TIDMPMHL
RNS Number : 8924H
Prosperity Minerals Holdings Ltd
26 June 2013
26 June 2013
Prosperity Minerals Holdings Limited
("Prosperity" or "the Company")
Preliminary Results Announcement for the year ended 31 March
2013
Prosperity Minerals Holdings Limited (PMHL.L), an iron ore
trader/operator and real estate owner/developer in the People's
Republic of China (PRC), today announces its annual results for the
year ended 31 March 2013. All figures are expressed in US dollars
unless otherwise stated.
Summary
-- Strong and improving sales at theOriental Landmark
development in Guangzhou, with residential unit selling prices of
the fourth block currently at RMB 43,000 per square metre (compared
to RMB 31,000 in the first block when the presales commenced in
December 2011)
-- Contracted sales in Guangzhou at 31 March2013totalled $288
million with cash received during the year at $268million
-- In iron ore, trading was characterised by a particularly difficult market
-- Total revenue was 48% lower at $390.6 million (2011-12: $754.0 million)
-- EBITDA loss of $28.2 million (2011-12: EBITDA of $14.7 million)
-- Cash flow from operating activities was $130.7 million (2011-12: $6.6 million)
-- Net impairment loss on available for sale investments of $14.8 million (2011-12: nil)
-- At 21 June 2013, Prosperity's 33.06% holding in ACC was valued at $162 million
-- Proposed final dividend of 3 cents per share (2011-12: 9 cents)
Operating highlights
I. Iron Ore Operations
Iron Ore Trading
-- Price movements in iron ore during the year were volatile and
the Company adopted a more selective approach to both suppliers and
customers. In turn, this led to significantly lower sales volumes
of 2.8 million tonnes (2011-12: 4.8 million tonnes)
-- As previously reported, however, there was an occasion at the
end of July 2012 where, for the first time, a customer reneged on
an agreement to accept a shipment (in this case 200,000 tonnes).
Prosperity subsequently found alternative buyers in the spot
market, but at a lower price, which resulted in a loss of some $3.5
million
-- Iron ore trading incurred a segment loss(1) of $7.2 million
in the year (2011-12: profit of $4.7 million)
-- On 6 February 2013, Prosperity announced that its prepayment
to Century Iron Mines had been reduced to zero and the full $8
million has been returned to Prosperity as per the agreement
between the parties. Otherwise, the terms of the Century Off-take
Agreement remain unchanged
-- On 6 February 2013, Prosperity entered into a Supplementary
Agreement with Blackrock Metals Inc. in which the first shipment
date of iron ore was extended to no later than June 2015. At the
same time, Prosperity was awarded an additional 800,000 tonnes of
iron ore, at the same discount to the prevailing market price, to
the 4 million tonnes of iron ore in the original Blackrock Iron Ore
Off-take Agreement at no extra cost
-- On 27 February 2013, the Company announced that it had
completed a Master Restructuring Agreement with ZC Group related to
the settlement of outstanding prepayments made by Prosperity to
secure reliable and competitively priced iron ore. Under the terms
of the agreement, Prosperity utilised part of the prepayment cash
to acquire an iron ore processing plant in Malaysia (the Gebeng
Plant) from ZC Group for $19.5 million. Prosperity has leased the
plant back to ZCM, part of ZC Group, on an exclusive basis for a
fee of $2.5 million per annum. The Company also has the option to
require ZCM to repurchase the Gebeng Plant at a price equal to the
consideration plus an annual rate of return of 8% between 27
February 2013 and the exercise of the option. In fiscal 2012-13,
the Company received $224,000 according to the lease agreement. For
more information on the Master Restructuring Agreement, please
refer to the Company's announcements on 22 October 2012 and 27
February 2013
Investment in United Goalink Limited (UGL)
-- The Company holds a 35% effective interest in UGL, a joint
venture company engaged in the production and exploration of iron
ore in Brazil
-- During the period under review, UGL shipped 111,490 tonnes of
raw, unprocessed iron ore with approximately 58% iron content
(2011-12: 218,808 tonnes). The decrease reflected a decision by
management to withhold shipments until UGL's processing plant
became operational. The improved iron content after processing will
enable the Company to sell the processed ore at higher prices.
Construction of the new processing plant was completed in May 2013
and trial production has commenced. It will increase the quality of
iron ore to 63% iron content, or higher, and gradually raise
production capacity to 900,000 tonnes of processed ore per
annum
-- UGL reported an attributable loss of $5.5 million for the
year (2011-12: loss of $1.7 million)
-- Post the year end, on 17 June 2013, Prosperity announced that
it had agreed to provide UGL with an additional loan of $12 million
at an interest rate of 12% per annum. On full drawdown, total loans
outstanding to UGL amount to approximately $49.8 million. For
further details please refer to the Company's announcements on 31
October 2011, 6 June 2012 and 17 June 2013
II. Real Estate Investment and Development
-- The first revenue and profit from the sale of residential
units in the Oriental Landmark development will be recognised on
completion in fiscal 2013-14; and, in the meantime, the Real Estate
Division continued to report a segmental loss due to administrative
and sales expenses
-- In fiscal 2012-13 theDivision's revenue was generated solely
by rent from SilverBay Plaza (SBP)
Guangzhou City, Guangdong Province, PRC
-- Prosperity holds a 55 per cent interest in the Oriental
Landmark commercial and residential development which is currently
under construction
-- Presale volumes and prices of residential units at Oriental
Landmark have continued to exceed the Company's original
expectations and it believes that, on completion in fiscal 2013-14,
the completed sales of these units will generate a very good
return
-- Presales in the first block commenced in December 2011, and
up to 21 June 2013, 191 of the 192 units had been sold at an
average price of approximately RMB 31,000 per square metre
-- Presales in the second block commenced in April 2012 and, up
to 21 June 2013, 162 from 176 available had been sold at an average
price of RMB 34,000 per square metre
-- Presales in the third block commenced in July 2012 and, by 21
June 2013, these totalled 151 out of 155 at an average price of RMB
38,000 per square metre
-- Presales in the fourth block commenced in October 2012 and,
to date, 100 units from 126 offered had been sold at an average
price of RMB 43,000 per square metre
-- At 31 March 2013, contracted sales of residential units
amounted to RMB 1,810 million ($288 million) with the Company
having received approximately RMB 1,669 million ($268 million) in
cash
-- Since then, contracted sales have increased and, as at 21
June, they were RMB 1,974 million ($322 million) with RMB 1,936
million ($316 million) in cash already received. Under IFRS,
revenue and profit on property sales is recognised when legal title
is passed to the buyer, and the Company expects the majority of
these to occur in fiscal 2013-14
-- Associated retail space and car parking is also being
developed at Oriental Landmark and the Company is confident that
rents from both will provide a good level of recurring income.
