TIDMFTO
RNS Number : 9855A
Fortune Oil PLC
26 February 2014
26 FEBRUARY 2014
FORTUNE OIL PLC
("Fortune Oil", "the Company" or together with its subsidiaries
"the Group")
Second Interim Report for the twelve months ended 31 December
2013
Fortune Oil develops and operates oil and gas supply and
infrastructure projects in China. Fortune Oil is quoted on the Main
Market of the London Stock Exchange and has its headquarters in
Hong Kong.
FINANCIAL HIGHLIGHTS
-- Group revenues including share of jointly controlled entities
and associates increased by 16 per cent to GBP856.6 million (2012:
GBP739.4 million).
-- Net profit from all operations attributable to owners of the
parent increased 948 per cent to GBP164.1 million (2012: GBP15.7
million). This takes account of other gains and losses of the Group
of GBP141.2 million, comprising a net gain of GBP76.1 million in
respect of the Group's investment in China Gas Holdings Limited
("CGH") prior to CGH becoming an associate and a gain of GBP100.9
million on disposal of Fortune Gas Investment Holdings Limited
("FGIH"); partially offset by the non-cash impairment loss of
GBP35.8 million with respect to the full carrying value of the
assets in the Armenian iron ore project.
-- Basic earnings per share was 8.00p (2012: 0.82p). Basic
earnings per share, excluding other gains and losses of the Group
including share of jointly controlled entities, was 0.79p (2012:
0.58p).
-- Net assets further increased to GBP334.5 million as at 31
December 2013 (2012: GBP246.8 million).
-- Following completion of the acquisitions approved by
Shareholders at the General Meeting in September 2013, First Level
Holdings Limited and Vitol Energy (Bermuda) Limited together hold
56.9 per cent of the Company.
-- Special dividend of 2.36p per share paid to shareholders in
October 2013.
-- US$300 million (GBP188 million) loan facility signed to aid
future expansion of the Group of which US$180 million (GBP113
million) remain undrawn.
-- China Gas Group Limited ("CGG"), the joint venture company in
which the Group has a 50 per cent interest, owns 732,446,000 CGH
shares, representing 14.68 per cent of CGH total issued shares as
at 31 December 2013. As at 26 February 2014, the Group and CGG
together held 916,565,463 shares in CGH representing 18.36 per cent
of CGH's total issued shares of 4,991,748,561, as per CGH's latest
public information posted on 4 February 2014.
OPERATIONAL HIGHLIGHTS
-- The Group has completed the transfer of FGIH to CGH and the
two companies' natural gas businesses are in the process of being
integrated.
-- Bluesky continues to perform well. The Group's share of net
profit increased 13.8 per cent to GBP13.1 million for 2013 (2012:
GBP11.5 million), with a 13.4 per cent increase in sales volumes to
3.4 million tonnes (2012: 3.0 million tonnes), driven by the
continued increase in domestic and international air travel
demand.
-- The Group has entered into a new 20 year joint venture
agreement with Sinopec in respect of the Maoming SPM ("SPM"). Under
the new shareholding structure, the shareholding interest in the
SPM by the Group is 33 per cent and accordingly, it will not hold a
controlling equity stake in the joint venture. The scope of the
joint venture has been expanded with the potential development of a
new pipeline and buoy system.
-- West Zhuhai Products Terminal throughput and storage volumes
were up 7.8 per cent to approximately 2.6 million tonnes (2012:
approximately 2.5 million tonnes) and profit contribution to the
Group increased to GBP1.1 million (2012: GBP0.8 million), a 44 per
cent increase due to increased utilisation of the terminal by
PetroChina.
Mr Qian Benyuan, Chairman of Fortune Oil, commented:
"Fortune Oil continues to strengthen its position in the Chinese
natural gas industry through our strategic investment in China Gas
Holdings Limited. The oil business continues to make good progress.
The Bluesky aviation fuel business is well positioned to
participate in the anticipated continued growth in air travel in
China and we have renewed and expanded the Maoming Single Point
Mooring cooperation with Sinopec. We expect demand for oil and oil
based products in China to continue to remain strong and the Board
is excited by the medium term growth prospects for our oil
business".
ENQUIRIES:
Fortune Oil PLC Tel: 00 852 2583 3125
Tian Jun - Acting Chief Executive Tel: 00 852 2583 3120
Bill Mok - Chief Financial Officer
VSA Capital Limited Tel: 020 3005 5004
Andrew Raca - Head of Corporate Tel: 020 3005 5009
Finance
Justin McKeegan - Associate,
Corporate Finance
FORTUNE OIL PLC
("Fortune Oil", "the Company" or together with its subsidiaries
"the Group")
Second Interim Report for the twelve months ended 31 December
2013
CHIEF EXECUTIVE'S REVIEW
FINANCIAL HIGHLIGHTS
-- Group revenues including share of jointly controlled entities
and associates increased by 16 per cent to GBP856.6 million (2012:
GBP739.4 million).
-- Net profit from all operations attributable to owners of the
parent increased 948 per cent to GBP164.1 million (2012: GBP15.7
million). This takes account of other gains and losses of the Group
of GBP141.2 million, comprising a net gain of GBP76.1 million in
respect of the Group's investment in China Gas Holdings Limited
("CGH") prior to CGH becoming an associate and a gain of GBP100.9
million on disposal of Fortune Gas Investment Holdings Limited
("FGIH"); partially offset by the non-cash impairment loss of
GBP35.8 million with respect to the full carrying value of the
assets in the Armenian iron ore project.
-- Basic earnings per share was 8.00p (2012: 0.82p). Basic
earnings per share, excluding other gains and losses of the Group
including share of jointly controlled entities, was 0.79p (2012:
0.58p).
-- Net assets further increased to GBP334.5 million as at 31
December 2013 (2012: GBP246.8 million).
-- Following completion of the acquisitions approved by
Shareholders at the General Meeting in September 2013, First Level
Holdings Limited and Vitol Energy (Bermuda) Limited together hold
56.9 per cent of the Company.
-- Special dividend of 2.36p per share paid to shareholders in
October 2013.
-- US$300 million (GBP188 million) loan facility signed to aid
future expansion of the Group of which US$180 million (GBP113
million) remain undrawn.
-- China Gas Group Limited ("CGG"), the joint venture company in
which the Group has a 50 per cent interest, owns 732,446,000 CGH
shares, representing 14.68 per cent of CGH total issued shares as
at 31 December 2013. As at 26 February 2014, the Group and CGG
together held 916,565,463 shares in CGH representing 18.36 per cent
of CGH's total issued shares of 4,991,748,561, as per CGH's latest
public information posted on 4 February 2014.
CORPORATE MATTERS
-- The Company has completed the transfer of FGIH to CGH (the
"FGIH Transaction") and the two companies' natural gas businesses
are in the process of being integrated. The FGIH Transaction was
completed in August 2013 and results are reported including the
trading results of FGIH for the period prior to this date and
excluding its trading for the period after this date.
-- Following shareholders' approval, the Group completed the
acquisition of Wilmar International Limited's interest in the
consideration receivable as a result of the disposal of FGIH. The
total consideration was US$60 million (GBP39.1 million) payable to
Fortune Dynasty Holdings Limited ("FDH") in ordinary shares in
Fortune Oil. FDH is a joint venture company owned 55 per cent by
First Level Holdings Limited (controlled by Mr Daniel Chiu) and 45
per cent by Vitol Energy (Bermuda) Limited, a major shareholder of
the Company.
-- Pursuant to the Share Purchase Agreement ("SPA") by which
Fortune Oil sold its FGIH business to CGH the Group elected to
receive the Deferred Consideration of US$200 million by way of
184,119,463 new shares in CGH.
-- The Company has changed its financial year-end date from 31
December to 31 March, accordingly the Company's statutory accounts
will be in respect of the 15 months to 31 March 2014. The change is
to align the Company's financial year-end with CGH to facilitate
the preparation of the Company's consolidated financial
statements.
OPERATIONAL HIGHLIGHTS
Natural Gas Business
-- For the period up to completion of the FGIH sale in August
2013 the natural gas business operating profit contribution to
Fortune Oil was GBP11.4 million.
-- For the period post completion of the FGIH Transaction, CGH
contributed GBP79.3 million to the Group's operating profit through
its share of profit from jointly controlled entities and
associates. The operating profit includes a reclassification to the
income statement of GBP76.1 million representing the net gain in
fair value of CGG's investment in CGH previously recognised in
equity up to the date when CGH became an associate. The Group has
pro-rated CGH's six months net profit in order to compute the share
of results in associate/jointly controlled entities to the Group
for the four months ended 31 December 2013 (please refer to
"Revenue and Expenditure" under the "Financial Review" for
details).
-- Sales volumes of natural gas was 330 million cubic metres in
the period up to completion of the FGIH Transaction.
-- As at 30 September 2013 CGH reported that it had secured 208
city gas projects with exclusive concession rights, 11 long
distance natural gas pipeline projects, 1 natural gas development
project, 2 coal bed methane ("CBM") projects, 98 liquefied
petroleum gas ("LPG") distribution projects and had completed the
construction of 224 compressed/liquefied natural gas refilling
stations for vehicles.
-- As at 30 September 2013, CGH had 2,407 industrial customers,
54,497 commercial customers and nearly 10 million residential users
with the connectable city populations covered by CGH gas projects
increasing to 70 million.
-- During the six month period to the 30 September 2013 CGH sold
a total of 3.5 billion cubic metres of natural gas, an increase of
14.6 per cent over the same period of the previous year.
-- Construction is being progressed for the first permanent LNG
ship refuelling station on the Yangtze River near Chongqing and
agreement has been reached with several ship operators to commence
conversion of their ships to operate with LNG dual fuel technology
in commercial operations.
-- The gas gathering system on the northern area of the Luilin
CBM block was completed and linked to the CNG wholesale station
where the CBM will be dispatched for sale.
Oil Business
-- Bluesky continues to perform well. The Group's share of net
profit increased 13.8 per cent to GBP13.1 million for 2013 (2012:
GBP11.5 million), with a 13.4 per cent increase in sales volumes to
3.4 million tonnes (2012: 3.0 million tonnes), driven by the
continued increase in domestic and international air travel
demand.
-- The Group has entered into a new 20 year joint venture
agreement with Sinopec in respect of the Maoming SPM ("SPM"). Under
the new shareholding structure, the shareholding interest in the
SPM by the Group is 33 per cent and accordingly, it will not hold a
controlling equity stake in the joint venture. The scope of the new
joint venture has been expanded with the potential development of a
new pipeline and buoy system. Although the SPM continues to
operate, the results from the previous venture, which was treated
as a subsidiary of the Group, are presented as discontinued
operations during this period. Management expects that the Group
will start recognising its share of results in the Maoming SPM
business when the new joint venture becomes effective in Q1
2014.
-- West Zhuhai Products Terminal throughput and storage volumes
were up 7.8 per cent to approximately 2.6 million tonnes (2012:
approximately 2.5 million tonnes) and profit contribution to the
Group increased to GBP1.1 million (2012: GBP0.8 million), a 44 per
cent increase due to increased utilisation of the terminal by
PetroChina.
-- The Group has obtained a license allowing it to supply and
trade diesel in China, a first for a foreign company.
Resources
-- The Group continues to determine whether the Armenian iron
ore assets could be developed economically. The rail costs
continued to be the major issue which was undermining the
commercial viability of these projects. Furthermore, projections of
the long term iron ore price appear to be softening due to the
slowdown in economic growth globally, particularly in China. As a
consequence, the Group has recognised a non-cash impairment loss of
GBP35.8 million with respect to the full carrying value of the
assets in the Armenian iron ore project.
There were no lost time incidents recorded in any of the Group's
operations during the period.
OUTLOOK
China's 2013 economic growth slowed to 7.7 per cent, the weakest
in 14 years, and China's Cabinet has warned that the growth model
based on exports and investment is running out of steam with the
economy also challenged by the increasing risks of local government
debt, the financial sector and overcapacity.
In line with the slowing of the Chinese economy, growth in
energy demand was subdued and slowed from 10.0 per cent in 3Q to
7.7 per cent in Q4. China's oil demand averaged 9.95 million
barrels per day in 2013 which was only 3 per cent higher than 2012
whilst crude oil imports in 2013 totalled 271 million tonnes, 4.1
per cent higher than 2012.
China diesel demand was almost flat compared to 2012 (up only
0.2 per cent year on year), but petrol demand remained strong, up
10.2 per cent up year on year underpinned by the robust transport
demand and strong passenger vehicle sales.
Demand for aviation fuels in China also continued to remain
strong in 2013. According to the International Air Transportation
Association ("IATA") air traffic grew 11.7 per cent in 2013
compared to 2012, the strongest in any global market. Capacity also
grew by 12.2 per cent in 2013 with the load factor of 80.3 per
cent.
China's natural gas demand continues to remain strong and
increased by 12.9 per cent year on year, to 169 billion cubic
metres ("bcm") in 2013 making China the third largest gas consumer
in the world. Gas demand equates to 5.9 per cent of China's primary
energy consumption and still remains low relative to the OECD
average where gas demand equates to 26.1 per cent of primary energy
consumption demonstrating significant growth potential for natural
gas in China. China continues to increase domestic gas production
to mitigate growing gas imports which exceeded 30 per cent in 2013
for the first time. In 2013 China domestic gas production increased
12 per cent to 120.9 bcm according to the Ministry of Land and
Resources.
