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Jarlway Holdings plc (PFIT)

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Tuesday 19 September, 2006

Jarlway Holdings plc

Interim Results

Jarlway Holdings plc
19 September 2006


                              Jarlway Holdings plc
                    Interim Results and Chairman's Statement
                      for the six months to June 30 2006


Highlights

  • Sales up 40% to £3.6 million

  • Gross margins remain high at 38%

  • 53% of sales in period converted to cash by period end

  • 13 contracts concluded on key infrastructure projects

  • Continued development of product lines, and expanded product range

  • On course for year-on-year financial improvement


I am pleased to report the results of Jarlway Holdings Plc (the 'Company' or 
'Jarlway') for the six months ended 30 June 2006. As I said in the annual report
of 2005, the board is very positive about current trading and believes the
Company is on course to deliver a considerably improved performance in the
current year. Against this background I am pleased to report a significantly
improved financial performance during the first half of 2006 when compared to
the second half of 2005.

In terms of the Company's financial performance, turnover was £3,637,000 (2005
£2,594,000) and gross margin was 38% (2005 40%). However, higher overheads
reflecting an increased spend on sales and marketing, ongoing costs associated
with the AIM Listing and a further increase in bad debt provisions limited the
after tax profit for the 6 months to £344,000 (2005 £534,000). During the period
the net cash inflow was £230,000 (2005 £90,000).

The results for the second half of 2005 were impacted by the listing and related
costs and by a significant provision for doubtful debts we felt it prudent to
make, together with increased fuel and transportation costs.

The board expects to see a reduction of such costs in the second half 2006.

During the first half of 2006, orders where full payment was made on delivery
accounted for 25% of total turnover, up from 10% during the first half of 2005.
The group also lifted its minimum requirement on downpayments from customers, so
that 53% of sales arising in the period were converted to cash by the period
end. The group remains committed to maintaining a balance between sustainable
market share and trade receivable management.

During the period the construction machinery market in China recovered much
faster and better than expected. Jarlway's adaptive sales and marketing strategy
in meeting the changed market has achieved good results and has provided
momentum for the company's future growth.

The newly implemented recruitment plan and the training programme designed for
the sales team, targeting sizable private enterprises and medium to large-sized
State Owned Enterprises, is proving to be successful. Despite the significant
constraints resulting from Chinese domestic banks' tightening of the credit
available to our customers on the purchase of construction machinery, our sales
increased without the Company suffering from undue pressure on its working
capital. We attribute this accomplishment to our customer base transformation -a
strategic penetration into the high end market - represented by customers with
greater financial strength. In combination with the progress made in the
development of our network of agents, I am pleased with the progress Jarlway has
made in terms of unit sales and gross margin.

We have also achieved an enhanced gross margin and better payment terms through
the sale of new trailer pump models and through targeting stronger clients, as I
outlined in the 2005 Annual Report.

In addition, the Company has strengthened production and purchase management
with a view to guaranteeing the high quality of its products while maintaining a
low level of production cost. We have been able to renegotiate some component
prices and the terms on which we buy components from our major suppliers which
has enabled us to reduce the production cost of our pumps.

China has embarked on a long term plan to develop its railway system and the
construction of some sections is already in process generating a high demand for
concrete construction equipment. Jarlway's patented concrete pump tailored for
railway girder moulding has won substantial recognition from railway
constructors. Since the first concrete pump contract received from Zhuzhou Road
and Bridge Co., Ltd, Jarlway has concluded 13 contracts with railway contractors
involving a total order of 29 units. These successes in the railway construction
market are evidence of the competitive advantages Jarlway has in a number of
areas, such as excellent quality, strong R&D capability to deliver solutions for
customers, accurate market positioning and reasonable pricing all leading to
high customer loyalty. Jarlway is steadily improving its brand image and this is
expected to make an important contribution in boosting the profitability of the
Company.

