Yinggao Holdings PLC : Half Yearly Report

Yinggao Holdings plc

("Yinggao" or the "Company")

Interim Results

The Board of Yinggao announces the unaudited interim results of the Company for the period from 1 January 2011 to 30 June 2011. A copy of these financial statements will also be available on the Company's website www.yinggaoholdings.com.

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CHAIRMAN'S STATEMENT

Introduction

I am delighted to report that the Group's performance during the six months to 30 June 2011 has resulted in profits significantly higher than during the same period of prior year.  We have deployed our resources to achieve greater efficiency in our core operations including the continuing capital investment in the upgrade of the facilities at our container terminal and in the lease of new barges that will drive the future profitability of the Group.  The performance is particularly encouraging given the economic slowdown both in the USA and Europe.

Results

Record revenues for a six month period in the first half of 2011 of HK$276 million, up 76% on the corresponding period in 2010, have resulted in an EBITDA of HK$34 million (H1 2010: HK$21 million). Profit before taxation totalled HK$28 million (H1 2010: HK$14 million) and earnings per share totalled HK$1.01 (H1 2010: HK$0.51), representing growth of 100% and 98% respectively.

The Group's gross profit increased by 31% to HK$39 million in H1 2011 from HK$30 million in H1 2010. However, the gross profit margin fell to 14% in the first half of 2011 from 19% in the corresponding period in 2010, due to 54% of group revenue being generated from trading of non-ferrous metal, up from 39%. In non-ferrous metal trading, the gross profit margin fell from 5.2% to 1.6%.

The container terminal segment delivered a gross profit margin of 28% compared to 29% in the previous period. The barging services segment's gross profit margin increased from 30% to 34% year-on-year, largely due to increased handling capacity of the barges, coupled with increased income generated from container leasing.

The Group's cash balances stood at HK$ 24 million as at 30 June 2011, compared to HK$6 million as at 30 June 2010. The Group made HK$102 million prepaid lease payments during the first six months of 2011(H1 2010: HK$ nil) which was paid to the owner of our new barges as a deposit payment so as to secure a long term lease as well as a competitive chartering fee.  These substantial lease payments resulted in the net cash generated from operation activities of minus HK$3.5 million.  However, management took the view that this is a one off expenditure which the board does not consider a long term working capital hurdle to the Group.

Operating Review

Operationally, the Group has performed well in the first half of the year.  It has made good progress with its strategy to increase its revenue year on year across all three business segments. 

The container terminal reported an increase in the half year both in revenue and throughput of 17% and 19% respectively, compared to the corresponding period last year.  We are very pleased to have expanded our customer base in domestic trade, which has alleviated the effect of the slowdown in export trade in China.  Despite the continuous growth in revenue of the container terminal, we do not expect its profit margin will grow in parallel as the depreciation cost will increase incrementally due to the installation of the new machinery and equipment.

It was particularly pleasing to see the strong performance of the barging service business during this period.  Its revenue continued to grow with an increase of 57% to HK$58 million from HK$37 million in the first half year which accounted for 21% (H1 2010: 24%) of the Group's total revenue.  Not only has the operating profit of this business segment itself increased (H1 2011 : HK$16 million vs H1 2010: HK$6.4 million), but its contribution to Group profit increased from 44% to 56% compared to the same period last year.  This has provided an incentive to the management to accelerate the strategy of expanding the barging services business so as to maximize shareholders' returns.  We are in fact benefiting from the planned operational synergies as the container leasing business provides auxiliary service to our customers in shipping.  

During the first six months of 2011, approximately 54% of the Group's revenues were derived from trading of non-ferrous metal. Whilst its profit margin is only 1.3%, its operating profit of HK$1.9 million represented 7% of the total operating profit of the Group. Though management recognises the trading profit margin is relatively low compared to the other two core businesses, the trading platform has proven to be a stimulus to the barging services business as some metal trading customers use our barges for shipment as well. 

