FTO.L Regulatory News (FTO)

FORTUNE OIL PLC

("Fortune Oil", "the Company" or "the Group")

Annual Financial Report Announcement

Fortune Oil (LSE: FTO.L) is a company focusing on crude oil, oil products, natural gas and resource supply operations and investments primarily in China. Fortune Oil 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 2012.

CORPORATE HIGHLIGHTS

§ Agreed transformational combination of Fortune Oil's natural gas business with that of China Gas Holdings Limited for consideration of US$400 million, of which Fortune Oil share is US$340 million.

§ Will strengthen Fortune Oil's strategic investment in China Gas Holdings Limited which will then have natural gas operations in 200 cities across China.

§ Completion expected around mid-year 2013 following receipt of regulatory approval and will significantly strengthen the Group's balance sheet.

FINANCIAL HIGHLIGHTS

§ Revenues including share of jointly controlled entities increased by 18% to £739 million (2011: £625 million).

§ Operating profit increased by 4% to £28.5 million (2011: £27.4 million).

§ Profit after tax attributable to Fortune Oil shareholders decreased 14% to £15.7 million (2011: £18.2 million).

§ Profit after tax attributable to Fortune Oil shareholders before other gains increased to £11.0 million (2011: £10.8 million).

§ Natural gas business operating profit increased 51% to £15.8 million (2011: £10.5 million).

§ Share in Bluesky Aviation's net profit matched the previous year's record profit £11.6 million (2011: £11.6 million).

§ Maoming Single Point Mooring facility's revenues were maintained at £17.3 million (2011: £17.2 million).

§ Proposed dividend of 0.16p per share for 2012 (2011: 0.18p per share).

OPERATIONAL HIGHLIGHTS

§ Bluesky Aviation jet fuel sales increased 15% to 3.0 million tonnes (2011: 2.6 million tonnes),

§ Maoming Single Point Mooring facility matched 2011 record throughput of 11 million tonnes, (2011: 11 million tonnes).

§ The Company's joint venture China Gas Group Limited and its associates (including shares held directly by Mr. Liu Minghui, the Managing Director of CGH) currently hold 911,550,000 shares in China Gas Holdings Limited representing approximately 20.0 per cent of total issued shares of China Gas Holdings Limited.

§ In the City Gas business there was a 32% increase in the number of new domestic gas customers with approximately 280,000 total customers now connected.

§ Obtained government approvals to progress the construction of the gas gathering system for our coal bed methane project in Liulin. This is a critical step towards commercialisation of gas from this block.

§ Achieved a major first for China in obtaining the regulatory approvals for the commercial operation of our dual fuel LNG ship.

OUTLOOK

§ On completion, the China Gas Holdings Limited transaction will further strengthen our position in the Chinese natural gas market, through ownership of an enlarged stake and the ability to exercise significant influence in the company.

§ Gas gathering system will enable commercial sales of gas from the Liulin block in 2013. 

§ Guangzhou airport expansion in progress to build a second terminal and a third runway will increase demand for aviation fuel under the Bluesky joint venture.

§ Final stages of negotiating a replacement structure for the Maoming Single Point Mooring partnership, which will include the development of a new pipeline and buoy, increasing the capacity of the terminal.

§ Expanding opportunities to supply and trade other hydrocarbons, including diesel.

Mr. Qian Benyuan, Chairman of Fortune Oil, commented:

"Fortune Oil delivered another good performance in 2012 and continued to make excellent progress across its core businesses. The Company's strong position, significant industry experience and clear strategic focus have allowed us to benefit from opportunities that have arisen.

"We remain excited about the prospects for Fortune Oil. We have strengthened our position in the China gas industry through our transaction with China Gas Holdings Limited, and remain confident on the lookout for other growth opportunities in the oil sector. In addition to the China Gas transaction, we have a number of discussions, negotiations and strategic initiatives ongoing, including in relation to our Maoming Single Point Mooring business, and we look forward to updating investors on progress as soon as it is possible to do so. 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

ANNUAL FINANCIAL REPORT ANNOUNCEMENT 2012

In accordance with the Disclosure and Transparency Rules, we set out below the extracts from the 2012 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

I am pleased to report that Fortune Oil continued to perform strongly in 2012 and made significant progress across all core businesses, delivering on its strategy in the face of the prevailing uncertain global economic conditions.