During 2013 China introduced long-awaited natural gas price
reforms which now enables natural gas price to track international
crude oil prices more closely. Although this will incentivise
domestic gas supply including CBM there are some concerns that the
rise of 15 per cent for natural gas at the city gate will cause a
slowdown in the rapid growth in gas demand. Following the gas price
increases China has also had to raise the electricity tariff from
gas-fired power plants to resolve the conflict between rising gas
prices and low on-grid prices for gas based power.
Overall, it appears likely that even though the Chinese economy
is expected to grow at a more subdued pace in future, China will
continue to provide significant growth opportunities in both the
oil and gas markets from which the Company can benefit.
The Armenia iron ore development is still under evaluation and,
as with all our projects, we are continuing to assess the project's
economic viability. However, the Group will not make any material
investment in the development of the project unless there is an
economically viable investment case. This is particularly important
as projections of the long term iron ore price appear to be
softening due to the slowdown in economic growth globally,
particularly in China.
I have been working for Fortune Oil since 1999 and it gives me
tremendous pleasure to have been given this opportunity to manage a
company with such potential, working in one of the most dynamic
energy markets in the world. Fortune Oil is well placed to continue
to grow in China with a strong set of assets and strategic
investments, established partnerships with major companies, and a
dedicated and committed working team of employees.
The Board is pleased with the medium term growth prospects for
the Group in both the oil and gas sectors in China. Fortune Oil
continues to strengthen its position in the Chinese natural gas
industry through our investment in CGH and will see further
expansion of its customer base as natural gas availability
increases whilst our Oil businesses are also well placed to take
advantage of the continued expansion of China's oil demand.
TIAN Jun
Acting Chief Executive
26 February 2014
BUSINESS REVIEW
CHINESE ENERGY MARKET
The second half of 2013 has seen a continued deceleration in
China's economic growth. China gross domestic product ("GDP")
growth for 2013 was 7.7 per cent, the lowest for 14 years but still
above the government target of 7.5 per cent set at the beginning of
the year and the five-year plan annual growth target of 7 per cent
between 2011 and 2015.
On 15 November 2013, China announced new social and economic
policies promoting a greater reliance on market forces and inviting
private-sector participation and foreign competition in industries
long previously controlled by the central government. China is
planning to accept a slower growth pace than previously if this
will allow for a more sustainable, consumer-driven expansion of its
economy.
In line with the slowdown in economic growth, energy demand
growth in China has also slowed. Oil demand was only 3 per cent
higher than in 2012, averaging 9.95 million barrels per day in
2013. Chinese domestic oil production was only 1.1 per cent higher
in 2013 compared to 2012 and totalled 208.3 million tonnes. Crude
oil imports in 2013 totalled 271.1 million tonnes, 4.1 per cent
higher than 2012 and total refining throughput reached 480.4
million tonnes, which was 3.3 per cent higher than in 2012.
China continues to have tremendous oil demand growth potential
as demonstrated by the 15.7 per cent increase in passenger car
sales in 2013 as Chinese consumers bought 17.93 million new cars.
China's passenger car population however is still very low at 85
vehicles per 1,000 people compared to other major economies (USA
797 per 1,000 people, Brazil 259 per 1,000 people).
Similarly for the aviation sector the IATA Airline Industry
Forecast 2013-2017 predicts that routes within or connected to
China will be the single largest driver of growth, accounting for
24% of new passengers during the forecast period projecting for
China 227.4 million additional passengers, 195 million domestic and
32.4 million international passengers suggesting a positive outlook
for Bluesky.
China's gas demand continues to remain strong and in 2013 demand
for natural gas rose 12.9 per cent year on year to 169 bcm,
according to China National Petroleum Corp.'s ("CNPC") Economic and
Technology Research Institute, accounting for 5.9 per cent of
China's primary energy consumption. Natural gas imports increased
to 38 million tonnes (53 bcm), up 25 per cent on 2012 (30.5 million
tonnes) accounting for over 30 per cent of China gas supply.
Pipeline deliveries surged 20 per cent year on year hitting a new
record of 1.85 million tonnes and LNG imports climbed 33 per cent
to 2.43 million tonnes in December 2013. Turkmenistan delivered the
most gas pipeline imports to China (17.7 million tonnes) followed
by LNG from Qatar (6.8 million tonnes).
To mitigate growing imports of natural gas China continues to
press for increased domestic gas production from both conventional
and unconventional gas sources. In 2013 China produced 120.9 bcm of
natural gas, 117.7 bcm from conventional fields, 3 bcm from
surface-level CBM, and 200 million cubic metres of shale gas
according to the Ministry of Land and Resources.
China continues to develop the network to support the growth in
natural gas demand. In October 2013 the China Myanmar gas pipeline
went in to operation with a transmission capacity of 12 bcm per
annum. CNPC supplied the first gas via West - East Pipeline II to
Hong Kong in December 2013. Across China in 2013 an additional
5,700 km of gas pipelines was installed which is the third
consecutive year that more than 5,000 km of gas pipelines have been
installed bringing the total pipeline network to around 60,000 km
with an annual transmission capacity of 120 bcm. Despite the
increased supply options, China is still facing gas shortfalls in
the high demand winter period and in the in 2013 there was a
shortfall of 22 bcm in gas supply.
The growing problem of pollution in many cities in China is
driving the central government to accelerate the substitution of
coal with natural gas. The expectation is that the Chinese
Government will continue to provide incentives to encourage the
investment needed to increase natural gas production and
infrastructure to supply the gas to reduce coal consumption
particularly in the major cities.
CORPORATE MATTERS
The Group completed the transfer of FGIH to CGH in August 2013
and the two companies' natural gas businesses are in the process of
completing the integration.
Following obtaining shareholders approval in September 2013, the
Group completed the acquisition of Wilmar International Limited's
interest in the consideration receivable as a result of the
disposal of FGIH. The total consideration was US$60 million payable
to Fortune Dynasty Holdings Limited ("FDH") in ordinary shares in
Fortune Oil (the "Acquisition"). FDH is a joint venture company
owned 55 per cent by First Level Holdings Limited (controlled by Mr
Daniel Chiu) and 45 per cent by Vitol Energy (Bermuda) Limited, a
major shareholder of the Company.
Shareholders also approved the amendment to the terms of the
loan from FDH to Fortune Oil of US$12 million (GBP7.5 million),
such that it was repaid in Ordinary Shares in Fortune Oil (the
"Loan Settlement").
Fortune Oil obtained from the UK Takeover Panel and from the
independent shareholders of the Company a waiver of the requirement
of Rule 9 of the UK Takeover Code for a general offer to be made
for the Company by persons who, as a result of receiving ordinary
shares through the Loan Settlement and completion of the
Acquisition, now own 56.9 per cent of the Company's issued share
capital.
Pursuant to the Share Purchase Agreement ("SPA") dated 16
December 2012 as supplemented by the Deed of Assignment and
Novation dated 6 August 2013, by which the Group sold FGIH to CGH
the Company announced on the 27 November 2013 that it had elected
to receive the Deferred Consideration of US$200 million (GBP127.8
million) by way of CGH issuing new shares in accordance with the
terms of the SPA. The listing permission from the Hong Kong Stock
Exchange having been obtained the 184,119,463 new shares in CGH
have been issued to the Group. The number of CGH Shares was
calculated based on the benchmark share price (the 30-day average
closing price) of HK$8.421 per CGH share.
CGG, the joint venture company in which the Group has a 50 per
cent interest, owns 732,446,000 CGH shares, representing 14.68 per
cent of CGH total issued shares as at 31 December 2013. As at 26
February 2014, the Group and CGG together held 916,565,463 shares
in CGH representing 18.36 per cent of CGH's total issued shares of
4,991,748,561, as per CGH's latest public information posted on 4
February 2014. As a result of the level of shareholding and the
right to appoint two directors to the Board of CGH, CGH is
accounted for as an associated company.
As part of the terms of the SPA, Ms Li Ching has been appointed
as an executive director of CGH with effect from 10 January 2014.
Ms Li's responsibilities include overseeing the Group's interests
in CGH encompassing the FGIH city gas and piped gas businesses, LNG
ship and CBM developments and operations. Together with Mr Liu
Minghui being the managing director, the Group has strengthened its
involvement and influence in CGH.
The Company has changed its financial year-end date from 31
December to 31 March starting from the financial year of 2014. The
change is to align the Company's financial year-end with CGH to
facilitate the preparation of the Company's consolidated financial
statements. The Company's statutory accounts for the fifteen months
from 1 January 2013 to 31 March 2014 will be published by the end
of July 2014. As a result payment of the Company's normal annual
dividend will be deferred three months to November 2014 but will be
related to a fifteen months period.
As a result of the FGIH Transaction and the change of status of
the SPM joint venture, the Company was no longer able to maintain a
Premium Listing on the London Stock Exchange but became a standard
listed company, with effect from 20 March 2013. The Company remains
committed to maintain the high standards of corporate governance
and reporting standards as when the Company was 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
its shareholders.
NATURAL GAS
The Company's strategic intent is to participate in the Chinese
natural gas market through a long term strategic investment in CGH,
one of the largest natural gas companies in China.
Pre-completion of the FGIH sale to CGH, the revenue of the
natural gas business, including the share of jointly controlled
entities, was GBP58.4 million, the operating profit was GBP11.4
million, and the natural gas sales volume increased to 330 million
cubic meters as operations at the new projects came on stream.
Post completion of the FGIH sale to CGH the revenue to the Group
from the natural gas businesses of CGH accounted for as the share
of jointly controlled entities and associates was GBP46.2 million
and the operating profit was GBP79.3 million (including a
reclassification to the income statement of the net gain of GBP76.1
million in fair value of CGG's investment in CGH, previously
recognised in equity up to the date of when CGH became an
associate). Management believe the FGIH business within CGH is on
target to meet the profit guarantee of HK$200 million (GBP16
million) for 2013 as set out in the SPA. In addition to the profit
guarantee for 2013, the Group will also compensate CGH on a dollar
for dollar basis if the net profits for the Natural Gas Business
are less than HK$400 million (GBP32 million) in 2014, but
management believe no allowance needs to be made in this regard at
this moment.
As at 30 September 2013 CGH reported it had secured 208 city gas
projects with exclusive concession rights an increase of 27
compared to the same period in 2012. CGH operates 11 long distance
natural gas pipeline projects with the total length of the
intermediate and main gas pipelines now reaching over 44,000 km an
increase of 26.7 per cent.
As at 30 September 2013, the number of residential users of CGH
was approximately 10 million, an increase of 23 per cent compared
to September 2012 with the connectable city populations covered by
CGH gas projects increasing 7.7 per cent to 70 million. CGH
connected 226 industrial customers as well as 3,485 commercial
customers over the six month period to September 2013 bringing the
total number of industrial customers to 2,407, and commercial
customers reached 54,497.
During the six month period to the 30 September 2013 CGH sold a
total of 3.5 bcm of natural gas, an increase of 14.6 per cent over
the same period of the previous year. The majority of the natural
gas, 2.4 bcm, is supplied to industrial users such as
petrochemicals, ceramics, building materials, metallurgy and glass
where margins are typically higher than for gas supplied to the
residential sector. CGH annual dividend for 2013 was HK8.48 cents
per share and an interim dividend of HK2.2 cents per share for the
six month period ended 30 September 2013.
CGH continues to expand its network of natural gas vehicle
refuelling stations and as of the 30 September 2013 operated 224
compressed natural gas ("CNG"), liquefied natural gas ("LNG") or
combined CNG/LNG ("L-CNG") stations. The use of LNG as a fuel in
the marine sector has tremendous growth potential and CGH has
continued FGIH's development of infrastructure to supply LNG as a
fuel to ships on the Yangtze River. The sites for the first three
permanent LNG ship refuelling stations have been identified.
Construction is in progress on the station near Chongqing which
will be operational in 2014. The initial design work is also being
progressed for the second station near the Three Gorges Dam and the
third location near Nanjing. These are the first of a number of
stations being planned along the Yangtze River. Agreement has been
reached with leading shipping companies to start converting a
number of their ships to run on LNG dual fuel technology. The Group
has established a new technical centre in Wuhan which will be
responsible for developing and implementing the LNG dual fuel
technology.
Within CGH, the Fortune Liulin Gas Company ("FLG") continues to
make progress at its Liulin CBM operations and the project is on
track for first commercial gas sales in 2014 following the
completion of the gas gathering system. FLG drilled two additional
wells in the northern section of the Liulin block and has in total
five inseam wells on production testing.
Total field production from the FLG horizontal wells has
exceeded 70,000 cubic metres per day with the most successful well
to-date producing up to 20,000 cubic metres per day, a rate which
exceeds all previous wells drilled by FLG. Until the gas gathering
system is in place, the bottom hole pressure and gas flow rates are
being managed to avoid unnecessary flaring of gas. Including the
gas production from the China United Coalbed Methane Corporation
("CUCBM") wells, the total gas field production from the Liulin
block has exceeded 100,000 cubic metres per day.