Prospects

We now place the delivery of strong operating performance at the heart of our strategy for the business, as demonstrated again by these results.  Looking into the second half of 2011, the Group will continue to build its business and focus on Yinggao's strengths to achieve its ultimate goal of becoming the industry leader in the barging service business sector in the Pearl River Delta.  The size of our "228 TEU" barges has proved to be far more cost effective compared to the common size of "120 TEU" barges used by our competitors in the region.  We will continue expanding our fleet with an aim to increase our overall carrying capacity.

As for the Keen Chance Terminal, the board is optimistic on the outlook for growth of the throughput for the years to come.  The deployment of the advanced new cargo handling equipment and machinery, coupled with the facility upgrade project, has not only increased the cargo turnover efficiency but also increased the stacking capacity by approximately 20%.  In addition, we will adopt a cautious approach by diversifying the customer base so as to address the changing global economy. 

The Board would again like to thank all our staff for the commitment, professionalism and loyalty that they have shown during the last six-months of progress. We are looking forward to the future with confidence.

Angela Leung

Chairman

19 September 2011

FINANCIAL HIGHLIGHTS

For the six months ended 30 June 2011

(Expressed in Hong Kong dollars)

*Earnings attributable to owners of the parent before interest, tax, depreciation and amortisation

Condensed consolidated income statement

For the six months ended 30 June 2011

(Expressed in Hong Kong dollars)

Condensed consolidated statement of comprehensive income

For the six months ended 30 June 2011

(Expressed in Hong Kong dollars)

Condensed consolidated balance sheet

As at 30 June 2011

(Expressed in Hong Kong dollars)

Condensed consolidated statement of changes in equity

For the period ended 30 June 2011

(Expressed in Hong Kong dollars)

Notes:

(i)            Statutory surplus reserve:

In accordance with the laws of the People's Republic of China (the "PRC") and the Articles of Association of certain of the Company's subsidiaries, directors of these subsidiaries may at their discretion make appropriations to a statutory surplus reserve equivalent to 10% of the subsidiaries' net profits until the balance reached 50% of the registered capital of that subsidiary. Distribution of profits to shareholders can only be made after such appropriations.

The statutory surplus reserve may be used to reduce any losses incurred or be capitalised as paid up capital. The statutory public welfare reserve is not available for distribution.

(ii)           The merger reserve represents the difference between the nominal value of shares of the subsidiary company acquired, and the nominal value of the Company's shares issued in exchange in 2002.

Yinggao Holdings plc

Condensed consolidated cash flow statement

For the period ended 30 June 2011

(Expressed in Hong Kong dollars)

Yinggao Holdings plc

Notes to the condensed interim financial statements

For the period ended 30 June 2011

(Expressed in Hong Kong dollars)

1          General information

The Company is a public limited company incorporated and domiciled in the United Kingdom. The registered office of the company is located at 25 Farringdon Street, London, EC4A 4AB.  Its principal place of business are in Hong Kong and the People's Republic of China ("PRC").

The principal activities of the Company and its subsidiaries (hereinafter collectively referred to as the "Group") are provision of terminal services, barging services and non-ferrous metal trading.

The Company's shares were admitted to trading on the AIM Market of the London Stock Exchange. These condensed consolidated interim financial statements are presented in Hong Kong dollars ("HK$"), unless otherwise stated, and were reviewed by the Audit Committee and approved for issue by the Board of Directors on 19 September 2011.

2         Summary of significant accounting policies

(a)      Basis of preparation and statement of compliance

The Company has a financial year end date of 31 December. These condensed consolidated interim financial statements for the six months ended 30 June 2011 have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting". These condensed consolidated interim financial statements should be read in conjunction with the annual audited financial statements of the Group for the year ended 31 December 2010, which have been prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use in the European Union ("EU").

EU-endorsed IFRSs may differ from IFRSs, as issued by the International Accounting Standards' Board("IASB") if, at any point in time, new or amended IFRSs have not been endorsed by the EU. At 30 June 2011, there were no unendorsed standards effective for the period ended 30 June 2011 affecting these condensed consolidated interim financial statements, and there was no difference between IFRSs endorsed by the EU and IFRSs issued by the IASB in terms of their application to YinggaoHoldings plc.