Results and Operations  

The Group's revenues increased by 18 per cent to £739.4 million (2011: £624.6 million), and operating profits were £28.5 million, 4 per cent higher than 2011 (£27.4 million). Profit attributable to owners of the parent decreased by 14 per cent to £15.7 million (2011: £18.2 million) however, profits attributable to owners of the parent before other gains increased to £11.0 million (2011: £10.8 million).

During the year, we entered into a strategic joint venture arrangement with a view to investing in China Gas Holdings Limited ("CGH"), one of the largest independent natural gas businesses in China. This culminated in the decision, announced at the end of 2012 to enter into a transaction with CGH in relation to the Company's natural gas business. Once complete, this will significantly strengthen the Company's balance sheet, through the receipt of cash proceeds of US$170 million as half of the consideration for our 85% share of the natural gas business. The CGH transaction remains conditional on approval by the Anti-Monopoly Bureau of the Ministry of Commerce of the PRC and the Hong Kong Takeovers Executive or Takeovers and Merges Panel, which is expected mid-year 2013.

The Board is evaluating several options on how to best utilise the proceeds from the transaction including the potential for strategic acquisitions in the energy and resources sector that are synergistic to the Group's strategy, and exploring other investment opportunities and gas supply options that can help to strengthen the supply of resources for the combined gas business with CGH.

Fortune Oil's strength lies in its relationships with its joint venture partners in developing growth opportunities. This is clearly demonstrated with the CGH transaction which further strengthens our position in the Chinese natural gas market. As a result of the CGH transaction, Fortune Oil should own an enlarged stake and exercise significant influence in CGH, which will have natural gas operations in

200 cities across China. CGH recognised the complementary skills and assets of our natural gas business which ideally positions the company for success in what we expect to become an increasingly competitive market.

In 2012 we also made significant progress in a number of other key areas:

• We are in the final stages of negotiating a replacement structure for the Maoming SPM partnership.

• We obtained the government approvals to progress the construction of the gas gathering system for our CBM block in Liulin. This is a critical step towards commercialisation of gas from this block.

• We achieved a major first for China in obtaining the regulatory approvals for the commercial operation of our dual fuel LNG ship. This gives us first mover advantage in the development of a major new market for gas in China.

As a Group we will pursue attractive growth opportunities in our target markets.

Dividend

The Board recommends the payment of a dividend to shareholders for 2012, of 0.16p per share (2011: 0.18p per share). The dividend will be payable on 15 August 2013 to shareholders on the register as at 12 July 2013.

Management and Governance

Given the importance of the CGH transaction, continuity across the Board and Management team is critical during this period. We are determined to manage a smooth and efficient transition to a new combined natural gas organisation. The continued performance of all of our businesses during this period is critical and we will ensure that there is no disruption to our operations.

As a result of the CGH transaction and the proposed change of the status of the Maoming SPM joint venture, we were no longer able to maintain our Premium Listing on the London Stock Exchange but have become a Standard Listed company, with effect from 20 March 2013. Nevertheless, following this move we are committed to maintaining the high standards of corporate governance and the same reporting standards as are required for a Premium Listed company.

We will continue to evaluate options such that Fortune Oil's listing status meets the best interests of the Company and our shareholders.

Review of China Economy

China's economy slowed to 7.8 per cent in 2012, its lowest annual growth rate since 1999, as a result of restrictions the Chinese government had put in place to cool China's property market and as a result of the lower demand for Chinese goods from Europe and the United States. However, unlike in 2009, the Chinese government did not step in with a stimulus plan. The outcome is a general recognition that the days of double-digit growth in the Chinese economy have come to an end. The ten yearly transition of the Chinese leadership in 2012 is expected to lead to a wholesale revamp of government ministries aimed at reducing bureaucracy.

