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Stock Exchange Announcement

22 September 2008

For release at: 07:00 hours.

Arko Holdings plc ('the Company' or 'Arko')

Results of the Company for the interim period ended 30 June 2008.

The Board of Arko announces the results of the Company for the interim period ended 30 June 2008, which are set out below. Copies of the Company's interim report and accounts will be sent to shareholders on 24 September 2008 and will be available on the Company's website www.arkoholdings.com from that date.

CHAIRMAN'S STATEMENT

I am pleased to report the unaudited interim results of the Company and its subsidiaries (the 'Group') for the six months ended 30 June 2008.

During the period under review the Company made progress with its shipping and container terminal businesses.  The closure and write down of the power plant in second half year of 2007 enabled the Company to focus on managing its profitable container terminal and shipping businesses. It has invested more resources in upgrading the container terminal and the river trade fleet.

Results 

The Company reported revenue of US$6.33 million, representing an increase of US$247,000 or 4.06% from the US$6.08 million reported for the comparable period in 2007.  Gross profit increased by 3.79% to US$2.30 million (2007: US$2.21 million). Gross margins decreased to 36.26% for the six months ended 30 June 2008 from 36.35% for the same period last year.  The net operating profit of US$592,000 for the six month period ended June 2008 was US$126,000 greater than the net operating profit of US$466,000 for the same period in 2007, representing an increase of 27% as there are no losses incurred from discontinued operations - Huibei Changzhou Power Development Ltd. The Company regards the revenue and gross margin of its principal container terminal operation and river trade shipping business between Hong Kong and Guangdong Province as its key performance metrics.  

As at 30 June 2008, the Company's NAV per share was US$0.0146, which represented a decrease of 51.66% compared to 30 June 2007 (2007: US$0.0302). This figure reflects the effect of the write down of the power plant. Cashflow from operating activities increased to US$2.65 million from US$1.37 million compared to the same period last year.  There was a decrease in the Company's cash and cash equivalents to US$189,000 versus US$834,000 at 30 June 2007; this was primarily due to increased expenditure on purchasing machinery and equipment for the Company's container terminal operation. During the six month period to 30 June 2008, the Company incurred capital expenditure of US$2.88 million (2007: US$1.11 million), predominantly on such purchases.

Summary and Outlook 

The sales results for the first half of 2008 reflect the continued effect of the expansion of the terminal and shipping logistics business. We expect a stronger second half for the current year as throughput and turnover in the shipping business have significantly increased, a trend which started in the second quarter of 2008. As a result of the write down of the power plant in 2007, we expect a profitable year in 2008. However, the Board believes that pressure on gross margins is unlikely to be alleviated in the short-term should the fuel price remain at current levels.  Coupled with the new labour law in China as well as other inflationary pressure on the cost base of the business, we remain cautious on the operating profit margins for the business as a whole.  The Board believes that the economic environment is unlikely to improve in the short term so management have been directed to manage the business more prudently.  In the meantime, we will closely monitor our cash position and continue to explore options this year to strengthen our liquidity by raising additional necessary capital. 

In order to facilitate the rapid growth in throughput, a new depot has been identified near the terminal for an unspecified lease term and negotiation is underway with the local government to purchase the freehold interest. On the other hand, we anticipate a delay for the delivery of the brand new 45 tonne quayside container cranes due to delays in agreeing terms for the lease finance.  The Company's management is now negotiating with the supplier to find payment alternatives in the event that lease finance cannot be found within the necessary time. We expect the first crane, costing US$2.1 million, will be funded by internally generated cash and it that will be delivered by end of the year 2008.

In summary, on the assumption that trading continues at existing levels, the Board expects to deliver a satisfactory outcome for the current year. The Board remains confident in its strategy for growth and in the prospects for the Group in the future.

Resignation of the Nominated Advisor 

The Board made an announcement on 1 September 2008 in relation to the resignation of Nabarro Wells & Co. Limited, the Company's Nominated Adviser. The resignation will take effect from 1 October 2008.  In accordance with Rule 1 of the AIM Rules, in the absence of the appointment of a replacement Nominated Adviser on or before 1 October 2008, the Company's shares will be suspended from trading on AIM.   If within one month of that suspension the Company has failed to appoint a replacement Nominated Adviser, the admission of its shares to trading on AIM will be cancelled. The Company is currently in discussions with a potential replacement Nominated Adviser and will provide a further update on progress in due course.

Qin Shun Chao

Chairman.