We remain cautious and have reflected at length on the difficulties and
challenges lying ahead, despite the improvements achieved in the first half of
the year. We are aware of the disadvantage of being small in size, the limited
product varieties and the reliance on the domestic market. As we all know, the
construction machinery industry is highly periodic and easily affected by
economic cycles. Responding to such risks, the management has been working
towards a feasible and achievable strategy. We are constantly striving to expand
our product range. When sufficient funds can be put in place, we will step up
the production and sale of placing booms (which should have significant export
potential) and concrete mixing plants. In addition, we are currently expanding
our R&D resources for the development of tower cranes aimed at the export
market. This product shares the same customer base as concrete pumps and offers
great market potential both at home and abroad. Efforts are also being made to
reduce the size of the tower crane so as to minimize the transportation space
and thus improve its competitiveness in the overseas market with lower
transportation costs.

Looking forward, I am confident of the prospects for the company during the
second half of the year. The pricing of certain machinery models now matches
that of our leading competitors and even betters those brands in certain regions
thanks to our increasingly influential and recognised Jarlway brand.

The purchase of machinery for use in the construction of the railways will reach
its peak within the coming two to three years. I am confident that Jarlway will
secure an important role as a principal machinery supplier in this market, from
which we will reap the benefits over many years, as the upgrading of the
railways is a fifteen year project and one of the most important
government-supported projects in China today.

As well as the progress Jarlway is making in the railway industry, we are also
building growing customer loyalty in our clearly focused target customer group.
For example, the Company continues to receive further orders for trailer pumps
from the largest real estate developer in China, who has been a valued customer
since Jarlway's formation.

In the light of the tightening monetary supply within China, we are giving
careful consideration to possible working capital financing solutions proposed
to us by financial institutions within China. We may be able to utilize the
capital which would be raised to accelerate the development and roll out of
production of our new products.

Overall, I believe that improved financial risk management, customer
differentiation and tighter credit control have all had a positive effect on our
financial performance. We will continue our efforts in all areas where we think
improvements can be made.

I am confident that through our determination to improve constantly in all
aspects of our business, and the tremendous efforts of the management and staff
as a whole, Jarlway will overcome the challenges and difficulties that will be
encountered in the future. Last but not least, I would like to extend the
heart-felt gratitude of the entire Board for the understanding and support
afforded to the Company by its shareholders.


WU Zhi Jia
Chairman
18 September 2006



Introduction

We have been instructed by the company to review the financial information for
the period ended 30 June 2006 set out on pages 5 to 15 and we have read the
other information contained in the interim report for any apparent misstatements
or material inconsistencies with the financial information.


Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing Rules
of the Financial Services Authority as applicable to AIM listed companies
require that the accounting policies and presentation applied to the interim
figures should be consistent with those applied in preparing the preceding
annual accounts except where any changes, and the reason for them, are
disclosed.


Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board. A review consists principally of making
enquiries of management and applying analytical procedures to the financial
information and underlying financial data, and based thereon, assessing whether
the accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with Auditing
Standards and therefore provides a lower level of assurance than an audit.
Accordingly we do not express an audit opinion on the financial information.


Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the period ended 30
June 2006.


MRI Moores Rowland LLP
Chartered Accountants
Registered Auditor

3 Sheldon Square
London
W2 6PS

                                                                                                 Year ended
                                                          Six months ended 30 June               31 December
                                                          2006               2005                2005
                                                          (unaudited)        (unaudited)         (audited)
                                                Notes     £'000              £'000               £'000


Turnover                                          5       3,637              2,594               4,853

Cost of sales                                             (2,270)            (1,564)             (3,091)

Gross profit                                              1,367              1,030               1,762

Other revenue                                             12                 3                   7

Distribution costs                                        (435)              (267)               (636)
Administrative expenses                                   (509)              (188)               (790)

Profit before taxation                                    435                578                 343

Taxation                                          6       (91)               (44)                (49)

Profit for the period                                     344                534                 294

