - Deputy Chief Executive Tel: 00 852 2583 3113 (Hong Kong) Pelham Public Relations Tel: 020 7743 6679 or 07802 442 486Archie Berens FORTUNE OIL PLC ("Fortune Oil" or "the Company") Announcement of Preliminary Results for Year Ended 31 December 2005 CHAIRMAN'S STATEMENT Introduction In 2005 China maintained its position on the centre stage of the world'seconomy: China's GDP overtook that of France, Chinese companies began to makelarge overseas acquisitions and the Renminbi-US dollar peg was relaxed. Chinanow has the second largest energy industry in the world after USA. Fortune Oilremains almost unique as an international company operating both oil and gasinfrastructure ventures in China. Results China's demand for oil and gas continues to grow strongly. The Bluesky businesscontinued to show strong volume growth and posted a 68 per cent rise in netprofit. The gas business made a small operating profit on the back of a 42 percent increase in sales volume. Some of the national pricing and supply-demandtensions impacted our businesses in 2005, resulting in temporary supplydisruptions for the Maoming SPM and West Zhuhai Oil Products Terminal as well asthe Beijing gas business. However, there was an increased in overall demand andthe Group's revenues (including share of joint ventures) were £143 million, a 21per cent increase over 2004. The profit attributable to equity shareholdersafter exceptionals was £2.8 million compared with £2.6 million in 2004, butthere was a strong increase in underlying profit before exceptionals. These results are the first produced by the Company under InternationalFinancial Reporting Standards (IFRS). The Company continues to meet thechanging reporting guidelines and to provide more information to shareholders.We have also made strides in improving our compliance with corporate governancerecommendations. Directors In 2005 we were pleased to strengthen the Board through the appointment of Mr.John Pexton and Mr. Gong Min as Executive Directors. Mr Bruce McGowan hasrecently retired from the Board after six years of devoted service but we arepleased that he will remain as a consultant to the Company. Our long-standingNon-Executive Directors, Mr. Li De, Mr. Feng Xuechang and Mr. Yang Chunshu willalso be retiring at the forthcoming AGM and we would like to thank them all fortheir invaluable contributions over the years. Recent Developments In recent months there have been two major developments for the Group. Firstlywe have agreed, subject to shareholder approval, to acquire the interests heldby Vitol in the West Zhuhai Oil Products Terminal, which also required us topurchase the interests held by Vitol in Fu Duo. The terminal at West Zhuhai isone of the largest independent distribution facilities for refined products insouthern China and a unique asset for future growth. Secondly, we have committed to invest in the development of coal bed methane(CBM). China has vast untapped reserves of CBM in its coal fields and itsextraction is critical for the community, not only as an energy resource but toreduce long term global warming and coal mine accidents. It is also an excitingopportunity for us to combine CBM with our existing gas operations to create anintegrated natural gas business. Fortune Oil is uniquely positioned through itsPRC connections and joint venture partners to bring to bear the necessaryexperience to develop a CBM business in Shanxi Province. We believe that, asboth the oil and gas markets open further in China, these new investments arewell-timed to provide future growth. Outlook Last year the Company's performance improved in spite of various supplydisruptions. In 2006 we are investing for future growth, particularly interminals and CBM projects. Security of energy supply is becoming increasinglyimportant for China as it endeavours to sustain economic growth. Since China isa net importer of energy, domestic prices for both gas and transportation fuelswill eventually have to rise towards international levels. We believe that theprivate sector will be encouraged to expand, albeit with appropriate regulation. With our developing portfolio of investments and unique market position, thesedevelopments will be positive for the Company and we remain confident ofsustained growth. FORTUNE OIL PLC ("Fortune Oil" or "the Company") Announcement of Preliminary Results for Year Ended 31 December 2005 CHIEF EXECUTIVE'S REVIEW Overview In 2005 revenues including the Group's share of joint ventures were £143million, a 21 per cent increase over 2004 (£118 million). The profitattributable to equity shareholders increased to £2.8 million from £2.6 millionin 2004. The underlying retained profit rose by 87 per cent from £1.8 millionto £3.4 million before the exceptional credits in 2004 for creditor write-backsand the exceptional debits in 2005 for the disposal of the first buoy at MaomingSPM. Over the last three years, the underlying retained profit (i.e. profitafter tax and before exceptionals) has increased 48 per cent per year onaverage, exceeding our target growth of 15 per cent per year. Earnings per share were 0.16 pence in 2005, marginally lower than the 0.17 pencefor 2004, principally as a result of the full impact of the conversion ofshareholder loans to shares at the end of 2004. Net assets increased by 19 percent to £50.7 million principally as a result of continued profits and exchangegains arising