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CStone Pharmaceuticals Interim / Quarterly Report 2002
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Download source file兗州煤業股份有限公司
Yanzhou coal mining COMPANY LIMITED
(a joint stock limited company incorporated in the People's Republic of China with limited liability)
Interim results for the six months ended 30th June, 2002
Yanzhou Coal Mining Company Limited (the "Company") is pleased to announce the unaudited interim operating results of the Company for the six months ended 30th June, 2002:
* Net sales was RMB2,928.6 million (or approximately US$353.8 million, or HK$2,759.6 million), an increase of 25.4% as compared with the net sales of RMB2,335.4 million (or approximately US$282.1 million, or HK$2,203.2 million) for the same period last year.
* Net income was RMB696.4 million (or approximately US$84.1 million, or HK$656.2 million), an increase of 55.8% as compared with the net income of RMB447.0 million (or approximately US$53.99 million, or HK$421.7 million) for the same period last year.
* In the first half of 2002, the special purpose coal transportation railway assets (the "Railyway Assets"), which the Company acquired on 1st January, 2002, carried a total of 13.073 million tonnes of coal. Contribution of the Railway Assets to the net income of the Company was RMB66.221 million (or approximately US$8.0 million, or HK$62.4 million) in the first half of 2002.
Net income of the Company for the first six months of 2002 was RMB696.4 million, representing an increase of RMB249.4 million or 55.8% over the same period last year. During the reporting period, the Company's raw coal production was 19.297 million tonnes, increased by 2.306 million tonnes or 13.6% compared with the same period last year; salable coal production was 18.131 million tonnes, increased by 2.077 million tonnes or 12.9%, compared with the same period last year. Sales volume for the first six months of 2002 was 16.18 million tonnes, representing an increase of 745,000 tonnes or 4.8% over the same period last year. Total net sales for the first six months of 2002 was RMB2,928.6 million, a RMB593.2 million or 25.4% increase over that for the same period last year. In the first half of 2002, the special purpose coal transportation railway assets (the "Railway Assets"), which the Company acquired in early 2002, carried a total of 13.073 million tonnes of coal and brought along an income of RMB67.991 million for coal transportation service.
SUMMARY OF UNAUDITED FINANCIAL INFORMATION
(prepared in accordance with International Accounting Standards ("IAS"))
| For the six months ended 30th June | ||||||||
| % change as | Year ended | |||||||
| compared with | 31st December | |||||||
| 2002 | 2001 | same period | 2001 | |||||
| (RMB'000) | (RMB'000) | last year | (RMB'000) | |||||
| (unaudited) | (unaudited) | (+/-) | (audited) | |||||
| Net sales | ||||||||
| Domestic Sale | 1,583,981 | 1,348,035 | 17.5 | 2,599,812 | ||||
| Export | 1,344,628 | 987,393 | 36.2 | 2,276,198 | ||||
| Total net sales | 2,928,609 | 2,335,428 | 25.4 | 4,876,010 | ||||
| Railway transportation service income | 67,991 | - | - | - | ||||
| Gross profit | 1,539,770 | 973,210 | 58.2 | 2,063,427 | ||||
| Operating income | 1,006,436 | 595,209 | 69.1 | 1,303,796 | ||||
| Interest expenses | (63,988 | ) | (23,879 | ) | 168.0 | (61,519 | ) | |
| Income before income taxes | 984,871 | 617,619 | 59.5 | 1,360,173 | ||||
| Net income | 696,387 | 446,998 | 55.8 | 970,945 | ||||
| Earnings per share (RMB/share) | 0.24 | 0.16 | 50.0 | 0.35 |
| As at or for | As at or for | |||||
| the period ended | the period ended | |||||
| 30th June | 31st December | |||||
| 2002 | 2001 | 2001 | ||||
| (unaudited) | (unaudited) | (audited) | ||||
| Total assets (RMB'000) | 12,425,814 | 10,707,735 | 11,182,591 | |||
| Shareholder's equity (RMB'000) | 9,469,421 | 8,536,087 | 9,060,034 | |||
| Return on net assets (%) | 7.35 | 5.24 | 10.72 | |||
| Net asset value per share (RMB/share) | 3.30 | 3.11 | 3.23 | |||
| Net cash flows from operating activities per share (RMB/share) | 0.36 | 0.20 | 0.57 |
REVIEW OF OPERATIONS
The following discussion is based on the Company's unaudited financial results for the first half of 2002 and the Company's unaudited financial results for the first half of 2001, which were prepared in accordance with IAS.
Raw Coal Production
The Company's raw coal production increased by 2.306 million tonnes, or 13.6%, over the same period last year, to 19.297 million tonnes in the first half of 2002. The production increase can be attributed to the followings: (i) the coal production of Jining III increased by 1.212 million tonnes, or 48.3%, over the same period last year to 3.721 million tonnes; (ii) the Company achieved steady production increases at the five original existing coal mines by continually improving the long wall top caving mining technology and raising production efficiency through enhancement of equipment integration and mining techniques.
Salable Coal Production
The Company's salable coal production increased by 2.077 million tonnes, or 12.9%, to 18.131 million tonnes in the first half of 2002 as compared to the same period in 2001. The main reasons are i) raw coal production increased by 2.306 million tonnes and ii) the increase of raw coal production was partially offset by coal loss during preparation.
Product Sales
The Company continued with the operating strategies of increasing sales volume, enhancing export volume as well as increasing sales of higher-priced clean coal in the first half of 2002 . In the first half of 2002, the Company's sales volume increased by 745,000 tonnes, or 4.8%, to 16.18 million tonnes compared with the same period last year. Of the total sales volume, 9.436 million tonnes were sold in the domestic market, representing a decrease of 265,000 tonnes, or 2.7%, compared to the same period last year, mainly resulted from a decrease of screened raw coal sales by 902,000 tonnes. Export sales volume increased by 1.01 million tonnes, or 17.6% over the same period last year, to 6.744 million tonnes, mainly due to an increase of No. 2 clean coal exports by 1.119 million tonnes. Export sales volume as a percentage of the Company's total sales volume increased by 4.5% compared with the same period in 2001.
Sales Pricing
The following table sets out the Company's product prices for the six months ended 30th June, 2002, 30th June 2001 and for the full year ended 31st December, 2001, respectively:
(prepared in accordance with IAS)
| For the six | |||||||||
| For the six months | months Ended | ||||||||
| ended 30th June, | 31st December, | ||||||||
| 2002 | 2001 | 2001 | |||||||
| Average price | Average price | Average price | Average price | ||||||
| (taken into | calculated on | ||||||||
| accounts effects | same basis in | ||||||||
| of railway | accordance | ||||||||
| transportation) | with last year | ||||||||
| (RMB per tonne) | (RMB per tonne) | (RMB per tonne) | (RMB per tonne) | ||||||
| Clean Coal | |||||||||
| No.1 Clean Coal | 237.6 | 223.1 | 220.1 | 215.1 | |||||
| No.2 Clean Coal | 207.7 | 193.9 | 181.9 | 193.6 | |||||
| Domestic | 249.2 | 249.2 | 218.3 | 227.7 | |||||
| Exports | 206.0 | 191.5 | 177.8 | 191.7 | |||||
| No.3 Clean Coal | 192.5 | 180.8 | 167.8 | 179.1 | |||||
| Domestic | 184.6 | 178.3 | 159.4 | 163.7 | |||||
| Exports | 195.7 | 181.8 | 170.6 | 183.2 | |||||
| Subtotal for Clean Coal | 198.1 | 185.7 | 171.5 | 183.7 | |||||
| Domestic | 194.1 | 187.0 | 169.3 | 172.9 | |||||
| Exports | 199.4 | 185.3 | 172.2 | 185.9 | |||||
| Screened Raw Coal | 176.2 | 174.6 | 141.8 | 152.9 | |||||
| Mixed Coal and others | 96.7 | 94.9 | 80.4 | 94.3 | |||||
| Average | 181.0 | 173.4 | 151.3 | 162.9 |
Notes: 1. The average prices represent the invoice prices minus sales taxes, transportation cost from the Company to ports, port charges and miscellaneous fees.