Energy price mechanisms are also being reformed and are moving to a more market based approach. Fortune Oil pays close attention to short-term economic conditions but also takes a long term strategic view of the Company's development, balancing growth opportunities and investment returns whilst continuously looking to improve our competitiveness.

Outlook

Fortune Oil's growth is underpinned by China's ongoing economic growth and the associated increase in demand for energy. Although China's GDP grew at only 7.8 per cent in 2012 the OECD is predicting growth of 8.5 per cent in 2013 and 8.9 per cent in 2014. The OECD also predicts that China will over take the United States and become the world's biggest economy in 2016.

In line with the slowdown in China's economic growth rate, Chinese oil demand grew by 4.2 per cent in 2012, or at about 387,000 barrels of oil per day, down from 6.3 per cent growth in 2011 and the double-digit growth in 2010. In line with signs that the economy started to expand in Q4 2012, China's crude oil demand hit a record high of 44.8 million tonnes and refinery throughput also reached an all time high of 10.15 million bpd in December 2012.

Consumption of oil-derived products such as diesel and petrol will continue to grow to fuel the rapid expansion of the automotive and aviation sectors. Maoming SPM,West Zhuhai Terminal and the Bluesky businesses are well positioned to participate in this growth.

Looking to the future, the projects that will help drive Fortune Oil's growth are advancing well.

In the natural gas business we anticipate completion of the gas gathering system by the middle of 2013 and this will enable commercial gas sales from our CBM block in Liulin. With the approval of our LNG ship design we will progress the development of our construction of LNG refuelling stations along the Yangtze and conversion of ships to dual fuel LNG technology.

 In the Oil business we are planning to increase the capacity of the SPM terminal once the replacement partnership structure is in place to meet the growing demand at Sinopec's Maoming refinery and our Trading business is expanding into the supply and trade of other commodities including diesel, LPG and LNG.

Guangzhou airport started construction of its third runway and second terminal in August 2012, as passenger traffic has exceeded its design capacity. The airport handled 48 million passengers in 2012 but this is projected to increase to 80 million in 2020. This bodes well for the Bluesky business which supplies the aviation fuel to this airport.

The Resources business completed the feasibility study and obtained a JORC compliant resource estimate for the Hrazdan iron ore mine in Armenia and is in the process of completing a final set of studies required to obtain the regulatory approvals which are now expected in 2014.

As a Group we have clear priorities, direction and focus. I remain confident of the continued success in

the coming years and see great opportunities ahead. In shaping our portfolio, our priority is to create value for our shareholders and enable them to share in China's growth, one of the most exciting markets in the world. I would like to thank them for their continued support and loyalty. We remain very optimistic about the future growth prospects for Fortune Oil. With its solid foundation across the oil and gas sectors in China and the anticipated rising demand for energy, the Group anticipates an even better future for its businesses in the years to come.

Finally, I would like to thank all of our employees for their efforts. This has been another demanding year and they have shown admirable dedication. Special thanks are due to management for the successful execution of the CGH transaction, the most significant in the Company's history.

CHIEF EXECUTIVE'S REVIEW

2012 Results

Fortune Oil continued to make good progress in 2012. We have achieved a series of key milestones and remain on course with our growth strategy, making great strides forward across our core businesses of oil, gas and resources.

Through our transaction with CGH we will be cooperating with one of the largest natural gas companies in China supplying gas to over 200 cities with a strong platform for future growth. Fortune Oil shareholders will continue to be exposed to China's considerable natural gas growth, through our shareholding and management position in CGH.

In our Oil business we also continue to make good progress. We are close to finalising the replacement structure to expand the Maoming SPM joint venture with Sinopec and the Bluesky aviation fuel joint venture also turned in another solid performance.

In the Resources business, we have completed the feasibility study and JORC resource statement on the Armenian iron ore asset and made good progress on other technical and environmental studies required to fulfill the necessary regulatory approvals.