in the year. The Bluesky Aviation Refuelling business achieved a 68 per cent increase in netprofit, due to higher sales volumes and higher margin. However net profit forthe Maoming SPM fell 26 per cent, due to a temporary cutback at Sinopec'sMaoming refinery in the second half of the year and an exceptional loss ondisposal of the first buoy. The natural gas business achieved a small operatingprofit in 2005 during which we successfully commissioned one of the largestcompressed natural gas stations in Beijing. China Review Last year was a transition period for China's energy industry, in contrast tothe surging growth experienced in 2004. In the oil sector the high disparitybetween domestic and international prices for refined products led to losses foroil refining companies and temporary disruptions in product supply. Thesedisruptions caused small reductions in volume throughput for the Maoming SPM andthe West Zhuhai terminal. In the gas sector inadequate supplies forced us tosupply LPG instead of natural gas to some customers in early 2005, and theconsequential losses partially offset the later profits from the Tongzhou CNGstation. These problems are not expected to recur this year. However, overall energy demand in China is continuing its rapid growth and GDPhas grown 10 per cent per year since 2003. This GDP growth leads to greaterdemand for travel as well as power, hence the 19 per cent rise in jet fuel salesat Bluesky in 2005. The combination of higher energy prices, surging demand andpressures (both internal and international) to liberalise markets create adynamic environment. Government policies are aimed at maintaining thesustainability of China's overall economic growth: while individual sectors mayhave temporary supply disruptions or pricing problems the overall trend remainsstrongly upward. Operations The Bluesky aviation refuelling business (South China Bluesky Aviation OilCompany) continued its strong growth in volume sales and profit in 2005. Volumesales rose 20 per cent to 1.3 million tonnes, of which approximately 50 per centof which related to the new Guangzhou Baiyun International Airport. Net profitincreased by 68 per cent to £9.6 million (US$17.4 million) from £5.7 million(US$10.5 million) in 2004, due to the higher volume sales and a higher operatingmargin. As the growth in demand has exceeded all expectations, investments innew refuelling facilities are now being planned for the major airports(Guangzhou, Changsha, Wuhan and Zhengzhou). In particular, in 2005 FederalExpress announced the relocation of their Asia hub to Guangzhou and Bluesky willprovide jet fuel to this new terminal from 2008. Bluesky continues to be amonopoly supplier at its airport locations but tariffs are subject to governmentregulation. From April 2006 the tariff for domestic flights is being decreasedat Guangzhou and increased at the regional airports, but the impact on operatingmargin is not yet clear. At the Maoming SPM (Maoming King Ming Petroleum, or MKM joint venture), areplacement mooring buoy was successfully commissioned in April 2005 and hasimproved the efficiency of operation. However in late 2005 the losses beingincurred by Chinese refiners as a result of government pricing policies causedSinopec to reduce imports of crude oil at Maoming. As a result the totalthroughput for MKM fell 6 per cent in 2005 to 9.7 million tonnes. Net profitdecreased by 26 per cent to £4.2 million (US$7.6 million) from £5.7 million(US$10.4 million) in 2004. This was due to the lower throughput and to aonce-off loss on disposal of the old buoy of £0.6 million (US$1.1 million).Following agreements with the government, the Maoming refinery is now operatingat full capacity. MKM is now modifying the SPM facilities to handle the newclass of 300,000 dwt double-hulled tankers, thereby raising the SPM capacitybeyond 12 million tonnes per year. The West Zhuhai Oil Products Terminal joint venture was also affected by supplydisruptions in 2005, with a marginal decrease in throughput and trans-shipmentvolumes to 2.2 million tonnes. Net profit was £1.9 million (US$3.5 million).PetroChina maintains a 45 per cent share in the terminal and is the principalcustomer for distribution of diesel and gasoline. However, we envisage thatthird party usage will expand as the west side of the Pearl River develops andWTO regulations allow non-state companies to import products. For that reasonwe recently agreed to acquire Vitol's interests in the terminal which, subjectto shareholder approval, will increase our shareholding to 37 per cent. As partof this acquisition we also agreed to purchase the Vitol Group's interests inthe Fu Duo LPG subsidiary, which remains at best a break-even business. Our independent Trading business enabled us to guarantee supplies of gasolineand diesel to our Beijing retail stations in 2005, in contrast to many otherprivate retailers. While the domestic trading activities continue to be lowmargin, we are now increasing our customer base and low-risk cross-bordertrading of deregulated refined products, so as to prepare for further marketliberalisation over the coming year. The Natural Gas business increased gas sales by 42 per cent to 34 million cubicmetres (m3) and made a small operating profit in 2005, its second year ofbusiness. The Tongzhou Compressed Natural Gas (CNG) station was successfullycommissioned by Fu Hua, our joint venture with a