- The historic average price per tonne for the six months ended 31st December, 2001, was calculated based on the following formula:
(Net sales for the year ended 31st December, 2001) less (net sales for the six months ended 30th June, 2001)
(Sales volume for the year ended 31st December, 2001) less (sales volume for the six months ended 30th June, 2001)
- Information relating to net sales and sales volume for the year ended 31st December, 2001 was set out in the Company's 2001 annual report.
The Company's average coal price was RMB181.00 in the first six months of 2002. After eliminating effects from the acquisition of the Railway Assets, the Company's average coal price was RMB173.44, representing an increase of RMB22.14, or 14.6%, over the same period last year. The average domestic price increased by 18.7% while the average export price increased by 7.6%.
The increase of the Company's average coal price in the first half of 2002 can be attributed to the following: i) 2001 domestic and export coal price continued to increase, with prices in the first half lower than that in the second half. In the first half of 2002, the proportional increase in domestic and overseas coal sales prices was comparatively significant and ii) sales volume of higher-priced clean coal increased as the Company adjusted its product mix to meet changing market demand for different coal products.
Net Sales
Net sales of coal increased by RMB593.2 million, or 25.4%, to RMB 2,928.6 million in the first half of 2002 compared with the same period last year. The increase reflected an increase in net domestic sales by RMB235.9 million, or 17.5%, to RMB1,584.0 million, and an increase in net export sales by RMB357.2 million, or 36.2%, to RMB1,344.6 million. Export sales as a percentage of the Company's total net sales increased by 3.6% compared with the same period in 2001.
The following table sets out the Company's net sales by product category for the six months ended 30th June, 2002 and 2001 respectively:
(prepared in accordance with IAS)
| For the six months ended | For the six months ended | |||||||||||
| 30th June, 2002 | 30th June, 2001 | |||||||||||
| (unaudited) | (unaudited) | |||||||||||
| Sales | Net | % of total | Sales | Net | % of total | |||||||
| volume | sales | net sales | volume | sales | net sales | |||||||
| '000 tonnes | RMB'000 | (%) | '000 tonnes | RMB'000 | (%) | |||||||
| Clean Coal | ||||||||||||
| No.1 Clean Coal | 258.1 | 61,322 | 2.1 | 146.9 | 32,339 | 1.4 | ||||||
| No.2 Clean Coal | 2,504.1 | 520,186 | 17.7 | 1,423.6 | 258,876 | 11.1 | ||||||
| Domestic | 103.1 | 25,699 | 0.8 | 141.6 | 30,907 | 1.3 | ||||||
| Exports | 2,401.0 | 494,487 | 16.9 | 1,282.0 | 227,969 | 9.8 | ||||||
| No.3 Clean Coal | 6,129.5 | 1,179,900 | 40.3 | 5,915.3 | 992,708 | 42.5 | ||||||
| Domestic | 1,786.4 | 329,759 | 11.3 | 1,463.2 | 233,284 | 10.0 | ||||||
| Exports | 4,343.1 | 850,141 | 29.0 | 4,452.1 | 759,424 | 32.5 | ||||||
| Subtotal of Clean Coal | 8,891.7 | 1,761,408 | 60.1 | 7,485.8 | 1,283,923 | 55.0 | ||||||
| Domestic | 2,147.6 | 416,780 | 14.2 | 1,751.7 | 296,530 | 12.7 | ||||||
| Exports | 6,744.1 | 1,344,628 | 45.9 | 5,734.1 | 987,393 | 42.3 | ||||||
| Screened Raw Coal | 5,814.8 | 1,024,717 | 35.0 | 6,717.2 | 952,404 | 40.8 | ||||||
| Mixed Coal and others | 1,473.6 | 142,484 | 4.9 | 1,232.4 | 99,101 | 4.2 | ||||||
| Total | 16,180.1 | 2,928,609 | 100.0 | 15,435.4 | 2,335,428 | 100.0 |
Railway Assets
The Company acquired the Railway Assets from the Parent Company at the beginning of 2002. To reflect the contributions of the acquired Railway Assets, the operating results of the Railway Assets in the first six months of 2002 was presented separately as an independent operation division in accordance with IAS.
Before the acquisition of the Railway Assets, for coal products sold to customers through the ports and transported by the Railway Assets, the Company settled the accounts with the customers at FOB prices. The Company bore the transportation expenses incurred on the mine area special railway lines and made payments to the Parent Company. Such expenses are regarded as sale/transportation cost of the Company. For coal products transported directly to the customers by trains, the Company settled the accounts with the customers at Ex-mine prices. The customers bore the transportation expenses incurred on the mine area special railway lines and made payments to the Parent Company through the Company.
After the acquisition of the Railway Assets, the Company bears expenses relating to the mine area special railway lines for coal products sold on FOB terms. When accounting the Railway Assets as an independent operation division, transportation through the mine area special railway lines is treated as internal transportation. The transportation charges are calculated as the Railway Assets' income from internal transportation, which are off-set against the sale/transportation cost of the Company when consolidating the statements. The cost of such transportation is included in the internal transportation cost of the Railway Assets before the consolidation of the statements, and included into the sales/transportation cost of the Company when consolidating the statements. For the settlement of the coal products sold on Ex-mine terms, the customers bear the transportation expenses incurred on the Railway Assets. The transportation through the mine area special railway lines is treated as an external transportation and the transportation income derived less sales tax are included in the item of transportation service income after tax of Railway Assets. Cost of such transportation is included as the cost of goods sold of the Company.
Main operation figures of the Railway Assets as an independent operation division are as follows:
| Items | January to June, 2002 | |||
| 1. | Income from Railway Transportation (RMB'000) | 259,018 | ||
| Transportation Volume (tonne) | 13,073,231 | |||
| Freight (RMB/tonne) | 19.81 | |||
| Including: | (i) | Income from External Transportation (RMB'000) | 70,311 | |
| Transportation Volume (tonne) | 4,111,981 | |||
| Freight charges (RMB/tonne) | 17.10 | |||
| (ii) | Income from Internal Transportation (RMB'000) | 188,707 | ||
| Transportation Volume (tonne) | 8,961,250 | |||
| Freight (RMB/tonne) | 21.06 | |||
| 2. | Sales Tax (RMB'000) | 2,320 | ||
| 3. | Cost of Railway Transportation (RMB'000) | 91,194 | ||
| Cost of External Transportation (RMB'000) | 24,813 | |||
| Cost of Internal Transportation (RMB'000) | 66,381 | |||
| 4. | Contribution to the Net Income of the Company (RMB'000) | 66,221 |
Cost and Expenses
Total operating expenses for the first six months of 2002 had increased by RMB250.0 million, or 14.4%, to RMB1,990.2 million as compared with those of the same period last year. Among those, cost of goods sold increased by 6.9% and the selling, general and administrative expenses increased by 41.1%.