Marketing of these units commenced in 2013
-- SBP consists of some 11,472 square metres of office and
commercial space in the central business district of Guangzhou
City. At 31 March 2013, it had an occupancy rate of 98 per cent and
contributed $1.3 million in rental revenue for the year (2011-12:
$1.3 million)
Changzhou City, Fujian Province, PRC
-- The Company is revising the development plan for this project
in light of current weakness in this regional property market and
changes in government (central and local) policies. However,
Prosperity remains confident about the long term future of this
project
Hangzhou City, Zhejiang Province, PRC
-- The Company has conditionally agreed to sell its 50% stake in
a commercial real estate development site in Hangzhou to Hangzhou
Xihu Tea Market Company Limited for RMB 221.8 million
(approximately $35.6 million). This will generate a pre-tax profit
on disposal of around RMB 24 million ($3.9 million) on
completion
III. Cement Operations
Anhui Chaodong Cement Company Limited (ACC); 33.06% owned
-- ACC reported an attributable profit of $3.3 million (2011-12: $15.8 million)
-- Demand for cement in ACC's region weakened significantly in
the period due to a slowdown in the local real estate market; which
was exacerbated by a temporary delay in construction of the
National Express Rail Link
-- ACC declared its first ever cash dividend to shareholders in
July 2012 and Prosperity received RMB 8 million (approximately $1.3
million) in August 2012. In May 2013, ACC declared a final dividend
for its fiscal year ended 31 December 2012, from which Prosperity's
entitlement is RMB 2.4 million before tax
-- ACC is listed on the Shanghai Stock Exchange and, at a
closing price of RMB 12.45 per share on 21 June 2013, it was
capitalised at RMB 3.01 billion ($491.3 million), valuing
Prosperity's shareholding at $162.4 million
TCC Liaoning Cement Company Limited (TCC Liaoning); 16.11%
owned
-- TCC Liaoning reported an attributable profit of $1.2 million
(2011-12: $2.2 million). See below
Overall, the Company's cement plants performed in line with our
expectations.
Available for sale investments
The Company invests in listed and unlisted securities from time
to time. The total investment as at 31 March 2012 was $21 million
and there was a profit of $1.5 million from disposals. During the
year under review, the Company made further investments and, as at
31 March 2013, the aggregate cost was $31 million. Based on a
marked to market value, however, there has been a net decrease in
value which has resulted in an impairment loss of $14.8
million.
Ongoing Substantial Transactions
The Company continues to consider an investment in iron ore in
Malaysia and awaits regulatory approval on an agreed sale of an
investment in cement.
-- On 21 June 2013, Prosperity announced that it had agreed to
extend the deadline for PIHL's acquisition of BWC, owner of a
Malaysian iron ore operation, from 30 June to 30 September 2013 in
order to give PIHL more time to complete the acquisition. If not
completed by that time, Prosperity will forgo its option to acquire
up to 7.55% interest in BWC alongside PIHL and will ask for
repayment of the $7 million deposit by the end of December 2013. At
the same time, Prosperity would no longer be entitled to the
accompanying 10 year iron ore off-take agreement. For further
details please refer to the Company's announcements on 10 February,
7 March, 30 April, 29 June, 28 September, 20 November and 21
December 2012; plus 1 March and 21 June 2013
-- On 6 February 2013, Prosperity signed a conditional sale and
purchase agreement with TCC International Holdings Limited (TCC
International) to sell its 16.11% interest in TCC Liaoning for RMB
144.5 million (approximately $23 million). Completion remains
subject to TCC International obtaining the necessary approvals from
the Taiwan Investment Commission and its compliance with the
listing requirements in Taiwan and Hong Kong
Chairman and CEO, David Wong said:
"It was a difficult year, primarily due to a difficult iron ore
market. But we have not been idle. First and foremost, the dramatic
shift in focus of our iron ore trading business - from agent to
principal - continues. Similarly, our real estate strategy of
identifying well-located development sites in major cities looks
set to pay off handsomely in fiscal 2014."
The Company will release an announcement once the Company's
Annual Report and Accounts for the year ended 31 March 2013 are
available for download from the Company's website: www.pmhl.co.uk
and posted to shareholders.
Notes:
The average exchange rates for the year ended 31 March 2013 and
31 March 2012 were $1 = RMB 6.2873 and RMB 6.4017 respectively; and
on 31 March 2013 and 31 March 2012 they were $1 = RMB 6.2268 and
RMB 6.2938. These rates are used throughout this announcement
unless otherwise specified.
(1) Segment profit: profit before taxation and finance costs,
adjusted for head office or corporate administration costs which
are not specifically attributable to individual segments
Enquiries:
Prosperity Minerals Holdings Limited +852 3187 2618
Patrick Li
Neelke Kruger-Logan
Citigate Dewe Rogerson +44 (0) 20 7638 9571
Martin Jackson
Priscilla Garcia
Daniel Stewart & Company plc +44 (0) 20 7776 6550
Corporate Finance: Paul Shackleton, Antony Legge,
Emma Earl
Corporate Broking: Martin Lampshire
Notes to Editors:
Prosperity (AIM: PMHL) is:
- an iron ore trader and operator serving the PRC;
- a specialised real estate owner and developer in the same
market; and
- an investor in two cement plants, also in the PRC.
Prosperity's iron ore trading business has been operating since
1992 and sources iron ore, for shipment and use in the PRC, from
major international iron ore producers in South Africa, Brazil,
Australia and South East Asia, Thailand and Malaysia in particular.
The majority of the Company's iron ore is sold to large steel
manufacturers in the PRC. In the fiscal years ended 31 March 2012
and 2013, Prosperity shipped 4.8 million tonnes and 2.8 million
tonnes of iron ore respectively.
In December 2010, Prosperity acquired a 35% effective interest
in United Goalink Limited (UGL), a Brazilian mining operation which
owns approximately 600 square kilometres of exploration rights and
3 square kilometres of mining concession in the State of Ceará in
the north east of the country. In the year ended 31 March 2013, UGL
shipped 111,490 tonnes of iron ore (which is included in the above
tally).
Prosperity's real estate investment and development division is
focused on creating an attractive portfolio of PRC property and
development assets. The Company has entered into a number of
agreements with partners to develop residential, commercial and
recreational projects principally in Guangzhou City and Changzhou
City in the southern PRC. Prosperity also owns an interest in an
existing commercial building in Guangzhou, which is a regional
capital and is located in the Pearl River Delta, the foremost
economic zone in the southern PRC.
Prosperity has two associate investments in the cement
manufacturing industry in the PRC. The Company holds a 33.06%
interest in Anhui Chaodong Cement Company Limited (ACC), located in
Anhui Province in the eastern PRC. The designed sellable production
capacity of ACC is 6 million tonnes of cement and clinker per
annum. In addition, Prosperity owns 16.11% of TCC Liaoning Cement
Company Limited which has a designed saleable production capacity
of 2 million tonnes of cement and clinker per annum. As announced
on 6 February 2013, this latter shareholding is the subject of a
conditional sale and purchase agreement.
The PRC is the World's second largest economy (behind the US)
and the biggest buyer of iron ore; it is also the largest producer
and consumer of cement.
CHAIRMAN'S STATEMENT
It was a difficult year, primarily due to a difficult iron ore
market. But we have not been idle. First and foremost, the dramatic
shift in focus of our iron ore trading business - from agent to
principal - continues. Similarly, our real estate strategy of
identifying well-located development sites in major cities looks
set to pay off handsomely in fiscal 2014.
IRON ORE OPERATIONS
I have been trading iron ore for more than 20 years but in the
last three, the industry has undergone fundamental change. The
catalyst for this was the move, in 2010, from annual to quarterly
benchmark price setting. At the same time, the major producers of
iron ore have sought to transact a larger proportion of their
business directly with steel mills. Both these factors have led to
a squeeze on traders' margins, which is why we have re-cast our
iron ore trading model and chosen to invest directly in future raw
material supplies at competitive prices.
This also means a shift from a traditional, low capital
employed, but low margin, trading model to a more capital intensive
one which will, ultimately, improve both profitability and the
quality of earnings. We have, thus, invested as principal or in
off-take agreements, and agreed long term contracts, in a range of
schemes in Asia, Brazil, Canada and South Africa. This tonnage is
guaranteed in the short, medium and long term; and many are
guaranteed at prices which will be at a discount to whatever the
prevailing market price is at that time of delivery.
However, investment in new iron ore mining is a long term
business and an attractive rate of return is not immediate. At UGL
in Brazil (35% owned), for example, construction of a processing
plant was only completed in May 2013. This facility will increase
the quality of the iron ore (from 58 to 63 per cent iron content or
higher), which sells for more, and production capacity (from
450,000 tonnes to 900,000 tonnes per year); while, at the same
time, lowering the costs of production.
REAL ESTATE INVESTMENT AND DEVELOPMENT
Our key development project here is the Oriental Landmark which
is being built in the heart of Guangzhou, one of China's great
cities and a regional capital in the southern PRC which enjoys
consistent economic growth year on year. Residential sales here are
robust and the selling price per square metre has exceeded our
original targets, which means we expect to make a very good return,
the majority of which will come in the current fiscal year. Indeed,
under IFRS, revenue and profit on property sales are only
recognised on completion and when legal title passes to the buyer;
and, for the large part, these titles will be issued in fiscal
2013-14.
As the project moves towards final completion, we can also begin
letting the 35,868 square metres of retail and commercial space
plus 500 car parking spaces in one of the busiest parts of
Guangzhou. This will provide the Company with recurrent and growing
rental income over time.
Meantime, in Changzhou City, near Xiamen in Fujian Province,
progress in a joint venture to develop a recreational, commercial
and residential scheme has been slower than expected. This is due
to a combination of changes in government policy (central and
local) and a less buoyant market. However, Xiamen is a special
economic zone in the PRC and the economic and financial centre of
Fujian Province and we remain confident of long term success
here.
In real estate, too, we know when it is time to sell and, in
Hangzhou, we have done just that. The divestment is our share (50%)
of a commercial real estate development site for some $35 million
and on which we will make $3.9 million pre-tax profit upon
completion.
Finally, our sole investment property, also in Guangzhou,
SilverBay Plaza continues to enjoy 98 per cent occupancy.
CEMENT OPERATIONS
We own 33.06 per cent of Anhui Chaodong Cement Company Limited
(ACC) which contributed $3.3 million to Prosperity in the year and
it recently announced a dividend for its fiscal year ended 31
December 2012. ACC is also listed on the Shanghai Stock Exchange
and, on 21 June, our stake was worth $162 million. Prosperity
Minerals, as a whole, has a market value of $187 million.
Prosperity also has a 16.11 per cent equity interest in TCC
Liaoning Cement Company Limited (TCC Liaoning) in the northern PRC
and it added $1.2 million to our bottom line last year. However, in
February, we agreed to sell our interest to TCC International for
around $23 million and on which Prosperity will make a pre-tax
profit of some $7 million at this time. Completion simply awaits
various regulatory approvals and it is a further example of
Prosperity's ability to generate excellent returns on its
investments.
CORPORATE GOVERNANCE
The Company's focus is on being a responsible business which is
committed to the highest standards of corporate governance. Hand in
hand with this strategy, too, its core objectives are to create a
durable and sustainable business which maximises returns to
shareholders. And here, I would like to thank our Non-executive
Directors for their continued counsel and direction.
OUR PEOPLE
The people who work at Prosperity are our greatest asset and I
thank each and every one of them for their hard work and commitment
during the year.
SHAREHOLDERS
I would also like to thank our shareholders for their continued
support during the year. It is very much appreciated by myself and
the Board.
DIVIDEND
A final dividend of 3 cents per ordinary share (2011-12: 9
cents) will be recommended by the Board. If approved at the AGM,
the total dividend for the year will also be 3 cents per ordinary
share (2011-12: 9 cents). The AGM date and dividend date will be
confirmed when the AGM Notice is sent to shareholders. Since our
IPO seven years ago, we have paid a dividend every year plus an
additional, special dividend in fiscal 2011.