PetroChina affiliate (80 percent Fortune Oil share). This is now one of the largest suppliers of CNG inBeijing to bus companies, factories and city gas companies. The gas sales fromTongzhou in the first quarter of 2006 totalled 13 million m3, the same as FuHua's total sales in Beijing for 2005, which indicates a considerably improvingperformance for our gas business. The Company's city gas companies now have 71,600 customers, most being recentlyconstructed residential apartments, and we now operate 468 km of gas pipelines.However, the China gas business is still at an early stage of development withlow penetration rates, such that our existing infrastructure has substantialgrowth opportunities. For example we recently agreed to supply gas toindustrial and residential suburbs at Tianjin in conjunction with Tianjin GasCompany, which will exploit spare capacity in our Tianhui spur pipeline. The gas shortages we experienced in early 2005 were not repeated in the recentwinter and the new Shaanxi-Beijing pipelines have sufficient capacity to meetmany years of demand increases in the Beijing region. However, the Companyneeds to ensure independent reliable sources of supply for its future gasbusinesses. This was the principal reason for our decision to seek investmentsin CBM development, as described below. Our Community Fortune Oil has managed oil and gas facilities in China for over 13 years. Wehave a proven track record of reliable and safe operation, with no fatalities inany of our invested businesses. These operations now employ 1200 staff, of whom99 per cent are PRC citizens, and they are key businesses in their respectivecommunities. We are proud of our role in introducing cleaner fuels and newstandards in China. The Company's HSE targets include minimising accidental release of hydrocarbonsfrom all our operating companies to the environment. We are particularlyconcerned about any release of methane, which is a greenhouse gas, and nomeasurable releases were reported for 2005. The Group's operations conductregular safety training seminars for the staff and for the community and therewere 6 Lost Time Injuries in all the Group's operations in 2005. Post Balance Sheet Events In February 2006 the Company announced its intention to acquire the combinedinterests held by the Vitol Group in the West Zhuhai terminal and Fu Duo LPGbusiness, subject to shareholder approval at the Extraordinary General Meetingto be held on 21 June 2006. The agreed total consideration is £3.3 million(US$5.7 million) for the Company to increase its effective shareholding in theWest Zhuhai terminal from 18.5 per cent to 37 per cent and in Fu Duo from 57.5per cent to 80 per cent and to repay loans from Vitol in respect of theseassets. The principal impact will be that the Company has a more influentialrole in the operations of the West Zhuhai terminal, one of the largestfacilities for import and distribution of transportation fuels in GuangdongProvince. In April 2006 the Company announced a conditional agreement to develop CBM gasreserves in the Liulin block in Shanxi Province, through forming a joint-venturewith Molopo Australia Limited ("Molopo"). Molopo is an Australian listedcompany with CBM fields in Australia and first signed a production sharingcontract ("PSC") for the Liulin block in 1999. The Company and Molopo haveagreed that, subject to approval by the Ministry of Commerce, the foreigncontractor rights in the PSC will be transferred by Molopo to Fortune Liulin GasCompany Limited, a Hong Kong registered subsidiary of Fortune Oil, and theexploration phase will be extended to 2008. Fortune Oil will commit US$2.5million for further appraisal of this CBM block over the next 18 months and willbe entitled to 60 per cent shareholding in the company. The government party tothe PSC, CUCBM, has now approved the transaction and we are awaiting approvalfrom the Ministry of Commerce. We expect commercial development of the blockwill commence after two years, assuming that the appraisal program issuccessful. This is the Company's first step into the upstream gas business. The Liulinblock is one of the best geologically assessed CBM blocks in China, with anestimated in-place gas resource of 0.8 trillion cubic feet (23 billion cubicmetres) in an area of 200 square kilometres, based on data from test wellsdrilled over the past 10 years by Molopo and government agencies. Molopo's CBMdevelopment expertise partnered with Fortune Oil's in-China project managementexpertise and gas marketing capability are a powerful combination. We expect the initial investments at Liulin and the acquisition of Vitol'sinterests to be funded from current available funds. Future Development We remain very optimistic concerning the prospects of our natural gas business,which we regard as our engine of growth. However in 2005 we appreciated theneed to ensure long-term security of supply and for this reason we have beenmore cautious compared to some other gas companies in building our portfolio,preferring to ensure sustainability. Our entry into coal bed methanedevelopment is aimed at both creating an integrated gas business with morereliable supply and tapping into the vast potential of CBM in China. The Company continues to exploit windows of opportunity as they open in theChina oil and gas and infrastructure markets. The Maoming SPM and West Zhuhaiterminal are unique investments for a