In terms of financial performance, 2012 was another good year for the Company. Higher sales volumes drove a 18 per cent increase in revenues from all operations to £739.4 million in 2012 from £624.6 million in 2011. Group profit after taxation attributable to owners of the parent from all operations for the year amounted to £15.7 million, a decrease of 14 per cent compared to £18.2 million in 2011 mainly as a result of an exceptional one off profit in 2011 of £7.3 million arising from the deemed divestment of the CBM business. Group profit from operations, excluding gains on disposals and deemed disposal increased by 4 per cent to £28.5 million (2011: £27.4 million). Earnings per share for the year decreased to 0.82 pence compared to 0.96 pence in 2011, a decrease of 14 per cent. Operating profit growth in 2012 was driven by a strong contribution from our Bluesky aviation and natural gas businesses. The net borrowing position stayed low at £61.1 million as at 31 December 2012 (2011: £5.7 million). During the year we invested £59.9million which primarily consisted of the injection into China Gas Group ("CGG") for shares acquisition purpose of £35.6 million and capital expenditure of £15.7 million, mainly to continue thedevelopment of our integrated natural gas business.

I continue to be greatly encouraged by the Group's performance. Our focus is on continuous improvement and to drive efficiency in our operations.

Strategy

Fortune Oil has a clear and focussed strategy: 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 our portfolio of assets with the intention of:

• Becoming a leading integrated natural gas supplier across our selected regions in China via our equity

investment in CGH;

•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.

Our focus has resulted in the creation of the SPM, Bluesky, West Zhuhai Terminal and the natural gas business which have provided strong and consistent cash flows and most recently the potential for a significant cash inflow and the opportunity to build upon the strategic relationship with CGH.

Key Performance Indicators

We continue to apply the six principal 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 2012 we met or exceeded three out of the six KPIs (see the Annual Report and Accounts).

2012 Key Achievements

In 2012 the Group had four priorities. First, to conclude the renewal of the Maoming SPM joint venture; second, to reinforce the strategic direction of the natural gas business; third, to progress the commercialisation of gas from the CBM project in Liulin; and finally, progress the Armenian iron ore project towards the final investment decision point. Substantial progress has been made in meeting these priorities as detailed in the Annual Report and Accounts.

The Maoming SPM was one of the original investments on which Fortune Oil was founded. The SPM arrangements with the Company's partners were due to expire on 5 February 2013 but have continued pending completion of an alternative partnership structure. The Company is now in the final stages of concluding a replacement structure for the Maoming SPM partnership which will include the development of a new pipeline and buoy. We expect that under the new structure, the Company will no longer hold a controlling equity stake in the joint venture although the scope of the joint venture with Sinopec will be expanded.

Natural gas continues to play an increasing role in meeting the government targets in energy conservation and environmental protection and we have steadily expanded this business with our focus on growth in the higher margin sectors of LNG and CNG refuelling and gas supply to industrial zones. In 2012 our natural gas sales exceeded 500 million cubic metres and we connected an additional 67,907 new customers. We have also become the first company in China to secure the regulatory approvals for an LNG dual fuel ship. This is a very significant milestone and demonstrates that our technology is at the leading edge of this important new market. We are already constructing our first LNG refuelling station in Chongqing and our plans for a network of stations along the Yangtze are progressing to plan. In LNG vehicle refuelling, our projects in Liaoning and Hebei province are well advanced and our first mover advantage will ensure we access the prime locations to capture the rapidly expanding LNG fuelled bus and truck fleets in these provinces.

In Liulin our total field production from the Fortune Liulin Gas CBM wells exceeded 27,000 cubic metres per day, the Production Sharing Contract ("PSC") was extended a further two years until March 2014, and we commenced construction of the gas gathering system which will collect the gas from the various wells and transport it to the wholesale station we have built. We are on track for commercial production of gas from Liulin in 2013.