ARKO HOLDINGS PLC

FINANCIAL HIGHLIGHTS

FOR THE SIX MONTHS ENDED 30 JUNE 2008 

						(Audited)
	(Unaudited)					Year ended
	Six months ended 30 June					31 December
	2008		2007			2007
	US$'000		US$'000			US$'000
Turnover	6,330		6,083			10,860
EBITDA * - Continuing operations	572		1,297			(19,413)
Profit/(loss) after tax for the period	592		466			(32,239)
Shareholders' equity and minority interest	28,931		59,677			27,644

*Earnings/ (loss) attributable to equity holders before interest, tax, depreciation and goodwill impairment on continuing operations.

-ends-

For further information:

Angela Leung                          + 852 2219 9999

Arko Holdings plc

Marc Cramsie                     + 44 (0) 20 7634 4705

Nominated Adviser                    

Nabarro Wells & Co. Limited    

            ARKO HOLDINGS PLC

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2008 

								(Audited	)
		(Unaudited)						Year ended
		Six months ended 30 June						31 December
		2008		2007				2007
	Note	US$'000		US$'000				US$'000
Turnover	3	6,330		6,083				10,860
Cost of sales		(4,035)		(3,872)				(7,972)
Gross profit		2,295		2,211				2,888
Other income		62		322				605
Administrative expenses		(1,420)		(1,285)				(4,041)
Impairment of property, plant and equipment, investment		-		-				(1,131)
Impairment of goodwill		-		-				(9,010)
Profit / (Loss) from operations		937		1,248				(10,689)
Finance costs		-		-				-
Profit / (Loss) before taxation		937		1,248				(10,689)
Taxation	4	(345)		(320)				(142)
Profit / (Loss) for the period from continuing operations		592		928				(10,831)
Loss for the period from discontinued operations		-		(462)				(21,408)
Profit / (Loss) for the period		592		466				(32,239)
Attributable to :
Equity holders of the parent Company		117		259				(31,275)
Minority interest - continuing operations		475		207				(964)
		592		466				(32,239)
Earnings / (Loss) per share (US cents):
Continuing operations:
Basic and diluted earnings	5	0.006		0.036				(0.499)
Continuing and discontinued operations:
Basic and diluted earnings	5	0.006		0.013				(1.580)

ARKO HOLDINGS PLC

CONDENSED CONSOLIDATED BALANCE SHEET

AS AT 30 JUNE 2008 

						(Audited)
		(Unaudited)				As at
		As at 30 June				31 December
	Note	2008		2007		2007
		US$'000		US$'000		US$'000
NON-CURRENT ASSETS
Goodwill	7	1,834		20,807		1,834
Property, plant and equipment	8	25,640		33,237		24,376
Available-for-sale investment		12		12		12
		27,486		54,056		26,222
CURRENT ASSETS
Inventories		138		100		124
Trade and other receivables		9,235		10,303		8,312
Cash and cash equivalents		189		834		428
		9,562		11,237		8,864
TOTAL ASSETS		37,048		65,293		35,086
CAPITAL AND RESERVES
Share capital	10	14,922		14,922		14,922
Share premium		15,662		15,662		15,662
Merger reserve		26,043		26,043		26,043
Exchange reserve		1,940		-		1,440
Retained earnings		(43,771)		(11,771)		(44,139)
Other reserve		1,681		1,682		1,681
Total equity attributable to equity holders of     the Company		16,477		46,538		15,609
Minority Interest		12,454		13,139		12,035
TOTAL EQUITY		28,931		59,677		27,644
NON-CURRENT LIABILITIES
Bank loans		1,915		1,906		1,915
Obligations under finance lease		9		-		-
Loans from fellow investors in subsidiary     companies		787		783		787
		2,711		2,689		2,702
CURRENT LIABILITIES
Trade and other payables		4,036		2,384		3,606
Taxation	4	1,370		543		1,134
		5,406		2,927		4,740
TOTAL LIABILITIES		8,117		5,616		7,442
NET CURRENT ASSETS		4,156		8,310		4,124
TOTAL EQUITY AND LIABILITIES		37,048		65,293		35,086