MANAGEMENT DISCUSSION AND ANALYSIS
The following discussion and analysis are based on the unaudited interim financial report of 2002 and the unaudited 2001 interim financial report of the Company. These financial reports are prepared in accordance with IAS. For a discussion of certain differences between the IAS and accounting principles generally accepted in the United States of America ("US GAAP"), please refer to note 16 to the financial information prepared in accordance with IAS.
In the first half of 2002, the Company established net sales of RMB2,928.6 million. After excluding the impact of the railway assets acquisition, net sales of the Company in the first six months of 2002 had increased by RMB470.9 million, or 20.2%, to RMB2,806.3 million, as compared with the same period of 2001. Such increase was principally due to higher product prices and larger sales volume, which contributed RMB358.2 million and RMB112.7 million to the increase in net sales respectively.
The income from coal railway transportation service of the Company in the first six months of 2002 was RMB 67.991 million.
Cost of goods sold increased by RMB94.612 million, or 6.9%, to RMB1,456.8 million in the first six months of 2002 compared with the same period of 2001, of which RMB24.813 million was the cost of railway transportation services.
After excluding the impact of acquisition of the Railway Assets, cost of goods sold of the Company increased by RMB69.799 million, or 5.1%, to RMB1,432 million in the first six months of 2002 compared with the same period of 2001. The increase in cost of goods sold was principally due to increases in production volume and proportion of clean coal washed. As compared with the same period of 2001, the unit cost of goods sold increased by RMB0.25 to RMB88.50, of which RMB1.45 was caused by the increased volume of washed clean coal. In the first six months of 2002, the Company increased production efficiency by reducing unit fixed costs through the use of advanced technology such as innovated roof support system and auxiliary transportation system, and enhanced management system to decrease consumption of materials and reduce other costs. As a result of taking the measures mentioned above, costs and expenses were kept under control, which partially offset the impact from higher volume of washed clean coal .
Selling, general and administrative expenses increased by RMB155.3 million, or 41.1%, from RMB378.0 million to RMB533.3 million in the first six months of 2002 as compared with the same period of 2001, of which (i) the retirement benefits scheme contributions increased by RMB24.407 million,(ii) wages and employee benefits increased by RMB37.643 million, (iii) acquisition of the Railway Assets increased by RMB29.989 million,(iv) distribution charges increased by RMB11.655 million and (v) provision for doubtful debts increased by RMB30.715 million.
The Company's operating income increased by RMB411.2 million, or 69.1%, to RMB1,006.4 million for the first six months of 2002 from RMB595.2 million for the same period last year. This was principally due to increased coal sales and increased income from railway transportation generated from the newly acquired Railway Assets.
In the first half of 2002, interest expenses increased by RMB40.109 million, or 168.0%, to RMB63.988 million from RMB23.879 million for the first half of 2001. This was principally due to the increase in long term loan interest expenses for the acquisition of the Railway Assets.
Before deduction of income taxes, income increased by RMB367.3 million, or 59.5%, to RMB984.9 million for the first six months of 2002 from RMB617.6 million for the first half of 2001.
Net income increased by RMB249.4 million, or 55.8%, to RMB696.4 million for the first six months of 2002 from RMB447.0 million for the same period of 2001.
Total assets increased by RMB1,243.2 million, or 11.1%, to RMB12,425.8 million as at 30th June, 2002 from RMB11,182.6 million as at 31st December, 2001. This was principally due to the acquisition of the Railway Assets by way of loan from bank and the increase in assets resulted from the Company's operation activities.
Total liabilities increased by RMB831.8 million, or 39.2%, from RMB2,120.1 million as at 31st December, 2001 to RMB2,951.9 million as at 30th June, 2002. This was principally due to the increase in long-term loan to finance the acquisition of Railway Assets.
Shareholders' equity increased by RMB409.4 million, or 4.5%, from RMB9,060.0 million as at 31st December, 2001 to RMB9,469.4 million as at 30th June, 2002. This was principally attributed to the increase in the retained earnings of profits arising from the Company's operation activities.
LIQUIDITY AND CAPITAL RESOURCES
In the first half of 2002, the Company's principal sources of capital are proceeds from cash flow from operations and bank loans. The Company's principal uses of the capital include payment for the acquisition of Jining III and the Railway Assets and the purchase of property, plants, equipment and payment of shareholders' dividend.
As at 30th June, 2002, the balance of the Company's accounts receivable and notes receivable was RMB 800.9 million, an increase of RMB 106.6 million or 15.4% from 694.3 million as at 31st December, 2001. That is principally due to the increase of new customers and sales.
Inventories increased by RMB187.4 million, or 42.6%, to RMB627.3 million as at 30th June, 2002 from RMB439.9 million as at 31st December, 2001. This was principally due to the increase of coal stocks, which can be attributed to the followings: (i) to maintain the stability of domestic coal prices, the Company took temporary measures to control the sales volume in the domestic market; (ii) the Company increased sales volume transported through the canals, resulting in higher volume of coal in transit and (iii) increases in total production and varieties of coal products offered for sale, resulting in higher volume of total coal stocks.
Prepayment and other current assets increased by RMB138.8 million (or 16.3%) to RMB992 million from RMB853.2 million as at 31st December, 2001. This was principally due to the increase in equipments prepayments.
Accounts payable decreased by RMB9.86 million, or 1.5%, to RMB626.5 million as at 30th June, 2002 from RMB636.4 million as at 31st December, 2001.
Other accounts payable and provisions increased by RMB48.332 million, or 9.1%, to RMB581.2 million from RMB532.9 million as at 31st December, 2001, principally due to the increase of RMB39.634 million in provisions.
Long-term liabilities increased to RMB1,272.5 million as at 30th June, 2002 from RMB72.456 million as at 31st December, 2001. This was principally due to the long-term loan of RMB1,200 million from the bank for acquisition of the Railway Assets.
In the first half of 2002, the Company's capital expenditure was RMB1,852.3 million. This principally consisted of payments of RMB550 million and RMB1,242.4 million for the acquisition of Jining III and the Railway Assets respectively as well as payment of RMB59.852 million for the purchase and replacement of machinery and equipments.
As at 30th June, 2002, the Company's debt to equity ratio was 12.7%. The total shareholder's equity and amount of long term bank loan was RMB9,469.4 million and RMB1,200 million, respectively.
Since 2002, the Company resumed collecting "Wei Jian Fei" at the rate of RMB6.00 per tonne of raw coal produced for injection into the current future development fund. The Company has also transferred RMB512.88 million into future development fund to account for the amount of "Wei Jian Fei" which should have been but not yet actually transferred for the period of 1999 to 2001. The aforesaid adjustment has no impact on the Company's financial status and operation
results.
Taking into account the cash in hand and existing abundant capital sources, the Company believes that it will have sufficient capital for its operational requirements.
TAXATION
For the period under review, the Company is still subject to an income tax rate of 33% on its taxable profits.
US GAAP RECONCILIATION
The Company's unaudited interim financial statements are prepared in accordance with IAS, which differs in certain respects from US GAAP. Please refer to note 16 to the interim financial statements prepared in accordance with IAS for this period description of the differences between IAS and US GAAP.
OUTLOOK FOR THE SECOND HALF OF 2002
In the first half of 2002, the Company overcame negative effects of domestic coal prices fluctuation and decrease of coal export prices fluctuation to achieve a stable growth in businesses. The domestic and overseas coal markets are expected to maintain stable in the next half year, which will benefit the Company in achieving better performance.
