RNS Number:5359J
Guangdong Development Fund Ld
27 September 2006
GUANGDONG DEVELOPMENT FUND LIMITED
INTERIM RESULTS
27 September 2006
The Board of Directors (the "Board") of Guangdong Development Fund Limited
presented the unaudited interim financial statements of the Company and its
subsidiaries (collectively the "Fund") for the six months ended 30 June 2006.
The unaudited return attributable to shareholders for the current period was
US$2.14 million, compared to US$0.62 million for the corresponding period in
2005, due to realised gain on disposal of certain of the Fund's investment
portfolio. As at 30 June 2006, total net asset value was US$23.49 million, or
US$0.24 per share.
The Board does not recommend payment of interim dividend.
EXTRAORDINARY GENERAL MEETING
At an extraordinary general meeting ("EGM") held on 15 June 2006, the following
three resolutions were approved by the shareholders:
(1) Disposal of GD Decorative Material (Zhongshan) Co., Ltd., Guangdong
(Zhanjiang) Medium Density Fibre Board Co. Ltd., Guangzhou Malting Company Ltd.
and Ningbo Malting Co Ltd (collectively the "Four Assets")
As announced on 15 May 2006, the Fund conditionally entered into sale and
purchase agreements to dispose of its interests in the Four Assets to
subsidiaries of GDH Limited, which is a major beneficial shareholder of the
Fund, for an aggregate consideration of approximately US$6.87 million, payable
in cash on completion subject to the approval of the Company's shareholders and
relevant approvals from regulatory authorities in China. Details of the
transactions, including terms and conditions, were set out in the circular dated
30 May 2006 issued by the Fund.
At the EGM, the disposals were approved and the Fund is currently seeking the
necessary approvals from the relevant regulatory authorities in China. It is
expected that the disposal transaction would be completed in the fourth quarter
of this year.
(2) The change of manager and appointment of investment manager
The current and initial investment manager of the Fund is Guangdong Investment
Management Limited ("GIM"). Following the passing of the 2001 Special
Resolution, the focus of the Fund is on realising its long term investments
rather than making any further investments. Consequently, the Board believes
that it is more appropriate for the Fund to appoint a manager who is more
specialised in the realisation of assets and therefore GDF Management (Cayman)
Limited ("GDFM") and Springridge Company Limited were proposed as the manager
and investment manager, respectively, of the Fund. Their appointment is for an
initial fixed term of three years and is thereafter terminable by either party
giving not less than six months' prior written notice. GIM is working on the
handover and it is expected that this will be completed on or before 30 November
2006.
(3) The change of publication of quarterly net asset value ("NAV")
To save cost, the Board proposed to announce the quarterly NAV of the Fund only
through Regulatory News Service of the London Stock Exchange plc. For the
corresponding period of last year, the advertising cost of approximately
US$26,000 was incurred in connection with the publication of the NAV, whereas
approximately US$9,000 is incurred during the current period.
ECONOMIC ENVIRONMENT OF MAINLAND CHINA
China's economy improved 10.9 percent (year on year) in the first half of 2006,
despite a slew of measures imposed by the government to ease the extremely high
growth of investment. Total gross domestic product (GDP) between January and
June 2006 reached 9.14 trillion yuan (USD1.14 trillion). It is generally
commented that China's economy is facing signs of heightened overheating.
Outstanding bank loans surged 15.97% year on year by the end of May 2006 amid
seemingly unabated increased investment. The government has accelerated efforts
to rein in excessive spending on real estate, roads, factory equipment and other
fixed assets this year to cool the investment-driven economy. A more relaxed
and flexible interest rate and exchange rate policy in a bid to control credit
and achieve a balanced foreign trade is to be introduced.
The continuous favorable economic environment of China and strengthening of
Renminbi virtually increase the value of the Fund's investments in US dollars.
Updated progresses of the various investment projects since January 2006 are set
out as follows:
INFRASTRUCTURE PROJECTS
The conditional sale agreement of Pak Kong Transco Limited (the "Qingyuan
Bridges Project") signed in April 2006 between the Fund and the Chinese party
has been granted the necessary approvals from the relevant government
authorities on 28 April 2006. Having received the sales proceeds of RMB24
million (approximately US$3 million), the Fund is now liaising with the Foreign
Exchange Department to arrange for the remittance of the consideration. The
Chinese party has committed to pay compensation to the Fund, which is calculated
on daily basis until completion of the transaction, and the compensation for the
first half of 2006 amounted to US$117,318.