Chinese Reserve Certification has now been obtained across the
Liulin block for all of the main coal seams that contain gas. An
additional Chinese reserve certification of 16.3 bcm gas reserves
were obtained for seams 3, 4 and 5 in the southern part of the
Liulin block and for seams 8 and 9 for the whole Liulin block. The
total gas in place for the whole Liulin block (seams 3, 4, 5, 8 and
9) is therefore estimated by the Chinese approval agencies to be
21.8 bcm. The Chinese Reserves Certification is a requirement of
the Overall Development Plan ("ODP") approval process.
FLG has completed the ODP reports for the subsurface, surface
and project economics and these are being reviewed by CUCBM. FLG
currently has five inseam wells on line and together with the CUCBM
wells will produce the gas for dispatch through the gas gathering
system with the aim to commence commercial gas sales in 2014.
OIL BUSINESS
Aviation Refuelling (South China Bluesky Aviation Oil
Company)
In 2013, Bluesky's sales of jet fuel continued to increase,
rising by 13 per cent to 3.4 million tonnes compared to 3.0 million
tonnes in 2012. Joint venture revenues increased to GBP2,288
million (2012: GBP2,021 million). Bluesky achieved a net profit of
GBP53.4 million in 2013 (2012: GBP47.2 million) with the Group's
share of GBP13.1 million an increase of 14 per cent compared to
2012 (GBP11.5 million). Although there was a reduction in profit
contribution in the first half of 2013 as a result of inventory
stock losses due to the reduction in aviation fuel prices during
the period this turned around in the second half of the year.
Bluesky is committed to keeping sufficient storage to supply jet
fuel at each of its airports for approximately two weeks to ensure
that operations remain uninterrupted. With a stabilised government
pricing policy, stable crude oil prices and increasing demand for
passenger and cargo traffic, we expect Bluesky's sales volumes and
profit to continue to remain robust.
Maoming Single Point Mooring
The Group has entered into a new 20 year joint venture agreement
with Sinopec in respect to the Maoming SPM. Under the new
shareholding structure, the shareholding interest in the SPM by the
Group is 33 per cent and accordingly, it will not hold a
controlling equity stake in the joint venture. The scope of the new
joint venture has been expanded with the potential development of a
new pipeline and buoy system. Since the joint venture contract
expired in February 2013 the Maoming SPM business has been
deconsolidated and the net amount expected to be recovered on
dissolution of the joint venture has been recognised within "Trade
and other receivables" on the balance sheet as at 31 December
2013.
The SPM facility continues to operate efficiently and with an
accident-free and spill-free record. In the first 6 weeks of 2013,
prior to the expiration of the joint venture agreement, Maoming SPM
handled 7 tankers delivering a total of 1.1 million tonnes of crude
oil.
Financial results up until the date of contract expiry are
presented as discontinued operations and the Group will not include
the financial or operating performance post the joint venture
expiration date in its results until the new joint venture
agreement is in place and effective. The new joint venture is
expected to be an associate to the Group, and equity accounting
should be adopted once the joint venture becomes effective in Q1
2014.
Products Terminal and Supply
The performance of the West Zhuhai Products Jetty and Storage
Terminal (South China Petroleum Company) improved during 2013 with
increased utilisation. Throughput and storage volumes increased by
7.8 per cent in 2013 to approximately 2.6 million tonnes (2012:
approximately 2.5 million tonnes) with company revenues of GBP8.3
million (2012: GBP7.2 million). The profit contribution to the
Group increased 44.3 per cent to GBP1.1 million compared to GBP0.8
million in 2012.
This terminal continues to play an important role for PetroChina
given its strategic position in the downstream business in Southern
China. Options to diversify the terminal's customer base continue
to be evaluated.
TRADING BUSINESS
The Trading Business continues to focus on oil and
petrochemicals products with turnover for the period has increased
to GBP182.4 million (2012: GBP123.4 million). Profits from
operations amounted to GBP1.2 million in 2013 (2012: GBP1.0
million). In 2013 the total quantity of base oils and
petrochemicals increased by 68.8 per cent to approximately 265,000
tonnes compared to 157,000 tonnes in the same period in 2012.
The trading business continues to explore options for the
expansion of the types of products that it trades. The Group
obtained one of the first licences issued in China to enable the
supply and trading of diesel and other refined products.
RESOURCES
Work on the Armenian iron ore projects continues to determine
whether these assets can be developed economically. The rail
freight cost continues to be the major issue which is currently
undermining the commercial viability of these projects.
Furthermore, projections of the long terms iron ore price appear to
be softening due to the slowdown in the economy growth globally,
particularly in China. As a consequence, the Group has recognised a
non-cash impairment loss of GBP35.8 million with respect to the
full carrying value of the assets in the Armenian iron ore
project.
The Group will not make any material investment in the
development of this project unless there is an economically viable
investment case. Nevertheless the Group will continue to evaluate
options to improve the economics of these assets and is working
with the Armenian authorities and the Armenian and Georgian rail
companies to determine if this is possible. The Group is also in
discussions with customers in the neighbouring countries since
transport costs will be reduced significantly if the iron ore
concentrate product can be sold to local steel producers avoiding
the need to export overseas.
FINANCIAL REVIEW
Change of Financial Year-End Date
In order to facilitate the preparation of the Company's
consolidated financial statements, Fortune Oil has aligned its
financial year-end with China Gas Holdings Limited's ("CGH")
year-end of 31 March, starting from the financial period to 31
March 2014.
Following the change of the financial year-end date, the Company
has announced and published its unaudited interim results for the
period 31 December 2013. The Company will announce and publish its
statutory accounts for the fifteen months from 1 January 2013 to 31
March 2014 by the end of July 2014.
Disposal Group Held for Sale and Discontinued Operations
Following the decision to dispose of the Group's natural gas
business to CGH (the "FGIH Transaction"), it has been classified in
the consolidated financial position as held for sale starting at 31
December 2012 until completion of its disposal in August 2013 and
in addition the Maoming SPM business is in dissolution following
the expiration of the joint venture contract in February 2013.
Consequently, the results of the Group's natural gas business and
the Maoming SPM business are presented as discontinued operations
in the consolidated income statement and cash flow statement for
the twelve months ended 31 December 2013, and the results for the
in 2012 have also been presented on the same basis.
In order to provide a more comprehensive review of all of the
Group's operations, on a basis comparable with that provided to
shareholders in previous periods, the discussion of financial
results below relates to continuing operations and discontinued
operations combined. The consolidated income statement
distinguishes the results of discontinued operations from those of
continuing operations.
Accounting Treatments
Disposal of natural gas business
Upon the completion of the FGIH Transaction in August 2013
("Completion"), the Group derecognised the assets and associated
liabilities of natural gas business, which were held for sale in
the balance sheet, derecognised the carrying amount of the
non-controlling interests, recognised the fair value of the
consideration received, reclassify to the income statement
cumulative foreign currency translation adjustments and recognised
the resulting difference as a gain on disposal of the natural gas
business (see "Other Gains and Losses" below for detail) in profit
or loss attributable to the parent.
The result of the natural gas business has been consolidated
into the Group's accounts until Completion, which was also the date
that FGIH and its sub-group has ceased to be subsidiaries of the
Group. Please refer to "Natural Gas" in note 3 to the accounts for
detail.
Investment in CGH
As a result of having significant influence through exercisable
nomination rights of the managing director and an additional
executive director in CGH granted at the FGIH Transaction together
with the CGH shares hold directly or indirectly by Fortune Oil, CGH
has been treated as an associate of the Group and equity accounting
has been adopted since Completion.
The investment in CGH is divided into two layers: (i) direct
holding by wholly owned subsidiaries of the Company; and (ii)
indirect holding by China Gas Group Limited ("CGG"), a jointly
controlled entity between the Group and Mr Liu Minghui. The
accounting treatments in these layers are discussed as follows:
Treatments in the Group's wholly owned subsidiaries
Following Completion, the Group has applied equity accounting by
recognising CGH's net profit according to the Group's shareholding
percentage into the income statement. (See the summary in "Profit
contribution from investment in CGH" under "Revenue and
Expenditure" below for details).
As at 31 December 2013, Fortune Oil directly holds 184,119,463
CGH shares via Fortune Oil PRC Holdings Limited and First Marvel
Limited, both of which are wholly owned subsidiaries of the
Company. Since CGH is an associate of the Group, and thus accounted
for under the equity method, the market value of the investment in
CGH is no longer directly reflected in the Group's balance sheet,
however, any decrease in CGH's share price, which is significant
and prolonged, is objective evidence of impairment which will be
charged to income statement directly.
Treatments in CGG
Following Completion, CGG has also applied equity accounting by
recognising CGH's net profit according to CGG's shareholding
percentage into the income statement. CGG's income statement has
also realised a gain in fair value of CGG's investment in CGH,
previously recognised in equity up to, the date when CGH became an
associate, which was disclosed separately as "Other Gains and
Losses" under the "Share of results of Jointly Controlled
Entities", and accrued administrative expenses and finance costs to
compute its net profit. Since Fortune Oil has a 50 per cent
shareholding in CGG, therefore the Group treats CGG as its jointly
controlled entity and shares 50 per cent of CGG's net profit by
adopting equity accounting to the Group. In terms of cash flow,
cash received from dividend declared by CGH has partially off-set
the finance costs and other administrative expenses incurred by
CGG. (See the summary in "Profit contribution from investment in
CGH" under "Revenue and Expenditure" below for details)
As at 31 December 2013, CGG holds 732,446,000 CGH shares,
representing 14.7 per cent of CGH's total issued share capital. As
discussed above, since CGH is an associate to CGG and CGG is a
jointly controlled entity to the Group, and thus accounted for
under the equity method, the market value of the investment in CGH
is no longer directly reflected in the Group's balance sheet,
however, any decrease in CGH's share price, which is significant
and prolonged, is objective evidence of impairment which will be
charged to income statement of CGG directly.
Maoming SPM business
Since the expiration of the joint venture contract of Maoming
King Ming Petroleum Company Limited in February 2013, the net
amount expected to be recovered on dissolution of the joint venture
of GBP0.8 million has been included in the "Trade and other
receivables". Although the SPM facility continues to operate, the
Group has not recognised the results of the Maoming SPM business
since the expiration.
During 2013, Fortune Oil entered into a new joint venture
agreement with Sinopec in respect of the Maoming SPM business.
Under the new shareholding structure, the Group's shareholding
interest in the Maoming SPM business is 33%. Accordingly, Fortune
Oil will not hold a controlling equity stake in the joint venture.
Yet, due to its significant influence, the Group will treat this
new joint venture an associate and therefore, equity accounting
will be adopted. Management expects that the Group should start
recognising the share of results in Maoming SPM business in the
first quarter of 2014 when the new joint venture becomes
effective.
Revenue and Expenditure
Revenue from all operations including the Group's share of
jointly controlled entities increased by 16 per cent to GBP856.6
million for the twelve months ended 31 December 2013 from GBP739.4
million for the same period in 2012. This was largely driven by the
inclusion of the share in CGH's revenue since Completion, the
growth in the Group's aviation refuelling business and trading
business, netting off the sharp decrease in the Maoming SPM
business, due to the fact that no revenue has been included from
the time of the expiry of the previous joint venture agreement in
February 2013, and the exclusion of revenue from the natural gas
business following Completion. Group revenue from all operations
excluding jointly controlled entities has also increased to
GBP233.1 million for the twelve months ended 31 December 2013 from
GBP214.6 million for the same period in 2012.
Operating profit from all operations combined, before the share
of other gains from jointly controlled entities of the Group (see
below for discussion), slightly decreased to GBP27.5 million for
the twelve months ended 31 December 2013, compared with GBP28.5
million for the same period in 2012, decrease of 4 per cent. The
decrease was mainly due to the effect of the exclusion of the
result of the Maoming SPM business from the time of expiry of the
joint venture agreement and exclusion of result of natural gas
business after Completion, netting off by the profit contribution
from the aviation refuelling business and the including of share of
CGH's result since Completion.
The net profit from all operations attributable to owners of the
parent was GBP164.1 million for the twelve months ended 31 December
2013, an increase of 948 per cent compared with GBP15.7 million for
the same period in 2012. Basic earnings per share from all
operations increased to 8.00 pence for the twelve months ended 31
December 2013, compared with 0.82 pence for the same period in
2012. The increase is mainly due to the combined effect of the
inclusion amount in "Other Gains and Losses" from subsidiaries and
jointly controlled entities of the Group (discussed below), the
increase in profit contribution from aviation refuelling business,
inclusion of share of results of CGH since Completion, netting off
the sharp decrease in the Maoming SPM business and the exclusion of
natural gas business after Completion.
Net profit from continuing operations was GBP158.0 million for
the twelve months ended 31 December 2013, an increase of 3,240 per
cent compared with GBP4.7 million for the same period in 2012.
Basic earnings per share from continuing operations increased to
7.70 pence for the twelve months ended 31 December 2013, compared
with 0.25 pence for the same period in 2012. This is mainly due to
the inclusion of a significant amount in "Other gains and losses"
(discussed below), the increase in profit contribution from
aviation refuelling business, and the inclusion of share of results
of CGH since Completion.