Domestic coal market is expected to stabilize. Chinese economy continues to grow with stability, which is expected to effectively lead to an increase of coal demand. In 2002, the Chinese Government has continued to implement structural reforms, eliminating outdated and excess production capacity in the coal industry in order to improve balance and stabilize coal prices in the domestic market. Since July, the domestic market has improved, with noticeable growth occurred in the areas including Eastern China where major clients of the Company are located. It is expected that the domestic market will be stable with a tendency to rise.
International thermal coal facing price decrease. Affected by slow recovery of the world economy, increases in coal supply and decreases in oil price, the price of international thermal coal has gone down in 2002. The thermal coal contract price signed between Australia and Japan decreased by 7.7% during the financial year 2002. The Australian BJ spot price decreased by US$4.05/tonne (or 14.9%) from US$27.25 at the beginning of the year to US$23.20/ tonne at the end of July. International coal companies began to control coal production in order to stabilize international coal prices.
The Company strived to achieve sound performance. The Company is expected to realize the total sales target of 34 million tonnes, among which coal export target is 14 million tonnes. Long-term coal export contracts signed amounted to 11.17 million tonnes and spot coal contracts amounted to 2.14 million tonnes. Contract coal sales has reached 95.1% of the export sales target. In the first quarter of 2002, as contract coal was exported at prices determined in financial year 2001, which were higher than those of this year. The Company's average prices of contract coal in the second half of 2002 is expected to be lower than those in the first half and it is expected that the average contract coal price for this year will be slightly lower than last year. In comparison to 2001, average domestic sales price has increased by 16.6%. Domestic coal prices are expected to continue to increase. In 2002, acquisition of the Railway Assets has contributed to the increase in profitability of the Company. The Company is expected to achieve results that will satisfy the shareholders.
The Company will focus on the following operating strategies in the second half of 2002: (i) Increase sales volume, ensuring the realization of sales objectives of the year. The Company will further improve its coal preparation system, storage, loading, and transportation systems, enhance its quality management system, improve quality of products and increase sales volumes; (ii) Control costs. The Company will continue to improve the top caving mining technology, improve production efficiency decrease unit fixed costs, enhance anchor net supporting, reform auxiliary transportation in order to decrease costs. The Company will improve EPR management system and reinforce the management of costs and expenses.
DISCLOSURE OF SIGNIFICANT EVENTS
Final Dividends
At the 2001 annual general meeting of the Company held on 7th June, 2002, the shareholders of the Company approved a final dividend of RMB287.000 million (including tax), or RMB0.10 per share (including tax). Such final dividend had been paid to shareholders of the Company before 30th June, 2002.
Interim Dividends
Interim dividends will not be paid to the shareholders of the Company. Conversion of surplus reserves into shares of capital will not take place.
Acquisition of Jining III Coal Mine
On 1st January, 2001, the Company acquired Jining III Coal Mine from the Parent Company at the price of RMB2,450.9 million. Part of the purchase price of RMB2,364.3 million has been paid by the Company with cash in hand and the net proceeds raised from the issuance of A Shares and H Shares. The balance of the purchase price of RMB86.634 million will be paid before 31st December, 2002.
The consideration of Jining III Coal Mine's mining rights is 132.5 million, to be paid in ten equal annual instalments without interest commencing from 2001. At the end of the reporting period, the Company has already paid RMB26.496 million.
Acquisition of Railway Assets
The Company acquired the Railway Assets from the Parent Company on 1st January, 2002 at the price of RMB1,242.6 million. At the end of the reporting period, the Company has paid off the purchase price with a long-term loan of RMB 1,200 million and cash in hand of RMB42.586 million.
Pursuant to the acquisition agreement for the Railway Assets, when the annual transportation volume of the Railway Assets reaches the target levels of 25 million tonnes, 28 million tonnes and 30 million tonnes in 2002, 2003 and 2004, respectively, the Company will pay the Parent Company an amount equals to RMB40 million each year before 30th June, for three years beginning from 2003.
Connected Transactions
The Company's connected transactions during the first half of 2002 are set out in notes 14 to the financial statements prepared in accordance with IAS.
After the acquisition of the Railway Assets on 1st January, 2002, the amount of connected transactions with the Parent Company decreased. In the first half of 2001, connected transactions resulting from the Parent Company offering services to the Company was RMB312.0 million, 38% of which was from transportation services. In the first half of 2002, connected transaction amount resulting from the provision of services by the Parent Company to the Company decreased to RMB297.8 million.
Material Contracts
The Company was not a party to any material contract during the six months ended 30th June, 2002.
Appointment of Directors and Supervisors, Election of Chairman of the Board, Vice Chairman of the Board, and Chairman of the Supervisors, and Employment of General Manager and Other Senior Managers
The first extraordinary general meeting for 2002, meeting of the Board of Directors and meeting of the Supervisors Committee were held on 22nd April, 2002. During the meeting, the Company approved the appointment of directors and supervisors: Mo Liqi was elected as Chairman, Yang Deyu was elected as Vice-chairman and General Manager; Meng Xianchang was elected as Chairman of the Supervisor Committee; Yu Xuezhi, Zhang Yingmin, Wang Xinkun were appointed as Deputy General Managers; Wu Yuxiang was appointed as Chief Financial Officer, Ni Xinghua was appointed as Chief Engineer and Chen Guangshui was appointed as the Secretary of the Board.
A meeting of the Board of Directors was held on 8th July, 2002, two additional vice General Managers, Tian Fengze and Shi Chengzhong were appointed.
Amendments to the Articles of Association of the Company
On 22nd April, 2002, the Company held its first extraordinary general meeting for 2002 and approved the Revised Bill of the Articles of Association of the Company passed earlier during the Board of Directors meeting on 4th March, 2002. Details of the Revised Bill of the Articles of Association was set out in domestic Shanghai Security and Wen Wei Po, South China Morning Post of Hong Kong dated 5th March, 2002.
Purchase, Sale or Redemption of Shares
During the six months ended 30th June, 2002, the Company or any of its subsidiaries did not purchase, sell or redeem any of its shares.
Compliance with Code of Best Practice
As at 30th June, 2002, the Board of Directors of the Company had not established an audit committee. However, under the Company's organizational structure, a Board of Supervisors carries out functions similar to that of an audit committee. The differences being that the Company's Board of Supervisors comprises five members (one of which shall be an employee representative) who are elected and removed in the general meeting of shareholders, whereas an audit committee would comprise the non-executive directors of a company.
Save as mentioned above, the Board of Directors is of the opinion that the Company is in compliance with the "Code of Best Practice" set out in Appendix 14 of the Rules Governing the Listing of Securities on the Stock Exchange issued by The Stock Exchange of Hong Kong Ltd. during the six months ended 30th June, 2002.
Material Litigation and Arbitration
The Company was not involved in any material litigation and arbitration during the period of this report.
Auditors
The Company retained Deloitte Touche Tohmatsu Shanghai CPA and Deloitte Touche Tohmatsu as its domestic and international auditors, respectively.
On behalf of the Board
Chairman
Mo Liqi
19th August, 2002
Zoucheng, People's Republic of China
The interim report of the Company for the six-month period ended 30th June, 2002 containing all the information required by paragraghs 46(1) to 46(6) of Appendix 16 to the Listing Rules will be published on the website of The Stock Exchange of Hong Kong Limited within 21 days from the date of this announcement.