For the Heyuan Project, as previously reported in the 2005 Annual Report, the
Chinese party offered to buy back the Fund's stake in Tonghua at RMB9 million
(approximately US$1.12 million), inclusive of the Fund's entitlement to
distributions. On 21 September 2006, the Fund received an amount of US$0.95
million. The Fund is currently negotiating with the Chinese party for the final
consideration of the transaction.
In relation to the Huizhang Highway (Huizhou Section) Project, the negotiation
with the Chinese partner regarding the appropriation of the 2002, 2003 and 2005
dividends, the amendment of Joint Venture Contract and the closing of the escrow
account are still under way. The Fund will closely monitor the development.
With reference to the independent valuation report of Vigers Appraisal &
Consulting Limited ("Vigers"), a fair value gain of US$0.01 million was recorded
in respect of this project for the current period.
INDUSTRIAL PROJECTS
As reported in the previous Annual Reports, Foshan Tongbao Co. Ltd. ("Tongbao")
had provided guarantees to certain subsidiaries of Foshan Industrial Investment
Limited, the then major shareholder of Tongbao, without the knowledge of the
Fund. The Fund instituted proceedings against Tongbao at the Foshan
Intermediate People's Court (the "Intermediate Court") in order to enforce its
right to investigate the corporate documents of Tongbao. An unfavourable ruling
against the Fund was received on 15 September 2004. The Fund made an appeal to
Guangdong Provincial Higher People's Court (the "Higher Court") in October 2004.
On 15 April 2005, the Higher Court instructed the Intermediate Court to revoke
the original ruling previously made by the Intermediate Court and to conduct a
retrial.
During the second half of 2005, following the change of the board of directors
of the Company, Tongbao took a more co-operative approach towards the Fund and
hence, the Fund was able to commission Vigers to conduct the valuation of
Tongbao in February 2006. The Fund has since made tremendous efforts to
negotiate an out of court settlement which is acceptable to both parties. The
proposed settlement was to execute an agreement / memorandum of understanding to
be made between the Fund and Tongbao to stipulate certain measures monitoring
Tongbao's future corporate governance. However, this proposal was declined by
Tongbao and eventually the settlement fell through. The Fund had no other
alternatives but to restart the litigation and the retrial was held at the
Intermediate Court on 2 August 2006. The Fund is currently awaiting the court
judgment to determine the next step.
In August 2006, Tongbao denied Vigers access to carry out their independent
valuation procedures to perform a valuation. Without an independent valuation,
the fair value of the Fund's investment in Tongbao could not be determined. The
Fund will closely monitor the progress of the litigation and take appropriate
action in the best interest of the shareholders.
As aforesaid, the Fund entered into conditional sale and purchase agreements to
dispose of its entire interests in the Four Assets to the subsidiaries of GDH
Limited, subject to the approval from the Fund's shareholders and relevant
regulatory authorities in China. In the first half of 2006, the overall
performance of the Four Assets is analysed as follows:
* Due to the drop in unit selling price of wooden floorboard, the turnover
and gross profit of GD Decorative Material (Zhongshan) Co., Ltd. fell
1.9% and 13.7% respectively when compared to the corresponding period of last
year. Its net profit fell 40.5% to US$0.42 million.
* The turnover of Guangdong (Zhanjiang) Medium Density Fibre Board Co. Ltd.
increased 9.2% to US$8.56 million, owing to the increase in export sales.
The profit margin improved slightly. The net loss fell from US$0.83 million
to US$0.10 million.
* The turnover of Guangzhou Malting Company Ltd. increased 11.1% to US$38.4
million, mainly due to the increase in trading of barley. The net profit
after tax soared 27.7% to US$2.54 million.
* The turnover of Ningbo Malting Co Ltd increased 17.2% to US$37.8 million,
which was mainly attributable to the increase in trading of beer malt
produced from other small-scale manufacturers. The net profit surged 20.8%
to US$1.97 million.
With reference to the sale considerations of the Four Assets, a fair value gain
of US$1.55 million was recorded in respect of the Four Assets for the current
period.
Guangdong Zhanhai Instrument & Meter Co. Ltd. ("Zhanhai") still sustained a net
loss in the first half of 2006, and showed little deterioration in its
performance. The Fund is seeking exit for its interest in Zhanhai. In order to
obtain a higher realisation price, the Fund is currently in the process of
arranging an auction sale of its interests in Zhanhai.