Profits contribution from investment in CGH
CGH became an associate of the Group in August 2013, with equity
accounting being adopted from 1 September 2013. In November 2013,
CGH announced its unaudited half year results for the period ended
30 September 2013. Since CGH is a listed company in Hong Kong, due
to sensitive information reasons, instead of applying unpublished
CGH's figures, the Group has pro-rated CGH's six months net profit
in order to compute the share of results in associate/jointly
controlled entity to the Group for the four months ended 31
December 2013. As discussed above, the Company has changed its
financial year-end date to 31 March in order to align that with
CGH, so that the actual result of CGH can be obtained and used in
the future financial statements. The share of results of jointly
controlled entities and associates has also been adjusted to
reflect the fair value of CGH's assets and liabilities as at
Completion. These fair values have been provisionally estimated,
and will be finalised during the twelve months following
Completion, as permitted under IFRS.
Based on the accounting treatments discussed above, the profit
contribution from investment in CGH for the twelve months ended 31
December 2013 can be summarised in the following table:
Group's wholly CGG
owned subsidiaries (100%)
---------------------------------------------- --------- -------------------- ------------
Number of CGH shares held * 184,119,463 732,446,000
At the subsidiary and jointly controlled
entity company only level
---------------------------------------------- --------- -------------------- ------------
Percentage held in CGH * % 3.7% 14.7%
Share of results of CGH as an associate** GBP'000 673 10,743
Gain in fair value of CGG's investment
in CGH reclassified to income statement
on the date when CGH became an associate GBP'000 152,162
Dividend received in cash from CGH
*** GBP'000 - 4,393
Finance costs in CGG *** GBP'000 Unallocated 6,102
Consolidated
At consolidated level accounts
---------------------------------------------- --------- -------------------- ------------
Effective percentage held in CGH * % 11.0%
Share of results of associates GBP'000 673
Share of results, before other gains,
of jointly controlled entity (CGG) GBP'000 2,786
---------------------------------------------- --------- -------------------- ------------
Loss on dilution of associate, included
in the share of results of jointly
controlled entities GBP'000 (266)
---------------------------------------------- --------- -------------------- ------------
Share of other gains with jointly controlled
entity (CGG) GBP'000 76,081
---------------------------------------------- --------- -------------------- ------------
Total profit from operations (see Segmental
reporting in note 3 to the accounts) GBP'000 79,274
---------------------------------------------- --------- -------------------- ------------
* based on the CGH shares directly or indirectly held by the Group
as at 31 December 2013.
** share of results of CGH as an associate was based on different
shareholding percentages in CGH during 2013 since Completion of
the FGIH Transaction.
*** future shortfall in cash should be covered internally by: (i) an
expected increase in dividend received in cash from CGH; (ii) a
new bank loan currently under negotiations bearing a lower interest
rate, to replace part of the existing ones.
Other Gains and Losses
Other gains and losses of the Group including share of jointly
controlled entities were GBP141.2 million for the twelve months
ended 31 December 2013. Since the Armenian Iron Ore project
impairment loss (see below for discussion) is shared with the third
parties' non-controlling interests in the various companies, its
effect on net profits attributable to owners of the parent is
reduced. As a result the "Other Gains and Losses" has a net impact
of GBP147.9 million on the net profit from all operations
attributable to owners of the parent for the twelve months ended 31
December 2013.
Other gains and losses of the Group including share of jointly
controlled entities represent the combined effect of (i) the gain
on disposal of the Group's natural gas business; (ii) the share of
the gain in fair value of CGG's investment in CGH reclassified to
the income statement on the date when CGH became an associate
(being part of the share of results of jointly controlled
entities); partially offset by (iii) the impairment of the assets
on the Armenian iron ore project. Further detail is as follows:
Gain on disposal of the Group's natural gas business
As at the date of the completion of FGIH Transaction, a net gain
of GBP100.9 million on disposal of FGIH and its sub-group (the
"FGIH Group") has been realised. The net gain was the result of the
consideration of the FGIH Transaction, less the combined effect of
the shareholder's equity of the FGIH Group as at the completion
date and those related costs and expenses of the FGIH
Transaction.
Gain in fair value of CGG's investment in CGH reclassified to
the income statement on the date when CGH became an associate
Following the completion of the FGIH Transaction, CGH became an
associate. As a result, CGG recognised the mark-to-market
revaluation gain on CGH shares as at that date in its income
statement, and consequently, part of the net gain in fair value of
available-for-sale investments in jointly controlled entities
previously recognised in "Other reserve" in the Group's balance
sheet has been recognised in the Group's income statement on the
date when CGH became an associate. However, the gain generated by
CGH shares transferred from Fortune Max Holdings Limited, a private
company controlled and beneficially owned by Mr Daniel Chiu, to CGG
at acquisition in April 2013 has not been reclassified to the
income statement due to its being capital in nature. The total
gains in fair value changes of CGH shares reclassified to the
Group's income statement for the period ended 31 December 2013 were
GBP76.1 million, which has been shown under the "Share of Results
of Jointly Controlled Entities - Other Gains".
Impairment on Armenian Iron Ore Project
At the end of December 2013, the Group completed an extensive
assessment of the Armenian iron ore project, which indicated that
the iron ore assets may not be developed economically. As a
consequence, the Group recognised an impairment loss of GBP35.8
million (including the non-controlling shareholders' share of the
loss of GBP6.7 million) with respect to the full carrying value of
the assets in the Armenian iron ore project. The impairment has
been taken as a the result of the increased transportation costs to
move the iron ore concentrate from Armenia to potential buyers and
the softening of the long term iron ore prices predicted for when
the Armenian iron ore assets could enter commercial operations.
The Group will not make any material investment in the
development of this project unless there is an economically viable
investment case. Nevertheless, the Group will continue to evaluate
options to improve the economics of the Armenian iron ore assets
and is working with the Armenian authorities and railway companies
to determine if this is possible.
Other gain in 2012
The other gain of GBP4.6 million in 2012 arose from the disposal
of the Group's available-for-sale investments in respect of shares
held in CGH in February 2012. The shares were held by a wholly
owned subsidiary and were sold to CGG.
Other Comprehensive Loss/Income
Other comprehensive loss was GBP1.1 million for the twelve
months ended 31 December 2013, compared with other comprehensive
income of GBP32.6 million for the same period in 2012. This is
mainly due to exchange gains arising on translation of foreign
operations of the Group of GBP5.6 million; the share of net gain in
fair value of available-for-sale investments in jointly controlled
entity of GBP69.3 million; and the cumulative gains in fair value
of CGG's investment in CGH being reclassified to the income
statement on the date when CGH became an associate of GBP76.1
million.
The other comprehensive income in the same period of 2012 is
mainly due to the share of the net gain of GBP40.3 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 the translation of foreign operations of the Group and
the sale of its investments in respect of CGH shares to CGG during
2012.
Capital Expenditure and Investment to Jointly Controlled
Entities
During the period, the Group invested GBP10.8 million as capital
expenditure, which mainly consisted of the expansion of gas
pipeline networks, construction of LNG/CNG refuelling stations, and
additions to exploration and evaluation assets in respect of the
iron ore mining licence in Armenia. The Group has also increased
its loan to CGG by GBP22.8 million in 2013.
Financial Position
The net assets of the Group as at 31 December 2013 were GBP334.5
million, compared with GBP246.8 million as at 31 December 2012.
Investments in jointly controlled entities of the Group at 31
December 2013 were GBP229.2 million, compared with GBP135.5 million
as at 31 December 2012. The increase was mainly the combined result
of the net gain in fair value changes of CGH shares (disclosed
within the "Other Gains and Losses"), deducting the dividend
received from CGH, inclusion of the share of CGH's results, and
subtracting the administrative expenses and finance costs in
CGG.
Upon Completion of FGIH Transaction, the assets and associated
liabilities of natural gas business were eliminated against the
consideration received from CGH before recognising as a gain on
disposal in the consolidated income statement. The consideration
received was partly settled in cash and partly in CGH shares, which
has been included as "Investments in Associates".
The intangible assets of the Group as at 31 December 2013 were
GBP0.4 million, compared with GBP38.5 million as at 31 December
2012. The decrease was mainly due to the impairment on the Armenian
iron ore project discussed in "Other Gains and Losses" above.
The net borrowing position as at 31 December 2013 was GBP11.6
million compared with GBP61.1 million (after excluding a net cash
of GBP13.1 million in the natural gas business) as at 31 December
2012. With a cash balance of GBP69.2 million as at 31 December
2013, together with the undrawn syndicated loan facility of GBP113
million (US$180 million) and the expected positive cash flow
generated from operation, the Group envisages no difficulties in
meeting both current loan repayment obligations and investment
commitments.
As a result of consideration received from the FGIH Transaction
and the net gain in the fair value changes in CGH shares held by
the Group, the net gearing ratio (after deduction of cash) for the
Group decreased to 3.5 per cent as at 31 December 2013 against 24.7
per cent as of 31 December 2012.
Ordinary Shares and Share Premium
In October 2013, an aggregate of 599,639,580 new ordinary shares
of 1 pence each (the "New Ordinary Shares") have been allotted and
issued to Fortune Dynasty Holdings Limited ("FDH"), The New
Ordinary Shares are issued at a price of 7.81 pence each. FDH is a
private company owned by First Level Holdings Limited and Vitol
Energy (Bermuda) Limited, two of the major shareholders of the
Company. The New Ordinary Shares consisted of: i) 500,266,580
ordinary shares issued in connection with the acquisition of Wilmar
International Limited's interest in the consideration receivable as
a result of the FGIH Transaction; and ii) 99,373,000 ordinary
shares issued in connection with a loan settlement to FDH of US$12
million (GBP7.5 million).
The New Ordinary Shares have, therefore, increased the share
capital and share premium of the Company by 1 pence each and 6.81
pence each, respectively.
Financial Costs and Tax
Finance expenses for the Group from all operations (excluding
share of jointly controlled entities and associates) were GBP5.3
million in the twelve months ended 31 December 2013, compared with
GBP6.1 million in the same period of 2012, mainly due to the
decrease in the weighted average Group borrowing throughout the
year and the exclusion of finance expenses in the Group's natural
gas business after the completion of FGIH Transaction.
The Group's total tax charge in the twelve months ended 31
December 2013 from all operations (excluding share of jointly
controlled entities and associates) was GBP4.6 million (same period
of 2012: GBP8.2 million) representing an effective tax rate of 19.6
per cent (after excluding non-taxable capital gains and losses of
GBP141.2 million), compared with 29 per cent in the same period of
2012. The decrease in effective tax rate was mainly the result of
the exclusion of income tax charge in the Group's natural gas
business after the completion of the FGIH Transaction.
Foreign Exchange
The revenues and expenses of the Group are mainly denominated in
China's renminbi (RMB). The remaining expenses are denominated
either in pound sterling (GBP) or in Hong Kong dollars (HK$), which
is pegged to the US dollar, or in US dollars (US$). On average for
the twelve months ended 31 December 2013, the RMB appreciated
against the US$ by 2.6 per cent and the pound sterling depreciated
by 1.6 per cent against the US$, hence there was an overall 4.2 per
cent depreciation of the pound sterling against the RMB. This
currency movement has had the effect of increasing our profits as
measured in pound sterling.
The assets and liabilities of the Group are also primarily
denominated in RMB, with our Armenian investment being denominated
in US$. The remaining balance, which represents a small proportion
of the assets and liabilities, are denominated in pound sterling
and HK$. As at 31 December 2013, the closing pounds sterling
depreciated against the RMB 0.7 per cent, however, it appreciated
against US$ by 2.0 per cent.
The Group does not have a policy to hedge currency risk and
therefore any changes in the RMB/GBP exchange rate are likely to
affect the Groups' results which are presented in pounds
sterling.
Capital Structure
Most of the Group's investments and expenses take place in the
People's Republic of China (the "PRC") and are held through Fortune
Oil PRC Holdings Limited, a wholly owned subsidiary of the Company
incorporated in Hong Kong. To facilitate inter-company
restructuring, most of the investments in China are held through
subsidiary Hong Kong registered companies. The Group's interests in
Armenia are held through a separate investment structure. The
Group's UK operations consist only of local representation as a
direct expense to the Company.
Refinancing
In October 2013, Fortune Oil PRC Holdings Limited signed a
US$300 million (GBP188 million) loan agreement. The facility is
denominated in US$ with a term of three years and a margin of 2.75
per cent over LIBOR. The facility is guaranteed by Fortune Oil PLC
and secured by share charges over its various Hong Kong
subsidiaries.
The purpose of this is to maximise the borrowing capacity and to
lock in low-cost financing at current levels before the liquidity
has been tightened in the loan market. This new facility, which has
been partly used to repay the outstanding balance under the
previous syndicated loan of US$180 million (GBP113 million) signed
in April 2011, will provide the Group with working capital, and
finance new investment.
Dividend
Although it is not generally the Company's policy to pay
ordinary interim dividends, a special interim dividend of 2.36
pence per ordinary share was paid to shareholders on 25 October
2013 as a result of the completion of the FGIH Transaction.
A final dividend of 0.16 pence per ordinary share was paid to
shareholders on 15 August 2013, in respect of 2012 financial
year.