(b)      Impact of recently issued IFRSs

The IASB has issued a number of amendments to IFRSs, new standards and interpretations that are first effective for the current accounting period of the Group.  Of these, the following developments are relevant to the Group's financial statements:

•    Revised IAS 24, Related Party Disclosures

•     Improvements to HKFRSs (2010)

The above amendments to IFRSs have had no material impact on the Group's results of operations and financial position, and do not contain any additional disclosure requirements specifically applicable to the interim financial statements.

Up to the date of issue of this interim financial statements, the IASB has issued a number of amendments, new standards and Interpretations that are not yet effective for the period ending 30 June 2011 and that have not been early adopted in the interim financial statements. Of these developments, the followings may be relevant to the Group's financial statements:

The Group is in the process of assessing the impact of these amendments, new standards and interpretations in the period of initial application, but is not yet in a position to determine whether the adoption will have any significant impact on the Group's results of operations and financial position.

(c)       Use of estimates and assumptions

The preparation of financial statements requires the use of estimates and assumptions about future conditions. The use of available information and the application of judgement are inherent in the formation of estimates. Actual results in the future may differ from those reported as a result of the use of estimates and assumptions about future conditions. Management believes that the company's critical accounting estimates involving a higher degree of judgement or complexity with those assumptions and estimates mainly relate to the impairment of loans and advances, the goodwill impairment and the valuation of financial instruments.

(d)Consolidation

The condensed consolidated interim financial statements of Yinggao Holdings plc comprise the financial statements of the Company and its subsidiaries.

3       Revenue and segment reporting

The principal activities of the Group are provision of terminal services, barging services and non-ferrous metal trading together with other related services including sea freight forwarding and barge hire.

The Group determines its operating segments based on information reported to the chief operating decision maker, which is focused on the category of customer for each type of goods and services.  The principal categories of customers for these goods and services are terminal services, barging services and non-ferrous metal trading. 

Information regarding the above segments is reported below:

4        Profit before taxation

Profit before taxation is stated after charging/(crediting):

The amount of income tax expense charged to the consolidated income statement represents:

In respect of subsidiaries operating in Hong Kong, the provision for Hong Kong profits tax is calculated at 16.5% of the estimated assessable profit for the period/year less allowable losses brought forward.

Subsidiaries operating in the PRC are subject to Enterprise Income Tax ("EIT") at a rate of 25%.  However, the Company's subsidiary in Guangzhou is now subject to a preferential tax rate of 24% as described below.  Others had tax losses brought forward from previous years.

On 16 March 2007, the National People's Congress passed the Corporate Income Tax Law of the PRC (the "Tax Law").  Under the Tax Law, the EIT tax rate applicable to the Company's subsidiary in Guangzhou is increased from 15% to 25% progressively within five years from 1 January 2008 (2008: 18%; 2009: 20% 2010: 22%; 2011: 24%; 2012: 25%).  The Tax Law has been applied when measuring the Group's current tax payable as at 30 June 2011.

6        Earnings per share

Basic and diluted earnings per share are calculated by dividing the earnings attributable to owners of the parent by the weighted average number of ordinary shares in issue during the period/year ended 30 June 2011, 30 June 2010 and 31 December 2010, respectively.

7        Dividend

The directors do not recommend the payment of any dividend.(six months ended 30 June 2010: HK$Nil)

8        Prepaid lease payments

Prepaid lease payments represented a lump sum operating lease prepayments for a number of vessels used by the Group for barging services in the coming 15 years.

9        Property, plant and equipment

During the period, the Group purchased property, plant and equipment amounted to HK$47,605,000 (six months ended 30 June 2010: HK$26,305,000), in which HK$23,420,000 (six months ended 30 June 2010: HK$Nil) was acquired under finance leases.

In addition, the Group disposed of certain property, plant and equipment with carrying value of HK$24,598,000 (six months ended 30 June 2010: HK$Nil) for cash proceeds of HK$23,893,000 (six months ended 30 June 2010: HK$Nil).

10      Investments in subsidiaries

At 30 June 2011, the Company held 100% of the ordinary shares of Yinggao Investments Limited, a company incorporated in the British Virgin Islands ("BVI"), whose principal activity was that of, an investment holding company.  Yinggao Investments Limited had the following subsidiaries' undertakings: