RNS Number : 8242C
West China Cement Limited
05 September 2008
WEST CHINA CEMENT LIMITED
UNAUDITED INTERIM RESULTS FOR THE
SIX MONTHS ENDED 30 JUNE 2008
Financial Highlights
* Profit before tax increased 57% to RMB 87.7 million (June 2007: RMB 55.9 million).
* Group turnover for the first half of the year rose 68% to RMB 338 million (June 2007: RMB 201 million); Sales from Pucheng were
RMB 131 million (June 2007: RMB 152 million) and Lantian RMB207 million (June 2007: RMB 49 million).
* The increase in turnover is due to the two new Lantian production lines which came into production in April and July 2007.
* Group turnover and production were affected by the exceptional snow in January and February. Pucheng sales for January and
February were 43% below the previous year's level for the same period.
* Group turnover was ahead of budget in March to June and the sales lost in January and February are expected to be recovered by the
third quarter.
* Other operating income of RMB 16 million (June 2007: RMB 12 million) includes RMB 14 million VAT rebates (June 2007: RMB 11
million).
* The Group secured a US$60 million debt facility with warrants attached to finance its third production base - the Ankang plant,
which will contribute a further 1.8 million tonnes of production capacity per annum following its expected completion in Q1 2009.
Operational Highlights
* Both Pucheng and Lantian are now fully operational.
* The Lantian waste heat project was completed in August at a cost of RMB 60 million. This project is expected to result in cost
savings of RMB 14 million per annum.
* Further cost savings are anticipated through the use of demolition waste from Xi'an as a substitute for fly-ash at the Lantian
Plant.
* The Ankang plant is expected to be completed early in 2009.
* The disastrous earthquake in Sichuan, south of Shaanxi province has intensified the demand for cement in the region. This has
widened the demand-supply gap in southern Shaanxi.
* The Group has been able to pass on the major effects of cost pressures, mainly rising fuel and coal costs, to its customers, with
gross margin declining by only 1% to 33%. Demand is buoyant in the region and significant price increases have been made since 30 June.
Enquiries:
Robert Robertson, West China Cement Limited
Tel: + 44 118 974 4636
Christopher Caldwell / Emma Brewer, NCB Stockbrokers Limited
Tel: + 44 20 7071 5200
Chairman's Statement
WCC again delivered a substantial increase in profit for the first half of 2008, in line with expectations. Profit amounted to RMB 87.7
million (�6.4 million), an increase of 57% over the same period in 2007, which is highly satisfactory given the severe disruption to
production and demand brought about by the exceptional snowstorms at the time of the Chinese New Year. From March operations have been
running at above normal levels, and the shortfall in sales in the first two months of the year should be recouped during the second half
year.
It is pleasing that the Lantian plants, commissioned in April and July of last year, have been running consistently at capacity since
March. Lantian production amounted to 0.91 million tonnes out of the total of 1.56 million in the half year.
WCC was able to substantially pass on the effects of significant cost increases to its customers. Coal prices averaged 43.7% higher than
in the first half of last year. Gross Margin suffered a marginal 1% decline to 33%. However significant price increases have been made since
the end of June, and the company is aiming to increase margins in buoyant trading conditions.
The Ankang project remains on schedule to begin production early in 2009. Its annual production will be approximately 1.8 million
tonnes, increasing WCC's capacity to about 5.3m tonnes. Situated in the South of the province, demand for Ankang's product has been
underpinned by the reconstruction requirements following the tragic earthquake in Sichuan. The project has not been immune to cost pressures
however, and we now expect the capital cost to increase by RMB 30 million (�2.2 million) to RMB 725 million (�53.0 million), or RMB 685
million (�50.1 million) net of tax credits. It was important that WCC complete the project on schedule and the credit crisis made financing
of this more difficult than anticipated. It is to the company's credit that it was able to raise $60 million through Credit Suisse, as
announced on 30 May 2008.
WCC remains committed to taking advantage of the unusual growth opportunities in Shaanxi province to the fullest extent possible in
current financial markets. It has further projects in mind and will be actively seeking to finance further expansion.
While there is some evidence of a slow-down in the rate of growth in China, demand continues to grow at a pace which can still be
considered exceptional. This is particularly true of demand for cement in Shaanxi province, and the company looks forward to building
further on the substantial growth in production and profitability achieved so far.