PRINCIPAL RISK AND UNCERTAINTIES
Our business is supplying China with energy and resources,
principally oil and natural gas. There are a number of potential
risks and uncertainties which could have a material impact on the
Group's performance over the remaining three months of the
financial year and could cause actual results to different
materially from expected and historical results.
As a result of the completion of the FGIH Transaction, the risks
referred to below are the additional risks which are considered by
the Group to be material:
The Group does not have control of all of its investments
A significant proportion of the Group's business is conducted
through associate or jointly controlled entities and in certain of
these operations, the Group does not have board control or control
of day-to-day operations. The Group is therefore dependent upon the
decision making processes and internal controls put in place by its
investment partners and operated by the staff of the associates or
jointly controlled entities. If incorrect business decisions are
taken or, through lack of overriding internal controls, assets
and/or revenues may be lost, then the value of and income and
dividends received from such associates and jointly controlled
entities may be materially reduced. The Group seeks involvement in
these decision making processes, using its rights to appoint
directors and/or managers, monitoring the results of internal
controls and using its rights to access trading information to
reduce the risk associated with such non-controlled entities.
The Group's Financial Conditions or Results of Operations are
affected by those of CGH
The Group effectively owns approximately 11.0% of CGH which
operates in more than 200 city piped gas projects in the PRC. As at
the 31 December 2013, the investment in CGH represents 56.4% of the
Group's total assets, hence its financial conditions and results of
operations may be affected by the share price performance (which
may lead to impairment testing on "Investments in Associates"), the
issuance of new CGH shares (that the dilution effect may have
impact on the Group's profit from operations, for example the
reduction in share of profit from CGH, which is based on the
shareholding percentage), the sustainability of dividend pay-out
ratio, the financial performance (which would have direct impact on
the Group's profit from operations), and the financial position of
CGH.
Except for the abovementioned additional risk factors, there is
no other changes since the date of Annual Report 2012, where the
principal risks and uncertainties, their effects and our management
strategy are detailed on pages 24 and 25 of that report.
The principal risks and uncertainties facing the Group's
operations include: concentration risks, pricing risks, regulatory
and relationships risks, health, safety and environment risks,
attraction and retention of key employees, development risks,
uninsured risks and investment risks.
GOING CONCERN STATEMENT
The Group's business activities and associated opportunities and
risks are set out above in the "Business Review" and "Principal
Risks and Uncertainties". The financial position of the Group, its
cash flows and liquidity position is described in the Financial
Review. In the management of liquidity risk, the Group monitors and
maintains a level of cash and cash equivalents deemed adequate by
the management to finance the Group's operation and mitigate the
effects of fluctuations in cash flows. The Group expects to meet
its capital expenditure requirements from medium term loan
facilities and the cash consideration from CGH for the FGIH
Transaction.
The current economic conditions may create uncertainty over:
-- The level of demand for the Group's products and services
-- International exchange rates that affect commodity prices and
hence the Group's revenues in China as denominated in US dollars or
pound sterling
-- The availability of bank or equity finance in the foreseeable
future
-- Counterparty credit risk
As at 31 December 2013, the Group had a cash balance of GBP69.2
million and a net borrowing position of GBP11.6 million. With the
undrawn syndicated loan facility of GBP113 million (US$180 million)
and the expected positive cash flow generated from operation, the
Group's current forecasts and projections, adjusting for reasonably
possible changes in trading conditions, show that the Group will be
able to repay the interest and principal payments in a timely
manner and in accordance with loan agreements and to operate within
the required covenants.
The Directors believe that the Group has adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, Fortune Oil continues to adopt the going concern basis
in preparing the half year report and accounts.
RESPONSIBILITY STATEMENT PURSUANT TO DTR 4.2
On 2 December 2013, Dr Tian Jun has been appointed as an
Executive Director of the Company. On 31 December 2013, Mr Tee Kiam
Poon has resigned as an Executive Director of the Company.
Save as the above mentioned, the names and functions of the
Directors of Fortune Oil are listed in the Company's Annual Report
for 2012. We confirm that, to the best of each person's
knowledge:
1. The condensed set of financial statements, which have been
prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit of the Group, or the undertakings
included in the consolidation as a whole as required by DTR
4.2.4R;
2. The interim management report for the twelve months ended 31
December 2013 includes a fair review of important events that have
occurred during the first twelve months of the financial year, and
their impact on these twelve months financial report and a
description of the principal risks and uncertainties for the
remaining three months of the financial year in accordance with DTR
4.2.7R; and
3. The interim management report includes a fair review of
disclosures of related party transactions that have taken place in
the first twelve months of the financial year and that have
materially affected the financial position or the performance of
the Group during that period and any changes in the related party
transactions described in the last annual report that could have a
material effect on the financial position or performance of the
Group in the first twelve months of the current financial year in
accordance with DTR 4.2.8R.
These interim results have not been audited and nor
reviewed.
By order of the Board
TIAN Jun
Acting Chief Executive
FORTUNE OIL PLC
Second Interim Report
Consolidated Income Statement for the period ended 31 December
2013
12 months ended 12 months ended
Continuing
operations
31.12.13 Total Total
Discontinued Continuing Discontinued
operations operations operations
31.12.13 31.12.13 31.12.12 31.12.12 31.12.12
Amount in GBP'000 Notes (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)
-------------------- ------ ------------- ------------- -------------- ------------- ------------- ------------
Revenue including
share of jointly
controlled
entities
and associates 3 796,580 59,978 856,558 630,264 109,138 739,402
Share of revenue
of jointly
controlled
entities and
associates 3 (614,149) (9,267) (623,416) (506,853) (17,961) (524,814)
-------------------- ------ ------------- ------------- -------------- ------------- ------------- ------------
Group revenue 3 182,431 50,711 233,142 123,411 91,177 214,588
Cost of sales (178,334) (31,379) (209,713) (122,655) (57,306) (179,961)
-------------------- ------ ------------- ------------- -------------- ------------- ------------- ------------
Gross profit 4,097 19,332 23,429 756 33,871 34,627
-------------------- ------ ------------- ------------- -------------- ------------- ------------- ------------
Distribution
expenses - (3,612) (3,612) (121) (7,046) (7,167)
Administrative
expenses (6,041) (5,788) (11,829) (6,565) (7,001) (13,566)
Share of results
of jointly
controlled
entities
- results
excluding
other gains 10 17,117 1,901 19,018 13,197 1,371 14,568
- other gains 10 76,081 - 76,081 - - -
Share of results
of associates 11 541 (39) 502 - 52 52
-------------------- ------ ------------- ------------- -------------- ------------- ------------- ------------
Profit from
operations 91,795 11,794 103,589 7,267 21,247 28,514
-------------------- ------ ------------- ------------- -------------- ------------- ------------- ------------
Other gains, net 4 65,103 - 65,103 4,645 - 4,645
Finance costs (4,769) (500) (5,269) (5,008) (1,087) (6,095)
Investment revenue 951 252 1,203 782 878 1,660
-------------------- ------ ------------- ------------- -------------- ------------- ------------- ------------
Profit before
tax 153,080 11,546 164,626 7,686 21,038 28,724
Income tax charge 5 (1,853) (2,749) (4,602) (3,100) (5,146) (8,246)
-------------------- ------ ------------- ------------- -------------- ------------- ------------- ------------
Profit for the
period 151,227 8,797 160,024 4,586 15,892 20,478
-------------------- ------ ------------- ------------- -------------- ------------- ------------- ------------
Attributable to:
Owners of the
parent 157,986 6,141 164,127 4,730 10,936 15,666
Non-controlling
interests (6,759) 2,656 (4,103) (144) 4,956 4,812
-------------------- ------ ------------- ------------- -------------- ------------- ------------- ------------
151,227 8,797 160,024 4,586 15,892 20,478
-------------------- ------ ------------- ------------- -------------- ------------- ------------- ------------
Earnings per share
Basic 7 7.70p 0.30p 8.00p 0.25p 0.57p 0.82p
Diluted 7 7.64p 0.30p 7.94p 0.25p 0.57p 0.82p
-------------------- ------ ------------- ------------- -------------- ------------- ------------- ------------
FORTUNE OIL PLC
Second Interim Report
Consolidated Statement of Comprehensive Income for the period
ended 31 December 2013
12 months
12 months
ended ended
31.12.13 31.12.12
Amount in GBP'000 Notes (Unaudited) (Audited)
-------------------------------------------------- ------ ------------------------ ------------
Profit for the period 160,024 20,478
Items that will not be reclassified subsequently
to profit or loss
Share of capital contribution on acquisition
of available for sale financial assets
in jointly controlled entities 10 33,610 -
-------------------------------------------------- ------ ------------------------ ------------
33,610 -
-------------------------------------------------- ------ ------------------------ ------------
Items that will may be reclassified subsequently
to profit or loss
Exchange differences arising on translation
of foreign operations 5,608 (4,545)
Net gain in fair value of available for
sale financial assets - 773
Reclassification adjustment for net gain
in fair value of available for sale financial
assets included in profit - (3,953)
Share of net gain in fair value of available
for sale financial assets in jointly controlled
entities 10 35,734 40,347
Reclassification adjustment for share of
net gain in fair value of available for
sale financial assets in jointly controlled
entities included in profit 10 (76,081) -
-------------------------------------------------- ------ ------------------------ ------------
(34,739) 32,622
-------------------------------------------------- ------ ------------------------ ------------
Other comprehensive income for the period (1,129) 32,622
-------------------------------------------------- ------ ------------------------ ------------
Total comprehensive income for the period 158,895 53,100
-------------------------------------------------- ------ ------------------------ ------------
Attributable to:
Owners of the parent 160,767 49,488
Non-controlling interests (1,872) 3,612
-------------------------------------------------- ------ ------------------------ ------------
158,895 53,100
-------------------------------------------------- ------ ------------------------ ------------
These components of other comprehensive income have been
presented net of related tax effects.
FORTUNE OIL PLC
Second Interim Report
Consolidated Statement of Financial Position at 31 December
2013
Disposal
Before the After the
reclassification Group reclassification
2013 2012 2012 2012
Amount in GBP'000 Notes (Unaudited) (Audited) (Audited) (Audited)
-------------------------------- ------ ------------- ------------------ ----------- ------------------
Assets
Non-current assets
Property, plant and
equipment 8 2,039 64,723 60,504 4,219
Goodwill - 3,007 3,007 -
Intangible assets 9 365 52,622 14,155 38,467
Prepaid lease payments - 2,749 2,749 -
Other non-current receivables - 3,839 1,426 2,413
Investments in jointly
controlled entities 10 229,172 175,351 39,832 135,519
Investments in associates 11 121,886 969 969 -
Available for sale investments 16 1,909 1,948 - 1,948
-------------------------------- ------ ------------- ------------------ ----------- ------------------
355,371 305,208 122,642 182,566
-------------------------------- ------ ------------- ------------------ ----------- ------------------
Current assets
Inventories 3,618 9,948 3,564 6,384
Trade and other receivables 12 127,817 42,193 19,682 22,511
Cash and cash equivalents 69,185 73,849 23,123 50,726
-------------------------------- ------ ------------- ------------------ ----------- ------------------
200,620 125,990 46,369 79,621
Assets classified as
held for sale 17 - - (169,011) 169,011
-------------------------------- ------ ------------- ------------------ ----------- ------------------
200,620 125,990 (122,642) 248,632
-------------------------------- ------ ------------- ------------------ ----------- ------------------
Total Assets 555,991 431,198 - 431,198
-------------------------------- ------ ------------- ------------------ ----------- ------------------
Liabilities
Current liabilities
Borrowings 13 10,900 76,956 8,745 68,211
Trade and other payables 14 130,872 47,156 23,962 23,194
Current tax liabilities 282 3,199 2,306 893
-------------------------------- ------ ------------- ------------------ ----------- ------------------
142,054 127,311 35,013 92,298
Liabilities directly
associated with disposal
group classified as
held for sale 17 - - (38,894) 38,894
142,054 127,311 (3,881) 131,192
-------------------------------- ------ ------------- ------------------ ----------- ------------------
Non-current liabilities
Borrowings 13 69,893 44,879 1,298 43,581
Deferred tax liabilities 1,405 4,069 2,583 1,486
Other non-current liabilities 8,133 8,129 - 8,129
-------------------------------- ------ ------------- ------------------ ----------- ------------------
79,431 57,077 3,881 53,196
-------------------------------- ------ ------------- ------------------ ----------- ------------------
Total Liabilities 221,485 184,388 - 184,388
-------------------------------- ------ ------------- ------------------ ----------- ------------------
Net Assets 334,506 246,810 - 246,810
-------------------------------- ------ ------------- ------------------ ----------- ------------------
FORTUNE OIL PLC
Second Interim Report
Consolidated Statement of Financial Position at 31 December 2013
(cont.)
