FTO.L Regulatory News (FTO)

24 Apr 2008 09:54

Fortune Oil PLC24 April 2008 24 APRIL 2008 FORTUNE OIL PLC ("Fortune Oil" or "the Company") Preliminary Results for Year Ended 31 December 2007 And Interim Management Statement for First Quarter 2008 Fortune Oil invests in and manages oil and gas supply and infrastructureprojects in China. Fortune Oil is quoted on the full list of the London StockExchange and has its headquarters in Hong Kong. FINANCIAL HIGHLIGHTS - Revenues increased by 25 per cent to £220 million (2006: £176 million). - Operating profit before exceptionals rose 23 per cent to £9.7 million (2006: £7.9 million). - Net profit after tax and before exceptionals gained 27 percent to £4.5 million (2006: £3.5 million). - Gas distribution operating profit increased by 122 per cent to £2.7 million. - Earnings per share up 4 per cent at 0.25 pence (2006: 0.24 pence). OPERATIONAL HIGHLIGHTS - Gas sales more than doubled in 2007 to 252 million cubic metres. - Full year sales of jet fuel by Bluesky increased by 12 per cent over 2006. - Maoming SPM throughput decreased 14 per cent from 2006 although the number of tankers handled remained the same. - Continued strategic investment in the recovery and utilisation of coal seam gas. CURRENT TRADING & OUTLOOK - Trading in Q1 2008 is in line with expectations. - Sales of gas increased by 43 per cent in Q1 2008 compared to Q1 2007. - Construction of a second LNG production plant commenced at Puyang. - Fortune Oil's share of the Liulin CBM resource was independently valued at US$185 million (£93 million) in April 2008. - Fortune Oil is well placed to continue scaling up a fully integrated gas business. Mr. Qian Benyuan, Chairman of Fortune Oil, commented: "In 2007 Fortune Oil made major strides in establishing a regional integratedgas business, becoming the first foreign company to produce and distribute bothliquefied and compressed natural gas in China. We have now established a majorpresence across the gas chain, where there is significant upside potential forour shareholders, particularly in our LNG and coal bed methane operations. TheCompany's focus for 2008 is to strengthen its position in the China gas industrywhile still seeking new opportunities in the oil sector." ENQUIRIES: Fortune Oil PLC John Pexton - Deputy Chief Executive Tel: 00 852 2583 3113 (Hong Kong) Pelham Public Relations Archie Berens Tel: 020 7743 6679 or 07802 442 486 CHAIRMAN'S STATEMENT Introduction This year of the Beijing Olympics is a watershed for China and provides anopportunity for the nation to demonstrate the remarkable progress it has made inthe 21st century. China now has the fourth largest GDP in the world, the secondlargest GDP if measured by purchasing power parity. While Western governmentsare implementing desperate measures to stop a credit crisis and stalling growth,China has been trying to cut credit and excessive growth. Record high oilprices have not slowed this growth, which was the highest ever in 2007, butenergy sustainability and the development of clean fuels are now at theforefront of China's economic policy. In 2007 Fortune Oil made major strides in establishing a regional integrated gasbusiness, becoming the first foreign company to produce and distribute bothliquefied natural gas (LNG) and compressed natural gas (CNG) in China. We havenow established a major presence across the gas chain, particularly in ShanxiProvince which has the largest resource of coal seam gas in China but anundeveloped gas market. Whilst the oil sector business still accounts for 70per cent of the Company's profit there remains significant upside potential forour shareholders in the gas business, particularly in our LNG and coal bedmethane (CBM) operations. Results In 2007 the Group's operating profit before exceptionals increased by 23 percent to £9.7 million as revenues (including the Group's share of jointlycontrolled entities) gained 25 per cent to £220 million. In 2007 Fortune Oil'sprofit attributable to equity shareholders rose by 4 per cent to £4.5 million.However the underlying net profit (excluding exceptionals and after minorityinterests) increased by 27 per cent in 2007, as the 2006 results includedsignificant exceptional gains. Earnings per share in 2007 were 0.25 pence,compared with 0.24 pence in 2006. The largest profit growth in 2007 was in the gas distribution business, whoseoperating profit contribution increased by 122 per cent to £2.7 million. Thiswas due both to acquisitions and to increased volume sales in existingoperations. The volume sales of gas by all our operations more than doubled in2007 to 252 million cubic metres (m m3). We expect significant volume andprofit growth again in 2008, as the gas business becomes the Company's engine ofgrowth. As expected, Bluesky's volume sales of jet fuel rose again by 12 per cent in2007 while Fortune Oil's share of net profit rose by 42 per cent to £3.3million, helped by the introduction of the price compensation scheme in 2006.However throughput