ARKO HOLDINGS PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2008

	Unaudited attributable to equity holders of the Company
	Share capital		Share premium		Statutory  surplus  reserve		Merger reserve		Exchange reserve		Accumulated losses/ retained profit		Total		Minority interests		Total
	US$'000		US$'000		US$'000		US$'000		US$'000		US$'000		US$'000		US$'000		US$'000
At 1 January 2007	14,922		15,662		1,681		26,043		(531)		(12,864)		44,913		12,932		57,845
(as restated *)
Exchange translation difference	-		-		-		-		-		1,372		1,372		-		1,372
Profit for the period	-		-		-		-		-		259		259		207		466
At 30 June 2007	14,922		15,662		1,681		26,043		(531)		(11,233)		46,544		13,139		59,683
At 1 January 2008	14,922		15,662		1,681		26,043		1,440		(44,139)		15,609		12,035		27,644
Exchange translation difference	-		-		-		-		500		251		751		(56)		695
Profit for the period	-		-		-		-		-		117		117		475		592
At 30 June 2008	14,922		15,662		1,681		26,043		1,940		(43,771)		16,477		12,454		28,931
At 1 January 2007	14,922		15,662		1,681		26,043		(531)		(12,864)		44,913		12,932		57,845
(as restated *)
Exchange translation difference	-		-		-		-		1,971		-		1,971		67		2,038
Loss for the period	-		-		-		-		-		(31,275)		(31,275)		(964)		(32,239)
At 31 December 2007	14,922		15,662		1,681		26,043		1,440		(44,139)		15,609		12,035		27,644

*    represented the restatement of opening balances in respect of exchange reserve and accumulated losses in order to reflect the first-year adoption of IFRS as adopted by EU and conform with the presentation of the 2007 annual financial statements.

  ARKO HOLDINGS PLC

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2008 

	Six months ended				Year ended
	30 June				31 December
	2008		2007		2007
	US$'000		US$'000		US$'000
Cashflow from operating activities
Profit /(Loss) before taxation
- Continuing operations	937		1248		(10,689)
- Discontinued operation	-		(462)		(21,408)
	937		786		(32,097)
Adjustments for :
Interest expenses	-		-		120
Interest income	-		-		(14)
Depreciation	110		718		1,579
Loss on disposal of property, plant and equipment	2		-		95
Impairment loss - goodwill	-		-		18,977
Impairment loss - property, plant and equipment	-		-		13,194
Exchange adjustments	2,211		1,372		728
Operating profit before working capital changes	3,260		2,876		2,582
Increase in inventories	(14)		(23)		(47)
(Increase) / decrease in receivables	(923)		(155)		1,836
Increase / (decrease) in payables	430		(1,007)		567
Net cashflow generated from operations	2,753		1,691		4,938
Interest paid	-		-		(120)
Taxes paid	(108)		(320)		(152)
Net cash generated from operating activities	2,645		1,371		4,666
Investing activities
Purchase of property, plant and equipments	(2,884)		(1,113)		(5,187)
Sales proceeds on disposal of property, plant and equipments	-		-		97
Interest Income	-		-		14
Net cash used in investing activities	(2,884)		(1,113)		(5,076)
Financing activities
Increase / (decrease) in advances from fellow investors	-		(262)		-
Net cash used in financing activities	-		(262)		-
Net decrease in cash and cash equivalents	(239)		(4)		(410)
Cash and cash equivalents at the beginning of the period	428		838		838
Cash and cash equivalents at the end of the period	189		834		428

                    ARKO HOLDINGS PLC

NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

FOR THE SIX MONTHS ENDED 30 JUNE 2008

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 2 Bloomsbury Street, London WC1B 3ST. Its principal place of business is located at Hong Kong and People's Republic of China.

    

The principal activities of the Company and its subsidiaries (hereinafter collectively referred to as the 'Group') are terminal operation and shipping logistics.

    

The Company's shares were admitted to trading on the Alternative Investment Market ('AIM') of the London Stock Exchange. These condensed consolidated interim financial statements are presented in United States Dollars, unless otherwise stated, and were reviewed by the Audit Committee and approved for issue by the Board of Directors on ___________.

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 2008 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 financial statements of the Group for the year ended 31 December 2007, 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 2008, there were no unendorsed standards effective for the period ended 30 June 2008 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 Arko Holdings Plc. 

(b)    Significant accounting policies

The condensed consolidated interim financial statements have been prepared under the historical cost convention except for certain financial assets and liabilities which are stated at fair values.

The accounting policies and methods of computation used in the preparation of these condensed consolidated interim financial statements are consistent with those used in the annual financial statements for the year ended 31 December 2007 except for the adoption of standards, amendments and interpretations issued by the IASB mandatory for annual financial periods beginning 1 January 2008.