After the
reclassification
2013 2012
Amount in GBP'000 Notes (Unaudited) (Audited)
------------------------------- ------ ------------- -------------------
Equity
Capital and reserves
Ordinary shares 15 25,871 19,875
Treasury shares (678) (678)
Share premium 50,969 10,129
Other reserves 33,610 40,347
Foreign currency translation
reserve 11,204 25,189
Retained earnings 209,820 93,551
------------------------------- ------ ------------- -------------------
Equity attributable to owners
of the parent 330,796 188,413
Non-controlling interests 3,710 58,397
------------------------------- ------ ------------- -------------------
Total Equity 334,506 246,810
------------------------------- ------ ------------- -------------------
FORTUNE OIL PLC
Second Interim Report
Consolidated Cash Flow Statement for the period ended 31
December 2013
12 months 12 months
ended ended
31.12.13 31.12.12
Amount in GBP'000 Notes (Unaudited) (Audited)
-------------------------------------------------- ------ ------------- -----------
Net cash from operating activities 18 14,715 16,050
Interest received 1,203 1,660
Dividend received from jointly controlled
entities 10 14,308 13,020
Payment for property, plant and equipment (10,830) (15,704)
Payment for other intangible assets (7) (263)
Payment for exploration and evaluation
assets (962) (4,623)
Payment for prepaid lease payments (59) (1,130)
Receipt from disposal of subsidiary undertakings 17 83,182 -
Payment for acquisition of subsidiary
undertakings - (3,765)
Consideration paid on acquisition of
additional interests in a subsidiary (1,396) -
Receipt from disposal of property, plant
and equipment 68 152
Government grant received - 1,092
Acquisition of available-for-sale investments - (30,562)
Loan to jointly controlled entities 10 (22,768) (10,809)
Repayment from jointly controlled entities - 5,847
Placement of investment deposit - (1,620)
Withdrawal of investment deposit - 1,620
-------------------------------------------------- ------ ------------- -----------
Net cash from/(used in) investing activities 62,739 (45,085)
Interest paid (4,992) (5,855)
Dividend payment to owners of the parent 6 (48,157) (3,424)
Net repayment of loans to non-controlling
shareholders (1,308) (259)
Dividend paid to non-controlling shareholders (1,833) (4,168)
Net proceeds from issue of new borrowings 95,519 6,975
Repayment of borrowings (120,051) (14,887)
-------------------------------------------------- ------ ------------- -----------
Net cash used in financing activities (80,822) (21,618)
-------------------------------------------------- ------ ------------- -----------
Decrease in cash and cash equivalents (3,368) (50,653)
Cash and cash equivalents at beginning
of the period 73,849 128,440
Cash flow effect of foreign exchange
rate changes (1,296) (3,938)
-------------------------------------------------- ------ ------------- -----------
Cash and cash equivalents at end of the
period 18 69,185 73,849
Cash and cash equivalents at end of the
period - discontinued operations 18 - (23,123)
-------------------------------------------------- ------ ------------- -----------
Net cash and cash equivalents at end
of the period 18 69,185 50,726
-------------------------------------------------- ------ ------------- -----------
FORTUNE OIL PL
Second Interim Report
Consolidated Statement of Changes in Equity for the period ended
31 December 2013
Issued capital
---------------------------------- -------- --------- ------------ ---------- ------------- ---------------- ----------
Foreign Attributable
currency to owners
Ordinary Treasury Share Other translation Retained of Non-Controlling
Amount in GBP'000 shares shares premium reserve reserve earnings the parent interests Total
---------------------------------- ----------- -------- -------- --------- ------------ ---------- ------------- ---------------- ----------
Balance at 1 January 2012
(Audited) 19,875 (878) 10,129 3,180 28,534 80,241 141,081 55,411 196,492
---------------------------------- ----------- -------- -------- --------- ------------ ---------- ------------- ---------------- ----------
Profit for the period - - - - - 15,666 15,666 4,812 20,478
Exchange differences arising
on translation of foreign
operations - - - - (3,345) - (3,345) (1,200) (4,545)
Net gain in fair value of
available
for sale financial assets - - - 773 - - 773 - 773
Reclassification adjustment
for net gain in fair value of
available for sale financial
assets included in profit - - - (3,953) - - (3,953) - (3,953)
Share of net gain in fair value
of available for sale financial
assets in jointly controlled
entities - - - 40,347 - - 40,347 - 40,347
Total comprehensive income for
the period - - - 37,167 (3,345) 15,666 49,488 3,612 53,100
---------------------------------- ----------- -------- -------- --------- ------------ ---------- ------------- ---------------- ----------
Payment of dividends to
non-controlling
interests - - - - - - - (4,168) (4,168)
Dividend paid to owners of the
parent - - - - - (3,424) (3,424) - (3,424)
Movement in treasury shares - 200 - - - - 200 - 200
Acquisition of a subsidiary - - - - - - - 3,910 3,910
Adjustment arising from changes
in non-controlling interests - - - - - 368 368 (368) -
Share-based payments - - - - - 700 700 - 700
Balance at 31 December 2012
(Audited) 19,875 (678) 10,129 40,347 25,189 93,551 188,413 58,397 246,810
---------------------------------- ----------- -------- -------- --------- ------------ ---------- ------------- ---------------- ----------
Profit for the period - - - - - 164,127 164,127 (4,103) 160,024
Exchange differences arising
on translation of foreign
operations - - - - 3,377 - 3,377 2,231 5,608
Share of net gain in fair value
of available for sale financial
assets in jointly controlled
entities - - - 35,734 - - 35,734 - 35,734
Share of capital contribution
on acquisition of available
for sale financial assets in
jointly controlled entities - - - 33,610 - - 33,610 - 33,610
Reclassification adjustment
for share of net gain in fair
value of available for sale
financial assets in jointly
controlled entities included
in profit - - - (76,081) - - (76,081) - (76,081)
Total comprehensive income for
the period - - - (6,737) 3,377 164,127 160,767 (1,872) 158,895
---------------------------------- ----------- -------- -------- --------- ------------ ---------- ------------- ---------------- ----------
Payment of dividends to
non-controlling
interests - - - - - - - (1,833) (1,833)
Issue of share capital 5,996 - 40,840 - - - 46,836 - 46,836
Dividend paid to owners of the
parent - - - - - (48,157) (48,157) - (48,157)
Net capital contribution from
non-controlling interest - - - - - - - 2,685 2,685
Adjustment arising from changes
in non-controlling interests - - - - - - - (1,102) (1,102)
Dissolution of a subsidiary - - - - (3,262) - (3,262) (10,773) (14,035)
Disposal of subsidiaries - - - - (14,100) - (14,100) (41,792) (55,892)
Share-based payments - - - - - 299 299 - 299
---------------------------------- ----------- -------- -------- --------- ------------ ---------- ------------- ---------------- ----------
Balance at 31 December 2013
(Unaudited) 25,871 (678) 50,969 33,610 11,204 209,820 330,796 3,710 334,506
---------------------------------- ----------- -------- -------- --------- ------------ ---------- ------------- ---------------- ----------
FORTUNE OIL PLC
Notes to the condensed set of financial statements
Twelve months ended 31 December 2013
1. Basis of preparation
The condensed financial statements have been prepared in
accordance with International Accounting Standard 34 Interim
Financial Reporting, as adopted by the European Union.
The Company has changed its financial year-end date from 31
December to 31 March. Accordingly, the Company's statutory accounts
will be in respect of the 15 months to 31 March 2014. The change is
to align the Company's financial year-end with China Gas Holdings
Limited ("CGH") to facilitate the efficiency of preparation of the
Company's consolidated financial statements and accounts.
Following the decision to dispose of the Group's shareholding in
Fortune Gas Investment Holdings Limited ("FGIH") and its sub-group
to CGH (the "FGIH Transaction"), it has been classified in the
consolidated financial position as held for sale starting at 31
December 2012 until completion of its disposal in August 2013 and
in addition the Maoming SPM business is in dissolution following
the expiration of the joint venture contract in February 2013.
Consequently, the results of the Group's natural gas business and
the Maoming SPM business are presented as discontinued operations
in the consolidated income statement and cash flow statement for
the twelve months ended 31 December 2013, and the results for the
same period of 2012 have also been presented on the same basis.
The financial information for the twelve months ended 31
December 2013 was neither audited nor reviewed by the auditors. The
information for the year ended 31 December 2012 does not constitute
statutory accounts as defined in section 434 of the Companies Act
2006. A copy of the statutory accounts for that year has been
delivered to the Registrar of Companies. The auditor's report on
these accounts was not qualified, did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying the report and did not contain statements under
section 498(2) or (3) of the Companies Act 2006.
The Directors are satisfied that the Group has sufficient
resources to continue in operation for the foreseeable future, a
period of no less than twelve months from the date of this report.
Accordingly, they continue to adopt the going concern basis in
preparing the condensed financial statements. Detail of the factors
that which have been taken into account in assessing the Group's
going concern status are set out on page 20 of the going concern
statement.
2. Significant accounting policies
The condensed financial statements have been prepared under the
historical cost convention, except for the revaluation of certain
properties and financial instruments.
The same accounting policies, presentation and methods of
computation have been followed in these condensed financial
statements as were applied in the preparation of the Group's
financial statements for the year ended 31 December 2012, with the
following exceptions. In the current year, the Group has applied,
for the first time, the following new and revised Standards and
Interpretations, which are effective for the Group's financial year
beginning 1 January 2013, but have not had any significant impact
on the financial statements for the 12 months to 31 December
2013.
IFRS 1 (amended) Government loans
IFRS 7 (amended) Disclosures: Offseting financial assets and
financial liabilities
IFRS 13 Fair value measurement
IAS 19 (revised) Employee benefits
Annual improvements to IFRS 2009-2011 cycle (various
standards)
3. 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 in CGH", "Natural
Gas", "Single point mooring facility", "Aviation refuelling",
"Trading", "Products terminal", "Resources" and "Others".
Information regarding these segments is presented below.
(a) Operating segments
Oil
Investment
in CGH Aviation refuelling Trading Products terminal Resources
2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
Amount in GBP'000 (Unaudited) (Audited) (Unaudited) (Audited) (Unaudited) (Audited) (Unaudited) (Audited) (Unaudited) (Audited)
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
Revenue including
share of jointly
controlled
entities
and associates 46,215 - 560,655 495,239 182,431 123,411 3,087 2,672 - -
Share of revenue
of jointly
controlled
entities and
associates (46,215) - (560,655) (495,239) - - (3,087) (2,672) - -
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
Group revenue - - - - 182,431 123,411 - - - -
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
Profit from
operations
(including
share of results
of jointly
controlled
entities and
associates) 79,274 103 13,140 11,545 1,152 1,043 1,136 787 - (784)
Office overheads
*
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
Operating profit,
net of overheads
Other gains
or losses - 4,645 - - - - - - (35,769) -
Finance costs
Investment revenue
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
Profit before
taxation
Taxation
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
Profit for the
period
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
Attributable
to
Owners of the
parent
Non-controlling
interests
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
31.12.13 31.12.12 31.12.13 31.12.12 31.12.13 31.12.12 31.12.13 31.12.12 31.12.13 31.12.12
Amount in GBP'000 (Unaudited) (Audited) (Unaudited) (Audited) (Unaudited) (Audited) (Unaudited) (Audited) (Unaudited) (Audited)
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
Net assets:
by class of
business
Assets
Segment assets 313,873 98,655 31,431 31,981 188,344 53,798 6,129 5,154 10,276 46,288
Unallocated
assets
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
Consolidated
total assets
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
Liabilities
Segment
liabilities - - (4) (484) (127,830) (17,283) - - (8,176) (8,327)
Unallocated
liabilities
***
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
Consolidated
total
liabilities
-------------------- ------------- ----------- ------------- -------------- ------------- ----------- ------------- ------------- ------------- -----------
(a) Operating segments (cont.)
Single point
Continuing mooring Natural Discontinued
Others ** Operations facility gas operations Group
2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012
Amount in GBP'000 (Unaudited) (Audited) (Unaudited) (Unaudited) (Unaudited) (Audited) (Unaudited) (Audited) (Unaudited) (Unaudited) (Unaudited) (Audited)
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
Revenue including
share of jointly
controlled
entities and
associates 4,192 8,942 796,580 630,264 1,570 17,308 58,408 91,830 59,978 109,138 856,558 739,402
Share of revenue
of jointly
controlled
entities and
associates (4,192) (8,942) (614,149) (506,853) - - (9,267) (17,961) (9,267) (17,961) (623,416) (524,814)
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
Group revenue - - 182,431 123,411 1,570 17,308 49,141 73,869 50,711 91,177 233,142 214,588
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
Profit from
operations
(including
share of results
of jointly
controlled
entities and
associates) 1,043 (1,082) 95,745 11,612 376 5,453 11,418 15,794 11,794 21,247 107,539 32,859
Office overheads
* (3,950) (4,345) - - - - - - (3,950) (4,345)
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
Operating
profit, net
of overheads 91,795 7,267 376 5,453 11,418 15,794 11,794 21,247 103,589 28,514
Other gains
or losses 100,872 - 65,103 4,645 - - - - - - 65,103 4,645
Finance costs (4,769) (5,008) (500) (1,087) (5,269) (6,095)
Investment
revenue 951 782 252 878 1,203 1,660
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
Profit before
taxation 153,080 7,686 11,546 21,038 164,626 28,724
Taxation (1,853) (3,100) (2,749) (5,146) (4,602) (8,246)
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
Profit for
the period 151,227 4,586 8,797 15,892 160,024 20,478
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
Attributable
to
Owners of
the parent 157,986 4,730 6,141 10,936 164,127 15,666
Non-controlling
interests (6,759) (144) 2,656 4,956 (4,103) 4,812
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
31.12.13 31.12.12 31.12.13 31.12.12 31.12.13 31.12.12 31.12.13 31.12.12 31.12.13 31.12.12 31.12.13 31.12.12
Amount in GBP'000 (Unaudited) (Audited) (Unaudited) (Unaudited) (Unaudited) (Audited) (Unaudited) (Audited) (Unaudited) (Unaudited) (Unaudited) (Audited)
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
Net assets:
by class of
business
Assets
Segment assets 4,642 8,691 554,695 244,567 770 17,129 - 169,011 770 186,140 555,465 430,707
Unallocated
assets 526 491 - - - - - - 526 491
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
Consolidated
total assets 555,221 245,058 770 17,129 - 169,011 770 186,140 555,991 431,198
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
Liabilities
Segment
liabilities (2,394) (2,328) (138,404) (28,422) - (2,582) - (38,894) - (41,476) (138,404) (69,898)
Unallocated
liabilities
*** (83,081) (114,490) - - - - - - (83,081) (114,490)
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
Consolidated
total
liabilities (221,485) (142,912) - (2,582) - (38,894) - (41,476) (221,485) (184,388)
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
333,736 102,146 770 14,547 - 130,117 770 144,664 334,506 246,810
------------------ ------------ ---------- ------------ ------------ ------------ ---------- ------------ ---------- ------------ ------------ ------------ ----------
* Includes overheads in UK/HK/PRC offices.