at the Maoming SPM declined by 14 per cent and our share ofnet profit fell to £1.8 million, due to a combination of the rising cost ofcrude oil and domestic price controls. The domestic oil sector is stilldominated by the state oil companies and is difficult for any new private orforeign investors despite the enormous demand for petroleum fuels. The Companyhas a unique diverse portfolio of oil sector operations in China and they allcontinue to generate profit. We expect the oil sector to gradually liberaliseunder domestic pressures and we remain ready to take advantage of opportunitiesas they arise. Management In March 2008 the Group welcomed Mr. Timothy Shen as Chief Financial Officer andpromoted Mr. Paul Kwong to Financial Controller with particular responsibilityfor the gas operations. In April 2008 we also appointed Mr. Xian Baoan as ournew CBM Operations Manager and he brings significant horizontal drillingexperience from PetroChina. Our Non-Executive Director Mr. Li Anxi will retireat the forthcoming Annual General Meeting and we thank him for his support overthe past three years. Our acquisition in 2007 of Henan Fortune Green Energy brought to the Group aunique expertise in LNG technology as well as LNG production, originallydeveloped within the Sinopec Group. Fortune Oil is becoming a major operator inthe China gas sector, an industry which is young but whose standards are rapidlyreaching those of any Western nation. By the end of 2007 the number of staff inthe Fortune Oil Group (including all joint ventures) had increased by 50 percent to 2,145. We are now creating a strong professional capability as a basisfor our future growth. Current Trading Since the end of 2007 trading across the Group has been in line withexpectations. Volume throughputs have continued to grow in all the Group'soperating companies, with the exception of the Maoming SPM, where throughputdecreased in Q1 2008 in comparison to Q1 2007, due to the continuing high priceof crude oil. Operations were unaffected by the severe snow storms thatoccurred in China in January and February 2008 and there were no reported LostTime Injuries in any of the Group's operations in the first quarter of 2008. Gas sales in the first quarter of 2008 increased by 43 per cent to 81 millioncubic metres (Q1 2007: 57 million cubic metres), with higher sales in most ofthe distribution companies. Jet fuel sales by Bluesky increased by 16 per centin Q1 2008 to 430,000 tonnes (Q1 2007: 370,000 tonnes). Throughput and storageat the West Zhuhai Products Terminal increased by 16 per cent to 0.59 milliontonnes (Q1 2007: 0.51 million tonnes), in part due to higher third partyutilisation. Henan Fortune Green Energy Development Company has commenced construction of asecond LNG production plant at Puyang which should significantly increase LNGsales in 2009. It has also agreed to acquire a 20 per cent interest in a jointventure to assemble skid-mounted LNG production plants for gas recovery andsales at small gas fields. Fortune Oil expects significant demand for thesetransportable units both inside and outside China, particularly for liquefyinggas from CBM or coal mine degassing operations; this LNG can then be easilytransported at a cost far lower than the construction of a pipeline. Future Developments The Company's focus for 2008 is to strengthen its position in the China gasindustry while still seeking new opportunities in the oil sector. In 2007 wemade two strategic investments for wholesaling and retailing gas in ShanxiProvince and Henan Province, and in April 2008 we acquired 100 per cent of thegas company in Xinyang, our largest city gas company to date. Given theircurrent stage of growth, we envisage that these three acquisitions will have amarked impact on the Company's profit from 2009. We continue to make steps towards the production and sales of CBM at Liulin. Welook forward to being able to integrate these sales and those of other CBMproducers into our wholesale and retail operations. For both producers andend-users the price of gas rose significantly in 2007, and we expect furtherincreases towards international levels in the coming years. The Board hasdebated how to position the Company so as to maximise our margin as the pricerises across the gas chain, and we conclude that our strategy of integrated gasis the best for our shareholders. I look forward to reporting to you ourprogress on this in the coming years. CHIEF EXECUTIVE'S REVIEW Overview Over the past year we have established critical mass in our gas business withinvestments across the gas chain funded by a US$50 million (£25 million)syndicated loan. We are now a major producer and wholesaler of LNG and CNG innorth and central China and we are building up our retail customer base as bothgas demand and gas price increase. We continue our CBM exploration work at thehigh-quality Liulin CBM block and we are being a first mover in the recovery andproper utilisation of coal seam gas in Shanxi Province, which is a