The adoption of these standards, amendments and interpretations was not material to the Group's results of operations or financial position.

The presentation of comparative information in respect of the six months ended 30 June 2007 which appears in these condensed interim financial statements has been reclassified to conform to the presentation adopted in the 2007 annual financial statements.

 

           (c)   Possible impact of amendments, new standards and interpretations issued but not yet effective for the
                  six months ended 30 June 2008.

Up to the date of issue of these financial statements, the IASB has issued a number of amendments, new standards and interpretations which are not yet effective for the period ended 30 June 2008 and which have not been adopted in these condensed consolidated interim financial statements.

The Group has not early adopted the following new and revised standards, amendment, or interpretations that have been issued but are not yet effective.

		Effective for accounting periods beginning  on or after
IFRS 8	Operating segments	1 January 2009
Revised IAS 1	Presentation of financial    statements	1 January 2009
Revised IAS 23	Borrowing costs	1 January 2009
Revised IFRS 3	Business combinations	1 July 2009
Amendments to IAS 27	Consolidated and separate   financial statements	1 July 2009
IFRIC 13	Customer loyalty    programmes	1 July 2008

The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. The directors do not anticipate that the adoption of these IFRSs in future periods will have a material impact on the Group's result of operations and financial position.

  (d)    Use of estimates and assumptions

The preparation of financial information 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. 

(e)  Consolidation

The condensed consolidated interim financial statements of Arko Holdings Plc comprise the financial statements of Arko Holdings Plc. and its subsidiaries.

3.    TURNOVER AND SEGMENT INFORMATION

The principal activities of the Group are the provision of logistics and other related services including sea freight forwarding and barge hire.

Turnover represents income earned from the provision of logistics and other related services. Business (primary) segment information is as follows:

Segment revenue and result:

(i)	Six months ended 30 June (Unaudited)
	Revenue				Segment profit/(loss)
	2008		2007		2008		2007
	US$'000		US$'000		US$'000		US$'000
Continuing operations:
Terminals and shipping logistics	6,330		6,083		592		928
Trading and others	-		-		-		-
Mining	-		-		-		-
	6,330		6,083		592		928
Discontinued operations:
Power plant	-		-		-		(462)
	6,330		6,083		592		466

  

(ii)	Year ended 31 December 2007 (Audited)
	Revenue		Segment profit/(loss)
	2007		2007
	US$'000		US$'000
Continuing operations:
Terminals and shipping logistics	10,860		(820)
Trading and others	-		(8,776)
Mining	-		(1,235)
	10,860		(10,831)
Discontinued operations:
Power plant	-		(21,408)
	10,860		(32,239)

During the second half of 2007, the Group has discontinued the power plant operation owing to State Council and local government macroeconomic and administrative measures in closing down small and ineffective coal-fired power plants in Hubei province. The discontinued operations contributed to a segment loss of approximately US$ 21 million.

4.    TAXATION

	(Unaudited)					(Audited)
	Six months ended  30 June					Year ended  31 December
	2008		2007			2007
	US$'000		US$'000			US$'000
PRC Enterprise income tax for the period	345		320			142

The Group has no estimated assessable profits in Hong Kong and the United Kingdom for the period (2007: Nil).    

In respect of subsidiary companies operating in Hong Kong, provisions for Hong Kong profits tax 2008/2009 are calculated at 16.5% (2007/2008 : 17.5%) of the estimated assessable profits for the period.

PRC corporate income tax represents the tax charged on the estimated assessable profits arising from PRC subsidiaries in China. Pursuant to the PRC corporate income tax law passed by the 10th National People's Congress on 16 March 2007, the new corporate income taxes for domestic and foreign enterprises are to be unified at 25% on a gradual basis over 5 years effective from 1 January 2008. As a result, the corporate income tax rate of PRC subsidiaries of the Group will be gradually changed from 18% to 25% with effect from 1 January 2008.

No deferred tax is recognised on the unremitted earnings of the overseas subsidiary companies, as no dividend payments due to UK parent company are expected to be made in the foreseeable future.  

5.    EARNINGS (LOSS) PER SHARE 

    Basic and diluted earnings (loss) per share are calculated by dividing the earnings (loss) attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the periods ended 30 June 2008, 30 June 2007 and 31 December 2007.