With reference to Vigers' independent valuation report, an impairment loss of
US$0.07 million was recorded in the statement of total return, after the release
of investment revaluation reserve of US$0.32 million, in respect of this project
for the current period.
As Xin Hui Xingwei Building Material Co. Ltd. has not operated for years, the
Chinese partner intends to wind up the joint venture company. Gaoyao Gaolu
Cement Company Limited showed no improvement in their performance. These two
projects continued to incur losses in the first half of 2006.
REAL ESTATE PROJECT
For the period under review, the occupancy ratio of shopping mall held by
Guangdong Nan Fang (Holdings) Co. Ltd ("Nanfang") is 97 %. Rental income of the
shopping mall for the first half of 2006 amounted to US$0.39 million. However,
after the loan interest expenses, Nanfang recorded a net loss of US$0.15 million
for the interim period.
LISTED INVESTMENTS
All the Fund's listed investments were disposed of during the period.
INVESTMENT MANAGER FEE
The Fund continued to pay management fees in accordance with the Management
Agreement dated 18 February 1994. The amount of such management fee totaled
US$0.23 million for the six months ended 30 June 2006.
PURCHASE, SALE OR REDEMPTION OF SHARES
During the six months ended 30 June 2006, neither the Fund nor any of its
subsidiaries purchased, sold or redeemed any of the Fund's listed shares.
AUDIT COMMITTEE
The role of the Audit Committee is to advise the Board of the Fund by providing
independent and objective reviews of the Fund's financial reporting procedure,
internal control and audit function. The Audit Committee has reviewed this
report and presented a report thereon to the Board.
CORPORATE GOVERNANCE
None of the directors of the Fund is aware of any evidence that would reasonably
indicate that the Fund failed to comply with the Combined Code of Principles of
Good Governance of the London Stock Exchange at present or for any part of the
six months ended 30 June 2006.
OUTLOOK
The Board will continue to make the greatest effort to realise the Fund's
investments at the best prices reasonably obtained in order to maximise the
greatest possible return to the shareholders of the Fund.
Li Wai Keung
Chairman
26 September 2006
For further information, please contact:
Guangdong Development Fund Limited
Tel: (852) 2106 0888
Fax: (852) 2868 3082
The following is the full set of the unaudited interim financial statements of
the Fund for the period ended 30 June 2006:
INDEPENDENT REVIEW REPORT
TO GUANGDONG DEVELOPMENT FUND LIMITED
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 June 2006 which comprises the Consolidated Statement of
Total Return, Consolidated Statement of Movements in Shareholders' Funds,
Consolidated Portfolio Statement, Consolidated Balance Sheet, Consolidated Cash
Flow Statement, and the related notes 1 to 14. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.
This report is made solely to the Company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company, for our work,
for this report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information' issued by the Auditing Practices Board
for use in the United Kingdom, except that the scope of our work was limited as
explained below. A review consists principally of making enquiries of
management and applying analytical procedures to the financial information and
underlying financial data, and based thereon, assessing whether the accounting
policies and presentation have been consistently applied, unless otherwise
disclosed. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit performed in accordance with International Standards on
Auditing (UK and Ireland) and therefore provides a lower level of assurance than
an audit. Accordingly, we do not express an audit opinion on the financial
information.
However, in respect of an available-for-sale investment, namely Foshan Tongbao
Co., Ltd. ('Tongbao'), the directors were unable to obtain an independent
professional valuation commissioned by the Group or other reliable financial
information from Tongbao to assess the fair value of the investment. Therefore
the directors are currently unable to assess whether an impairment provision is
required and if so, the amount thereof. Tongbao is included in the consolidated
balance sheet as at 30 June 2006 at the carrying value of US$4.1 million.
Accordingly the evidence available to us was limited and we were unable to
satisfy ourselves as to whether the carrying value of the investment was fairly
stated at the balance sheet date. As more fully explained in note 6 to the
interim report, any adjustments to the carrying amount would have a
consequential impact on the Group's net assets as at 30 June 2006 and the result
for the period then ended.
In addition, the audit report on the financial statements for the year ended 31
December 2005 was qualified based on limitation of audit scope after an
independent valuation of the Tongbao investment was performed but it was not
possible to ascertain how much of the resulting impairment charge of US$3.9
million related to 2005 and how much related to 2004. This limitation of scope
could also have an impact on the comparative balances provided within this
interim report.