The Company also took the strategic step to enter into the CGH transaction described in more detail below, as this was seen as the most efficient avenue to accelerate the growth and strengthen our position in China's rapidly expanding natural gas market. Through this transaction, we will hold a significant position in a nation-wide natural gas supplier to over 200 cities with significant growth potential, positioning the combined natural gas businesses as amongst the largest natural gas companies in China.

The transaction allows Fortune Oil to become part of a much stronger business platform well positioned to capture a disproportionate share of the China natural gas market. Moreover, we anticipate this market will see more consolidation and greater competition from the major state owned gas companies. Following the completion of the transaction, we will be one of the largest shareholders in CGH, with a founder and managing director of CGH as our joint venture partner in our investment vehicle. Under the terms of the transaction, we have the right to nominate two directors to the board of CGH, one to be the managing director, thus enabling us to have significant influence in the development and strategic direction of CGH.

Outlook for 2013

In 2012 we continued to put in place the solid foundations on which to build our future. Although China's economic growth cooled from the double digit growth of previous years, there are signs that the economy has turned and with the new Chinese administration taking control, we expect to see significant steps being taken to maintain China's strong and sustained growth as well as a continued strong demand for energy.

We constantly assess the potential impact of these factors on the Group's plans, ensuring that the Company's interests are protected and that our investment strategy is appropriate to the prevailing market conditions. We believe our solid foundations and strategy will enable us to continue to grow in the volatile and challenging markets.

China crude oil demand reached a record high in December 2012 and we expect demand in the oil sector to remain strong. This will mean continued demand for our Oil business"engines" of Bluesky, Maoming SPM and West Zhuhai Terminal, which, although mature businesses, generate much of our cash flow. We will continue to invest to keep them running smoothly and efficiently and to extract additional value.

The news in China over the past few months has highlighted the poor air quality in several of the major cities in China, including Beijing, due to coal consumption. Natural gas will be the cornerstone to improve local air quality. Our involvement with CGH will be the ideal platform to increase our share of this rapidly expanding market. Through CGH, we are creating scale and critical mass, which are key in an increasingly competitive market. We expect to complete the transaction with CGH around the middle of 2013 and we will then work closely with CGH to enhance the development of the combined natural gas business. 

The resource business made good progress on the development of the Hrazdan mine. We completed the JORC compliant mineral resource statement and the feasibility study and are working through various technical and environmental studies required to obtain the necessary regulatory approvals. Whilst it remains difficult to be definitive about the long term iron ore cost of production curve, China Metallurgical Mines Association ("CMMA") estimates that 42 per cent of iron ore supply to China is unprofitable at prices less than US$100/tonne, providing us a clear target for the cost of production we need to achieve to ensure the commercial success of this project.

Our Employees

Finally I would like to join the Chairman in thanking our employees for their dedication, hard work and focus. We are very much judged on our results and our employees are responsible for helping us achieve this. Throughout the year, their commitment, talent and integrity have led to the delivery of our strong performance.

On behalf of the Board, I would also like to thank our shareholders as their continued support for Fortune Oil which has helped us achieve such a good performance in 2012. 

FINANCIAL REVIEW

Disposal group held for sale and discontinued operations

The assets and associated liabilities of the Group's natural gas business that are expected to be transferred in 2013 upon completion of the China Gas transaction have been classified in the balance sheet as held for sale as at 31 December 2012. As a consequence of this classification, the results of the Group's natural gas business are presented as a discontinued operations in the income statement and cash flow statement for 2012, and the result for 2011 have been presented on the same basis.

In order to provide a comprehensive review of all of the Group's operations, on a basis comparable with that provided to shareholders in previous years, the discussion of financial results below relates to continuing operations and discontinued operations combined. The income statement distinguishes the results of discontinued operations from those of continuing operations.

Revenue and Expenditure

Revenues from all operations including the Group's share of jointly controlled entities increased by 18 per cent to £739.4 million in 2012 from £624.6 million in 2011. This was largely driven by the rapid growth in the Group's aviation refuelling and the natural gas businesses. Group revenue from all operations excluding jointly controlled entities has also increased by 7 per cent in 2012 to £214.6 million from £199.8 million in 2011. This is primarily due to organic business growth in the natural gas business.