majorenvironmental and energy challenge for China. China Energy Demand In 2007 China's GDP, exports, foreign direct investment and foreign exchangereserves all grew to record levels. Indeed growth was so fast that the PRCgovernment has been discouraging domestic lending so as to force a slow-down.Despite the unprecedented growth in energy demand, the associated supply andpricing tensions can result in reduced or even negative margins for certainenergy sectors such as oil refining and power generation. Fortune Oil has beencareful to avoid investments in such sectors where operators have little pricingcontrol, instead diversifying across the oil and gas industry into sectors wheremore control is possible over margins. Even so we have been impacted bygovernment price controls in the oil sector, such as the reduced throughput inthe Maoming SPM in 2007. Our particular focus is now in the high-growth,higher-margin gas sector. Gas is regarded as the premium clean fuel in Chinaand prices are rising across the gas chain towards international levels, bothbecause of planned imports and the need to encourage investment in recoveringdomestic gas resources. Oil Sector Operations In 2007 volume sales at the Bluesky aviation refuelling joint venture (SouthChina Bluesky Aviation Oil Company) grew 12 per cent to 1.6 million tonnes.Bluesky's net profit increased by 42 per cent to £13.3 million (of which FortuneOil share was £3.3 million). This profit increase was due both to the volumegrowth and the price compensation mechanism introduced by the NDRC in mid-2006to ensure pass-through of international jet fuel prices to end-users. Blueskycontinues to invest in new infrastructure, particularly at Guangzhou BaiyunInternational Airport where the new FedEx Asia hub will open later in 2008. Theaviation sector continues to boom and Fortune Oil is one of the few privatesector participants in China's aviation refuelling business. Throughput at the Maoming SPM (MKM subsidiary) declined to 9.3 million tonnesfrom the record 10.8 million tonnes in 2006. This caused net profit beforeexceptionals to fall 20 per cent to £4.5 million, of which Fortune Oil share was£1.8 million (the 2006 net profit of £6.7 million included significantexceptional items). The throughput decline is due to a combination of highcrude oil prices and government pricing controls: the Sinopec Maoming refinerycurrently makes a loss for every tonne of processed oil. The Maoming SPMcontinues to be a unique asset: it is the only foreign-controlled crude oilfacility and the only offshore oil import system in China and it has safely andreliably supplied the largest refinery in southern China for 13 years. Throughput for the West Zhuhai Oil Products Terminal joint venture was up 13 percent in 2007 to 2.1 million tonnes. However net profit for the joint venturewas down 30 per cent to £1.4 million (of which Fortune Oil share was £0.5million) because of a higher tax rate, a safety maintenance programme and ahigher allocation of dredging costs. In 2007 the terminal gained its firstthird party customers besides PetroChina, including Vitol who signed a contractin late 2007 to store bonded products, worth £0.5 million every 6 months inrevenue to the terminal. Our independent Trading business expanded in 2007 withthe import and export of non-regulated oil products and petrochemicals on alow-risk agency or back-to-back basis, and made an earnings contribution of £0.4million. Gas Distribution In 2007 Fortune Oil's retail and wholesale gas operations sold 252 million cubicmetres (m m3) of gas, a 106 per cent increase over 2006. This gas distributionbusiness generated an operating profit contribution to the Company of £2.7million, a 122 per cent increase over 2006. Our gas distribution operations nowtake the form of: • Wholesale Compressed Natural Gas (CNG): we control one of the largest CNG stations around Beijing, which purchases gas from a trunk pipeline and sells it as compressed gas to nearby customers via truck (we own 55 CNG trailers); • Wholesale Liquefied Natural Gas (LNG): we control the first LNG production plant in China, which purchases gas from the adjacent Sinopec gas field and sells it in liquefied form via specialized trucks; • Gas Pipelines: we control four spur pipelines; • Retail CNG: we operate 13 retail stations selling CNG to vehicles (primarily buses and taxis); and • City Gas Retail: we now control the gas distribution company in six cities with 113,000 connected users. There are substantial prospects for growth in supply to industrial, commercial and household users. The most recent acquisition, in April 2008, was the city gas company in Xinyang, which brought our total pipeline network to 825 km. Our focus is north and central China, covering the provincial level areas ofBeijing, Tianjin, Henan Province, Hebei Province, Shandong Province and ShanxiProvince. Currently there is already partial integration of the operationsacross the gas chain, for example supplying our wholesale CNG and LNG to