Modified review conclusion arising from limitation of review scope
On the basis of our review and with the exception of the possible adjustments
that might have been determined to be necessary had the above limitations not
existed, we are not aware of any material modifications that should be made to
the financial information as presented for the six months ended 30 June 2006.
Ernst & Young LLP
Jersey, Channel Islands
26 September 2006
GUANGDONG DEVELOPMENT FUND LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF TOTAL RETURN
For the period from 1 January 2006 to 30 June 2006
Six months ended Six months ended
30 June 2006 30 June 2005
Notes Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Investment income:
Listed investments 0.9 - 0.9 4.9 - 4.9
Unlisted investments 2 816.7 - 816.7 1,182.9 - 1,182.9
Impairment loss of
an available-for-sale (71.8) (71.8)
investment
Fair value gain on equity
investments
at fair value through profit - - - - 9.1 9.1
or loss
Net realised gain on disposal
of interests in
available-for-sale
investments 3 - 1,726.8 1,726.8 - - -
Net realised gain on disposal
of equity investments at
fair value through
profit or loss - 205.0 205.0 - - -
Interest income from:
Bank deposits 36.1 - 36.1 20.1 - 20.1
------------ ------------ ------------ ------------ ------------ ------------
Gross return 853.7 1,860.0 2,713.7 1,207.9 9.1 1,217.0
Investment management fee 4 (231.4) - (231.4) (260.0) - (260.0)
Other administrative expenses (338.7) - (338.7) (335.0) - (335.0)
------------ ------------ ------------ ------------ ------------ ------------
Return attributable to equity
shareholders 283.6 1,860.0 2,143.6 612.9 9.1 622.0
=============================================================================
Return per ordinary
share (US cents) - Basic 5 0.29 1.92 2.21 0.63 0.01 0.64
=============================================================================
The total column of this statement is the income statement of the Group.
All revenue and capital items in the above statement are derived from continuing
operations.
No operations were acquired or discontinued during the period.
GUANGDONG DEVELOPMENT FUND LIMITED
UNAUDITED CONSOLIDATED STATEMENT OF MOVEMENTS IN SHAREHOLDERS' FUNDS
For the period from 1 January 2006 to 30 June 2006
Special Investment Capital Capital
Share Share distributable revaluation reserve reserve Revenue
capital premium reserve reserve -realised -unrealised reserve Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 1 January 2005 969.0 4,977.2 44,147.0 761.1 12,348.2 (47,034.7) 8,334.1 24,501.9
Change in fair
value of
available-for-sale
investments - - - (191.6) - - - (191.6)
Change in fair
value of equity
investments
at fair value
through
profit or loss - - - - - 9.1 - 9.1
Return for the - - - - - - 612.9 612.9
period
Dividend paid - - (969.0) - - - - (969.0)
----------------------------------------------------------------------------------------------------
At 30 June 2005 969.0 4,977.2 43,178.0 569.5 12,348.2 (47,025.6) 8,947.0 23,963.3
====================================================================================================
At 1 January 2006 969.0 4,977.2 43,178.0 3,656.4 12,348.2 (51,450.3) 8,466.9 22,145.4
Impairment loss of
an available-for-sale
investment - - - - - (71.8) - (71.8)
Net realised gain
on disposal of
available-
for-sale - - - - 1,726.8 - - 1,726.8
investments
Change in fair
value of
available-for-sale
investments - - - 1,237.9 - - - 1,237.9
Net realised gain
on disposal of
equity investments
at fair
value through
profit or loss - - - - 205.0 - - 205.0
Release of
investment
revaluation
reserve
upon disposal - - - (2,032.0) - - - (2,032.0)
Return for the - - - - - - 283.6 283.6
period
----------------------------------------------------------------------------------------------------
At 30 June 2006 969.0 4,977.2 43,178.0 2,862.3 14,280.0 (51,522.1) 8,750.5 23,494.9
====================================================================================================
GUANGDONG DEVELOPMENT FUND LIMITED
UNAUDITED CONSOLIDATED PORTFOLIO STATEMENT
As at 30 June 2006
Percentage