On 14 February 2012, the Group disposed of its available for sale investments in respect of shares held in China Gas Holdings Limited ("CGH"), a listed company on the Hong Kong Stock Exchange. The shares were held by a wholly owned subsidiary and were sold to China Gas Group Limited ("CGG"), a jointly controlled entity. The Group has realised a gain on disposal of £4.6 million (2011: £7.3 million). The gain in 2011 arose from the deemed disposal of Fortune Liulin Gas Limited and the disposal of a gas business subsidiary.

Operating profit from all operations combined, before the gains on disposals and deemed disposal, improved to £28.5 million in 2012, compared with £27.4 million in 2011, an increase of 4 per cent. The increase was mainly due to the steady growth in the natural gas business.

The net profit from all operations attributable to owners of the parent was £15.7 million in 2012, a decrease of 14 per cent compared with £18.2 million in 2011. Nonetheless, the net profit from all operations attributable to owners of the parent before gains on disposals and deemed disposal was £11.0 million, an increase of 2 per cent compared with £10.8 million in 2011. Earnings per share from all operations decreased to 0.82 pence in 2012, compared with 0.96 pence in 2011.

Net profit from continuing operations was £8.0 million in 2012, increased from £6.5 million in 2011. Earnings per share from continuing operations increased to 0.42 pence, compared with 0.34 pence in 2011.

Other comprehensive income

Other comprehensive income from all operations was £32.6 million in 2012, compared with £10.4 million in 2011. This is mainly due to the net gain of £40.3 million in fair value of available for sale investments in respect of CGH shares held by CGG, less the combined effect of exchange differences arising on translation of foreign operations of the Group and the sale of its investments in respect of CGH shares to CGG during the year.

Capital expenditure and acquisitions

During the year, we invested £59.9 million which primarily related to the acquisition of available for sale investments (CGH shares) for £30.6 million, along with a loan to CGG for £5.0 million. In addition to this, other significant investing cash flows relate to capital expenditure of £15.7 million, to continue to fund the development of our integrated natural gas business, and expenditure on exploration & evaluation assets of £4.6 million relating to the iron ore projects. Expenditure on acquisitions in the year of £3.8 million related to the acquisition of Quyang Province Dafung Natural Gas Company.

Financial Position

The net assets of the Group at 31 December 2012 were £246.8 million, compared with £196.5 million in 2011. Investments in jointly controlled entities of the Group at 31 December 2012 were £175.4 million (including the investments in jointly controlled entities of £39.8 million in the natural gas business), compared with £71.6 million in 2011. The increase was mainly due to the revaluation of CGH shares (£40.3 million) disclosed within "other comprehensive income" above; the acquisition of CGH shares for £30.6 million, along with a loan to CGG for £5.0 million; and the sale of CGH shares from the Group to CGG of £27.9 million.

The Group had a net borrowing position of £61.1 million (after excluding a net cash of £13.1 million in natural gas business) as at 31 December 2012, compared with £5.7 million as at 31 December 2011. However, with a cash balance of £50.7 million (after excluding a cash balance of £23.1 million in natural gas business), the positive operating cash flow and the expected cash consideration receivable from the China Gas transaction, the Group envisages no difficulties in meeting both current loan repayment obligations and investment commitments. The net gearing ratio (after deduction of cash) for the Group was 25 per cent as of 31 December 2012 and 3 per cent as of 31 December 2011.

Financial Costs and Tax

Finance expenses for the Group from all operations were £6.1 million in 2012, compared with £5.3 million in 2011, mainly due to the increase in the weighted average Group borrowing throughout the year.

The Group's total tax charge in 2012 from all operations was £8.2 million (2011: £6.8 million) representing an effective tax rate of 29 per cent compared with 21 per cent in 2011. Since 2008, the PRC 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. The overall effective tax rate for Fortune Oil has gradually increased as most of the previous tax privileges have fallen away.