OUTLOOK
At the time of our half year announcement, I said no Chairman
enjoys reporting a loss; and it is true. But in all my time of
trading iron ore - over some two decades - I have not seen the
market behave like it is now. For example, spot prices can move by
double digit percentages in a single day; and Chinese steel mills,
including a number of Prosperity's long term customers, continue to
suffer intermittent losses.
This means we have also had to change the way our iron ore
trading business operates; and we continue to transition from agent
to principal. But this is not a quick fix, it takes time.
It also takes time to develop large mixed-use real estate
developments. But, again, as we are proving in Guangzhou, the
benefits are substantial when they come. Here, the vast bulk of the
649 residential units at Oriental Landmark will be completed and
legally sold (under IFRS accounting) in the current fiscal year.
This means we can then book the revenue and profit. And, while I
know this number is repeated in the announcement, contracted sales
as of last week, were worth $322 million. Elsewhere, we have also
just agreed to sell a raw development site in Hangzhou on which we
expect to book a double digit return without even putting a spade
in the ground.
We sold the bulk of our cement manufacturing businesses for $500
million in 2010 (and a $200 million book profit), but continue to
own two legacy investments. The smaller of these is a 16.11 per
cent interest in TCC Liaoning and, in February, we agreed to sell
it with a prospective return of more than 40%.
Turning to ACC, this is a listed company in which we own just
over 33%. The value of this stake is $162 million. This is 87% of
Prosperity Minerals Holdings' own market value, which means that
all of the other Company's businesses are notionally valued at less
than $25 million.
Prosperity trades exclusively with customers in the PRC and the
new government here has had its share of short term challenges; not
least slowing economic growth - albeit still around 7% per annum.
In the medium to longer term, too, the sheer scale of the nation,
its vast wealth and population underwrite a bright future.
I believe the Company will share in China's growth and,
empirically, it has proven itself to be an effective and very
profitable developer and trader in business - and of businesses. No
more so will this be true than in fiscal 2014, when I expect to
report a very substantial recovery in profits.
(David) Ben Koon Wong
Chairman and CEO
26 June 2013
Operating Review
IRON ORE OPERATIONS
The PRC Government's principal focus is sustainable economic
growth and social stability and two of its key policy instruments
are the control of inflation and legislation to keep property price
rises in check. At the same time, it is seeking to lead and manage
a dramatic change in the structure of China's economy from
predominately manufacturing to one which is more consumer
based.
But, this has led to slower GDP growth and, in the most recent
four quarters, it has been less than 8% for the first time in at
least 20 years. Nonetheless, the consensus view amongst leading
economists, including at HSBC and Goldman Sachs, is that growth
this year will be between 7.0 and 7.5%, which remains the envy of
most other major economies.
As expected, the performance of the domestic steel industry,
including Prosperity's long term customers, has been adversely
impacted by these changes and unprecedented price volatility in its
core raw material, iron ore. For example, between April and October
last year the price of iron ore fell by 40%. The latter has been
wrought by the abandonment of annual benchmark pricing for iron ore
(which has prevailed for four decades) and its replacement with
pricing once a quarter. At the same time, iron ore producers,
especially the majors, have sought to deal directly with the end
user in China.
In turn, this underlines the efficacy of the Company's strategy
to transform its iron ore business from trader to principal; and
during the year further significant progress was made here.
Management is confident about the medium to long term prospects
for iron ore in China. For example, right now just over half the
population is urbanised - compared with more than 80% in Brazil -
and this is expected to rise to 70% within five years. Indeed, on
current urban migration rates, it needs to both expand existing
cities and build 1,000 more during the next decade, according to
China Confidential. As a result, steel intensity has yet to peak,
so iron ore demand could almost double to 1.9 billion tonnes by
2030, forecasts Raw Materials Group.
Iron Ore Trading
In fiscal 2012-13, Prosperity's iron ore trading business
shipped a total of 2.8 million tonnes of iron ore (2011-12: 4.8
million tonnes) and incurred a segment loss of $7.2 million
(2011-12: profit of $4.7 million).
Prosperity has been more selective in accepting shipments during
the period in view of the significant price volatility in the
market. For example, at the end of July 2012, a customer, for the
first time, reneged on an agreement to accept a shipment of 200,000
tonnes of iron ore. Prosperity subsequently found other buyers in
the spot market, but at a lower price which resulted in a loss of
some $3.5 million.
The reduced number of shipments during the yearalso underlines
the importance of increasing the Company's access to reliable
medium-to-long term supplies of iron ore at competitive prices,
where Prosperity is either principal or has signed off-take
agreements.
On 6 February 2013, Prosperity announced that its prepayment to
Century Iron Mines had been reduced to zero and the full $8 million
has been returned to Prosperity as per the agreement between the
parties. Otherwise, the terms of the Century Off-take Agreement
remain unchanged.
On 6 February 2013, Prosperity entered into a Supplementary
Agreement with Blackrock Metals Inc. in which the first shipment
date of iron ore was extended to no later than June 2015. At the
same time, Prosperity was awarded an additional 800,000 tonnes of
iron ore, at the same discount to the prevailing market price, to
the 4 million tonnes of iron ore in the original Blackrock Iron Ore
Off-take Agreement at no extra cost.
On 27 February 2013, the Company announced that it had completed
a Master Restructuring Agreement with ZC Group related to the
settlement of outstanding prepayments made by Prosperity to secure
reliable and competitively priced iron ore. Under the terms of the
agreement, Prosperity utilised part of the prepayment cash to
acquire an iron ore processing plant in Malaysia (the Gebeng Plant)
from ZC Group for $19.5 million. Prosperity has leased the plant
back to ZCM, part of ZC Group, on an exclusive basis for a fee of
$2.5 million per annum. The Company also has the option to require
ZCM to repurchase the Gebeng Plant at a price equal to the
consideration plus an annual rate of return of 8% between 27
February 2013 and the exercise of the option. In fiscal 2012-13,
the Company received $224,000 according to the lease agreement. For
more information on the Master Restructuring Agreement, please
refer to the Company's announcements on 22 October and 31 December
2012 and 27 February 2013.
Investment in United Goalink Limited
Prosperity holds an effective 35 per cent interest in UGL, a
joint venture company engaged in the exploration and production of
iron ore in the State of Ceará, Brazil. UGL owns approximately 600
square kilometres of exploration rights and 3 square kilometres of
mining concession in Ceará. In the year under review, UGL reported
an attributable loss of $5.5 million (2011-12: $1.7 million).