Effective Carrying of total
holding value net assets
% US$'000 %
XIN HUI XING WEI BUILDING MATERIAL CO. LTD. 30.0 - -
Dormant
FOSHAN TONGBAO CO., LTD. 29.9 4,069.0 17.3
Production and sale of thermostats and other temperature control devices
GUANGDONG ZHANHAI INSTRUMENT & METER CO. LTD. 36.0 97.3 0.4
Production and sale of flow meters
GAOYAO GAOLU CEMENT COMPANY LIMITED 30.6 - -
Production and sale of cement
GUANGDONG NAN FANG (HOLDINGS) CO. LTD 43.7 - -
Property holding
GUANGDONG HEYUAN TONG HUA INVESTMENT LIMITED 24.2 1,115.2 4.8
Operation of a section of National Highway No. 205
GUANGZHOU MALTING COMPANY LTD. 29.5 4,681.3 19.9
Production and sale of malt
YUEHUI HIGHWAYS AND BRIDGES DEVELOPMENT COMPANY LIMITED 20.0 3,577.9 15.2
Operation of a section of Provincial Highway No.1918, 1919
GUANGDONG (ZHANJIANG) MEDIUM DENSITY FIBRE BOARD CO. LTD. 11.2 519.3 2.2
Production and sale of medium density fibreboard
HONOUR MILLION INDUSTRIES LIMITED 16.4 797.7 3.4
Investment holding
GD DECORATIVE MATERIAL (ZHONGSHAN) CO., LTD. 18.0 867.6 3.7
Production and sale of decorative materials
----------- ---------
Portfolio of investments 15,725.3 66.9
Net current assets 7,768.6 33.1
Equity minority interest 1.0 -
----------- ---------
Net assets 23,494.9 100.0
=========== =========
Except for disposal of the Group's investment in Pak Kong Transco Limited,
certain unlisted and listed investments, there was neither acquisition nor
disposal of the Group's investment portfolio during the period.
GUANGDONG DEVELOPMENT FUND LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEET
As at 30 June 2006
30 June 31 December
Notes 2006 2005
US$'000 US$'000
(Unaudited) (Audited)
AVAILABLE-FOR-SALE INVESTMENTS 6 15,725.3 19,312.6
CURRENT ASSETS
Due from a related company 7 4,979.1 1,846.8
Due from investee entities 8 2,081.1 821.5
Prepayments, deposits and other receivables 67.5 40.6
Equity investments at fair value through profit or loss 9 - 369.4
Time deposits 1,011.1 -
Cash and bank balances 1,569.4 1,809.1
------------ ------------
9,708.2 4,887.4
------------ ------------
CURRENT LIABILITIES
Due to related companies 10 887.9 656.4
Due to an investee entity 11 110.2 434.7
Creditors and accrued liabilities 941.5 964.5
------------ ------------
1,939.6 2,055.6
------------ ------------
NET CURRENT ASSETS 7,768.6 2,831.8
------------ ------------
TOTAL ASSETS LESS CURRENT LIABILITIES 23,493.9 22,144.4
EQUITY MINORITY INTEREST 1.0 1.0
------------ ------------
23,494.9 22,145.4
============ ============
CAPITAL AND RESERVES
Share capital 969.0 969.0
Share premium 4,977.2 4,977.2
Special distributable reserve 43,178.0 43,178.0
Investment revaluation reserve 2,862.3 3,656.4
Capital reserve
- realised 14,280.0 12,348.2
- unrealised (51,522.1) (51,450.3)
Revenue reserve 8,750.5 8,466.9
------------ ------------
TOTAL EQUITY SHAREHOLDERS' FUNDS 23,494.9 22,145.4
============ ============
NET ASSET VALUE PER ORDINARY SHARE (US$) 12 0.24 0.23
============ ============
GUANGDONG DEVELOPMENT FUND LIMITED
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the period from 1 January 2006 to 30 June 2006
Six months Six months
ended ended
Notes 30 June 2006 30 June 2005
US$'000 US$'000
NET CASH OUTFLOW FROM OPERATING ACTIVITIES 13 (a) (3,312.2) (444.7)
ACQUISITIONS AND DISPOSALS
Proceeds from disposal of interests in available-for-sale investments 3,509.2 -
---------- ----------
Cash inflow from acquisitions and disposals 3,509.2 -
---------- ----------
EQUITY DIVIDEND PAID - (969.0)
---------- ----------
NET CASH INFLOW/(OUTFLOW) BEFORE USE OF LIQUID
RESOURCES 197.0 (1,413.7)
---------- ----------
MANAGEMENT OF LIQUID RESOURCES
Net decrease/(increase) in time deposits 13 (b) (1,011.1) 1,400.0
Proceeds from disposal of equity investments at fair value through 574.4 -
profit or loss
---------- ----------
Cash inflow/(outflow) from management of liquid resources (436.7) 1,400.0
---------- ----------
DECREASE IN CASH (239.7) (13.7)
========== ==========
GUANGDONG DEVELOPMENT FUND LIMITED
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Six months Six months
ended ended
Notes 30 June 2006 30 June 2005