	(Unaudited)				(Audited)
	Six months ended  30 June				Year ended  31 December
	2008		2007		2007
Continuing operations:
Profit / (Loss) attributable to equity    holders of the parent (US$ '000)	117		721		(9,867)
Weighted average number of shares in    issue	1,978,895,097		1,978,895,097		1,978,895,097
Earnings / (Loss) per share    (Basic and diluted) (US cents)	0.006		0.036		(0.499)
Continuing and discontinued operations:
Profit / (Loss) attributable to equity    holders of the parent (US$ '000)	117		259		(31,275)
Weighted average number of shares in    issue	1,978,895,097		1,978,895,097		1,978,895,097
Earnings / (Loss) per share   (Basic and diluted) (US cents)	0.006		0.013		(1.580)

 

The directors do not recommend the payment of any dividend.

 

7.    PROFIT / (LOSS) FOR THE PERIOD IS ARRIVED AFTER CHARGING THE FOLLOWING :-

	(Unaudited)				(Audited)
	Six months ended  30 June				Year ended  31 December
	2008		2007		2007
	USD'000		USD'000		USD'000
Depreciation on property, plant and   equipment	110		718		1,579
Loss on disposal of property, plant and    equipment	2		-		95
Impairment loss on goodwill	-		-		18,977
Impairment loss on property, plant and    equipment	-		-		13,194

    The impairment loss on goodwill in the year ended 31 December 2007 is in respect of the cessation of the Group's power plant operation and other discontinued activities during that period. The goodwill balance at 30 June 2008 relates to the Group's remaining terminal and logistics operations.

    The impairment loss on property, plant and equipment in the year ended 31 December 2007 has been made as a result of the cessation of the Group's power plant operation during that period.

8. PROPERTY, PLANT AND EQUIPMENT

During the period , the Group spent approximately US$2,884,000 in acquiring property, plant and equipments (Six months ended 30 June 2007: US$1,113,000).

9.  SUBSIDIARY COMPANIES

    

At 30 June 2008, the company held 100% of the ordinary shares of Arko Offshore Holdings Limited, a company incorporated in the British Virgin Islands ('BVI'), whose principal activity was that of a holding company. Arko Offshore Holdings Limited had the following subsidiary undertakings:

  

	Equity interests
	attributable
Name	to the group	Principal activities	Place of incorporation
Arko Energy Ltd.	100%	Investment holding	BVI
Arko Consultants Ltd.	100%	Providing  management services	BVI
Arko Pacific Ltd.	100%	Investment holding	BVI
Long Prosperity Industrial     Ltd. *	100%	Investment holding	Republic of Seychelles
Arko Silicon (Hubei) Ltd. *	100%	Dormant	People's Republic of  China
Sanko Mineral Ltd. *	100%	Sub-letting of yachts, ships and vessels	BVI
Arko Shipping Ltd. *    (Formerly known as Arko     Logistics Ltd.)	100%	Providing logistics and related services	Hong Kong
Arko Satellite Ltd. *	100%	Dormant	BVI
Arko Terminal Ltd. ('ATL')*	100%	Investment holding	Republic of Seychelles
Changzhou Power    Development Company    Ltd.*	59.2%	Inactive	People's Republic of  China
Keen Chance Terminal (GZ)   Company Ltd. ('KCT') *	40%	Investing in and  operation of a  terminal and providing logistics services	People's Republic of  China
Fujian Sanko Mining Ltd. *	70%	Dormant	People's Republic of  China

    

*a subsidiary indirectly held by Arko Offshore Holdings Limited

.

In the opinion of directors and a Hong Kong lawyer expressed his view that KCT is a subsidiary of ATL under Companies Act 1985 as it could controls the board of KCT.

During the second half 2007, pursuant to an agreement signed with the Hubei Provincial Economic Committee Bureau, Suizhou City Government and the Hubei Provincial Electricity Co., Ltd. on 30 June 2007, the power plant factory of Changzhou Power Development Company Ltd. has been ordered to close down its operation from July 2007 onwards owing to the macroeconomic and administrative measures imposed by the order of State Council to clear off those ineffective coal-fired power plants in Hubei Province. Thereafter, Changzhou Power Development Company Ltd. becomes inactive.

  10. SHARE CAPITAL

	Ordinary shares of  0.5 sterling pence each
	No. of shares		(equivalent) US$
Authorised:	'000
At 30 June 2007, 31 December 2007 and 30 June 2008	30,000,000		265,395,280
Issued and fully paid:
At 30 June 2007, 31 December 2007 and 30 June 2008	1,978,895		14,921,520

There is no movement in authorised and issued capital during the periods ended 30 June 2008, 30 June 2007 and 31 December 2007.