foreign company in China and we willcontinue to build upon these positions. Bluesky continues to grow strongly,particularly from the rapid growth of the new Guangzhou airport. Given thesurge in demand for transportation and terminals, particularly in north and eastChina, the Company continues to assess opportunities for new port projects inthese regions. We are proud of our reputation and experience as one of theearliest foreign companies to invest in terminals in China and we plan to profitfurther from these strengths. FORTUNE OIL PLC ("Fortune Oil" or "the Company") Announcement of Preliminary Results for Year Ended 31 December 2005 FINANCIAL REVIEW Revenue and Expenditure This is the first year that the Group results have been stated and audited inaccordance with IFRS. IFRS has not resulted in any significant impacts on theresults or the financial position of the Group. Revenues including the Group's share of joint ventures increased by 21 per centto £143.1 million (US$260.2 million) in 2005 from £118.1 million (US$216.4million) in 2004. The profit attributable to equity shareholders was £2.8million (US$5.1 million), an increase of 8 per cent over 2004 (£2.6 million,US$4.7 million). Key differences were the exceptional item debit in respect ofthe SPM of £0.6 million in 2005 (for loss in disposal of the old buoy) and theexceptional item credit in respect of the write-back of creditor balances of£0.8 million in 2004. Earnings per share were 0.16 pence, a marginal decreaseon the 2004 earnings per share of 0.17 pence. This decrease was primarily dueto the timing of the share conversion by the two major shareholders in May 2004. Capital expenditure and acquisitions increased to £10.9 million (US$19.3million) (2004: £2.8 million), comprising the city gas company at Huairou (£3.3million), the Tongzhou CNG station with a fleet of CNG trucks (£3.9 million) anda new SPM buoy (£3.2 million). The 2005 debtors balance includes £1.1 million(US$1.9 million) secured by a hotel in Beijing. Repayments from the hoteltotalled £1.8 million (US$3.3 million) in 2005. The Group had a net cashposition of £2.6 million (US$4.8 million) as at 31 December 2005, compared to£7.4 million (US$14.2 million) in the previous year. The reduction was mainlydue to the substantial increase in capital expenditure in 2005. Net assets of the Group rose 19 per cent to £50.7 million (US$87 million) as atthe end of 2005 compared to £42.6 million in 2004 resulting from continuedprofits and exchange gains. Financial Costs and Tax Finance expenses for the Group were £454,000 (US$826,000) in 2005, similar tothe 2004 expense of £421,000 (US$771,000). Loans to the Group at end 2005totalled £9.1 million (US$15.6 million) of which £4.2 million (US$7.3 million)were due to First Level Holdings Limited, also the largest shareholder in theCompany. The Group's tax charge in 2005 was £544,000 (2004: £423,000) representing aneffective tax rate of 10 per cent (2004: 6.4 per cent). The increase ineffective tax rate resulted from the expiry of a tax holiday for Bluesky whosetax rate became 18 per cent in 2005 (7.5 per cent in 2004). Foreign exchange The revenues and expenses of the Group are primarily denominated in Chineserenminbi (RMB) and Hong Kong dollars (HK$), both of which are linked to the USdollar (US$). Over the course of 2005 the pound sterling (£) depreciated by10.1 per cent against the US dollar. In addition the PRC authorities began toloosen the RMB/US$ peg and the RMB appreciated 2.6 per cent in 2005. TheCompany does not proactively hedge currency risk and any further revaluation ofthe RMB or change in US$/£ exchange rate in 2006 is likely to affect the Group'sresults as denominated in sterling. The Group sources both RMB for operating expenses in China and US$ for equityinvestments in new joint ventures. A major element of the Group's foreignexchange needs currently comes from the dividend payments by the Maoming SPM andBluesky joint ventures and from repayment of shareholder loans in relation tothe West Zhuhai terminal. Historically the Maoming SPM and Bluesky jointventures have usually paid out the full net profit as dividend aftercontributions to employee welfare funds. Capital Structure Most of the Group's investments and expenses take place in the PRC and are heldthrough Fortune Oil PRC Holdings Limited, a 100 per cent-owned subsidiary of theCompany in Hong Kong. To facilitate inter-company restructuring most of theinvestments in China are held through subsidiary Hong Kong registered companies. The Company's UK operations consist only of local representation as a directexpense to the Company. Returns The Group uses increase in profit before tax and before exceptionals (PATBE) asa measure of growth in return to shareholders, as reflected in the LTIP schemefor senior management. The Group has a target increase of 15 per cent per year. This target has been exceeded on average over recent years, for exampleaveraging a 48 per cent per year increase from 2002 to 2005. Dividend Policy The Group's policy historically has been to reinvest profits rather than declaredividends. Fortune Oil has also been restricted from declaring dividendsbecause of the deficit in retained earnings. The Board believes that it is nowappropriate to eliminate this deficit by restructuring its balance sheet to moreaccurately reflect its trading position and to enable payment of dividends