US$'000 US$'000
DECREASE IN CASH (239.7) (13.7)
INCREASE/(DECREASE) IN LIQUID RESOURCES 436.7 (1,400.0)
---------- ----------
CHANGE IN NET FUNDS RESULTING FROM
CASH INFLOW/(OUTFLOW) 197.0 (1,413.7)
NON-CASH CHANGE IN NET FUNDS 13 (b) 205.0 9.1
---------- ----------
CHANGE IN NET FUNDS 402.0 (1,404.6)
NET FUNDS AT BEGINNING OF PERIOD 13 (b) 2,178.5 2,592.1
---------- ----------
NET FUNDS AT 30 JUNE 13 (b) 2,580.5 1,187.5
========== ==========
GUANGDONG DEVELOPMENT FUND LIMITED
NOTES TO THE UNAUDITED INTERIM REPORT 30 JUNE 2006:
1. Basis of preparation and accounting policies
The unaudited consolidated interim financial statements of
Guangdong Development Fund Limited and its subsidiaries (collectively the
"Group" or the "Fund") have been prepared in US dollars under the historical
cost convention, as modified by the revaluation of available-for-sale
investments, and in accordance with accounting principles generally accepted in
the Island of Jersey, incorporating United Kingdom accounting standards.
The financial statements have been prepared in accordance with
the Statement of Recommended Practice "Financial Statements of Authorised Funds"
issued in November 2003 by the Investment Management Association in the United
Kingdom as far as is practicable for this entity.
The accounting policies and basis of presentation used in the
preparation of these financial statements are the same as those used in the
Group's audited financial statements for the year ended 31 December 2005.
Included in the available-for-sale investments as at 30 June
2006 is a carrying value of US$4.1 million of the Fund's investment in Foshan
Tongbao Co., Ltd. ("Tongbao"). As previously reported in the 2005 audited
financial statements, an impairment loss of US$3.9 million against the carrying
value of the Fund's investment in Tongbao had been fully charged to the
consolidated statement of total return for the year ended 31 December 2005.
However, as the directors were unable to obtain sufficient evidence to determine
the fair value of Tongbao as at 31 December 2004, it was unable to determine the
extent of such impairment loss which should have been charged to the
consolidated statement of total return for the year ended 31 December 2004.
Accordingly, the comparative amounts of these financial statements may not be
comparable.
2. Investment income - unlisted investments
Investment income from available-for-sale investments earned
from the Group's investment portfolio for the period is as follows:
Six months Six months
ended ended
30 June 30 June
2006 2005
US$'000 US$'000
(Unaudited) (Unaudited)
Foshan Tongbao Co., Ltd. 372.4 359.6
Pak Kong Transco Limited 444.3 288.5
Guangzhou Malting Company Ltd. - 450.0
GD Decorative Material (Zhongshan) Co., Ltd. - 73.5
Other investment portfolio - 11.3
--------- ----------
816.7 1,182.9
========= ==========
3. Net realised gain on disposal of interests in available-for-sale investments
During the period, the Group disposed of its entire interest in
Pak Kong Transco Limited ("Pak Kong") for a consideration of RMB34,270,000
(US$4,287,177), resulting in a net gain of approximately US$1.4 million after
deduction of the related costs and release of the attributable fair value gain
of US$1,760,744 from the investment revaluation reserve. The carrying value of
Pak Kong as at 31 December 2005 amounted to US$4,246,645.
In addition, during the period, the Group also disposed of its entire interest
in GH Water Supply (Holdings) Limited ("GH Water") for a consideration of
US$506,742, resulting in a net gain of approximately US$0.3 million after the
release of the attributable fair value gain of US$271,293 from the investment
revaluation reserve. The carrying value of GH Water as at 31 December 2005
amounted to US$506,711.
4. Investment management fee
The investment management fee is payable to Guangdong Investment
Management Limited (the "Investment Manager") on a quarterly basis in arrears at
an amount equal to the aggregate of 2.5 percent of the Fund's assets invested in
unlisted companies and 0.75 percent of the Fund's remaining assets.