Robert Robertson
Non-Executive Chairman
Unaudited Consolidated Income Statement
for the six months ended 30 June 2008
6 months 6 months 12 months
ended ended ended
30/06/2008 30/06/2007 31/12/2007
(Unaudited) (Unaudited) (Audited)
RMB 000 RMB 000 RMB 000
Continuing Operations
Revenue 338,016 201,151 525,929
Cost of sales (226,300) (132,131) (350,165)
Gross profit 111,716 69,020 175,764
Other operating income 16,059 11,842 38,803
Selling and distribution costs (5,660) (4,523) (9,796)
Administrative expenses (20,061) (10,250) (30,151)
Operating profit 102,054 66,089 174,620
Investment income 536 1,022 1,826
Financial costs (14,907) (11,202) (26,173)
Profit before income tax 87,683 55,909 150,273
Income tax (expense)/credit (5) - -
Profit for the period 87,678 55,909 150,273
Attributable to:
Equity holders of the Company 87,678 55,909 150,273
Earnings per share
Basic (RMB per share) 1.37 0.87 2.35
Diluted (RMB per share) 1.21 0.87 2.34
Unaudited Consolidated Balance Sheet
as at 30 June 2008
At 30/06/2008 At 30/06/2007 At 31/12/07
(Unaudited) (unaudited) (Audited)
RMB 000 RMB 000 RMB 000
Non current assets
Land use rights 56,171 7,657 57,236
Property, plant and equipment 1,194,066 783,434 944,927
Deferred tax assets 12,364 12,364 12,364
1,262,601 803,455 1,014,527
Current assets
Inventories 62,837 37,531 45,653
Trade and other receivables 299,767 94,255 111,062
Pledged deposits 19,539 22,000 24,336
Cash and cash equivalents 40,632 38,443 29,997
422,775 192,229 211,048
Total assets 1,685,376 995,684 1,225,575
Current liabilities
Trade and other payables (163,623) (124,215) (187,019)
Tax liabilities - (510) -
Bank borrowings (23,000) (23,000) (23,000)
Other borrowings (3,644) - (3,700)
(190,267) (147,725) (213,719)
Net current assets 232,508 44,504 (2,671)
(liabilities)
Non-current liabilities
Bank borrowings (655,905) (234,653) (296,200)
Other borrowings (17,176) (24,356) (18,415)
Other liabilities (14,800) - (14,800)
(687,881) (259,009) (329,415)
Net assets 807,228 588,950 682,441
Unaudited Consolidated Balance Sheet
as at 30 June 2008 (continued)
Notes At 30/06/2008 At 30/06/2007 At 31/12/07
(Unaudited) (unaudited) (Audited)
RMB 000 RMB 000 RMB 000
Equity
Share capital 87,730 97,914 93,482
Share premium 598,811 668,321 638,070
Reverse acquisition reserve (354,452) (354,452) (354,452)
Warrants 41,151 - -
Share options reserve 5,931 3,629 5,228
Statutory reserve 45,188 26,054 36,420
Foreign currency translation 77,737 5,260 37,471
reserve
Retained earnings 305,132 142,224 226,222
Equity attributable to equity 807,228 588,950 682,441
holders of the Company
Unaudited Consolidated Statement of Changes in Equity
for the six months ended 30 June 2008
Attributable to equity holders of the Company
Share capital Share premium Reverse acquisition Share options Statutory reserve Foreign
currency Retained earnings Total
reserve reserve translation
reserve
RMB 000 RMB 000 RMB 000 RMB 000 RMB 000
RMB 000 RMB 000 RMB 000
Balance at 1 January 2007 97,542 662,593 (354,452) 4,646 20,463
550 91,906 523,248
Total recognised income and
expense
- Profit for the period - - - - -
- 55,909 55,909
Exercise of warrants 649 7,611 - (1,445) -
- - 6,815
Share options reserve - - - 441 -
- - 441
Transfer to reserve - - - - 5,591
- (5,591) -
Foreign exchange reserve (277) (1,883) - (13) -
4,710 - 2,537
Balance at 30 June 2007 97,914 668,321 (354,452) 3,629 26,054
5,260 142,224 588,950
Unaudited Consolidated Statement of Changes in Equity
for the six months ended 30 June 2008
Attributable to equity holders of the Company
Share capital Share premium Reverse acquisition Share options Statutory reserve Foreign
currency Retained earnings Total
reserve reserve translation