infuture. Shareholder approval will be sought for this at the forthcomingExtraordinary General Meeting on 21 June, subject to court confirmation. FORTUNE OIL PLC Announcement of Preliminary Results for Year Ended 31 December 2005 Group Income Statement for the Year Ended 31 December 2005 Amount in £'000 Note 2005 2004 Revenue including share of joint ventures 2 143,057 118,088Share of revenue of joint ventures (98,068) (73,319) Group revenue - continuing operations 44,989 44,769Cost of sales (36,851) (36,775) Gross profit 8,138 7,994 Exceptional items (629) 801Administrative expenses (4,617) (3,809)Share of results of joint ventures 2,810 1,970 Profit from operations 2 5,702 6,956Finance costs (454) (421)Investment income 156 109 Profit before taxation 5,404 6,644Taxation 3 (544) (423) Profit for the year 4,860 6,221 Attributable to Equity shareholders 2,792 2,631 Minority interests 2,068 3,590 4,860 6,221Earnings per share Basic 5 0.16p 0.17p Diluted 5 0.16p 0.17p FORTUNE OIL PLC Announcement of Preliminary Results for Year Ended 31 December 2005 Group Balance Sheet as at 31 December 2005 Amount in £'000 2005 2004AssetsNon-current assetsProperty, plant and equipment 26,747 16,705Investment properties 1,800 1,438Goodwill 1,074 968Other intangible assets 914 947Investments in joint ventures 19,410 16,908Other investments 117 121Other receivables - 2,279 50,062 39,366 Current assetsInventories 2,151 1,523Trade and other receivables 6,272 5,035Cash and cash equivalents 11,713 16,086 20,136 22,644 Total assets 70,198 62,010 LiabilitiesCurrent liabilitiesBorrowings 1,944 2,651Trade and other payables 9,813 10,279Current tax liabilities 241 110 11,998 13,040 Non-current liabilitiesBorrowings 7,126 6,021Deferred tax liabilities 336 354 7,462 6,375 Total liabilities 19,460 19,415 Net assets 50,738 42,595Shareholders' equityOrdinary shares 18,351 18,336Treasury shares (760) (725)Share premium account 37,344 37,318Translation reserve (2,062) (1,982)Retained earnings (17,985) (20,840) Total shareholders' equity 39,012 32,107Minority interests 11,726 10,488 Total equity 50,738 42,595 FORTUNE OIL PLC Announcement of Preliminary Results for Year Ended 31 December 2005 Group Cash Flow Statement for the Year Ended 31 December 2005 Amount in £'000 2005 2004 Cash flows from operating activitiesProfit after tax 4,860 6,221Adjustments for: Share of post-tax results of joint ventures (2,810) (1,970) Taxation 544 423 Amortisation and depreciation 2,419 2,021 Impairment 158 - Loss on disposal of property, plant and equipment 803 163 Share based payment 63 - Investment income (156) (109) Finance costs 454 421 Increase in inventory (413) (570)Increase in trade and other receivables 2,076 (740)(Decrease) Increase in trade and other payables (1,859) 263 Cash generated from operations 6,139 6,123 Investment income 156 109Finance costs (454) (421)Taxation paid (545) (514) Net cash from operating activities 5,296 5,297 FORTUNE OIL PLC Announcement of Preliminary Results for Year Ended 31 December 2005 Group Cash Flow Statement for the Year Ended 31 December 2005 (cont.) Amount in £'000 2005 2004Cash flow from investing activitiesDividend received from a joint venture 1,496 1,042Payments for property, plant and equipment (7,383) (1,298)Payments for intangible assets (14) (10)Payments for investment properties (187) -Receipt from disposal of property, plant and equipment 99 99Acquisition of business/ subsidiaries (3,273) (1,531)Investment in a joint venture - (370)Repayment of loan from a joint venture 794 399 Total cash flows used in investing activities (8,468) (1,669) Cash flows from financing activitiesProceeds from issue of share capital 41 4,514Expenses incurred in conversion of convertible loan stock - (255)Loan from minority shareholders 478 -Dividend paid to minority shareholders (2,346) (1,535)Repayment of loans (1,194) (1,041) Total cash flows (used in)/ from financing activities (3,021) 1,683 Net (decrease)/ increase in cash and cash equivalents (6,193) 5,311Cash and cash equivalents at beginning of the year 16,086 11,548Effect of foreign exchange rate changes 1,820 (773) Cash and cash equivalents at end of the year 11,713 16,086 FORTUNE OIL PLC Notes to financial statements in respect of year ended 31 December 2005: 1. Basis of accounting The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) for the first time. The disclosuresrequired by IFRS concerning the transition from UK GAAP to IFRS are given innote. The financial statements have also been prepared in accordance with IFRSadopted for use in the European Union and therefore comply with Article 4 of theEU IAS Regulation and with those parts of the companies Act 1985 that areapplicable to companies reporting under IFRS. The Group has applied allaccounting standards and interpretations issued by the International AccountingStandards Board and International Financial Reporting Interpretations Committeerelevant to its operations and effective for periods beginning on 1 January2005. Accounting standards and interpretations in issue at the date ofauthorisation of the financial statements but not yet effective are not expectedto have a material impact on the financial statements of the Group. Anexplanation of the transition from accounting principles generally accepted inthe United Kingdom (UK GAAP) to IFRS is set out in note . This preliminary statement, which has been agreed with the