5. Return per ordinary share
The revenue return per ordinary share is based on the revenue
return attributable to equity shareholders of US$283,600 (Corresponding period
2005: Revenue return of US$612,900) and on the 96,900,000 (Corresponding period
2005: 96,900,000) ordinary shares in issue during the period.
The capital gain per ordinary share is based on the net realised
and unrealised capital gain of US$1,860,000 (Corresponding period 2005: Capital
gain of US$9,100) and on the 96,900,000 (Corresponding period 2005: 96,900,000)
ordinary shares in issue during the period.
No diluted return per ordinary share has been shown as no
diluting events existed during the period.
6. Available-for-sale investments
Included in the available-for-sale investments as at 30 June
2006 is a carrying value of US$4.1 million relating to the Group's investment in
Tongbao.
As previously reported in the 2004 audited financial statements,
Tongbao had provided guarantees to certain subsidiaries of Foshan Industrial
Investment Limited, the then major shareholder of Tongbao, without the knowledge
of the Fund. The Fund instituted proceedings against Tongbao at the Foshan
Intermediate People's Court (the "Intermediate Court") in order to enforce its
right to investigate the corporate documents of Tongbao. An unfavourable ruling
against the Fund was received on 15 September 2004. The Fund made an appeal to
Guangdong Provincial Higher People's Court (the "Higher Court") in October 2004.
On 15 April 2005, the Higher Court instructed the Intermediate Court to revoke
the original ruling previously made by the Intermediate Court and to conduct a
retrial.
During the second half of 2005 following the change of the board
of directors of the Company, Tongbao took a more co-operative approach towards
the Fund and hence the Fund was able to commission Vigers Appraisal & Consulting
Limited ("Vigers"), an independent international firm of professionally
qualified valuers, to conduct the valuation of Tongbao in February 2006. The
Fund has since made tremendous efforts to negotiate an out of court settlement
with Tongbao which is acceptable to both parties. The proposed settlement was
to execute an agreement / memorandum of understanding to be made between the
Fund and Tongbao to stipulate certain measures monitoring Tongbao's future
corporate governance. However, this proposal was declined by Tongbao and
eventually the settlement fell through. The Fund had no other alternative but
to restart the litigation and the retrial was held at the Intermediate Court on
2 August 2006. The Fund is currently awaiting the court judgment.
In August 2006, Tongbao denied Vigers access to carry out their
independent valuation procedures. Without an independent valuation, it is not
possible to ascertain the value of the Fund's investment in Tongbao. The Fund
will closely monitor the progress of the litigation and take appropriate action
in the best interests of the shareholders.
Due to the pending legal proceedings, the directors have been
unable to obtain an independent valuation commissioned by the Fund or other
reliable financial information from Tongbao on which to assess whether the
investment has been impaired.
In view of the unavailability of an independent professional
valuation and other reliable financial information in respect of Tongbao, the
directors of the Company are currently unable to assess whether an impairment
provision is required to be made against the carrying value of Tongbao and if
so, the amount thereof.
Any adjustment to the carrying amount would have a consequential
impact on the Fund's net assets as at 30 June 2006 and the result for the period
then ended.
7. Due from a related company
2006 2005
US$'000 US$'000
(Unaudited) (Audited)
GDF Management Limited ("GDFM") 4,979.1 1,846.8
====== ======
Included in the balance is an amount of approximately US$3
million being the partial sale consideration of the Fund's interest in an
investee entity. The Fund is currently taking necessary procedures to have this
amount remitted into foreign currencies. The remaining balance mainly
represents the investment income denominated in Renminbi that is not freely
convertible into foreign currencies under the existing PRC foreign exchange
regulations, from the investee entities received by GDFM on behalf of the Fund.
The Fund is investigating the possibility of converting the remaining balance of
approximately US$1.8 million equivalent into foreign currency or finding other
method of realising value in freely distributable foreign currency for the fund.
8. Due from investee entities
It represents the investment income/dividend income receivables
from the investee entities.
9. Equity investments at fair value through profit or loss
30 June 31 December
2006 2005
US$'000 US$'000
(Unaudited) (Audited)
Listed investments in Hong Kong, at cost - 315.3
Fair value gain - 54.1
-------- --------
Closing market valuation at 30 June - 369.4
======== ========
10. Due to related companies
Included in the amount due to related companies is the investment
management fee of US$883,916 (2005: US$652,461) payable to the Investment
Manager.