Attributable to:
Shareholders of the Company                               344                534                 294

Earnings per share
Basic and diluted                                 7       1.41p              6.71p               1.33p

Proforma Basic                                    7       N/A                4.45p               N/A



                                                                                   
                                                          6 months          6 months           Year ended
                                                          to June           to June            31 December
                                                          2006              2005               2005
                                                          (unaudited)       (unaudited)        (audited)
                                                          £'000             £'000              £'000

Shareholders' equity as at the beginning of the period    3,823             2,845              2,845

Issue of ordinary shares                                  -                 50                 61

Premium on issue of ordinary shares                       -                 -                  228

Merger reserve                                            -                 (49)               (49)

Employee share option benefits                            3                 -                  6

Exchange differences on translation of:
   - financial statements of overseas subsidiaries        (170)             193                438

Profit for the period                                     344               534                294

Shareholders' equity as at the end of the period          4,000             3,573              3,823



                                                      As at               As at               As at
                                                      30 June             30 June             31 December
                                                      2006                2005                2005
                                                      (unaudited)         (unaudited)         (audited)
                                              Notes   £'000               £'000                £'000

Non-current assets
Property, plant and equipment                         286                 391                  261
Trade receivables                              11     74                  327                  165
Restricted bank balance                        10     146                 410                  257
Deferred tax assets                                   81                  38                   81

                                                      587                 1,166                764

Current assets
Assets held for sale                            9     316                 -                    332
Inventories                                           870                 576                  812
Trade and other receivables                    11     5,143               5,908                5,484
Financial assets at fair value through                5                   6                    5
profit or loss
Restricted bank balance, current               10     134                 85                   104
Cash and cash equivalents                             516                 236                  298

                                                      6,984               6,811                7,035

Total Asset                                           7,571               7,977                7,799

Equity and liabilities

Capital and reserves
Share capital                                  14     61                  50                   61
Other reserves                                 15     3,939               3,523                3,762

Total equity                                          4,000               3,573                3,823

Non-current liabilities
Non-current portion of bank borrowings         12     57                  144                  89

Current liabilities
Trade and other payables                       13     3,165               3,097                3,133
Current portion of bank borrowings             12     190                 1,059                642
Income tax payable                                    159                 104                  112

                                                      3,514               4,260                3,887

Total liabilities                                     3,571               4,404                3,976

Total equity and liabilities                          7,571               7,977                7,799



.........................                 ..............

Director                                  Date


                                                                                                 
                                                             Six months ended 30 June            As at
                                                                                                 31 December
                                                           2006               2005               2005
                                                           (unaudited)        (unaudited)        (audited)

                                                           £'000              £'000              £'000

Cash generated from operations                             715                311                778

Tax paid                                                   (41)               (58)               (107)
                                                           
Net cash generated from operating activities               674                253                671

Net cash from investing activities                         6                  425                539

Net cash used in financing activities                      (450)              (588)              (1,046)

Net increase in cash and cash equivalents                  230                90                 164

Cash and cash equivalents at 1 January                     298                120                121

Effect of exchange rate differences                        (12)               26                 13

Cash and cash equivalents at 30 June                       516                236                298

Operating activities:

Profit for the period                                      435                578                343
Adjustment for:
  Provision for doubtful debts                             109                57                 360
   Depreciation of property, plant and equipment           20                 12                 29
  Employee share based compensation                        3                  -                  6
  Interest income                                          (2)                (3)                (7)
                                                           
  Interest expense                                         16                 -                  -

Operating cash flows before movements in working           581                644                731
capital
Increase in assets held for sale                           -                  -                  (332)
Change in inventories                                      (95)               (235)              (445)
Change in trade and other receivables                      61                 (351)              685
Change in trade and other payables                         182                250                132

                                                           729                308                771
Interest received                                          2                  3                  7
Interest paid                                              (16)               -                  -

Cash generated from operations                             715                311                778


1.    General information

The interim results for the period ended 30 June 2006 are unaudited and do not
constitute statutory accounts within the meaning of s.240 of the Companies Act
1985.  They have been prepared in accordance with accounting policies adopted in
the 2005 annual accounts.