Interim results
The unaudited interim operating results of the Company for the six months ended 30th June, 2002 prepared in comformity with (i) the relevant accounting principles and regulations applicable to PRC enterprises ("PRC GAAP") and (ii) the International Accounting Standards ("IAS").
(i) Unaudited financial information prepared under PRC GAAP
STATEMENT OF INCOME AND PROFITS APPROPRIATION
PERIOD FROM JANUARY 1, 2002 TO JUNE 30, 2002
| Six months ended June 30, | ||||||||
| 2002 | 2001 | |||||||
| The Group | The Company | The Company | ||||||
| RMB | RMB | RMB | ||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||
| Net revenue from principal operations | 3,780,370,046 | 3,780,370,046 | 3,086,004,912 | |||||
| Less: | Cost of principal operations | 1,572,614,620 | 1,578,679,680 | 1,464,165,027 | ||||
| Sales taxes on principal operations | 50,489,605 | 50,367,046 | 47,335,555 | |||||
| Income from principal operations | 2,157,265,821 | 2,151,323,320 | 1,574,504,330 | |||||
| Add: | Income from other operations | 19,257,160 | 14,852,699 | 19,625,160 | ||||
| Less: | Operating expenses | 781,281,891 | 777,461,546 | 735,642,914 | ||||
| Administrative expenses | 485,864,557 | 485,349,056 | 344,387,680 | |||||
| Financial expenses | 30,995,763 | 31,006,049 | (7,579,042 | ) | ||||
| Operating profit | 878,380,770 | 872,359,368 | 521,677,938 | |||||
| Add: | Investment income | - | 2,831,482 | - | ||||
| Non-operating income | 1,750,353 | 1,750,353 | 269,155 | |||||
| Less: | Non-operating expenses | 4,496,573 | 4,490,260 | 5,418,076 | ||||
| Profit before income taxes | 875,634,550 | 872,450,943 | 516,529,017 | |||||
| Less: | Income taxes | 288,114,506 | 287,505,031 | 171,837,140 | ||||
| Minority interest | 2,574,132 | - | - | |||||
| Net profit | 584,945,912 | 584,945,912 | 344,691,877 | |||||
| Add: | Unappropriated profits at the | |||||||
| beginning of the period | 1,197,704,033 | 1,197,704,033 | 807,888,757 | |||||
| Profits available for appropriation | 1,782,649,945 | 1,782,649,945 | 1,152,580,634 | |||||
| Less: | Appropriations to statutory | |||||||
| common fund | - | - | - | |||||
| Appropriations to common welfare fund | - | - | - | |||||
| Profits available for appropriation | ||||||||
| to shareholders | 1,782,649,945 | 1,782,649,945 | 1,152,580,634 | |||||
| Less: | Appropriation to discretionary | |||||||
| surplus fund | - | - | - | |||||
| Dividends | - | - | - | |||||
| Unappropriated profits at the | ||||||||
| end of the period | 1,782,649,945 | 1,782,649,945 | 1,152,580,634 |
(ii) Unaudited Financial Information prepared under IAS
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002
| Six months ended June 30, | |||||
| Notes | 2002 | 2001 | |||
| RMB'000 | RMB'000 | ||||
| (unaudited | ) | (unaudited | ) | ||
| Gross sales of coal | 4 | 3,662,013 | 3,038,669 | ||
| Transportation costs | 4 | (733,404 | ) | (703,241 | ) |
| Net sales of coal | 4 | 2,928,609 | 2,335,428 | ||
| Railway transportation service income | 67,991 | - | |||
| Cost of sales | 5 | (1,456,830 | ) | (1,362,218 | ) |
| Gross profit | 1,539,770 | 973,210 | |||
| Selling, general and administrative expenses | 6 | (533,334 | ) | (378,001 | ) |
| Operating income | 1,006,436 | 595,209 | |||
| Interest expenses | 7 | (63,988 | ) | (23,879 | ) |
| Other income | 8 | 42,423 | 46,289 | ||
| Income before income taxes | 984,871 | 617,619 | |||
| Income taxes | 9 | (285,910 | ) | (170,621 | ) |
| Income before minority interest | 698,961 | 446,998 | |||
| Minority interest | 2,574 | - | |||
| Net income | 696,387 | 446,998 | |||
| Appropriations to reserves | 551,732 | 8,361 | |||
| Dividend | 287,000 | 235,340 | |||
| Earnings per share | 10 | RMB0.24 | RMB0.16 | ||
| Earnings per ADS | 10 | RMB12.13 | RMB8.15 |
CONDENSED CONSOLIDATED BALANCE SHEET
AT JUNE 30, 2002
| At | At | ||||
| June 30, | December 31, | ||||
| Notes | 2002 | 2001 | |||
| RMB'000 | RMB'000 | ||||
| (unaudited) | (audited) | ||||
| ASSETS | |||||
| CURRENT ASSETS | |||||
| Bank balances and cash | 1,183,519 | 1,124,806 | |||
| Restricted cash | 30,000 | 30,000 | |||
| Bills and accounts receivable | 11 | 800,914 | 694,252 | ||
| Investments in securities | 89,997 | 49,997 | |||
| Inventories | 12 | 627,330 | 439,882 | ||
| Prepayments and other current assets | 991,956 | 853,213 | |||
| Taxes receivable | - | 21,674 | |||
| TOTAL CURRENT ASSETS | 3,723,716 | 3,213,824 | |||
| MINING RIGHTS | 122,543 | 125,855 | |||
| LAND USE RIGHTS | 624,731 | 372,020 | |||
| PROPERTY, PLANT AND EQUIPMENT, NET | 7,948,062 | 7,479,755 | |||
| GOODWILL | 12,048 | 12,437 | |||
| NEGATIVE GOODWILL | (96,671 | ) | (110,481 | ) | |
| INVESTMENTS IN SECURITIES | 1,760 | 1,760 | |||
| DEFERRED TAX ASSET | 89,625 | 87,421 | |||
| TOTAL ASSETS | 12,425,814 | 11,182,591 | |||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
| CURRENT LIABILITIES | |||||
| Accounts payable | 626,527 | 636,387 | |||
| Other payables and accrued expenses | 581,206 | 532,874 | |||
| Provision for land subsidence, restoration, rehabilitation | |||||
| and environmental costs | 136,640 | 120,196 | |||
| Amounts due to Parent Company and its subsidiary | |||||
| companies | 14 | 216,191 | 757,387 | ||
| Taxes payable | 118,927 | 793 | |||
| TOTAL CURRENT LIABILITIES | 1,679,491 | 2,047,637 | |||
| AMOUNTS DUE TO PARENT COMPANY AND | |||||
| ITS SUBSIDIARY COMPANIES - DUE AFTER | |||||
| ONE YEAR | 14 | 72,456 | 72,456 | ||
| LONG-TERM BANK BORROWING | 13 | 1,200,000 | - | ||
| TOTAL LIABILITIES | 2,951,947 | 2,120,093 | |||
| COMMITMENTS | |||||
| SHAREHOLDERS' EQUITY | 9,469,421 | 9,060,034 | |||
| MINORITY INTEREST | 4,446 | 2,464 | |||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 12,425,814 | 11,182,591 |
Notes to the condensed financial statement prepared under IAS
1. BASIS OF PRESENTATION
The condensed financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting and with the applicable disclosure requirements of Appendix 16 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. The accounting policies adopted, as described below, differ from those used in the management accounts of the Group, which have been prepared in accordance with the relevant accounting principles and regulations applicable to PRC enterprises ("PRC GAAP"). The principal adjustments to the management accounts made to conform to IAS are summarized in note 15.