11. Due to an investee entity
It mainly represents temporary receipt by the Fund from an investee entity.
12. Net asset value per ordinary share
The Group's net asset value per fully paid ordinary share of
US$0.24 (2005: US$0.23) has been calculated in accordance with the articles of
association. The calculation is based on 96,900,000 shares (2005: 96,900,000
shares) in issue at the period end and the net assets of the Group of
US$23,494,862 (2005: US$22,145,436) at the period end.
13. Notes to the consolidated cash flow statement
(a) Reconciliation of the Group's revenue return on ordinary activities
to net cash outflow from operating activities
Six months Six months
ended ended
30 June 30 June
2006 2005
US$'000 US$'000
(Unaudited) (Unaudited)
Revenue return on ordinary activities for the period 283.6 612.9
Increase in an amount due from a related company (3,132.3) (5.4)
Increase in amounts due from investee entities (320.6) (1,171.6)
Increase in prepayments, deposits and other receivables (26.9) (2.5)
Increase in amounts due to related companies 231.5 260.4
Decrease in an amount due to an investee entity (324.6) -
Decrease in creditors and accrued liabilities (22.9) (138.5)
----------- -----------
Net cash outflow from operating activities (3,312.2) (444.7)
=========== ===========
(b) Analysis of changes in net funds
At At
beginning Other non-cash 30 June
of period Net cash flows changes 2006
US$'000 US$'000 US$'000 US$'000
Cash 1,809.1 (239.7) - 1,569.4
Time deposits - 1,011.1 - 1,011.1
Equity investments at fair value
through profit or loss 369.4 (574.4) 205.0 -
---------- ---------- ---------- ---------
2,178.5 197.0 205.0 2,580.5
========== ========== ========== =========
14. Segment information
An analysis of the Group's revenue and loss and net assets by
principal activity and geographical area of operations for the six months ended
30 June 2006 is as follows:
Mainland PRC Hong Kong Total
Six months Six months Six months Six months Six months Six months
ended ended ended ended ended Ended
30 June 30 June 30 June 30 June 30 June 30 June
2006 2005 2006 2005 2006 2005
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue:
Investment income 816.7 1,171.6 0.9 16.2 817.6 1,187.8
Interest income 13.2 8.3 22.9 11.8 36.1 20.1
-----------------------------------------------------------------------------------
829.9 1,179.9 23.8 28.0 853.7 1,207.9
Impairment of an (71.8) - - - (71.8) -
available-for-sale
investment
Net realised gain on disposal of
interests in
available-for-sale
investments 1,455.5 - 271.3 - 1,726.8 -
Net realised gain on disposal of
equity investments at fair value
through profit or loss - - 205.0 - 205.0 -
Fair value gain on equity
investments at fair value
through profit or loss - - - 9.1 - 9.1
-----------------------------------------------------------------------------------
2,213.6 1,179.9 500.1 37.1 2,713.7 1,217.0
Expenses:
Investment management fee (231.4) (260.0)
Other administrative expenses (338.7) (335.0)
--------------------------
Return attributable to equity
shareholders 2,143.6 622.0
============ ==========
Mainland PRC Hong Kong Total
30 June 31 December 30 June 31 December 30 June 31 December
2006 2005 2006 2005 2006 2005
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Available-for-sale
investments 15,725.3 18,805.9 - 506.7 15,725.3 19,312.6
Equity investments at
fair value through
profit or loss - - - 369.4 - 369.4
Due from a related
company 4,979.1 1,846.8 - - 4,979.1 1,846.8
Cash and bank balances - - 1,569.4 1,809.1 1,569.4 1,809.1
Time deposits - - 1,011.1 - 1,011.1 -
----------------------------------------------------------------------------------
20,704.4 20,652.7 2,580.5 2,685.2 23,284.9 23,337.9
Other net current assets
/ (liabilities) and
minority interest 210.0 (1,192.5)
-------- ----------
Net assets 23,494.9 22,145.4
======== ==========
Copies of the Interim Report and Unaudited Consolidated Accounts will shortly be
sent to the London Stock Exchange and are available to the public, free of
charge, at the following address: Bridgewell Securities Limited, Old Change
House, 128 Queen Victoria Street, London EC4V 4BJ, England and will shortly be
available for inspection at the UK Listing Authority's Document Viewing
Facility, which is situated at Financial Services Authority, 25 The North
Colonnade, Canary Wharf, London E14 5HS.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR IIFFTAVIDFIR
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