2.        Basis of preparation

The Directors are responsible for the preparation of the Group's unaudited
interim financial statements. These unaudited interim financial statements have
been prepared in accordance with International Financial Reporting Standards
No.34 'Interim Financial Reporting' as adopted for use in the European Union.
These condensed interim financial statements should be read in conjunction with
the 2005 annual financial statements. The accounting policies adopted in
preparing the unaudited interim financial statements for the six months ended 30
June 2006 are consistent with those in the preparation of the Group's annual
financial statements for the year ended 31 December 2005.


3.    Consolidation

The Group comprises: Jarlway Holdings plc, the ultimate holding company; Jarlway
International Limited, an intermediate holding company; Jarlway Machinery Inc.
and Jarlway Xinxin Machinery Inc.  The Group profit and loss account for the six
months ended 30 June 2006 comprises the results of all of the above companies
for the six months ended 30 June 2006.


4.    Foreign currency

Renminbi ('RMB') is the currency of the primary economic environment in which
the entity operates ('The functional currency').

          Pounds sterling is the currency in which the interim results are
presented ('The presentational currency').  For the purposes of the interim
results, the financial information has been translated from RMB to £ at the
exchange rate ruling at 30 June 2006.  The results of the foreign subsidiaries
have been translated at the average rate ruling during the six-month period.

       The presentational currency does not reflect the economic substance of
the underlying events and circumstances of the enterprise.


5.    Turnover

The principal activity of the company is investment holding.

       Details of the principal activities of the wholly-owned subsidiaries are
as follows:

Subsidiaries                          Principal activities

Jarlway International Limited         Investment holding
Jarlway Machinery Inc.                Developing, manufacturing and sale of 
                                      large scale construction machinery
Jarlway Xinxin Machinery Inc.         Inactive

Turnover represented the sale of concrete pumps in the People's Republic of
China excluding Hong Kong ('PRC' or 'China').


6.       Taxation
                                                                    Six months ended 30 June            Year ended
                                                                                                        31 December
                                                                   2006              2005               2005
                                                                   (unaudited)       (unaudited)        (audited)
                                                                   £'000             £'000              £'000

PRC Enterprise income tax on income for the period                 91                44                 49


No provision for Hong Kong Profit tax has been made in the Group as the Group's
Hong Kong subsidiary has no estimated profit for the period.

The subsidiaries operating in the PRC are subject to state and local income
taxes in the PRC at their respective tax rates based on the taxable income
reported in their statutory financial statements in accordance with applicable
state and local income tax laws.

Following approval by the charge tax bureau, pursuant to the relevant PRC income
tax rules and regulations, being a foreign investment enterprise, Jarlway
Machinery Inc. 'Jarlway Machinery' was entitled to exemption from PRC foreign
enterprise income tax for the two years ended 31 December 2003 and is entitled
to a 50% reduction from PRC foreign enterprise income tax for the three years
ending 31 December 2006 ('tax holiday').

Jarlway Machinery is subject to state and local income taxes in the PRC at
standard rates of 12% and 3% respectively in accordance with the PRC foreign
enterprise income tax law, applicable to wholly owned foreign enterprises.
Jarlway Machinery is exempted from local income tax during the tax holding.  As
a result, the effective foreign enterprise income tax rate for Jarlway Machinery
was 12% for the six months ended 30 June 2006 (2005: 12%).

Pursuant to the Income Tax Law and the Detailed Rules for the Implementation of
the Income Tax Law of the PRC for Foreign Investment Enterprises and Foreign
Enterprises, Jarlway Xinxin Machinery Inc. ('Jarlway Xinxin') is entitled to a
two-year exemption from the PRC foreign enterprise income tax starting from its
first profit making year and followed by a 50% reduction from the PRC foreign
enterprise income tax for the subsequent three years. Jarlway Xinxin suffered a
loss for this period.