During the year, UGL sold 111,490 tonnes of raw, unprocessed
iron ore with an iron content of approximately 58 per cent
(2011-12: 218,808 tonnes). The decrease reflects a decision by
management to withhold shipments until the new processing plant
became operational. The improved iron content after processing will
enable the Company to sell the processed iron ore at higher prices.
Construction of the processing plant was completed in May 2013 and
trial production has commenced. The plant will increase the quality
of iron ore to 63% iron content, or higher, and gradually increase
production capacity to 900,000 tonnes per annum.
On full drawdown, the loans from Prosperity to UGL will amount
to approximately $49.8 million. To date, the loans utilised by UGL
have been invested in: (i) construction of its processing plant;
(ii) the upgrading of other facilities plus administrative and
operating costs; and (iii) limited exploration on new sites. Over
time, the increased volumes and the production of higher quality,
higher priced iron ore should lower production costs per tonne and
enhance both profit and cash flow to the Company.
All loans and interest will be repaid from production proceeds
on a tonne by tonne basis, with full payment expected within three
years of target production being achieved.
Potential investment in iron ore assets in Malaysia
In February 2012, Prosperity announced its intention to acquire
a competitively priced stake in a Malaysian iron ore operation
together with a long term off-take agreement, through the
acquisition of All Wealthy Capital Limited (AWC). It would do this
alongside Prosperity International Holdings (H.K.) Limited (PIHL),
the Company's majority shareholder. AWC owns a 70% interest in the
Malaysian iron ore operation's owner, Billion Win Capital Limited
(BWC).
On 21 December 2012, Prosperity announced that it had entered
into a new agreement (New Agreement) which replaced all previous
agreements relating to Prosperity's purchase of AWC's shares. PIHL
proposes to buy a 100% interest in BWC, the Malaysian iron ore
operation's owner. Upon completion, PIHL will offer the Company an
option to buy up to 7.55% in BWC for $25 million. The 7.55%
interest is valued at $37.75 million, giving Prosperity an
immediate 51% uplift in the value based on a provision in the
original sale and purchase agreement. If Prosperity exercises this
option, it would also be offered a very attractive 10 year iron ore
off-take agreement as part of the proposed deal.
In June 2013, Prosperity was informed by PIHL that its
acquisition of BWC was taking longer than it had originally
anticipated. Subsequently, Prosperity and PIHL agreed to allow up
to 30 September 2013 (instead of 30 June) for PIHL to complete the
acquisition of BWC. If not completed by that time, the New
Agreement will lapse and Prosperity will ask the vendor to refund
the $7 million deposit by the end of December 2013. In this event,
the Company would no longer be entitled to the benefits of the
off-take agreement.
For further details please refer to the Company's announcements
on 10 February, 7 March, 30 April, 29 June, 28 September, 20
November and 21 December 2012; plus 1 March and 21 June 2013.
REAL ESTATE INVESTMENT AND DEVELOPMENT
Total investment in real estate development in 2012 in the PRC
rose 16.2% to RMB 7.2 trillion ($1.2 trillion); and this included
investment in residential buildings worth RMB 4.9 trillion, which
was up 11.4%. Similarly, in the first five months of 2013 total
investment was 20.6% higher at RMB 2.7 trillion. All data come from
the National Bureau of Statistics (NBS).
In terms of selling prices in 2012, and of newly constructed
residential buildings in particular, they rose in 63 of the
nation's 70 large and medium-sized cities in a band from +0.1 to
+12.1%. This was followed in April of this year, with annualised
selling prices up in all but one of 70 cities in a band from +1.0
to +15.3%.
Prosperity owns and develops in a number of regions of the PRC
and it is a diminutive but nimble operator. Its model focuses on
'location, location, location', price and profit and, where
appropriate, it works together with local partners; for example,
the very successful Oriental Landmark residential and commercial
development in Guangzhou.
Market share is not relevant for the Company but it will benefit
from the continued growth in China. For example, in September 2012,
the National Development and Reform Commission announced plans to
build more than 1,200 miles of roads, nine sewage treatment plants,
five ports, and 25 subway and intercity rail projects. This is part
and parcel of China's rapid urbanisation and Deputy Minister of
Construction Qiu Baoxing is on record as saying that: "every year,
new buildings in China total up to two billion square metres".
China's per capita income has also ballooned over the last five
years. In 2005 it was $4,102. By 2010, it hit $7,519, according to
the OECD, while last year, the CIA World Factbook put China's per
capita income at $9,100; albeit this is still less than Brazil and
a fifth of the US. This will be a key factor in the demand for
living and commercial space.
China is the World's second largest economy (next to the US);
and it is an economy in transition. Here, the shift to the cities
and rampant income growth will change how China operates - away
from an export driven economy to one that is geared more to its
local consumers. This also means, according to the OECD, that it
will surpass the US as the World's number one by 2016.
Guangzhou City, Guangdong Province, PRC
Prosperity owns approximately 11,472 square metres of office and
commercial space in SilverBay Plaza, an existing commercial
building, and has a 55 per cent interest in Oriental Landmark, a
new commercial and residential development, both located in
downtown Guangzhou.Guangzhou is a regional capital in southern
China and is located in the Pearl River Delta, the foremost
economic zone in the south.
SilverBay Plaza was completed in 2004 and, as at 31 March 2013,
had 98 per cent occupancy. SilverBay Plaza contributed
approximately $1.3 million in rental income during the year
(2011-12: $1.3 million).
Prosperity also holds a 55 per cent interest in a commercial and
residential development project known as Oriental Landmark,
previously referred to as Dongfang Wende Plaza. Oriental Landmark
is located in downtown Guangzhou within a few minutes' walk of
Beijing Road, a popular pedestrianised shopping street. The
development comprises a four floor shopping arcade with four
basement floors (one of which is to be part of the shopping arcade
and the other three will form a car park). Above, three residential
buildings with 35 floors are being constructed, plus a fourth with
29 floors and a commercial building comprising 26 floors. The
aggregate floor area will be approximately 169,204 square
metres.
Presales in the first block commenced in December 2011 and up to
21 June 2013, 191 of the 192 units had been sold at an average
price of approximately RMB 31,000 per square metre.