auditors, wasapproved by the Board on 26 April, 2006. It is not the Group's statutoryaccounts. The statutory accounts for the year ended 31 December 2004 have beendelivered to the Registrar of Companies and received an audit report which wasunqualified and did not contain statements under S 237(2) or (3) of theCompanies Act 1985. The statutory accounts for the year ended 31 December 2005have not yet been approved, audited or filed. These are the first full year accounts to have been presented under IFRS. Therehave not been any significant impacts in the conversion to IFRS and the changesare consistent with those explained in last year's accounts and this year'sinterim report. The accounting policies adopted are consistent with the IFRSpolicies that were set out in full in the half year report. An explanation ofthe key matters in the preparation of the IFRS accounts and the reconciliationof 2004 results and opening balance sheet position are set out in note 6. 2. Segmental analysis a) Business segments Single point Aviation Natural gas Oil trading & mooring facility storage *Amount in £'000 2005 2004 2005 2004 2005 2004 2005 2004 Revenue including share ofjoint ventures 11,810 11,874 92,899 68,775 5,685 3,064 28,258 30,635Share of revenue of joint ventures - - (92,899) (68,775) - - (814) (823) Group revenue 11,810 11,874 - - 5,685 3,064 27,444 29,812 Profit from operations includingshare of results of joint ventures 4,456 6,069 2,336 1,382 137 (316) (749) (1)Finance costsInvestment income Profit before taxationTaxation Profit for the year Attributable toEquity shareholdersMinority interests Capital additions 3,223 499 - - 7,298 2,159 335 180Depreciation and amortisation 1,547 1,259 - - 565 328 306 434Impairment loss - - - - - - 158 - Net assets: by class of businessAssets 17,841 17,440 16,318 13,800 20,240 13,582 15,588 16,706Liabilities (3,239) (3,250) (14) (15) (5,421) (3,821) (10,657) (11,880) 14,602 14,190 16,304 13,785 14,819 9,761 4,931 4,826 Others* * Central Group AdministrationAmount in £'000 2005 2004 2005 2004 2005 2004 Revenue including share of joint ventures 3,740 - - 143,057 118,088Share of revenue of joint ventures (3,721) - - (98,068) (73,319) Group revenue 19 44,989 44,769 Profit from operations including share of results of 519 (621) (697) 5,702 6,956joint venturesFinance costs (454) (421)Investment income 156 109 Profit before taxation 5,404 6,644Taxation (544) (423) Profit for the year 4,860 6,221 Attributable toEquity shareholders 2,792 2,631Minority interests 2,068 3,590 Capital additions - - 2 1 10,858 2,839Depreciation and amortisation - - 1 - 2,419 2,021Impairment loss - - 158 - Net assets: by class of businessAssets 129 128 82 354 70,198 62,010Liabilities (2) (2) (127) (447) (19,460) (19,415) 127 126 (45) (93) 50,738 42,595 * Includes overheads in Hong Kong/PRC offices. ** Others include distribution. b) Geographical operations With the exception of operating loss of £545,000 (2004: £636,000) in respect ofcentral administration in the United Kingdom, all of the Group's activities arecarried out in China and Hong Kong. The directors are of the opinion that the PRC and Hong Kong form one geographicsegment. 3. Taxation The taxation charge for the year is analysed below: Amount in £'000 2005 2004 Current taxGroup current taxUK tax - -Foreign tax 598 498 Total current tax 598 498 Deferred taxNet reversal of timing differences - Group (54) (75) Total deferred tax (54) (75) Tax on profit on ordinary activities 544 423 The tax charge for the year differs from the standard rate ofcorporation tax and is explained below. Amount in £'000 2005 2004 Profit on ordinary activities before taxation 2,594 4,674 Theoretical tax at PRC corporation tax rate 33% 856 1,542Effects of: - nil or lower tax in PRC (832) (1,340) - tax losses carried forward 575 360- adjustments in respect of prior years - (2)- other expenditure that is not tax deductible 173 69- other timing differences (174) (131) Total current tax 598 498 The above reconciliation uses a 33% standard rate of tax, being the standardrate of tax payable in the PRC, where the majority of the Group's activitiestake place. 4. Dividends were not paid in any of the periods reported upon and no dividend is proposed. 5. Earnings per share have been calculated on the earnings on ordinary activities after taxation and minority interests of £2,792,000 (2004: profit of £2,631,000). 2005 2005 2004 2004 No. No. '000 pence '000 pence Basic 1,774,293 0.16 1,583,164 0.17 Share option adjustment 8,618 - 9,296 - Diluted 1,782,911 0.16 1,592,460 0.17 6. Reconciliation of financial statements from UK GAAP to IFRS (a) Reconciliation of group income statement to IFRS Group income statement for the year ended 31 December 2004 UKGAAP as previously JV's tax &Amount in £'000 reported Interest interest Turnover: group and share of joint 118,088ventures - - Less: share of joint ventures' turnover (73,319) - - Turnover 44,769 - - Cost of sales (36,775) Gross profit 7,994 - - Exceptional administrative expenses 801 - - Other administrative expenses (3,861) Total administrative expenses (3,060) - - Group operating profit /(loss) 4,934 - - Share of operating profit in - - - joint ventures 2,500 - (530) Associates - - - Total operating profit 7,434 - (530) - (421) - - 109 - Total operating profit 7,434 (312) (530) Net interest payable - - - Group (312) 312 - Share of joint ventures (305) - 305 Profit on