ourretail city gas companies. Significant further value across the gas chain canbe captured from the creation of a truly integrated upstream-wholesale-retailgas business with further acquisitions and new build. Coal Bed Methane Upside Exploration for coal bed methane (CBM) continues at the Liulin block in ShanxiProvince, where Fortune Oil has at least a 30 per cent right in the productionsharing contract (PSC). A subsidiary, Fortune Liulin Gas Company, has nowdrilled data wells, has three pilot production wells in dewatering and isplanning further drilling in 2008 with the aim of reserves certification andapplication for commercial sales of gas in the coming year. In March 2008 theindependent petroleum consultants Netherland, Sewell & Associates, Inc.estimated this 30 per cent share of the Liulin CBM block to have an unriskedpresent value of US$185 million (£93 million), being the value sum of possiblereserves and best estimates for unrisked contingent and prospective gasresources. The Liulin exploration PSC was extended for a further two yearsfrom April 2008, still subject to formal Ministry of Commerce approval. Fortune Oil is also in discussion with coal mine companies at Liulin to assistin the extraction and utilisation of coal seam gas prior to mining. This shouldexpedite the sales of gas as this "degassing" of coal mines does not requiregovernment approvals. Shanxi Province has one of the world's largest untappedresources of coal seam gas and an undeveloped local gas market: in this provincewe are the only private or foreign distributor of CBM and natural gas as well asdrilling for coal seam gas. Post Balance Sheet Acquisition On 31 March 2008 the Company announced the acquisition of the city gas companyin Xinyang in Henan Province, the largest city gas company acquired to date.Fortune Oil will buy 100 per cent of the gas company and 30 year distributionrights from the municipal government for £1.8 million and assume a bank debt of£14.1 million, a slight premium to net assets of £15.3 million. This will befunded from existing cash balances drawn on the syndicated loan. Strategy Fortune Oil has invested in and managed oil and gas facilities in China fornearly 15 years. We have a track record of reliable and safe operation, risingprofit for our shareholders and bringing clean energy and higher standards tolocal communities. We have a unique portfolio of oil and gas assets, in longterm partnership with the largest industry players. We will continue to developopportunities in the China oil sector as it opens further to private sectorparticipation, in particular exploiting our unique position in oil productssupply and terminals. In the gas sector we aim to become a leading integratedproducer, wholesaler and retailer of gas in north and central China, targettingannual gas sales of 1 billion cubic metres within 5 years. FINANCIAL REVIEW Revenue and Expenditure Revenues including the Group's share of jointly controlled entities increased by25 per cent to £220 million (RMB 3,345 million, US$441 million) in 2007 from£176 million (RMB 2,585 million, US$324 million) in 2006. Group revenueexcluding jointly controlled entities increased substantially in 2007 to £72.7million from £43.3 million in 2006 due to a substantial pickup in natural gassales and trading activities. The profit attributable to equity shareholders was £4.5 million (US$9.0million), an increase of 4 per cent over 2006 (£4.3 million, US$7.9 million).As there was an exceptional item of £0.8 million (after tax and minorityinterests) for 2006, the underlying increase in the profit attributable toequity shareholders was 27 per cent. Earnings per share were 0.25 pencecompared with 0.24 pence in 2006. Administrative expenses increased by 16 per cent to £5.2 million in 2007. Theincrease over 2006 was principally due to higher staff numbers, social securitycosts, rental costs and professional advisory costs such as for the syndicatedloan and an enhanced investor relations programme. Capital expenditure and acquisitions totalled £13.1 million (2006: £8.1million). This comprised £6.5 million in capex and £6.6 million inacquisitions. During the year, the Group acquired 50 per cent and 51 per centrespectively of the issued share capital of China United Shanxi CBM CompanyLimited and Henan Fortune Green Energy Development Company Limited. The Grouphad a net borrowing position of £5.9 million (US$11.8 million) as at 31 December2007, compared to a net borrowing position of £0.8 million (US$1.5 million) inthe previous year. The change was mainly due to acquisitions in 2007 beingfinanced by a syndicated loan of US$50.0 million (£25.2 million) drawn in 2007with a 3 year maturity. Net assets of the Group in 2007 increased to £63.6 million (US$126 million) from£50.0 million (US$98 million) in 2006 as a result of the increase in retainedearnings, foreign currency translation differences on consolidation and theminority's share of acquisitions during the year, partially offset by