Presales in the second block commenced in April 2012 and, up to
21 June 2013, 162 from 176 available had been sold at an average
price of RMB 34,000 per square metre.
Presales in the third block commenced in July 2012 and, by 21
June 2013, these totalled 151 out of 155 at an average price of RMB
38,000 per square metre.
Presales in the fourth block commencedinOctober 2012 and, to
date, 100 units from 126 offered had been sold at an average price
of RMB 43,000 per square metre.
At 31 March 2013, contracted sales of residential units amounted
to RMB 1,810 million ($288 million) with the Company having
received approximately RMB 1,669 million ($268 million) in cash.
Since then, contracted sales have increased to RMB 1,974 million
($322 million) with RMB 1,936 million ($316 million) in cash
already received.
Presale prices and results have exceeded the Company's original
expectations. This is offset, in part, by higher than budgeted
marketing costs, including sales commission. However, the net
result is very positive for the Company. Under IFRS, revenue and
profit on property sales is only recognised on completion and when
legal title passes to the buyer. In turn, this is determined by the
issue of an occupation permit by the relevant local government
authority. The Company believes that occupation permits will be
issued in fiscal 2013-14, which is also when the first revenue and
profit will be booked. Following completion, Oriental Landmark will
provide the Company with recurrent and growing rental income from
the 35,868 square metres of commercial area in the shopping arcade
and the 500 car park spaces located in one of the busiest areas in
Guangzhou.
Changzhou City, Fujian Province, PRC
In May 2010, Prosperity entered into a 50:50 joint venture
agreement to develop a combined recreational, commercial and
residential project in Changzhou City, Fujian Province, in the
southern PRC.
The development is located 39 kilometres from Xiamen City, which
is classed as a special economic zone in the PRC. Xiamen is the
economic and financial centre of Fujian Province and the largest
city in the Province.
The development offers high-end accommodation and hot spring
resort facilities. The joint venture company is buying the land for
development in stages, while the land for the hot spring resort
facilities is being leased from the local government.
Under the joint venture agreement, Prosperity's maximum
investment is RMB 480 million (approximately $77 million). Up to 31
March 2013, the Company had invested a total of RMB 242 million
(approximately $39 million) in the project.
The Company is revising the development plan for this project in
light of current weakness in this regional property market and
changes in government (central and local) policies. However,
Prosperity remains confident about the long term future of this
project.
Hangzhou City, Zhejiang Province, PRC
On 2 May 2013, Prosperity announced that it had conditionally
agreed to dispose of its 50% interest in a commercial property
development site in Hangzhou, the capital of Zhejiang Province in
Eastern China, to Hangzhou Xihu Tea Market Company Limited. The
prospective consideration for the disposal is RMB 221.8 million
($35.6 million), which would result in a pre-tax profit on disposal
of approximately RMB 24 million ($3.9 million) on completion.
The Company acquired its 50% interest in the Hangzhou Project in
March 2011 and on the 6 February 2013, announced plans to increase
this to 60% for a consideration of RMB 40 million ($6.4 million),
with a view to taking the lead in the development. The proposed
disposal represents a reasonable premium to this February value
and, since construction, which had originally been due to start in
2012, had not commenced due to the construction permit being
delayed, Prosperity believed it is prudent to realise cash and
profit from the disposal which it can apply to other more
attractive prospective projects and working capital.
CEMENT MANUFACTURING
Anhui Chaodong Cement Company (ACC)
Prosperity holds a 33.06 per cent interest in ACC in Anhui
Province, eastern PRC. ACC reported an attributable profit of $3.3
million (2011-12: $15.8 million).
Demand for cement in ACC's region weakened significantly due to
a slowdown in the local real estate market and this was exacerbated
by a temporary delay in construction of the National Express Rail
Link during the year under review.
ACC has a designed saleable production capacity of 6 million
tonnes of cement and clinker per annum. Construction of the third 2
million tonnes per annum clinker production line at ACC was
completed and trial production has commenced. During the year under
review, ACC sold 4.7 million tonnes of cement and clinker.
ACC is listed on the Shanghai Stock Exchange and, as at 21 June
2013, its closing share price was RMB 12.45 at which ACC's market
capitalisation was RMB 3.01 billion ($491.3 million), valuing
Prosperity's shareholding at $162.4 million.
ACC declared its first cash dividend to shareholders in July
2012 and Prosperity received RMB 8 million (approximately $1.3
million) in August 2012. In May 2013, ACC declared a final dividend
for the fiscal year ended 31 December 2012, of which Prosperity's
entitlement is RMB 2.4 million before tax.
TCC Liaoning Cement Company (TCC Liaoning)
Prosperity holds a 16.11 per cent equity interest in TCC
Liaoning which is located near Shenyang, the capital city of
Liaoning Province in the northern PRC. TCC Liaoning reported an
attributable profit of $1.2 million (2011-12: $2.1 million).
TCC Liaoning has a designed saleable production capacity of 2
million tonnes of cement and clinker per annum and, during the year
under review, sold 1.9 million tonnes.
On 6 February 2013, Prosperity signed a conditional sale and
purchase agreement with TCC International Holdings Limited (TCC
International) to sell its 16.11% interest in TCC Liaoning for RMB
144.5 million (approximately $23 million). Prosperity acquired its
interest in TCC Liaoning in September 2010 for a consideration of
RMB 100 million and its disposal should generate a profit before
tax of RMB 44.5 million (approximately $7million). Completion
remains subject to TCC International obtaining the necessary
approvals from the Taiwan Investment Commission and its compliance
with the listing requirements in Taiwan and Hong Kong.
AVAILABLE FOR SALE INVESTMENTS
The Company invests in listed and unlisted securities from time
to time. The total investment as at 31 March 2012 was $21 million
and there was a profit of $1.5 million from disposals. During the
year under review, the Company made further investments and, as at
31 March 2013, the aggregate cost was $31 million. Based on a
marked to market value, however, there has been a net decrease of
$14.8 million in value which has resulted in an impairment loss of
$14.8 million.
Profit and Loss Account
The profit and loss account for the reporting period included
the trading of iron ore and raw materials, real estate investment
and development, profits from associates and losses from jointly
controlled entities.
For the 12 months ended 31 March 2013, revenue decreased from
$754.0 million for the previous year to $390.6 million, while gross
profit for the year decreased from $12.1 million to $3.2 million.