reserve
RMB 000 RMB 000 RMB 000 RMB 000 RMB 000
RMB 000 RMB 000 RMB 000
Balance at 30 June 2007 97,914 668,321 (354,452) 3,629 26,054
5,260 142,224 588,950
Total recognised income and
expense
- Profit for the period - - - - -
- 94,364 94,364
- Foreign exchange reserve - - - - -
5,720 - 5,720
Share options reserve - - - 1,743 -
- - 1,743
Transfer to reserve - - - - 10,366
- (10,366) -
Foreign exchange reserve (4,432) (30,251) - (144) -
26,491 - (8,336)
Balance at 31 December 2007 93,482 638,070 (354,452) 5,228 36,420
37,471 226,222 682,441
Total recognised income and
expense
- Profit for the period - - - - -
- 87,678 87,678
Equity portion of CS loan - - - 41,151 -
- - 41,151
Share options reserve - - - 1,025 -
- - 1,025
Transfer to reserve - - - - 8,768
- (8,768) -
Foreign exchange reserve (5,752) (39,259) - (322) -
40,266 - (5,067)
Balance at 30 June 2008 87,730 598,811 (354,452) 47,082 45,188
77,737 305,132 807,228
Unaudited Consolidated Cash Flow Statement
for the six months ended 30 June 2008
6 months 6 months 12 months
ended ended ended
30/06/2008 30/06/2007 31/12/2007
(Unaudited) (Unaudited) (Audited)
RMB 000 RMB 000 RMB 000
OPERATING ACTIVITIES
Operating profit 102,054 66,089 174,620
Adjustment for:
Depreciation of property, 30,099 16,222 44,829
plant and equipment
Amortisation of land use 1,065 102 203
rights
Allowances for doubtful debts - - (1,207)
Loss/ (Gain) on disposal of - 111 1,971
property, plant & equipment
Share based payment 1,025 441 2,184
Operating cashflow before 134,243 82,965 222,600
movements in working capital
(Increase)/ decrease in (17,184) (13,340) (21,462)
inventories
(Increase)/ decrease in (188,705) (48,490) (64,090)
receivables
Increase/ (decrease) in (23,401) 34,239 96,533
payables
Cash generated by operations (95,047) 55,374 233,581
Taxes refund/ (paid) - - -
Interest paid (14,907) (11,202) (26,173)
NET CASH GENERATED FROM (109,954) 44,172 207,408
OPERATING ACTIVITIES
INVESTING ACTIVITIES
Interest received 536 730 1,826
Short term investment - 292 -
Purchase of property, plant & (279,238) (172,548) (364,351)
equipment
Acquisition of land use right - - (31,180)
Proceeds on disposal of - 157 -
property, plant & equipment
Decrease/(Increase) in cash 4,797 (19,432) (21,768)
pledged
NET CASH USED IN INVESTING (273,905) (190,801) (415,473)
ACTIVITIES
Unaudited Consolidated Cash Flow Statement
for the six months ended 30 June 2008 (continued)
6 months 6 months 12 months
ended ended ended
30/06/2008 30/06/2007 31/12/2007
(Unaudited) (Unaudited) (Audited)
RMB 000 RMB 000 RMB 000
FINANCING ACTIVITIES
Net proceeds from/ (repayment 400,856 7,949 69,496
of) bank borrowings
Net proceeds from/ (repayment (1,295) (24,617) (30,558)
of) other borrowings
Proceeds on issue of new - 6,815 6,508
shares (net)
NET CASH GENERATED FROM 399,561 (9,853) 45,446
FINANCING ACTIVITIES
NET INCREASE IN CASH AND CASH 15,702 (156,482) (162,619)
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT 29,997 192,388 192,388
BEGINNING OF PERIOD
Foreign exchange difference (5,067) 2,537 228
CASH AND CASH EQUIVALENTS AT 40,632 38,443 29,997
END OF PERIOD
NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS
For the six months ended 30 June 2008
1. Principal accounting policies
(a) Basis of preparation
The consolidated financial statements of West China Cement Limited and its subsidiary undertakings (the "Group") for the year ended 31
December 2008 will be prepared in accordance with those International Financial Reporting Standards and Interpretations in force ("IFRS"),
as adopted by the European Union, and those parts of the Companies (Jersey) Law 1991 that are applicable to companies preparing financial
statements under IFRS.