The condensed financial statements reflect certain reclassifications and additional disclosures to conform with the disclosure requirements of the Hong Kong Companies Ordinance and with presentations customary in the United States of America.
Differences between IAS and accounting principles generally accepted in the United States of America ("US GAAP") are stated in note 16.
2. SIGNIFICANT ACCOUNTING POLICIES
The condensed financial statements have been prepared under the historical cost convention, as modified for the revaluation of financial instruments.
The accounting policies adopted are consistent with those followed in the preparation of the Group's annual financial statements for the year ended December 31, 2001, except for the adoption of new accounting policies as described below.
Revenue recognition
Service income is recognized when services are provided.
Property, plant and equipment
Railway structure assets are depreciated over their estimated useful lives from 15 to 25 years, after taking into account their estimated residual value, using the straight line method.
3. SEGMENT INFORMATION
The Company is engaged primarily in the coal mining business and commencing from January 1, 2002, the Company is also engaged in coal railway transportation business. The Company operates only in the PRC. All the identifiable assets of the Company are located in the PRC. The Company does not currently have direct export rights and all of its export sales must be made through China National Coal Industry Import and Export Corporation ("National Coal Corporation"), China National Minerals Import and Export Co., Ltd. ("National Minerals Company") or Shanxi Coal Imp. & Exp. Group Corp. ("Shanxi Coal Corporation"). The final customer destination of the Company's export sales is determined by the Company, National Coal Corporation, National Minerals Company or Shanxi Coal Corporation. The Company's subsidiary is engaged in trading and processing of mining machinery in the PRC. No separate segment information about the subsidiary's business is presented in these financial statements as the underlying gross sales, results and assets of the subsidiary's business are insignificant to the Group.
Business segments
For the six months ended June 30, 2002
| Segment | ||||
| Gross revenue | result | |||
| RMB'000 | RMB'000 | |||
| Coal mining business | 3,662,013 | 1,090,409 | ||
| Coal railway transportation business | 67,991 | 13,192 | ||
| 3,730,004 | 1,103,601 | |||
| Unallocated corporate expenses | (97,165 | ) | ||
| Operating income | 1,006,436 |
Note:
No segment information for the six months ended June 30, 2001 is presented as the Company was engaged primarily in a single line of business during that period.
4. SALES AND TRANSPORTATION COSTS
| Six months ended June 30, | |||
| 2002 | 2001 | ||
| RMB'000 | RMB'000 | ||
| Domestic sales of coal, gross | 1,795,523 | 1,575,927 | |
| Less: Transportation costs | 211,542 | 227,892 | |
| Domestic sales of coal, net | 1,583,981 | 1,348,035 | |
| Export sales of coal, gross | 1,866,490 | 1,462,742 | |
| Less: Transportation costs | 521,862 | 475,349 | |
| Export sales of coal, net | 1,344,628 | 987,393 | |
| Net sales | 2,928,609 | 2,335,428 |
Net sales represents the invoiced value of coal sold and is net of returns, discounts, sales taxes and transportation costs if the invoiced value includes transportation costs to the customers.
Sales taxes consist primarily of a resource tax calculated at the rate of RMB1.20 per tonne of imputed quantity of raw coal sold and is paid to the local tax bureau. The resource tax for each of six months ended June 30, 2002 and 2001 amounted to RMB21,681,000 and RMB19,954,000, respectively.
5. COST OF SALES
| Six months ended June 30, | |||
| 2002 | 2001 | ||
| RMB'000 | RMB'000 | ||
| Materials | 338,784 | 312,487 | |
| Wages and employee benefits | 312,262 | 281,635 | |
| Electricity | 115,125 | 111,476 | |
| Depreciation | 380,646 | 373,446 | |
| Land subsidence, restoration, rehabilitation and | |||
| environmental costs | 104,972 | 105,345 | |
| Repairs and maintenance | 131,892 | 114,831 | |
| Annual fee and amortization of mining rights | 9,802 | 9,802 | |
| Other transportation costs | 17,864 | 17,025 | |
| Others | 45,483 | 36,171 | |
| 1,456,830 | 1,362,218 |
6. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
| Six months ended June 30, | |||
| 2002 | 2001 | ||
| RMB'000 | RMB'000 | ||
| Retirement benefits scheme contributions | 156,088 | 131,681 | |
| Wages and employee benefits | 82,581 | 44,938 | |
| Depreciation | 12,501 | 16,695 | |
| Amortization of goodwill | 389 | 389 | |
| Distribution charges | 44,057 | 32,402 | |
| Allowance for doubtful debts | 35,023 | 4,308 | |
| Resource compensation fees | 21,443 | 15,023 | |
| Repairs and maintenance | 3,744 | 3,913 | |
| Research and development | 13,249 | 12,483 | |
| Others | 164,259 | 116,169 | |
| 533,334 | 378,001 |
7. INTEREST EXPENSES
| Six months ended June 30, | |||
| 2002 | 2001 | ||
| RMB'000 | RMB'000 | ||
| Interest expenses on: | |||
| - deemed interest expenses | 19,978 | 22,565 | |
| - borrowings wholly repayable within 5 years | 3,666 | - | |
| - borrowings not wholly repayable within 5 years | 39,639 | - | |
| - bills receivable discounted without recourse | 705 | 1,314 | |
| 63,988 | 23,879 |
No interest was capitalized during the relevant periods.
- OTHER INCOME
| Six months ended June 30, | |||
| 2002 | 2001 | ||
| RMB'000 | RMB'000 | ||
| Gain on sales of auxiliary materials | 13,079 | 16,916 | |
| Interest income from bank deposits | 13,278 | 9,831 | |
| Release of negative goodwill to income | 13,810 | 18,426 | |
| Others | 2,256 | 1,116 | |
| 42,423 | 46,289 |
- INCOME TAXES
| Six months ended June 30, | ||||
| 2002 | 2001 | |||
| RMB'000 | RMB'000 | |||
| Income taxes | 288,114 | 171,837 | ||
| Deferred tax credit | (2,204 | ) | (1,216 | ) |
| 285,910 | 170,621 |
The Group is subject to a standard income tax rate of 33%. However, the effective income tax rate of the Group for the current period is 29% (six months ended June 30, 2001: 28%). The major reconciling item is the amount claimed on the appropriation to future development fund which is eligible for tax deduction but is not charged to income under IAS.
10. EARNINGS PER SHARE AND PER ADS
The calculation of the earnings per share for the six months ended June 30, 2002 and 2001 is based on the net income for the period of RMB696,387,000 and RMB446,998,000 and on the weighted average number of 2,870,000,000 shares and 2,743,977,901 shares in issue, respectively, during the period.
The earnings per ADS have been calculated based on the net income for the relevant period and on one ADS representing 50 H shares.
- BILLS AND ACCOUNTS RECEIVABLE
| At | At | |||
| June 30, | December 31, | |||
| 2002 | 2001 | |||
| RMB'000 | RMB'000 | |||
| Total bills receivable | 116,933 | 155,883 | ||
| Total accounts receivable | 776,868 | 596,233 | ||
| Less: Allowance for doubtful debts | (92,887 | ) | (57,864 | ) |
| Total bills and accounts receivable, net | 800,914 | 694,252 |
Bills receivable represent unconditional orders in writing issued by or negotiated from customers of the Group for completed sale orders which entitle the Group to collect a sum of money from banks or other parties.