dividendpayments. Financial Costs and Tax Finance expenses for the Group were £1.2 million in 2007, compared to £0.5million in 2006, again because of the syndicated loan drawdown. Loans to theGroup at end 2007 totalled £33.2 million compared to outstanding loans of £9.0million at the end of 2006. This included a £3.2 million loan outstanding toFirst Level Holdings Limited, the largest shareholder in the Company, the sameloan size as at the end of 2006. The repayment to First Level Holdings washalted due to the issuance of the syndicated loan during the year. The netgearing ratio (after deduction of cash) was 9.3 per cent as at 31 December 2007(2006: 1.6 per cent). The Group's tax charge in 2007 was £0.6 million (2006: £0.6 million)representing an effective tax rate of 7 per cent, the same as in 2006. From January 2008 the corporate tax rate has been unified for both domestic andforeign companies at 25 per cent, being previously 15 per cent for foreignenterprises and 33 per cent for domestic corporations. The overall impactshould be neutral for Fortune Oil in the medium term as most of the existing taxprivileges will be retained for 5 years. Companies engaged in certainindustries will enjoy preferential rates and tax concessions have already beenannounced for coal bed methane developments. Foreign Exchange The revenues and expenses of the Group are primarily denominated in China'srenminbi (RMB). Some expenses are denominated in pound sterling (£) and in HongKong dollar (HK$), which is pegged to the US dollar (US$). On average from 2006to 2007, the RMB appreciated against the US$ again by 4.8 per cent but the poundsterling appreciated 8.7 per cent against the US$, hence there was a net 3.5 percent appreciation of the pound sterling against the RMB. This currency movementhas had the effect of understating our performance improvements as measured inpound sterling. The Company has not hedged currency risk and any further revaluation of the RMBor change in US$/£ exchange rate in 2008 is likely to affect the Group's resultsas denominated in pound sterling. As the RMB is expected to strengthen furtheragainst the US$ in 2008, it may also appreciate against the pound sterling. The Group requires both RMB for operating expenses in China and foreign exchangefor equity investments in new joint ventures. Prior to drawing of thesyndicated loan the major element of the Group's foreign exchange needs camefrom dividend payments by the Maoming SPM and Bluesky joint ventures, which haveusually paid out the full net profit as dividend. 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. Dividend Policy As the Group has entered a stage of high growth with a good flow of acquisitionopportunities, the policy of reinvesting profits rather than declaring dividendshas remained in place. FORTUNE OIL PLC Announcement of Preliminary Results for Year Ended 31 December 2007 Group Income Statement for the Year Ended 31 December 2007 Unaudited Amount in £'000 Note 2007 2006 Revenue including share of jointly controlled entities 2 219,887 175,771 Share of revenue of jointly controlled entities 2 (147,199) (132,500) Group revenue 72,688 43,271 Cost of sales (61,831) (33,912) Gross profit 10,857 9,359 Exceptional gains 3 - 2,551 Exceptional charges 3 - (834) Administrative expenses (5,169) (4,444) Share of results of jointly controlled entities 4,012 2,942 Profit from operations 2 9,700 9,574 Finance costs (1,243) (471) Investment income 364 168 Profit before taxation 8,821 9,271 Taxation 4 (619) (617) Profit for the year 8,202 8,654 Attributable to Equity shareholders 4,487 4,307 Minority interests 3,715 4,347 8,202 8,654 Earnings per share 6 Basic 0.25p 0.24p Diluted 0.25p 0.24p FORTUNE OIL PLC Announcement of Preliminary Results for Year Ended 31 December 2007 Group Balance Sheet as at 31 December 2007 Unaudited Amount in £'000 Note 2007 2006AssetsNon-current assetsProperty, plant and equipment 7 43,283 24,539Investment properties 1,561 1,577Goodwill 2,100 943Other intangible assets 3,810 223Prepaid lease payment 3,263 716Investments in jointly controlled entities 22,593 21,083Available for sale investments 470 -Club debentures 131 101 77,211 49,182Current assetsInventories 1,064 1,070Trade and other receivables 8,759 6,302Cash and cash equivalents 27,263 8,202 37,086 15,574Total assets 114,297 64,756LiabilitiesCurrent liabilitiesBorrowings 5,212 3,427Trade and other payables 15,410 5,362Current tax liabilities 549 170 21,171 8,959 Non-current liabilitiesBorrowings 27,976 5,567Deferred tax liabilities 1,527 264 29,503 5,831Total liabilities 50,674 14,790 Net assets 63,623 49,966Shareholders' equityOrdinary shares 18,363 18,363Treasury shares (594) (795)Share premium account 22 22Translation reserves (932) (2,717)Retained earnings 28,291 23,805Total shareholders' equity 45,150 38,678Minority interests 18,473 11,288Total equity 63,623 49,966 FORTUNE OIL PLC Announcement of Preliminary Results for Year Ended 31 December 2007 Group Statement of Change in Equity for the Year Ended 31 December 2007 Unaudited Share Total Ordinary Treasury premium Translation Retained Shareholders' Minority TotalAmount in £'000 Shares shares account reserve earnings equity interests equity Balance at 1 January 2006 18,351 (760) 37,344 2,062 (17,985) 39,012 11,726 50,738 Issue of share capital 12 - 22 - - 34 - 34 Movement in treasury shares - (35) - - - (35) - (35) Currency translation - - - (4,779) - (4,779) (1,520) (6,299)differences Capitalization of share premium account - - (37,344) - 37,344 - - - Profit for the year - - - - 4,307 4,307 4,347 8,654 Share-based payments - - - - 139 139 - 139 Dividend paid - - - - - - (3,265) (3,265) Balance at 31 December 2006 18,363 (795) 22 (2,717) 23,805 38,678 11,288 49,966 Movement in treasury shares - - - - 201 - - (201) Currency translation differences - - - 1,785 - 1,785 705 2,490 Acquired on acquisition of subsidiaries - - - - - - 4,610 4,610 Capital contribution by minority shareholders of a subsidiary - - - - - - 1,333 1,333 Profit for the year - - - - 4,487 4,487 3,715 8,202 Share-based payments - - - - 200 200 - 200 Dividend paid - - - - - - (3,178) (3,178) Balance at 31 December 2007 18,363 (594) 22 (932) 28,291 45,150 18,473 63,623 FORTUNE OIL PLC Announcement of Preliminary Results for Year Ended 31 December 2007 Group Cash Flow Statement for the Year Ended 31 December 2007 Unaudited Amount in £'000 2007 2006 Cash flows from operating activitiesProfit for the year 8,202 8,654Adjustments for: Share of post-tax results of jointly controlled (4,012) (2,942)entities Taxation 619 617 Amortisation and depreciation 3,229 2,508 Impairment - 834 (Gain)/Loss on disposal of property, plant and equipment (26) 35Loss/(Gain) on disposal of subsidiary undertakings 17 (188) Share based payment 200 139 Investment income (364) (168) Finance costs 1,243 471 Decrease in inventory 386 842Decrease/(Increase) in trade and other receivables 2,319 (706)Increase/(Decrease) in trade and other payables 604 (3,428) Cash generated from operations 12,417 6,668 Finance costs (1,243) (471)Taxation paid (227) (665) Net cash generated from operating activities 10,947 5,532 FORTUNE OIL PLC Announcement of Preliminary Results for Year Ended 31 December 2007 Group Cash Flow Statement for the Year Ended 31 December 2007 (cont.) Unaudited Amount in £'000 2007 2006 Cash flow from investing activitiesInvestment income 364 168Dividend received from a jointly controlled entities 2,868 2,463Payments for property, plant and equipment (6,534) (4,708)Payments for other intangible assets (2,455) (223)Payments for prepaid lease payment (2,395) -Receipt from disposal of subsidiary undertakings 166 305Payment for acquisition of subsidiary undertakings (note 8) (5,730) -Receipt from disposal of property, plant and equipment 110 66Investment in jointly controlled entities (73) (3,072)Purchase of club debenture (31) -Loan to jointly controlled entities (501) (335) Total cash flows used in investing activities (14,211) (5,336) Cash flows from financing activitiesProceeds from issue of share capital - 34Loan from minority shareholders 245 429Repayment of loans to minority shareholders - (441)Dividend paid to minority shareholders (3,178) (3,265)Capital contribution from minority shareholders 1,333 -Repayment of loans - (689)Increase in bank loans 23,460 1,663 Total cash flows generated from/(used in) financing activities 21,860 (2,269) Net increase/(decrease) in cash and cash equivalents 18,596 (2,073)Cash and cash equivalents at beginning of the year 8,202 11,713Effect of foreign exchange rate changes 465 (1,438) Cash and cash equivalents at end of the year 27,263 8,202 FORTUNE OIL PLC Notes to unaudited financial information in respect of year ended 31 December2007 1. Basis of accounting This preliminary announcement, which has been agreed with the auditors, wasapproved by the Board on 23 April 2008. The financial information set out inthe announcement does not constitute the Company's statutory financialstatements, as defined by Section 240 of the Companies Act 1985, for the yearsended 31 December 2007 or 2006. The financial information for the year ended 31December 2006 is derived from the statutory financial statements for that yearwhich have been delivered to the Registrar of Companies. The auditors reportedon those financial statements; their report was unqualified, did not drawattention to any matters by way of emphasis without qualifying their report anddid not contain a statement under s.237 (2) or (3) Companies Act 1985. Thestatutory financial statements for the year ended 31 December 2007 will befinalised on the basis of the financial information presented by the Directorsin this preliminary announcement and will be delivered to the Registrar ofCompanies in due course. The statutory accounts for the year ended 31 December2007 have not yet been approved, audited or filed. Whilst the financial reporting included in this preliminary announcement hasbeen computed in accordance with the recognition and measurement criteria ofInternational Financial Reporting Standards (IFRSs), this announcement does notitself contain sufficient information to comply with IFRSs. The company expectsto publish full financial statements that comply with IFRSs in due course. The accounting policies applied are consistent with those adopted and disclosedin the Company's financial statements for the year ended 31 December 2006, withthe exception of adopting IFRS 7 - Financial Instruments: Disclosures. This didnot have any impact on the financial position of the Company. 