This Interim Report has been prepared in accordance with UK AIM listing rules which require it to be presented and prepared in a form
consistent with that which will be adopted in the annual accounts having regard to the accounting standards applicable to such annual
accounts. It has not been prepared in accordance with IAS 34 "Interim Financial Reporting" and therefore is not fully in compliance with
IFRS.
The policies applied are consistent with those set out in the annual report for the year ended 31 December 2007 and have been
consistently applied, unless otherwise stated.
The financial statements have been prepared under the historical cost convention modified to include the revaluation of investment
properties and properties available for sale.
The consolidated financial statements are presented in Renminbi ("RMB"), the currency of the primary economic environment in which the
Group operates. Foreign operations are included in accordance with the policies set out below.
The financial information for the six months ended 30 June 2007 and 30 June 2008 have been extracted from the accounting records of the
Group. The balances as at 31 December 2007 and the results for the year then ended have been extracted from the audited financial
statements. The auditors' report on those financial statements was unqualified.
The results for the six months ended 30 June 2008 were approved by the Board on the 4 September 2008 and are available on the Company's
website www.westchinacement.com from 8 September 2008.
(b) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its subsidiary undertakings using the
acquisition method of accounting. The results of the subsidiary undertakings acquired or disposed of during the year are included in the
consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
All intra-group transactions, balances, income and expenses are eliminated on consolidation. The acquisition of West China Cement Co.
Limited ("West China (BVI)") by West China Cement Limited on October 27, 2006 was accounted for as a reverse acquisition, in accordance with
IFR3 'Business Combinations'.
The Company became the legal parent of West China (BVI) by way of a share exchange agreements. This business combination is regarded as
a reverse acquisition whereby West China (BVI), the legal subsidiary, is the acquirer and has the power to govern the financial and
operating policies of the legal parent so as to obtain benefits from its activities.
1. Principal accounting policies (continued)
(c) Foreign exchange
The functional currency of the subsidiary undertakings is Renminbi ("RMB"), and the presentation currency of the Group is RMB.
Transactions in currencies other than RMB are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance
sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the
balance sheet date, and gains or losses arising on retranslation are included in the net profit for the year. Non-monetary assets and
liabilities are translated using historical rate, and exchange rate differences arising are classified as equity and transferred to foreign
currency translation reserve.
On consolidation, the assets and liabilities of foreign operations are translated at the exchange rate prevailing on the balance sheet
date. Income and expense items are translated at the average exchange rates for the year unless exchange rates fluctuate significantly.
For the six months ended 30 June 2008, the foreign operations' financial statements have been translated from GBP or HKD to RMB at the
following exchange rates:
At 30 June 2008 Average rates for period
RMB: GBP 13.6836 13.9379
RMB: HKD 0.8792 0.9052
2. Revenue
The Group revenue, all generated from continuing operations, comprises:
6 months 6 months 12 months
ended ended ended
30/06/2008 30/06/2007 31/12/2007
(Unaudited) (Unaudited) (Audited)
RMB 000 RMB 000 RMB 000
Sales of cement 338,016 201,151 525,929
Other operating income
VAT rebates 14,465 11,400 30,528
Rental income 45 39 91
Government incentives 700 - 5,180
Sundry income 649 403 23
Creditors written back 200 - 2,981
16,059 11,842 38,803
Investment income
Interest from deposits 536 730 1,534
Income from short term - 292 292
investment
536 1,022 1,826
Total revenue 354,611 214,015 566,558
Sales of cement represents the invoiced value of cement sold, net of value added tax (VAT) and other sales taxes and after allowances
for goods returned and trade discounts.
The VAT rebate relates to a local government incentive to environmental-friendly enterprises for recycling industry waste as production
input. Only certain approved products are entitled to this rebate. The rebate is accounted for on an accruals basis.
Government incentives include "clean" project investment incentive of RMB 700,000 (June 2007: Nil). Government incentives for year ended
31 Dec 2007 include recycling incentives RMB150,000, bulk cement sale incentive RMB230,000 and "clean" project investment incentive RMB
800,000.
3. Income tax
The two operating and income generating entities, Shaanxi Yaobai Special Cement Ltd and Xi'an Lantian Yaoabai Cement Ltd, are entitled
to the preferential tax rate of 15% under the China Western Development Plan.