The Group made allowance for doubtful debts of RMB35,023,000 and RMB4,308,000 for the six months ended June 30, 2002 and 2001 respectively.
According to the credit rating of different customers, the Group allows a range of credit periods to its trade customers not exceeding 180 days.
The following is an aged analysis of bills and accounts receivable at the reporting date:
| At | At | ||
| June 30, | December 31, | ||
| 2002 | 2001 | ||
| RMB'000 | RMB'000 | ||
| 1 - 180 days | 513,469 | 513,080 | |
| 181 - 365 days | 161,663 | 119,096 | |
| 1 - 2 years | 191,877 | 105,443 | |
| 2 - 3 years | 16,770 | 8,258 | |
| Over 3 years | 10,022 | 6,239 | |
| 893,801 | 752,116 |
- INVENTORIES
| At | At | ||
| June 30, | December 31, | ||
| 2002 | 2001 | ||
| RMB'000 | RMB'000 | ||
| COST | |||
| Auxiliary materials, spare parts and small tools | 259,311 | 269,510 | |
| Coal products | 368,019 | 170,372 | |
| 627,330 | 439,882 |
13. LONG-TERM BANK BORROWING
During the period, the Group obtained a new bank loan in the amount of RMB1,200,000,000. The loan bears interest at 6.21% per annum and is repayable in instalments over a period of 7 years, the first repayment instalment of which is due in August 2004. The proceeds were used to finance the acquisition of Railway Assets.
The above loan is repayable as follows:
| RMB'000 | |
| In the third to fifth year inclusive | 600,000 |
| After five years | 600,000 |
| 1,200,000 |
14. RELATED PARTY TRANSACTIONS
The amounts due to Parent Company and its subsidiary companies are non-interest bearing and unsecured.
The amounts due to Parent Company and its subsidiary companies as at June 30, 2002 included the present value of outstanding balance that arose from the funding of the acquisition of Jining III and its mining right as of January 1, 2001 discounted using the market rate of bank borrowings.
| At | At | ||
| June 30, | December 31, | ||
| 2002 | 2001 | ||
| RMB'000 | RMB'000 | ||
| Within one year | 216,191 | 757,387 | |
| More than one year, but not exceeding five years | 40,630 | 40,630 | |
| Exceeding five years | 31,826 | 31,826 | |
| Total due | 288,647 | 829,843 | |
| Less: amount due within one year | 216,191 | 757,387 | |
| Amount due after one year | 72,456 | 72,456 |
Except for the amounts disclosed above, the amounts due to Parent Company and/or its subsidiary companies have no specific terms of repayment.
During the periods, the Group had the following significant transactions with the Parent Company and/or its subsidiary companies:
| Six months ended June 30, | |||
| 2002 | 2001 | ||
| RMB'000 | RMB'000 | ||
| Income | |||
| Sales of coal | 55,788 | 26,695 | |
| Sales of auxiliary materials | 8,399 | 5,272 | |
| Utilities and facilities | 2,500 | 2,905 | |
| Railway transportation services provided | 1,529 | - | |
| Expenditure | |||
| Utilities and facilities | 870 | 300 | |
| Annual fee for mining rights | 6,490 | 6,490 | |
| Purchases of supply materials | 68,831 | 38,155 | |
| Railway transportation services | - | 118,505 | |
| Repairs and maintenance services | 108,437 | 60,603 | |
| Social welfare and support services | 88,674 | 75,861 | |
| Technical support and training | 7,565 | 7,565 | |
| Road transportation services | 16,921 | 4,502 |
During the periods, the Group had the following significant transactions with a related party, certain management members of which are also management members of the Group:
| Six months ended June 30, | |||
| 2002 | 2001 | ||
| RMB'000 | RMB'000 | ||
| Sales of coal | 20,243 | 18,900 |
Certain expenditure for social welfare and support services (excluding medical and child care expenses) of RMB31,375,000 for the six months ended June 30, 2002 (six months ended June 30, 2001: RMB28,110,000) and for technical support and training of RMB7,565,000 for each of the six months ended June 30, 2002 and 2001 have been charged by the Parent Company at a negotiated amount per annum, subject to changes every year.
The above transactions were charged either at markets prices or based on terms agreed by both parties.
On January 1, 2001, the Company acquired Jining III mine from Parent Company.
On January 1, 2002, the Company acquired Railway Assets from Parent Company.
In addition to the above, the Company participates in a multi-employer plan of the Parent Company in respect of retirement benefits.
15. SUMMARY OF DIFFERENCES BETWEEN IAS AND PRC GAAP
The condensed financial statements prepared under IAS and those prepared under PRC GAAP have the following major differences:
(i) adjustment of future development fund, which is charged to income before income taxes under PRC GAAP, to owners' equity;
(ii) elimination of the revaluation surplus on low-priced consumables recognized on the establishment of the Group and subsequently amortized to the statement of income in 1997 under PRC GAAP;
(iii) recognition of a deferred tax asset under IAS for the tax consequence of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities;
(iv) negative goodwill arising under IAS for the acquisition of Jining III is recognized as income in the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets;
(v) the instalments payable to the Parent Company for the acquisition of Jining III have been stated at present value discounted using market rates under IAS while under PRC GAAP, the instalments payable are stated at gross amount. Accordingly, deemed interest expense arises on the instalments payable to the Parent Company under IAS; and
(vi) dividends proposed by the directors after the balance sheet date and subject to approval in the annual general meeting are adjusted in the financial statements under PRC GAAP as at the balance sheet date.
The following table summarizes the difference between IAS and PRC GAAP:
| Net income for | Net assets | ||||||||
| Six months | Six months | ||||||||
| ended | ended | As at | As at | ||||||
| June 30, | June 30, | June 30, | December 31, | ||||||
| 2002 | 2001 | 2002 | 2001 | ||||||
| RMB'000 | RMB'000 | HK$'000 | HK$'000 | ||||||
| As per condensed financial statements | |||||||||
| prepared under IAS | 696,387 | 446,998 | 9,469,421 | 9,060,034 | |||||
| Impact of IAS adjustment in respect of: | |||||||||
| - | future development fund which is | ||||||||
| charged to income before income | |||||||||
| tax under PRC GAAP | (115,784 | ) | (101,946 | ) | - | - | |||
| - | revaluation surplus on low-priced | ||||||||
| consumables recognized on the | |||||||||
| establishment of the | |||||||||
| Company under PRC GAAP | - | (3,672 | ) | - | - | ||||
| - | deferred tax effect on temporary | ||||||||
| differences not recognized | |||||||||
| under PRC GAAP | (2,204 | ) | (1,216 | ) | (89,625 | ) | (87,421 | ) | |
| - | release of negative goodwill to income | (13,810 | ) | (18,426 | ) | (41,430 | ) | (27,620 | ) |
| - | deemed interest expenses | 19,978 | 22,565 | 79,573 | 59,595 | ||||
| - | proposed final dividend | - | - | - | (287,000 | ) | |||
| - | others | 379 | 389 | 6,119 | 5,740 | ||||
| As per financial statements prepared | |||||||||
| under PRC GAAP | 584,946 | 344,692 | 9,424,058 | 8,723,328 |
Note:
There are also differences in other items in the condensed financial statements due to differences in classification between IAS and PRC GAAP.
16. SUMMARY OF DIFFERENCES BETWEEN IAS AND US GAAP
The condensed financial statements are prepared in accordance with IAS, which differ in certain significant respects from US GAAP. The significant differences relate principally to the accounting for the acquisitions of Jining II, Jining III and Railway Assets, the revaluation of property, plant and equipment and land use rights and related adjustments to deferred taxation.