ordinary activities beforetaxation 6,817 - (225) Tax on profit on ordinary activities - - - Group (423) - - Share of joint ventures (225) - 225 Profit on ordinary activities aftertaxation 6,169 - - Equity minority interests (3,590) Retained profit for the year 2,579 Group income statement for the year ended 31 December 2004 UKGAAP in IFRS GoodwillAmount in £'000 format amortisation IFRS Turnover: group and share of joint 118,088ventures - 118,088 Less: share of joint ventures' (73,319)turnover - (73,319) Turnover 44,769 - 44,769 Revenue Cost of sales (36,775) (36,775) Cost of sales Gross profit 7,994 - 7,994 Gross profit Exceptional administrative expenses 801 - 801 Exceptional items Other administrative expenses (3,861) 52 (3,809) Administrative expenses Total administrative expenses (3,060) 52 (3,008) Group operating profit /(loss) 4,934 52 4,986 Operating profit Share of operating profit in - - - joint ventures 1,970 - 1,970 Share of results of joint ventures Associates - - - Total operating profit 6,904 52 6,956 Profit from operations (421) - (421) Interest payable 109 - 109 Interest receivable Total operating profit 6,592 52 6,644 Profit before taxation Net interest payable - - - Group - - - Share of joint ventures - - - Profit on ordinary activities 6,592 52 6,644 Profit before tax before taxation Tax on profit on ordinaryactivities - - - Group (423) - (423) Taxation Share of joint ventures - - - Profit on ordinary activities after 6,169 52 6,221 Profit for the year taxation Equity minority interests Retained profit for the year Attributable to: 2,579 52 2,631 Equity shareholders 3,590 - 3,590 Minority interest 6,169 6,221 6. (b) Reconciliation of Balance Sheet Group balance sheet at 1 January 2004 UKGAAP Other as previously Investment intangibleAmount in £'000 reported Debtors Creditors properties assets Fixed assets Tangible assets 19,754 - - (1,438) (511) Other intangible assets 1,035 - - - - Investment properties - - - 1,438 - - - - - 511 Investment in joint ventures 17,208 - - - - Other investments 138 - - - - - 3,219 - - - 38,135 3,219 - - - Current assets Stock 1,022 - - - - Debtors: Amounts falling due after more thanone year 3,219 (3,219) - - - Debtors: Amounts falling due within one year 3,829 - - - - Cash at bank and in hand 11,548 - - - - 19,618 (3,219) - - - 57,753 - - - - Creditors: Amounts falling due within one year (30,363) - 10,598 - - - - (10,463) - - - - (135) - - (30,363) - - - - Creditors: Amounts falling due after more thanone year (1,279) - - - - Provision for liabilities and charges (456) - - - - (1,735) - - - - (32,098) - - - - Net assets 25,655 - - - - Capital and reserves Called up share capital 14,272 - - - - Investment in own shares (690) - - - - Share premium account 26,498 - - - - Exchange reserves (4,572) - - - - Profit and loss account (18,899) - - - - Equity shareholders' funds 16,609 - - - - Equity minority interests 9,046 - - - - 25,655 - - - - UKGAAP Cumulative in IFRS Goodwill exchange format amortisation reserves Non-current assets 17,805 - - 17,805 Property, plant and equipment 1,035 - - 1,035 Goodwill 1,438 - 1,438 Investment properties 511 - - 511 Other intangible assets 17,208 - - 17,208 Investments in joint ventures 138 - - 138 Other investment 3,219 - - 3,219 Other receivable 41,354 - - 41,354 Current assets 1,022 - - 1,022 Inventory - - - - 3,829 - - 3,829 Trade and other receivables 11,548 - - 11,548 Cash and cash equivalents 16,399 - - 16,399 57,753 - - 57,753 Total assets Liabilities Current liabilities (19,765) - - (19,765) Borrowings (10,463) - - (10,463) Trade and other payables (135) - - (135) Current tax liabilities (30,363) - - (30,363) Non-current liabilities (1,279) - - (1,279) Borrowings (456) - - (456) Deferred tax liabilities (1,735) - - (1,735) (32,098) - - (32,098) Total liabilities 25,655 - - 25,655 Net assets Equity 14,272 - - 14,272 Ordinary shares (690) - - (690) Treasury shares 26,498 - - 26,498 Share premium account (4,572) - 4,572 - Translation reserves (18,899) - (4,572) (23,471) Retained earnings 16,609 - - 16,609 Total equity shareholders' funds 9,046 - - 9,046 Minority interest 25,655 - - 25,655 Total equity Group balance sheet at 31 December 2004 UKGAAP Other as previously Investment intangibleAmount in £'000 reported Debtors Creditors properties assets Fixed assets Tangible assets 19,090 - - (1,438) (947) Other intangible assets 916 - - - - Investment properties - - - 1,438 - - - - - 947 Investment in joint ventures 16,908 - - - - Other investments 121 - - - - - 2,279 - - - 37,035 2,279 - - - Current assets Stock 1,523 - - - - Debtors: Amounts falling due after more thanone year 2,279 (2,279) - - - Debtors: Amounts falling due within one year 5,035 - - - - Cash at bank and in hand 16,086 - - - - 24,923 (2,279) - - - 61,958 - - - - Creditors: Amounts falling due within one year (13,040) - 10,389 - - - - (10,279) - - - - (110) - - (13,040) - - - - Creditors: Amounts falling due after more thanone year (6,021) - - - - Provision for liabilities and charges (354) - - - - (6,375) - - - - (19,415) - - - - Net assets 42,543 - - - - Capital and reserves Called up share capital 18,336 - - - - Investment in own shares (725) - - - - Share premium account 37,318 - - - - Exchange reserves (6,554) - - - - Profit and loss account (16,320) - - - - Equity shareholders' funds 32,055 - - - - Equity minority interests 10,488 - - - - 42,543 - - - - UKGAAP