In addition these two companies are registered as foreign investment enterprises and are entitled to two years tax holiday from the
first profit-making year and to a 50 percent tax relief, i.e. applicable tax rate of 7.5%, for another three years thereafter. The
applicable tax rate are as follow:
Shaanxi Yaobai Xi'an Lantian Yaobai Cement Ltd
Special Cement Ltd
Year end 2006 Tax free N/A
Year end 2007 Tax free Tax free
Year end 2008 7.5% Tax free
Year end 2009 7.5% 7.5%
Year end 2010 7.5% 7.5%
In the period ended 30 June 2008, tax provision was provided for Shaanxi Yaobai Special Cement Ltd. However, there is no tax payment
liabilities as the tax provision was being offset against the deferred tax assets previously provided.
The Group has recognised deferred tax assets at 31 December 2007 and 30 June 2008 of RMB12,364,000 arising principally from tax relief
from capital investment under "Investment in domestic product and equipment in technology transformation" scheme. For period ended 30 June
2008, part of these deferred tax assets were used to offset against the tax liabilities incurred by Shaanxi Yaobai Special Cement Ltd.
4. Earnings per share
Basic earning earnings per share
Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average
number of ordinary shares in issue during the period/ year.
6 months 6 months 12 months
ended ended ended
30/06/2008 30/06/2007 31/12/2007
(Unaudited) (Unaudited) (Audited)
Profit/ (Loss) attributable to 87,677 55,909 150,273
equity holders of the Company
(RMB 000)
Weighted average number of 64,113 63,979 63,979
ordinary shares in issue
(thousands)
Earnings per share (RMB per 1.37 0.87 2.35
share)
4. Earnings per share (continued)
Diluted earnings per share
The Company has two categories of dilutive potential ordinary shares - share options and share warrants to loan creditor. Calculation
is done to determine the number of shares deemed to be issued for no consideration in respect of these options and warrants.
6 months 6 months 12 months
ended ended ended
30/06/2008 30/06/2007 31/12/2007
(Unaudited) (Unaudited) (Audited)
Profit attributable to equity 87,677 55,909 150,273
holders of the Company (RMB
000)
Weighted average number of 64,113 63,979 63,979
ordinary shares in issue
(thousands)
Adjustment for dilutive 8,198 254 365
potential ordinary share
(thousands)
Weighted average number of 72,311 64,233 64,345
ordinary shares for diluted
earnings (thousands)
Diluted Earnings per share 1.21 0.87 2.34
(RMB per share)
5. New loan facility
On 29 May 2008, the Company entered into a loan facility agreement for up to US$60 million (the "Facility") with accompanying warrants
(the "Warrants"). The loan under the Facility is secured by, amongst other things, a charge over all of the shares held by the Company in
West China (BVI), a pledge over the equity held by West China Cement in Shaanxi Yaobai, assignments of intercompany loans, charges over bank
accounts of the Company and West China (BVI) and a fixed and floating debenture over the assets of the Company.
The loan has been fully drawn down and the proceeds are being used to finance the construction of the Ankang plant. The construction of
Ankang is expected to be completed in early 2009. Interest for the facility is 13.5% per annum, payable on a quarterly basis. The interests
incurred during the construction period are capitalised within the cost of construction.
50% of the loan is repayable by 6 June 2010 and the remaining 50% by 6 June 2011.
Pursuant to the Facility, the Company also issued Warrants to subscribe for 7,802,142 ordinary shares in the Company at a strike price
of GBP1.358, subject to anti-dilution adjustments and strike price resets under certain circumstances. The Warrants may be exercised at any
time up to 36 months after the issuance of the Warrants.
The loan is initially recorded at cost being the fair value, and then subsequently at amortised cost - i.e. not subsequently restating
the fair value, but adjusting it across the life of the loan to come back to nil at the end.
The warrants, being an equity instrument, are measured at the residual amount, being the difference between the total cash received and
the fair value of the debt as calculated. Any directly attributable transaction costs will then be allocated to the liabilities and the
equity in proportion to the allocation of proceeds. Subsequent to the initial recognition, the warrant element will not be revalued or
changed until the warrants are exercised or lapse. The liability element will be measured at amortised cost using the effective interest
rate. The charge to the income statement will then be based on this effective rate.
6. Trade and other receivables
The Trade and other receivable balance as at 30 June 2008 includes a pre-payment of approximately RMB 180 million made in respect of the
construction of the Ankang plant. This payment was transferred to non-current assets (Ankang construction-in-progress) in July 2008. The
average credit period taken on sales of goods for the six months ended 30 June 2008 was 64 days which is in line with normal credit cycle.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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