Others include retail, distribution and gain on disposal
** of gas segment.
Includes bank loan, deferred tax and dividend withholding
*** tax.
(b) Analysis of group revenue
Amount in GBP'000 12 months 12 months
ended ended
31.12.13 31.12.12
-------------------------------------- ---------- ----------
Sales of goods 218,174 191,365
Income from gas connection contracts 11,592 21,185
Rental income 5 899
Others 3,371 1,139
-------------------------------------- ---------- ----------
233,142 214,588
Investment revenue 1,203 1,660
-------------------------------------- ---------- ----------
234,345 216,248
-------------------------------------- ---------- ----------
(c) Analysis of profit from operations from Investment in CGH
The investment in CGH is divided into two layers: (i) direct
holding by wholly owned subsidiaries of the Company; and (ii)
indirect holding by China Gas Group Limited ("CGG"), a jointly
controlled entity between the Group and Mr Liu Minghui.
Amount in GBP'000 Notes 12 months
ended
31.12.13
----------------------------------------------------- ------- ----------
Share of results of associates 11 541
Share of results, before other gains, of jointly
controlled entity (CGG) 10 2,652
Reclassification adjustment for share of net
gain in fair value of available for sale financial
assets in jointly controlled entities included
in profit 10 76,081
----------------------------------------------------- ------- ----------
79,274
----------------------------------------------------- ------- ----------
4. Other gains, net
31.12.13 31.12.12
Amount in GBP'000 Notes (Unaudited) (Audited)
------------------------------------------------- ------ ------------- -----------
Loss on disposal of available for sale
assets - (1,322)
Net gain arising from change in fair value
of available for sale assets - 3,953
Gain on establishment of new jointly controlled
entity - 2,014
Impairment on E&E and other assets 9 (35,769) -
Gain on disposal of subsidiaries 17 100,872 -
------------------------------------------------- ------ ------------- -----------
65,103 4,645
------------------------------------------------- ------ ------------- -----------
During 2013, the Group has completed an extensive assessment of
the Armenian iron ore project, which indicated that the assets may
not be developed economically, as a consequence, the Group
recognised an impairment of Exploration and Evaluation ("E&E")
and other assets related to the Armenian iron ore project of
GBP35.8 million.
5. Income tax charge
Interim period income tax is accrued based on the average
effective income tax rate of 19.6 per cent (after excluding
non-taxable capital gains and losses of GBP141.2 million) (12
months ended 31 December 2012: 28.7 per cent).
The Group tax charge does not include corporate income tax for
jointly controlled entities and associates, whose results are
disclosed in the statement of comprehensive income net of tax.
Please refer to the financial review for discussion on the tax
charges during the period.
6. Dividends
12 months ended
Amount in '000 31.12.13 31.12.12
--------------------------------------------- ------------- ----------
Amounts recognised as distributions to
equity holders in the period:
Final dividend for the 12 months ended
31 December 2012 of 0.16p (2011: 0.18p)
per share 3,056 3,424
Special dividend for the 12 months ended
31 December 2012 of 2.36p (2011: nil)
per share 45,101 -
--------------------------------------------- ------------- ----------
48,157 3,424
--------------------------------------------- ------------- ----------
The Directors do not recommend the payment of an interim
dividend in respect of the 12 months ended 31 December 2013.
7. Earnings per share
Earnings per share has been calculated by dividing earnings
attributable to the shareholders by the weighted average number of
shares in issue during the respective periods, as indicated
below:
31.12.13
Continuing operations Discontinued operations Total
No. No. No.
'000 pence '000 pence '000 pence
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- ------------ ------------ ------------ ------------ ------------ ------------
Basic 2,050,625 7.70 2,050,625 0.30 2,050,625 8.00
Share option
adjustment 16,173 - 16,173 - 16,173 -
-------------- ------------ ------------ ------------ ------------ ------------ ------------
Diluted 2,066,798 7.64 2,066,798 0.30 2,066,798 7.94
-------------- ------------ ------------ ------------ ------------ ------------ ------------
31.12.12
Continuing operations Discontinued operations Total
No. No. No.
'000 pence '000 pence '000 pence
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) (Audited)
-------------- ------------ ------------ ------------ ------------ ---------- ----------
Basic 1,901,220 0.25 1,901,220 0.57 1,901,220 0.82
Share option
adjustment 15,558 - 15,558 - 15,558 -
-------------- ------------ ------------ ------------ ------------ ---------- ----------
Diluted 1,916,778 0.25 1,916,778 0.57 1,916,778 0.82
-------------- ------------ ------------ ------------ ------------ ---------- ----------
8. Property, plant and equipment
During the period, the Group spent approximate GBP10.8 million
on assets in the course of contruction, consisting of gas pipeline
networks, motor vehicles and fixture and fittings. From this
amount, GBP8.2 million relate to the Group's natural gas business
which was injected into CGH on completion of the FGIH Transaction
in August 2013, and therefore disposed of in the period. In
February 2013 Maoming King Ming Petroleum was dissolved and the
carrying amount at the date of dissolution was GBP4.5 million.
The Group also disposed of certain parts of its motor vehicles
and fixture and fittings with a carrying amount of GBP0.4
million.
The depreciation charge for the period was GBP0.5 million (2012:
GBP7.4 million). The significant decrease was mainly as the
property, plant and equipment were reclassified as held for sale at
31 December 2012.
9. Intangible assets
During the period, the Group spent approximately GBP1.0 million
(2012: GBP4.6 million) on E&E assets in Armenia. At the end of
December 2013, the Group completed an extensive assessment of the
Armenian iron ore project which indicated that the iron ore assets
may not be developed economically, as a consequence, the Group
impaired the carrying amount of the E&E assets of GBP35.2
million at 31 December 2013.
The amortisation charge for the period was GBP1,000 (2012:
GBP0.8 million). The significant decrease was mainly as the
intangible assets of FGIH were reclassified as held for sale at 31
December 2012.
10. Investments in jointly controlled entities
There were no acquisitions of jointly controlled entities during
the period. On 17 December 2012, the Group conditionally agreed to
inject its natural gas business into CGH. The FGIH Transaction was
completed in August 2013, therefore, all assets and liabilities of
natural gas group which were generated during the period were
disposed in August 2013. Details are as follows:
Jointly controlled entities
------------ ------------ ------------
Interest
in Net loans Total
jointly To jointly jointly
controlled controlled controlled
Amount in '000 entities entities entities
------------------------------ ------------ ------------ ------------
Share of net assets/cost
At 1 January 2013 79,495 56,024 135,519
Exchange rate difference 1,228 (992) 236
Advance - 22,768 22,768
Dividend (14,308) - (14,308)
Share of profit
- excluding other gains 19,018 - 19,018
- other gains 76,081 - 76,081
------------------------------ ------------ ------------ ------------
95,099 - 95,099
Share of other compensive
income (6,737) - (6,737)
Disposal of joint controlled
entities (note 17) (853) (2,552) (3,405)
------------------------------ ------------ ------------ ------------
At 31 December 2013 153,924 75,248 229,172
------------------------------ ------------ ------------ ------------
During the period, the share of profits, before other gains, of
CGG is GBP2.7 million.
Share of profit includes other gains of GBP76.1 million
representing the net gain arising from changes in fair value,
previously recognised in equity and reclassified to the income
statement following the classification as an associate of the
interest held in CGH by CGG, a joint controlled entity of the
Group.
11. Investments in associates
On 17 December 2012, the Group conditionally agreed to inject
its natural gas business into CGH. The FGIH Transaction was
completed in August 2013, therefore, all assets and liabilities of
natural gas group which were generated during the period were
disposed in August 2013.
In November 2013, CGH allotted and issued 184 million ordinary
shares to the Company's subsidiaries (representing 3.7% of CGH's
share capital), to satisfy the second consideration of the FGIH
Transaction (US$200 million equal to GBP127.8 million). This amount
includes the payable to non-controlling interest of FGIH as the
Group acquired that entity's rights and obligations under the FGIH
Transaction in October 2013.
As a result of having significant influence through exercising
the nomination rights of managing director and an additional
executive director in CGH granted at the FGIH Transaction together
with the CGH shares held directly or indirectly by Fortune Oil, CGH
has been treated as an associate of CGG and of the Group. During
the period, the share of profits of CGH is GBP0.5 million. Details
are as follows:
Associates
Interest in
Amount in '000 associates
--------------------------------- ------------
Share of net assets/cost
At 1 January 2013 -
Exchange rate difference (6,409)
Addition of investment 127,771
Share of profit 502
Disposal of associate (note 17) 22
--------------------------------- ------------
At 31 December 2013 121,886
--------------------------------- ------------
12. Trade and other receivables
The significant increase in trade and other receivables was
mainly due to deposits made in respect to trading transactions
amounting to GBP95 million at 31 December 2013 (2012: GBP0.4
million) (see note 14).
Included in trade and other receivables is an amount of GBP0.8
million that represents the net amount expected to be recovered on
dissolution of the joint venture in Maoming King Ming Petroleum
Company Limited that was dissolved on 5 February 2013. From this
date control has been lost and therefore consolidation is no longer
appropriate.
13. Borrowings
On 7 August 2013, the Company issued the Loan Notes of GBP7.5
million (US$12 million) to Fortune Dynasty Holdings in order to
fund the Group's near-term capital expenditure, particularly the
capital expenditure relating to FGIH, and to provide additional
general working capital. The Loan Notes were settled by way of the
issue of the 99,373,000 ordinary shares of the Company, with the
balance of approximately US$80,000 of principal and all accrued
interest paid in cash in October 2013.
In October 2013, the Group entered into a new loan facility of
GBP188 million (US$300 million), of which GBP75 million (US$120
million) had been drawn down by the Group at 31 December 2013 and
GBP113 million (US$180 million) remains undrawn. The loan is with a
term of three years and a margin of 2.75 per cent above LIBOR. The
loan has been used to repay the existing syndicated loan, provide
the Group with working capital, and finance new investment. The
facility is guaranteed by the Company and secured by share charges
over its various Hong Kong subsidiaries.
In addition, new trading loans of GBP13 million had been drawn
down during the period.
14. Trade and other payables
The significant increase in trade and other payables was mainly
due to deposits of GBP68 million received from trading customers at
31 December 2013 (2012: GBP5.2 million) (see note 12).
15. Issued capital
On 3 October 2013, the Company issued 599,639,580 new ordinary
shares of 1p each, as follows:
(a) 500,266,580 ordinary shares of 1p each were issued as the
consideration ($60 million equal to GBP39.1 million) for the
acquisition of First Marvel Investment Limited ("FM"). FM was
acquired to obtain the rights and obligations of the
non-controlling interest holder in FGIH accruing to it under the
FGIH Transaction.
(b) 99,373,000 ordinary shares of 1p each were issued to settle
the Loan Notes of US$12 million (GBP7.5 million) described in note
13.
16. Financial Instruments' fair value disclosures
Financial instruments that are measured subsequent to initial
recognition at fair value are grouped into levels 1 to 3 based on
the degree to which the fair value is observable:
- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within level 1 that are
observable for the asset or liabilities, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
- Level 3 fair value measurements are those derived from
valuation techniques that included inputs for the asset or
liabilities that are not based on observable market date
(unobservable inputs).
The fair value of the derivative financial liability related to
the share options written as part of the restructure of interests
in Fortune Liulin Gas Company Limited ("Liulin") is determined in
accordance with generally accepted pricing models based on the fair
value of Liulin. The fair value measurements were derived from
valuation techniques that included inputs that are not based on
observable market data and as such have been classified as a Level
3 fair value measurement.
During the twelve months ended 31 December 2013, there were no
transfers between levels (2012: none).