The gross profit margin decreased from 1.6 to 0.8per cent.
There was an EBITDA loss of $28.2 million for the year (2011-12:
EBITDA of $14.7 million).
The operating loss for the year was$18.1 million (2011-12: $5.4
million).
Finance expense was $5.3 million, (2011-12: $4.2 million). Net
finance costs were $0.2 million (2011-12: $0.9 million).
The Company's share of associate companies' profits i.e. 33.06
per cent of ACC and 16.11 per cent of TCC Liaoning, amounted to
$4.5million (2011-12: $17.9 million).
The Company's share of losses of jointly controlled entities,
i.e. a 50 per cent interest in Changtai Jinhongbang Real Estate
Development Co., Ltd, a 50 per cent interest in Hangzhou Prosperous
Property Ltd and a 35 per cent effective interest in UGL was a $6.1
million (2011-12: $2.0 million).
Profit before tax moved from $10.0 million in the previous year
toa loss of $33.9 million. The provision for tax was $1.7 million
(2011-12: $2.0 million).
Basic and diluted loss per share amounted to 23.09 cents
(2011-12: earnings per share of 4.41 cents and diluted earnings per
share of 3.71 cents respectively).
The dividend for the year will be 3 cents (2011-12: 9 cents) per
ordinary share and includes a proposed final dividend of 3 cents
(2011-12: 9 cents). The ex-dividend date, record date and payment
date will be confirmed when the AGM Notice is sent to
shareholders.
Cashflow and Balance Sheet
There was a net cash inflow from operating activities of $130.7
million for the year (2011-12: $6.6 million). Investing activities
absorbed $115.0 million (2011-12: $69.9 million) while cash and
cash equivalents at 31 March 2013 amounted to $100.8 million (31
March 2012: $171.4 million).
Liquidity measured by the current ratio (which is current assets
divided by current liabilities) was 1.45 (31 March 2012: 1.80). The
quick ratio (which is current assets, excluding properties under
development for sale, divided by current liabilities) was 0.75 (31
March 2012: 1.01).
Capital expenditure of $0.7 million represented 0.2 per cent of
revenue (2011-12: 0.3 per cent).
Net debt at the year end, defined as total borrowings less cash
and cash equivalents, time deposits and restricted deposits was
$5.4 million (31 March 2012: $50.3 million). This compares with net
assets of $501.9 million as at 31 March 2013 (31 March 2012: $542.0
million).
The gearing ratio (i.e. net debt divided by shareholders funds)
at the end of fiscal 2012-13 was 1.1 per cent (2011-12: 9.3 per
cent).
Prosperity Minerals Holdings Limited
Consolidated income statement for the year ended 31 March
2013
Year ended 31 March
2013 2012
US$'000 US$'000
Revenue 390,631 753,975
Cost of sales (387,427) (741,842)
----------- ----------
Gross profit 3,204 12,133
Other operating income 2,143 2,403
Distribution expenses (6,780) (4,081)
Administrative expenses (25,797) (26,748)
Change in fair value of investment
properties and investment properties
under development 9,117 10,932
----------- ----------
Loss from operations (18,113) (5,361)
Finance income 5,528 3,334
Finance expenses (5,291) (4,228)
Share of profits less losses of
associates 4,541 17,898
Share of profits less losses of
jointly controlled entities (6,069) (1,980)
Loss on dilution of interest in
an associate - (2,074)
Net gain on sale of available-for-sale
investments 95 1,496
Impairment loss on available-for-sale (14,822) -
investments
Gain on re-measurement of derivative
financial instruments to fair value 184 927
----------- ----------
(Loss)/profit before taxation (33,947) 10,012
Income tax (1,681) (2,008)
----------- ----------
(Loss)/profit for the year (35,628) 8,004
=========== ==========
Attributable to:
Equity shareholders of the Company (33,103) 6,306
Non-controlling interests (2,525) 1,698
----------- ----------
(Loss)/profit for the year (35,628) 8,004
=========== ==========
(Loss)/earning per share (US cents)
Basic (23.09) 4.41
=========== ==========
Diluted (23.09) 3.71
=========== ==========
Consolidated statement of comprehensive income for the year
ended 31 March 2013
Year ended 31 March
2013 2012
US$'000 US$'000
(Loss)/profit for the year (35,628) 8,004
Other comprehensive income for the
year (Note):
Exchange differences on translation
of financial statements of subsidiaries,
associates and jointly controlled
entities in the People's Republic
of China (the "PRC") 4,316 13,920
Net movement in fair value reserve
for available-for-sale investments 4,123 (5,267)
---------- ----------
Total comprehensive income for the
year (27,189) 16,657
========== ==========
Attributable to:
Equity shareholders of the Company (25,649) 11,562
Non-controlling interests (1,540) 5,095
---------- ----------
Total comprehensive income for the
year (27,189) 16,657
========== ==========
Note: There is no tax effect relating to the above components of
other comprehensive income
Consolidated statement of financial position asat 31 March
2013
31 March 31 March
2013 2012
US$'000 US$'000
Non-current assets
Property, plant and equipment 1,097 757
Investment properties 29,191 28,525
Investment properties under development 179,826 126,378
Interests in jointly controlled
entities 93,762 99,798
Interests in associates 53,367 66,558
Available-for-sale investments 16,523 18,036
Prepayments 58,328 97,666
Finance lease receivables 17,381 -
--------- ---------
449,475 437,718
--------- ---------
Current assets
Non-current asset held for sale 17,212 -
Properties under development for
sale 289,732 202,218
Trade and other receivables 125,571 81,086
Finance lease receivables 2,222 -
Held-to-maturity investment - 795
Available-for-sale investments 2,088 6,354
Prepaid income tax 5,368 -
Restricted deposits 374 2,171
Time deposits 54,095 -
Cash and cash equivalents 100,753 171,368
--------- ---------
597,415 463,992
--------- ---------
Current liabilities
Bank loans 75,210 167,741
Trade and other payables 336,862 89,865
Income tax payable 116 393
412,188 257,999
--------- ---------
Net current assets 185,227 205,993
--------- ---------
Total assets less current liabilities 634,702 643,711
--------- ---------
Non-current liabilities
Bank loans 85,418 56,109
Deferred tax liabilities 47,383 45,607
---------- ----------
132,801 101,716
---------- ----------
Net assets 501,901 541,995
========== ==========
Capital and reserves
Share capital 2,657 2,657
Reserves 248,877 241,423
Retained earnings 166,219 212,227
---------- ----------
Total equity attributable to equity
holders of the Company 417,753 456,307
Non-controlling interests 84,148 85,688
---------- ----------
Total equity 501,901 541,995
========== ==========