Foreign Exchange

The revenues and expenses of the Group are primarily denominated in China's renminbi (RMB). The remaining expenses are denominated either in pounds sterling (£) or in Hong Kong dollars (HK$), which is pegged to the US dollars, or United States dollars (US$). On average from 2011 to 2012, the RMB appreciated against the US$ by 2.2 per cent and the pounds sterling depreciated by 1.0 per cent against the US$, hence there was an overall 3.2 per cent depreciation of the pounds sterling against the RMB. This currency movement has had the effect of increasing our profits as measured in pounds sterling.

The assets and liabilities of the Group are also primarily denominated in RMB, with our Armenian investment being denominated in US$. The balance, which represents a small proportion of the assets and liabilities, are denominated in pounds sterling and HK$. Differing from the average annual rates, the closing pounds sterling exchange rate appreciated against the RMB and US$ by 3.0 per cent and 4.0 per cent, respectively.

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 pounds sterling.

Capital Structure

Most of the Group's investments and expenses take place in the People's Republic of China and are held through Fortune Oil PRC Holdings Limited, a 100 per cent-owned Hong Kong based subsidiary of the Company. To facilitate potential future inter-company restructuring most of the investments in China are held through subsidiary Hong Kong registered companies. The Group's interest in Armenia is held through a separate investment structure. The Group's UK operations consist only of local representation as a direct expense to the Company.

Dividend Policy

The directors recommend a final dividend of 0.16p per ordinary share (2011: 0.18p per ordinary share) to be paid on 15 August 2013 to ordinary shareholders on the register on 12 July 2013.

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 2012

FORTUNE OIL PLC

Annual Financial Report Announcement

Condensed Consolidated Statement of Comprehensive Income

for the Year Ended 31 December 2012

FORTUNE OIL PLC

Annual Financial Report Announcement

Condensed Consolidated Statement of Financial Position

at 31 December 2012

FORTUNE OIL PLC

Annual Financial Report Announcement

Condensed Consolidated Statement of Financial Position

at 31 December 2012 (cont.)

FORTUNE OIL PLC

Annual Financial Report Announcement

Condensed Consolidated Cash Flow Statement

for the year ended 31 December 2012 

FORTUNE OIL PLC

Annual Financial Report Announcement

CondensedConsolidated Statement of Changes in Equity

for the Year Ended 31 December 2012

FORTUNE OIL PLC

Annual Financial Report Announcement

CondensedConsolidated Statement of Changes in Equity

for the Year Ended 31 December 2012 (cont.)

Fortune Oil plc

Notes to the condensed consolidated financial statements

for the year ended 31 December 2012

1. General Information

The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2012 or 2011, but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered before 30 June 2013. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matter by way of emphasis without qualifying their reports and did not contain statements under s498(2) or (3) of the Companies Act 2006.

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 2012. 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.

Going Concern

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.

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 for development.

As at 31 December 2012, the Group had a cash balance of £50.7 million (excluding the cash balance of £23.1 million in the natural gas business) and a net borrowing of £61.1 million (after excluding the net cash balance of £13.1 million in the natural gas business). Nonetheless, the Group expects to generate positive cash flow from operations and receive cash consideration from China Gas Holdings Limited for the transaction in relation to the Group's natural gas business. 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.

Following the decision to enter into the Gas Division disposal transaction, notice of the proposed sale was given to the providers of the US$180 million medium term loan facilities. A waiver was received, in advanced of the transaction, in respect of the condition for the immediate repayment of these facilities upon such a transaction occurring. Subject to the payment of US$18 million (£11.4 million) as an initial accelerated repayment, the existing terms of the medium term loan remain unchanged.

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.

2. Segmental Reporting

The Group has adopted IFRS 8 Operating Segments to identify eight 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 "Investment Holding", "Natural Gas", "Single point mooring facility", "Aviation Refuelling", "Trading", "Products Terminal", "Resources" and "Others".

Information regarding these segments is presented below.

(a) Operating segments

(a) Operating segments (cont.)