31.12.13 31.12.12
(Unaudited) (Audited)
Level Level Level Level Level Level
Amount in GBP'000 1 2 3 Total 1 2 3 Total
------------------------- ------- ------- ------ ------- ------ ------ ------- ------
Financial assets
Available for sale
investments - quoted - - - - - - - -
Available for sale
investments - unquoted - - 1,909 1,909 - - 1,948 1,948
------------------------- ------- ------- ------ ------- ------ ------ ------- ------
- - 1,909 1,909 - - 1,948 1,948
------- --------------------------------- ------ ------- ------ ------ ------- ------
Financial liabilities
Profit guarantee (note
17) - - - - - - - -
Derivative financial
liabilities - option - - - - - - 68 68
------------------------- ------- ------- ------ ------- ------ ------ ------- ------
- - - - - - 68 68
------- --------------------------------- ------ ------- ------ ------ ------- ------
Available-for-sale investments
Amount in GBP'000
-------------------------------- -------
Balance at 1 January 2013 1,948
Exchange difference (39)
-------------------------------- -------
Balance at 31 December 2013 1,909
-------------------------------- -------
Derivative financial liabilities
Amount in GBP'000
---------------------------------- -----
Balance at 1 January 2013 68
Exchange difference 4
Disposal of subsidiaries (72)
---------------------------------- -----
Balance at 31 December 2013 -
---------------------------------- -----
17. Disposal of subsidiaries
On 17 December 2012, the Group conditionally agreed to inject
its natural gas business into CGH for a total consideration of
GBP255.5 million (US$400 million) (the "FGIH Transaction"), of
which the Group share was then GBP217.2 million (US$340 million),
with the balance payable to non-controlling interest. The FGIH
Transaction was completed in August 2013 on which date control of
FGIH passed to CGH.
As part of the FGIH Transaction, the Group will compensate CGH
on a dollar for dollar basis where the net profits for the Natural
Gas Business for FY2013 are less than HK$200 million (approximately
GBP16 million) or are less than HK$400 million (approximately GBP32
million) in 2014. This compensation agreement is not subject to any
cap.
As Management believe the FGIH business within CGH is on target
to meet the profit guarantee and the possibility of the
compensation is remote, no liabilities for compensation has been
recognised as at 31 December 2013.
The assets and liabilities of the subsidiaries classified as
held for sale are as at 31 December 2012 are as follows:
Fortune Gas Investment
Amount in GBP'000 Holdings Ltd
----------------------------------------------- -----------------------
Interests in jointly controlled entities 39,832
Interests in associates 969
Property, plant and equipment 60,504
Intangible assets 14,155
Goodwill 3,007
Prepaid lease payment 2,749
Inventories 3,564
Bank and cash balance 23,123
Trade and other receivables 21,108
----------------------------------------------- -----------------------
Total assets classified as held for sale 169,011
----------------------------------------------- -----------------------
Trade and other payables (23,962)
Borrowings (10,043)
Deferred tax liabilities (2,583)
Current tax liabilities (2,306)
----------------------------------------------- -----------------------
Total liabilities classified as held for sale (38,894)
----------------------------------------------- -----------------------
The major classes of assets and liabilities of the subsidiary at
the date of disposal were as follows:
Fortune Gas Investment
Amount in GBP'000 Holdings Ltd
-------------------------------------------------------- -----------------------
Interests in jointly controlled entities 45,921
Interests in associates 1,004
Property, plant and equipment 72,319
Intangible assets 18,705
Goodwill 3,221
Prepaid lease payment 2,978
Inventories 4,774
Bank and cash balance 25,423
Trade and other receivables 22,903
-------------------------------------------------------- -----------------------
Total assets 197,248
-------------------------------------------------------- -----------------------
Trade and other payables (28,149)
Borrowings (8,880)
Deferred tax liabilities (2,783)
Current tax liabilities (2,128)
-------------------------------------------------------- -----------------------
Total liabilities (41,940)
-------------------------------------------------------- -----------------------
Net assets 155,308
Exchange reserve (14,100)
Non-controlling interests (41,792)
Cost of disposal of interest in subsidiaries 14,356
-------------------------------------------------------- -----------------------
113,772
Exchange difference 2,567
Gain on disposal 100,872
-------------------------------------------------------- -----------------------
Total consideration 217,211
-------------------------------------------------------- -----------------------
Satisfies by
Cash and cash equivalents, in respect to the
first consideration 108,605
Ordinary shares of CGH, in respect to the second
consideration 108,606
-------------------------------------------------------- -----------------------
Net Cash inflow arising on disposal:
Consideration received in cash and cash equivalents 108,605
Less: cash and cash equivalents disposed of (25,423)
-------------------------------------------------------- -----------------------
83,182
-------------------------------------------------------- -----------------------
18. Note to cashflow statement
12 months 12 months
ended ended
31.12.13 31.12.12
Amount in GBP'000 (Unaudited) (Audited)
------------------------------------------------ ------------- -----------
Net cash from operating activities
Profit for the period 160,024 20,478
Adjustments for:
Share of post-tax results of jointly
controlled entities excluding other
gains (19,018) (14,568)
Share of other gains recognised in
jointly controlled entities (76,081) -
Share of post-tax results of associates (502) (52)
Taxation 4,602 8,246
Amortisation 1 834
Depreciation 537 7,426
Impairment of E&E and other assets 35,769 -
Loss on disposal of property, plant
and equipment 335 1,813
Government grant - (1,092)
Gain on disposal of subsidiary undertakings (100,872) -
Gain on disposal of available for
sales investments - (4,645)
Share-based payments 299 700
Investment revenue (1,203) (1,660)
Finance costs 5,269 6,095
Decrease / (increase) in inventories 1,630 (282)
Increase in trade and other receivables (13,301) (5,433)
Increase in trade and other payables 20,885 6,088
Net cash from operations 18,374 23,948
Taxation paid (3,659) (7,898)
Net cash from operating activities 14,715 16,050
------------------------------------------------ ------------- -----------
Cash and cash equivalents
Cash and bank balances 69,185 50,726
Cash and bank balances classified as
held for sale - 23,123
------------------------------------------------ ------------- -----------
69,185 73,849
------------------------------------------------ ------------- -----------
19. Related party transactions and significant contracts
The Group's related parties, the nature of the relationship and
the extent of transactions with them are summarised below:
31.12.13 31.12.12
Amount in GBP'000 Sub note (Unaudited) (Audited)
----------------------------------------------- --------- ------------- -----------
Loans to equity non-controlling interests
to subsidiaries 1 5,084 5,349
Trade account receivable from non-controlling
shareholders 2 - 876
Trade account payables from non-controlling
shareholders 2 - 1,585
Shareholder loans to jointly controlled
entities (note 10) 3 75,248 56,024
Sales of goods to jointly controlled
entities 4 2,785 4,241
Purchase of goods from jointly controlled
entities 4 1,615 2,310
Current account due to Vitol Energy
(Bermuda) Ltd 4 - (476)
----------------------------------------------- --------- ------------- -----------
Sub notes
1. Loans of GBP5,084,000 (2012: GBP5,349,000) comprised mainly
loans to the non-controlling shareholders. A GBP1,445,000 (2012:
GBP1,450,000) loan to the non-controlling shareholders of Beijing
Everthriving Energy Technology Company Limited is unsecured,
interest fee and without fixed payment terms. A GBP3,639,000 (2012:
GBP3,899,000) loan to the non-controlling shareholders of Bounty
Resources Armenia Limited is guaranteed, interest bearing at a
margin of 4% over LIBOR p.a. and repayable in June 2014.
2. Maoming Petrochemical Corporation (MPCC) is a corporate
shareholder of the Group's subsidiary, Maoming King Ming Petroleum
Company Limited. Throughputting turnover from MPCC amount to
GBP1,602,000 (2012: GBP16,397,000) of which GBPnil was owed at 31
December 2013 (2012: GBP876,000). Processing fee to MPCC amounted
to GBP442,000 (2012: GBP5,404,000) of which GBPnil was owed at 31
December 2013 (2012: GBP1,585,000).
3. The shareholder loans are part of shareholders' investment in
the jointly controlled entities. These are common methods of making
an investment in jointly controlled entities in the PRC.
GBP75,105,000 (2012: GBP55,878,000) was loaned to China Gas
Group Limited which is established in Hong Kong and GBP143,000
(2012: GBP146,000) was due from Zhuhai Special Economic Zone South
China Petroleum Company Limited.
4. Purchase from jointly controlled entity - Jining Qufu New Fu
Hong Gas Limited amounted to GBP1,615,000 (2012: GBP2,310,000).
Sales from Group's subsidiary, Xinyang Fortune Gas Company Limited
and Beijing Fuhua Natural Gas Limited to Group's jointly controlled
entity, Xinyang Fortune Vehicle Gas Company Limited and Beijing
Fuhua Natural Gas Logistics Limited, amounted to GBP2,649,000 and
GBP136,000 (2012: GBP4,241,000 and GBPnil) respectively.
Current account due to Vitol Energy (Bermuda) Ltd, a significant
shareholder of the Company, amounted to GBPnil (2012:
GBP476,000).
5. Fortune Max Holdings Limited ("FMH") is a private company
controlled and beneficially owned by Mr Daniel Chiu. During 2012,
FMH had entered into arrangements with lenders to finance the
purchase of China Gas Holdings Limited ("CGH") shares, and then
entered into a verbal understanding to sell any such CGH shares to
CGG, at all cost associated with the purchase and financing of any
CGH shares acquired as and when these are transferred to CGG, and
any losses arising on the CGH shares acquired by FMH. In April
2013, CGG has acquired all the 207,968,000 CGH shares previously
purchased by FMH by its own financing capacity. Under the terms of
the agreement with CGG, FMH generated neither profit nor incurred
any loss from its transaction in CGH shares, however CGG recognised
a gain in equity of over GBP67.2 million based on the market value
at the date of transfer, with the Group's share being GBP33.6
million.
6. On 7 August 2013, the Group entered into a conditional sale
and purchase agreement to purchase the entire issued share capital
of First Marvel Investment Limited ("First Marvel") which has been
incorporated for the purpose of acquiring Wilmar International
Limited's interest in the consideration receivable as a result of
the FGIH Transaction (the "Wilmar Consideration"). First Marvel is
a wholly-owned subsidiary of Fortune Dynasty Holdings Limited
("FDH"), a joint venture company owned 55 per cent by First Level
Holdings Limited, which is in turn controlled by Mr Daniel Chiu.
The conditional sale and purchase agreement includes consideration
of GBP39.4 million (US$60 million), and an unsecured fixed rate
loan note instrument with FDH. Under the Loan Instrument, FDH has
agreed to subscribe in cash at par for GBP7.9 million (US$12
million) nominal amount of fixed rate unsecured loan notes issued
by the Group (the "Loan Notes"). The Loan Notes have a maturity
date of 7 February 2014. Interest is payable on the Loan Notes at a
rate of 7% per
annum (see note 13).
On 25 September 2013, the Company announced that the acquisition
of First Marvel and the amendment of the loan received from FDH
amounting to US$12 million were approved by shareholder in the
General Meeting, such that it will be repayable in shares in
Fortune Oil (the "Loan Settlement") with the balance of
approximately US$80,000 of principal and all accrued interest paid
in cash.
On 3 October 2013, Fortune Oil issued 599,639,580 new ordinary
shares of the Company for the acquisition of First Marvel and the
Loan Settlement (see note 15).
7. Included in trade and other receivables is an amount of
GBP0.8 million that represents the net amount expected to be
recovered on dissolution of the joint venture in Maoming King Ming
Petroleum Company Limited that was dissolved on 5 February 2013.
From this date control has been lost and therefore consolidation is
no longer appropriate.
8. The investment in CGH is divided into two layers: (i) direct
holding by wholly owned subsidiaries of the Company; and (ii)
indirect holding by CGG, a jointly controlled entity between the
Group and Mr Liu Minghui. In October 2013, the Group loaned GBP22.8
million to CGG to further purchase 30,000,000 ordinary shares of
CGH from Mr Liu Minghui.
20. Litigation
In April 2012, an action was commenced in the High Court of Hong
Kong by Caspian Resources Development Pte Limited ("CRDPL") against
Fortune Oil, Giant Global Development Limited ("GGDL"), a wholly
owned subsidiary of Fortune Oil, and George Howard Richmond in
relation to the validity of the sale and purchase of a 16.7 per
cent shareholding in Caspian Bounty Steel Limited ("CBSL") by Mr
Richmond to GGDL in January 2011. CBSL is the company through which
Fortune Oil holds part of its interests in an iron ore mining
project located in Armenia. A writ of summons was served on GGDL in
April 2012 and on Fortune Oil in March 2013. GGDL and Fortune Oil
will strenuously defend the action. GGDL successfully applied in
September 2012 to the High Court of Hong Kong for security for
costs to be given by CRDPL. Fortune Oil will similarly seek
security for costs.
Fortune is currently unable to quantify the potential damages
that could arise from this claim. However, the Directors believe
that the Group and GGDL have reasonable prospects in successfully
defending the action and that therefore no provision has been made
in the financial statements as this claim is not expected to result
in any material loss to the Group. At 31 December 2013 the carrying
value of the assets in the Armenia iron ore project has been fully
impaired (see note 4 and 9).
21. Approval of the interim financial statements
The interim of financial statements for twelve months ended 31
December 2013 were approved by the board of directors on 26
February 2014.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UNAARSWAUUAR
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