2. Segmental analysis a) Business segments Single point Aviation Natural gas Oil trading & mooring facility storage * Amount in £'000 2007 2006 2007 2006 2007 2006 2007 2006 Revenue including share of 10,666 12,136 138,821 126,049 26,096 13,194 39,554 19,631jointly controlled entities Share of revenue of jointly controlled entities - - (138,821) (126,049) (2,156) (724) (1,472) (966) Group revenue 10,666 12,136 - - 23,940 12,470 38,082 18,665 Exceptional gains - 1,943 - - - - - 608Exceptional charges - (424) - - - - - (410) Profit from operations 4,738 7,077 3,178 2,243 2,746 1,235 (283) (331)(including share of results ofjointly controlled entities) Finance costs Investment income Profit before taxation Taxation Profit for the year Attributable toEquity shareholdersMinority interests Capital additions 1,332 2,488 30 - 5,158 2,144 13 76Depreciation 1,653 1,443 4 - 1,304 772 117 238Impairment - 424 - - - - - 410 Net assets: by class of business AssetsSegment assets 15,152 15,318 17,054 14,273 55,372 20,840 24,806 12,461 Unallocated assets Consolidated total assets Liabilities Segment liabilities (487) (860) (356) (13) (13,700) (4,827) (6,653) (5,110) Unallocated liabilities Consolidated total liabilities Others* * Central Group Administration Amount in £'000 2007 2006 2007 2006 2007 2006 Revenue including share of jointly controlled 4,750 4,761 - - 219,887 175,771entitiesShare of revenue of jointly controlled entities (4,750) (4,761) - - (147,199) (132,500) Group revenue - - - - 72,688 43,271 Exceptional gains - - - - - 2,551Exceptional charges - - - - - (834) Profit from operations 140 93 (819) (743) 9,700 9,574 (including share of results of jointly controlledentities)Finance costs (1,243) (471)Investment income 364 168 Profit before taxation 8,821 9,271Taxation (619) (617) Profit for the year 8,202 8,654 Attributable toEquity shareholders 4,487 4,307Minority interests 3,715 4,347 Capital additions - - 1 - 6,534 4,708Depreciation - 1 1 1 3,079 2,455Impairment - - - - - 834 Net assets: by class of businessAssets Segment assets 133 148 219 139 112,736 63,179 Unallocated assets 1,561 1,577 Consolidated total assets 114,297 64,756 Liabilities Segment liabilities (4) (2) (98) (117) (21,298) (10,929) Unallocated assets (29,376) (3,861) Consolidated liabilities (50,674) (14,790) 63,623 49,966 b) Geographical operations With the exception of operating loss of £732,000 (2006: £700,000) in respect ofcentral administration in the United Kingdom, all of the Group's activities arecarried out in the PRC and Hong Kong. The Directors are of the opinion that thePRC and Hong Kong form one geographic segment. * Includes overheads in Hong Kong/PRC offices. ** Others include distribution unit. c) Analysis of group revenue Amount in £'000 2007 2006 Sales of goods 68,561 40,076Income from construction contracts 2,526 2,210Rental income 770 758Others 831 227 72,688 43,271 3. Exceptional gains and charges Exceptional gains Amount in £'000 2007 2006 Write back of accrual for staff welfare - 1,943Waiver of borrowings - 410Gain on disposal of subsidiaries - 198Total exceptional gains - 2,551 Exceptional charges Amount in £'000 2007 2006 Impairment of fixed assets - 834Total exceptional charges - 834 4. Taxation The taxation charge for the year is analysed below: Amount in £'000 2007 2006 Current taxGroup current taxUK tax - -Foreign tax 601 651Total current tax 601 651 Deferred taxGroup deferred tax 18 (34)Total deferred tax 18 (34)Tax on profit on ordinary activities 619 617 The tax charge for the year differs from the standard rate of corporation tax and isexplained below. Amount in £'000 2007 2006 Profit on ordinary activities before taxation 8,821 9,271Theoretical tax at PRC corporation tax rate 33% 2,911 3,059Effects of:- Share of results of joint controlled entities (1,334) (970)- nil or lower tax in PRC (1,980) (1,768)- tax losses not recognized 330 536- utilization of tax losses credit not previously (19) (204)recognized- other expenditure that is not tax deductible 733 164- income not taxable (22) (200)Total tax 619 617 The above reconciliation uses a 33% standard rate of tax, being the standardrate of tax payable for 2006 and 2007 in the PRC, where the majority of theGroup's activities take place. The Group tax charge above does not include any amounts for jointly controlledentities, whose results are disclosed in the income statement net of tax. 5. Dividends were not paid in any of the periods reported upon and no dividend is proposed. 