Consolidated cash flow statement for the year ended 31 March
2013
Year ended 31 March
2013 2012
US$'000 US$'000
Operating activities
(Loss)/profit before taxation (33,947) 10,012
Adjustments for:
- Depreciation 411 430
- Equity-settled share-based transactions - 684
- Impairment loss on available-for-sale
investments 14,822 -
- Interest income (5,528) (2,745)
- Finance expenses 5,291 4,228
- Share of profits less losses of
jointly controlled entities 6,069 1,980
- Share of profits less losses of
associates (4,541) (17,898)
- Gain on re-measurement of derivative
financial instruments to fair value (184) (927)
- Change in fair value of investment
properties and investment properties
under development (9,117) (10,932)
- Loss on dilution of interest in
an associate - 2,074
- Net gain on sale of available-for-sale
investments (95) (1,496)
----------- ------------
Operating loss before changes in
working capital (26,819) (14,590)
(Increase)/decrease in trade and
other receivables (1,696) 6,164
Decrease in amount due from an associate - 262
Increase in trade and other payables 245,732 29,267
Additional construction cost of properties
under development for sale (80,490) (14,213)
----------- ------------
Cash generated from operations 136,727 6,890
PRC tax paid (6,051) (279)
----------- ------------
Net cash generated from operating
activities 130,676 6,611
----------- ------------
Investing activities
Interest received 5,239 1,658
Interest received from finance lease 224 -
receivables
Increase in time deposits (54,095) -
Payment for purchase of property,
plant and equipment (658) (336)
Payment for purchase of investment
properties (11) (2,298)
Additional construction cost of investment
properties under development (40,903) (5,998)
Dividend received from an associate 1,145 -
Capital contributions to jointly
controlled entities - (15,684)
Deposit refunded/(paid) for an option
to purchase an available-for-sale
investment 6,000 (6,000)
Payment for purchase of derivative
financial instruments - (7,000)
Dividend received from a jointly
controlled entity - 300
Advances to jointly controlled entities
and one of their subsidiaries (21,967) (20,429)
Advances to joint venturers (5,733) (4,178)
Advance to a non-controlling shareholder - (1,271)
Advances to independent business
partners - (11,540)
Repayment from a joint venturer - 3,178
Repayment from independent business
partners - 11,540
Acquisition of available-for-sale
investments (11,732) (26,965)
Proceeds from disposal of available-for-sale
investments 6,662 10,480
Acquisition of held-to-maturity investment - (795)
Proceeds from disposal of held-to-maturity
investment 803 5,467
Net cash used in investing activities (115,026) (69,871)
----------- ------------
Financing activities
Decrease in restricted deposits 1,797 5,476
Proceeds from new bank loans 78,139 291,656
Repayments of bank loans (144,212) (247,400)
Interest paid (9,440) (10,399)
Proceeds from exercise of warrants
and options - 2,072
Dividends paid (12,905) (25,810)
Net cash (used in)/generated from
financing activities (86,621) 15,595
----------- ------------
Net decrease in cash and cash equivalents (70,971) (47,665)
Cash and cash equivalents at 1 April 171,368 213,941
Effect of foreign exchange rate changes 356 5,092
----------- ------------
Cash and cash equivalents at 31 March 100,753 171,368
=========== ============
Segment reporting
The Group manages its business by business lines. In a manner
consistent with the way in which information is reported internally
to the Group's most senior executive management for the purposes of
resource allocation and performance assessment, the Group has
presented the following two reportable segments. No operating
segments have been aggregated to form the following reportable
segments.
- Trading of iron ore and raw materials; and
- Real estate investment and development
Other operating segments which do not meet the quantitative
thresholds prescribed by IFRS 8 for determining reportable segments
are combined as "all other segments".
Segment results
For the purposes of assessing segment performancesand allocating
resources between segments, the Group's senior executive management
monitors the results attributable to each reportable segment on the
following bases:
Revenue and expenses are allocated to the reportable segments
with reference to the revenue generated and the expenses incurred
by those segmentsor which otherwise arise from depreciation or
amortisation of assets attributable to those segments. The measure
used for reporting segment (loss)/profit is (loss)/profit before
taxation and finance costs, adjusted for head office or corporate
administration costs which are not specifically attributable to
individual segments.
Segment reporting
Information regarding the Group's reportable segments for the
year ended 31 March 2013 is set out below.
Trading of iron Real estate
ore investment
and raw materials and development All other segments Total
Year ended 31 Year ended 31 Year ended 31 Year ended 31
March March March March
2013 2012 2013 2012 2013 2012 2013 2012
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue 389,178 752,647 1,453 1,328 - - 390,631 753,975
Other revenue 815 2,020 334 158 - 30 1,149 2,208
---------- --------- ---------- ---------- ---------- --------- ---------- --------------
Reportable segment
revenue 389,993 754,667 1,787 1,486 - 30 391,780 756,183
---------- --------- ---------- ---------- ---------- --------- ---------- --------------
Reportable segment
(loss)/profit (7,161) 4,731 (13,808) (9,554) (178) (953) (21,147) (5,776)
---------- --------- ---------- ---------- ---------- ---------
Unallocated income
and expenses (6,083) (10,517)
---------- --------------
Loss from
operations (27,230) (16,293)
Finance income 5,528 3,334
Finance expenses (5,291) (4,228)
Share of profits
less losses
of associates 4,541 17,898
Share of profits
less losses
of jointly
controlled
entities (6,069) (1,980)
Loss on dilution of
interest
in an associate - (2,074)
Net gain on sale of
available-for-sale
investments 95 1,496
Change in fair
value of
investment
properties and
investment
properties under
development 9,117 10,932
Impairment loss on
available-for-sale
investments (14,822) -
Gain on
re-measurement of
derivative
financial
instruments
to fair value 184 927
---------- --------------
(Loss)/profit
before taxation (33,947) 10,012
Taxation (1,681) (2,008)
---------- --------------
(Loss)/profit for
the year (35,628) 8,004
---------- --------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGUBPQUPWURQ
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