Cumulative in IFRS Goodwill exchange format amortisation reserves Non-current assets 16,705 - - 16,705 Property, plant and equipment 916 52 - 968 Goodwill 1,438 - 1,438 Investment properties 947 - - 947 Other intangible assets 16,908 - - 16,908 Investments in joint ventures 121 - - 121 Other investment 2,279 - - 2,279 Other receivable 39,314 52 - 39,366 Current assets 1,523 - - 1,523 Inventory - - - - 5,035 - - 5,035 Trade and other receivables 16,086 - - 16,086 Cash and cash equivalents 22,644 - - 22,644 61,958 52 - 62,010 Total assets Liabilities Current liabilities (2,651) - - (2,651) Borrowings (10,279) - - (10,279) Trade and other payables (110) - - (110) Current tax liabilities (13,040) - - (13,040) Non-current liabilities (6,021) - - (6,021) Borrowings (354) - - (354) Deferred tax liabilities (6,375) - - (6,375) (19,415) - - (19,415) Total liabilities 42,543 52 - 42,595 Net assets Equity 18,336 - - 18,336 Ordinary shares (725) - - (725) Treasury shares 37,318 - - 37,318 Share premium account (6,554) - 4,572 (1,982) Translation reserves (16,320) 52 (4,572) (20,840) Retained earnings 32,055 52 - 32,107 Total equity shareholders' funds 10,488 - - 10,488 Minority interest 42,543 52 - 42,595 Total equity 7. Basis of Preparation of IFRS Information In preparing these accounts the Group has applied the mandatory exceptions andcertain of the optional exemptions from full retrospective application of IFRS. Exemptions from full retrospective application elected by the Group. The Group has made the following choices in respect of the optional exemptionsfrom full retrospective application, as set out in IFRS 1. (a) Business combinations The Group has applied the business combinations exemption in IFRS 1. It has not restated business combinations that took place prior to the 1 January 2004 transition date. (b) Cumulative translation differences exemption The Group has applied the cumulative translation differences exemption to all subsidiaries and joint ventures. The Group has chosen to continue to classify translation reserves as a separate component of equity. The following optional exemptions from full retrospective application have notbeen made as they are either not applicable or management have chosen not toapply the exemption: (a) Fair value as deemed cost exemption (b) Employee benefits exemption (c) Compound financial instruments exemption (d) Assets and liabilities of subsidiaries, associates and joint ventures exemption (e) Exemption from restatement of comparatives for IAS 32 and IAS 39. (f) Designation of financial assets and financial liabilities exemption (g) Share based payment exemption (h) Insurance contracts exemption (i) Decommissioning liabilities included in the cost of property, plant and equipment exemption (j) Fair value measurement of financial assets and liabilities at initial recognition The Group has made the following choices in respect of the mandatory exceptionsfrom retrospective application, as set out in IFRS: (a) Estimates under IFRS at 1 January 2004 should be consistent with estimates made for the same data under previous GAAP unless there is evidence that those estimates were in error. (b) Assets held for sale and discontinued operations exception. Management applied IFRS 5 prospectively from 1 January 2005. Any assets heldfor sale or discontinued operations are recognised in accordance with IFRS 5only from 1 January 2005. The group did not have any assets that met theheld-for-sale criteria during the period presented. No adjustment was required. The following mandatory exceptions to retrospective application have not beenapplied as they are not applicable to the Group: (a) Derecognition of financial assets and liabilities exception (b) Hedge accounting exception. Explanation of the Adjustments from UK GAAP to IFRS - Under IFRS, the directors consider it appropriate to include headings on the income statement to show revenue including share of joint ventures as previously reported under UKGAAP. - Interests in associates and joint venture entities are accounted for using the equity method under UK GAAP and IFRS. Under UK GAAP, the Group's share of their operating profits, interest and taxation were included under those respective captions in the income statement. Under IFRS, the Group's share of the profits of joint ventures and associates are disclosed in a single line within "Share of results of Joint Ventures". - Debtors due after one year, included within current assets under UK GAAP, are reclassified within "Non-current assets" under IFRS as "Other receivable" financial assets. - Under UKGAAP, goodwill was amortised on a straight-line basis over its economic useful life of up to 20 years, tested for impairment and provided for as necessary. Under IFRS, goodwill is no longer amortised but is carried at cost and is subject to annual review. Amortisation charged in 31 December 2004 has been written back as a result. - Land use rights are reclassified as other intangible assets under IFRS. - Under IFRS 1, "First-time adoption of IFRS", the Group has adopted IAS 32 and IAS 39 "Financial Instruments" prospectively from 1 January 2005, and there was no significant impact. 8. Copies of this report are available from the Group's Registered Office, 6/F, Belgrave House, 76 Buckingham Palace Road, London SW1W 9TQ This information is provided by RNS The company news service from the London Stock Exchange