Under IAS, the acquisitions of Jining II, Jining III and Railway Assets have been accounted for using the purchase method which accounts for the assets and liabilities of Jining II, Jining III and Railway Assets at their fair value at the date of acquisition. Any excess of the purchase consideration over the fair value of the net assets acquired is capitalized as goodwill. The Group amortizes the goodwill over a period of 20 years. Any excess of the fair value of the assets acquired over the purchase consideration is recorded as negative goodwill, which is presented as a deduction from the assets of the Group in the consolidated balance sheet. The Group releases the negative goodwill to the statement of income on a systematic basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets.
Under US GAAP, as the Group and Jining II, Jining III and Railway Assets are entities under the common control of the Parent Company, the assets and liabilities of Jining II, Jining III and Railway Assets are required to be included in the consolidated balance sheet of the Group at historical cost. The difference between the historical cost of the assets and liabilities of Jining II, Jining III and Railway Assets acquired and the purchase price paid is recorded as an adjustment to shareholders' equity.
Under IAS, the mining rights of Jining III are stated at purchase consideration less amortization. Mining rights are amortized on a straight line basis over 20 years, being the useful life estimated based on the total proven and probable reserves of the coal mine. Under US GAAP, as both the Group and Jining III are entities under the common control of the Parent Company, the mining rights are to be restated at nil cost and no amortization on mining rights will be recognized. However, a deferred tax asset relating to the capitalization of mining rights is required to be recognized under US GAAP as a higher tax base resulting from the capitalization is utilized for PRC tax purposes.
Under IAS, the revalued amount of property, plant and equipment and land use rights is the deemed cost base of the assets of the Company formed from the reorganization and depreciation is based on the deemed cost. Under US GAAP, financial statements are required to be prepared on a historical cost basis. Accordingly, property, plant and equipment and land use rights are restated at cost and no additional depreciation on revalued amounts will be recognized under US GAAP. However, a deferred tax asset relating to the revaluation surplus is required to be recognized under US GAAP as a higher tax base resulting from the revaluation is utilized for PRC tax purposes.
In applying the pooling of interest method, the financial statement items of the combining enterprises for the period in which the combination occurs and for any comparative periods disclosed should be included in the financial statements of the combined enterprises as if they had been combined from the beginning of the earliest period presented. The effect of accounting for the acquisition of Railway Assets using the pooling of interest method under US GAAP on the gross sales and net income for the six months ended June 30, 2001 is as follows:
| Six months ended | |
| June 30, 2001 | |
| RMB'000 | |
| Gross sales | |
| As previously reported | 3,038,669 |
| Pooling of interest adjustment | 53,025 |
| As restated | 3,091,694 |
| Net income | |
| As previously reported | 446,998 |
| Pooling of interest adjustment | 58,099 |
| As restated | 505,097 |
Under US GAAP, if there is a reasonable possibility that an additional loss may have been incurred, then disclosure of the additional amount of possible loss is required. In the case of the Group, the directors estimate that at June 30, 2002, an additional provision for land subsidence, restoration, rehabilitation and environmental costs of approximately RMB34,735,000 is reasonably possible.
The adjustments necessary to restate net income and shareholders' equity in accordance with US GAAP are shown in the tables set out below.
| Six months ended June 30, | ||||
| 2002 | 2001 | |||
| RMB'000 | RMB'000 | |||
| Net income as reported under IAS | 696,387 | 446,998 | ||
| US GAAP adjustments: | ||||
| Depreciation charge on revalued property, plant and | ||||
| equipment and land use rights | 91,755 | 81,241 | ||
| Additional deferred tax charge due to a higher tax base | ||||
| resulting from the revaluation of property, plant and | ||||
| equipment and land use rights and capitalization of | ||||
| mining rights | (31,372 | ) | (26,810 | ) |
| Amortization of negative goodwill on acquisition of Jining III | (13,810 | ) | (18,426 | ) |
| Amortization of mining rights of Jining III | 3,312 | 3,312 | ||
| Profit of Railway Assets included in the Group using | ||||
| the pooling of interest method | - | 58,099 | ||
| Others | 389 | 389 | ||
| Net income under US GAAP | 746,661 | 544,803 | ||
| Earnings per share under US GAAP | RMB0.26 | RMB0.20 | ||
| Earnings per ADS under US GAAP | RMB13.01 | RMB9.93 |
The comprehensive income represents net income under us GAAP presented above.
| At | At | |||
| June 30, | December 31, | |||
| 2002 | 2001 | |||
| RMB'000 | RMB'000 | |||
| Shareholders' equity as reported under IAS | 9,469,421 | 9,060,034 | ||
| US GAAP adjustments: | ||||
| Revaluation of property, plant and equipment | ||||
| and land use rights | (2,561,032 | ) | (1,982,444 | ) |
| Depreciation charged on revalued property, plant and | ||||
| equipment and land use rights | 840,906 | 749,151 | ||
| Additional deferred tax assets due to a higher tax base | ||||
| resulting from the revaluation of property, plant and | ||||
| equipment and land use rights | 567,641 | 406,987 | ||
| Goodwill arising on acquisition of Jining II | (12,048 | ) | (12,437 | ) |
| Negative goodwill arising on acquisition of Jining III, net | 96,671 | 110,481 | ||
| Mining rights of Jining III | (122,543 | ) | (125,855 | ) |
| Net asset of Railway Assets incorporated under | ||||
| pooling of interests | ||||
| - current assets | - | 142,821 | ||
| - property, plant and equipment | ||||
| and land use rights, net | - | 1,136,758 | ||
| - deduct: revaluation surplus of property, plant and | ||||
| equipment and land use rights | - | (578,588 | ) | |
| - current liabilities | - | (36,993 | ) | |
| - | 663,998 | |||
| Additional deferred tax assets due to a higher tax base | ||||
| resulting from capitalization of mining rights | 40,439 | 41,532 | ||
| Shareholders' equity under US GAAP | 8,319,455 | 8,911,447 |
Under US GAAP, the Group's total assets would have been RMB11,275,848,000 and RMB11,070,997,000 at June 30, 2002 and December 31, 2001, respectively.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.142, "Goodwill and Other Intangible Assets", which requires that upon adoption, amortization of goodwill and other intangible assets with indefinite lives will cease and instead, the carrying value of these intangible assets will be evaluated for impairment on an annual basis. Identifiable intangible assets with definitive lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS No. 142 is effective for financial statements issued for fiscal years beginning after December 15, 2001. The Group adopted this Standard during the period ended June 30, 2002 and it did not have a material effect in the Group's financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which is effective for financial statements issued for fiscal years beginning after December 15, 2001. SFAS No. 144 applies to all long-lived assets (including discontinued operations) and it develops one accounting model for long-lived assets that are to be disposed of by sale. The Group adopted this Standard during the period ended June 30, 2002 and its did not have a material effect in the Group's financial statements.
In addition, the Group has not adopted the following new accounting standards:
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" which is effective for financial statements issued for fiscal years beginning after June 15, 2002. This statement addresses the diverse accounting practices for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Group is evaluating the impact of the adoption of this standard and has not yet determined the effect of adoption on its financial position and results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Such costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 replaces the previous accounting guidance provided by the Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Group is evaluating the impact of the adoption of this standard and has not yet determined the effect of the adoption on its financial position and results of operations.
Please also refer to the published version of this announcement in the South China Morning Post dated 19 August 2002.