6. Earnings per share Earnings per share have been calculated on the earnings activities aftertaxation and minority interest of £4,487,000. (2006: £4,307,000) 2007 2007 2006 2006 No. No. '000 pence '000 pence Basic 1,777,015 0.25 1,775,985 0.24 Share option adjustment 4,538 - 6,281 - Diluted 1,781,553 0.25 1,782,266 0.24 7. Property, plant and equipment Motor Single Short Assets in vehicles, point Leasehold the course of fixtures mooring property & LPG tanksAmount in £'000 construction & fittings buoy improvements & facilities Pipelines Total Cost At 1 January 2006 1,285 4,063 18,448 2,765 3,050 11,678 41,289Exchange differences (141) (400) (2,257) (265) (269) (1,081) (4,413)Additions 436 595 2,367 11 6 1,293 4,708Disposal of subsidiaries - (25) - - (420) (775) (1,220)Disposals (30) (36) (62) (78) (85) - (291)Reclassification (1,103) 175 637 116 - 175 - At 31 December 2006 447 4,372 19,133 2,549 2,282 11,290 40,073Exchange differences 80 313 937 333 113 912 2,688Acquisition of business 926 708 - 2,183 - 9,622 13,439assets Additions 3,396 1,215 1,284 451 4 184 6,534Disposal of subsidiaries - (19) - (141) (122) - (282) Other disposals - (330) - - - (89) (419) Reclassification (3,920) 2 - 150 - 3,768 - At 31 December 2007 929 6,261 21,354 5,525 2,277 25,687 62,033 Depreciation At 31 December 2006 - 1,658 9,102 806 2,247 729 14,542Exchange differences - (176) (1,223) (80) (208) (86) (1,773)Charge for the year - 321 1,386 146 105 497 2,455Disposal of subsidiaries - (16) - (41) (172) (105) (334) Other disposals - (27) - (10) (153) - (190) Impairment - 60 424 - 350 - 834 At 31 December 2006 - 1,820 9,689 821 2,169 1,035 15,534 Exchange differences - 91 208 60 107 93 559 Charge for the year - 432 1,588 238 13 808 3,079 Disposal of subsidiaries - (12) - (30) (43) - (85) Other disposals - (306) - - - (31) (337) At 31 December 2007 - 2,025 11,485 1,089 2,246 1,905 18,750 Net book value At 31 December 2007 929 4,236 9,869 4,436 31 23,782 43,283 At 31 December 2006 447 2,552 9,444 1,728 113 10,255 24,539 8. Acquisition of subsidiaries China United Shanxi CBM Company Fortune Green Energy (Henan) Limited Company Limited Acquiree's Fair value Fair Acquiree's Fair value Fair Total Fair carrying adjustment value carrying adjustment value value amount amount before before combination combination £'000 £'000 £'000 £'000 £'000 £'000 £'000Net assets acquired: Bank and cash balances 12 - 12 921 - 921 933 Trade and other 2,538 - 2,538 1,933 - 1,933 4,471receivables Inventories 4 - 4 332 - 332 336 Prepaid lease payment - - - 238 238 238 Plant and equipment 120 - 120 7,629 4,729 12,358 12,478 Construction in progress 218 - 218 770 (7) 763 981 Intangible assets - - - - 1,221 1,221 1,221 Investments - - - 736 160 896 896 Trade and other payables (268) - (268) (9,260) - (9,260) (9,528) Deferred tax - - - - (1,247) (1,247) (1,247) Tax liabilities (1) - (1) 12 - 12 11 2,623 - 2,623 3,311 4,856 8,167 10,790 Equity holding 50% 1,311 51% 4,165 5,476 Goodwill 1,139 Consideration 6,615 Total considerationsatisfied by: Cash 1,690 4,925 6,615 Net cash outflow arisingon acquisition Cash consideration paid (6,615)Bank balance and cash 933acquired (5,682) China United Shanxi CBM Company Limited and Fortune Green Energy (Henan)Company Limited contributed -£4,000 and £580,000 to the Group's profit for theperiod between the date of acquisition and the balance sheet date respectively. If the acquisitions had been completed on 1 January 2007, the total Grouprevenue for the year would have been £75.2 million, and Group profit for theyear would have been £8.3 million. The proforma information is for illustrativepurpose only and is not necessarily an indication of revenue and results of theGroup that actually would have been achieved had the acquisition been completedon 1 January 2007, nor is it intended to be a projection of future results. During the year, the Group also acquired 7% of an existing subsidiary forconsideration of £48,000. 9. Post balance sheet event Acquisition of Xinyang City Gas On 31 March 2008 the Group agreed to pay the Xinyang city government RMB 26million (£1.8 million) for 100 per cent of the shares in the city gas companyand its distribution rights for 30 years in all the residential zones and mostindustrial zones, together with outstanding bank debt of RMB 204 million (£14.1million). The Group expects to repay a major part of these bank loans in 2008 inorder to optimise the gearing ratio, using funds from existing cash balances. The gas company will be renamed as Xinyang Fortune Gas Company Limited and willbe 100 per cent owned by Fortune Gas Investment Company Limited, a 100 per centsubsidiary of the Company. The acquisition will be effective followingregistration with the local government bureaus. The details of the transactionwere set out in an announcement by the Company dated 31 March 2008. 10. Copies of this report are available from the Group's Registered Office at 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