11. OPERATING LEASE COMMITMENTS

At 30 June 2008, the Group was committed to make the following payments in respect of land and building under operating leases :

	US$'000
Leases which expire:
in the next year	181
in the second to fifth years	299
	480

12. CAPITAL COMMITMENTS  

At 30 June 2008, the Group had capital commitments contracted in respect of the acquisition of 3 sets of '45t quayside container cranes' from a non-related supplier in the sum of RMB51,000,000 intended for use by a subsidiary company, Keen Chance Terminal (GZ) Company Limited. At 30 June 2008, the Group has settled RMB3,440,986.

The Company had no other significant capital commitments.

13. CONTINGENT LIABILITIES   

(a)    On 23 July 1998, a subsidiary of the Company, Keen Chance Terminal (GZ) Company Limited ('KCT'), gave a guarantee for RMB50 million (equivalent to approximately US$5.9 million) in favour of the Huangpu Branch of the Industry and Commercial Bank of China for banking facilities granted to Harbour Economic Development Company Limited ('HEDCL'), a fellow investor in KCT and its ultimate controlling party, Guangzhou Huangpu Foreign Trade Group Company Limited and secured over their equity interests in KCT. HEDCL was unable to repay the loans due to the bank. The bank took action against KCT to enforce the guarantee for the outstanding loan.

  (b)        On 9 November 1999, KCT gave a guarantee for RMB18 million (equivalent to approximately US$2.1 million) in favour of Nangang Rural Credit Co-operation Bank for banking facilities granted to Miaotou Economic Development Company Limited ('MEDCL'), a fellow investor in KCT, secured over its equity interests in KCT. MEDCL was unable to repay the outstanding loan.

On 27 September 2001, the Guangzhou Law Court delivered an order and notice that the guarantees above were invalid and MEDCL's equity interest in KCT was frozen.

    Based on legal advice, the equity interests had no material impact on the operations of KCT and the directors consider that no provision is required.

                      KCT maintains that the guarantee given was invalid on the following grounds:

• such guarantee did not have approval from the board of directors of KCT;

• in accordance with the law of the People's Republic of China, the board of directors and the management of KCT cannot give KCT's properties for guarantee to its shareholder; and

• the controlling party of HEDCL has not held a valid business licence since 1998 and ceased operations in 1999. In accordance with the banking regulations of the People's Republic of China, the bank cannot lend money to enterprises which do not have a valid business licence.

The legal proceedings are still in progress. Based on legal advice, the directors are of the opinion that, the loan agreement was void because it was illegal and accordingly, the guarantee contract was also invalid.

Furthermore, Keen Lloyd Holdings Limited, the Company's parent company, has indemnified the Group against any loss KCT will suffer should the guarantee be enforceable.

Accordingly, the directors are of the opinion that no provision should be made in the financial statements for any possible claim from the bank in respect of the litigation.

(c)        Following the closure of the power plant on 30 June 2007, the Group may be required to incur decommissioning costs in respect of the power plant site.  The Group is unable to estimate such costs since the power plant can be sold to other larger power plant companies in China before end of 2010 (the date at which the plant is required to be demolished). If a sale is achieved, no decommissioning costs will be incurred. Accordingly, no provision is made in respect of these costs in these financial statements.

14.  RELATED PARTY TRANSACTIONS

Other than transactions otherwise disclosed in the financial statements, the Group and the Company had the following material transactions which were carried out on an arm's length basis with related parties during the following periods :

  

						(Unaudited)				(Audited)
						Six months ended  30 June				Year ended  31 December
						2008		2007		2007
Name of company		Note		Nature		US$'000		US$'000		US$'000
Guangzhou Tung    Lloyd Shipping    Agency Limited		(a)		Agency charges		41		39		77
Winko Metal    Limited		(b)		Hiring charges for motor vehicle		-		8		8

Notes:

 

(a)  The agency charges are paid to Guangzhou Tung Lloyd Shipping Agency Limited in which the Chairman, Mr Qin Shun Chao, is a director.

(b)    There are no hiring charges paid to Winko Metal Limited during the current interim period, which is controlled by Keen Lloyd Holdings Limited.

15. FINANCIAL STATEMENTS

This statement does not comprise full financial statements within the meaning of Section 240 of the Companies Act 1985.

ENDIR FKDKNKBKDNCB