7.    Earnings per share

       The calculation of basic earnings per share is based on the profit for
the period attributable to shareholders of the Company of £344,000 and the
weighted average number of 24,413,333 shares in issue during the period.

       The 2005 proforma basic earnings per share was based on the assumption
that the shares issued upon admission to AIM had been in issue for the whole
period giving a weighted average number of ordinary shares for the six month
period ended 30 June 2005 of 12,007,159.

       Diluted earnings per share for the six months ended 30 June 2006 are
equal to the basic earnings per shares as the exercise price of the share
options granted by the Company was higher than the average market price for
shares during the period.  For the six months ended 30 June 2005, there were no
dilutive potential ordinary shares in issue.


8.    Dividend

The directors do not propose an interim dividend for the six months ended 30
June 2006 (June and December 2005: nil).


9.    Assets held for sale

       Assets held for sale represent properties received from trade debtors in
lieu of settlement which are carried at the lower of cost and net realisable
value.  Net realisable value represents the estimated selling price less all
estimated costs of completion and costs to be incurred in marketing and selling.


10.  Restricted bank balances
                                   As at           As at                As at
                                   30 June         30 June              31 December
                                   2006            2005                 2005
                                   (unaudited)     (unaudited)          (audited)
                                   £'000           £'000                £'000


Current                            134             85                   104
Non-current                        146             410                  257

                                   280             495                  361

       The restricted bank balance was pledged to secure bank borrowings granted
to Jarlway Machinery Inc to finance certain trade receivables. Amounts that will
be released back to Jarlway Machinery Inc. within one year have been classified
as current.


11.  Trade and other receivables
                                                As at             As at           As at
                                                30 June           30 June         31 December
                                                2006              2005            2005
                                                (unaudited)       (unaudited)     (audited)
                                                £'000             £'000           £'000

Trade receivables

From third parties                              4,554             5,657           5,139
Less : Non-current portion                      (74)              (327)           (165)
                                                
Current portion                                 4,480             5,330           4,974

Other receivables
Deposits, prepayment and other debtors          663               578             510

                                                5,143             5,908           5,484


       Trade receivables are shown net of accumulated provision for doubtful
debt amounting to £652,000 (June 2005: £223,000; December 2005: £543,000).

Included in trade receivables are amounts relating to bank financing
arrangements.  Theses are comprised of a current element amounting to £190,000
(June 2005: £1,059,000; December 2005: £642,000) and a non-current element
amounting to £57,000 (June 2005: £144,000; December 2005: £89,000).

The fair value of trade and other receivables approximate the carrying value.


12.  Bank borrowings
                                                            As at                As at                 As at
                                                     30 June 2006         30 June 2005      31 December 2005
                                                      (unaudited)          (unaudited)             (audited)
                                                            £'000                £'000                 £'000
Bank loan:
Current portion                                               190                1,059                   642
Non-current portion                                            57                  144                    89

                                                              247                1,203                   731


    The bank borrowings are secured by certain trade receivables as well as
restricted bank balances (note 10). Interest is calculated at 6% to 7% per annum
and is borne by the customers concerned.


13.  Trade and other payables
                                                          As at               As at                As at
                                                   30 June 2006             30 June          31 December 
                                                                               2005                 2005
                                                    (unaudited)         (unaudited)            (audited)
                                                          £'000               £'000                £'000
Trade payables
To third parties                                          1,482               1,746                1,514

Other payables
Accrued charges and other creditors                       1,683               1,351                1,619

                                                          3,165               3,097                3,133


       Included in other payables is an amount due to a director of £518,000
(June 2005: £525,000; December 2005: £547,000).  The amount due is unsecured,
has no fixed term of repayment and interest is charged at 6% per annum.

       The fair value of trade and other payables approximate the carrying
value.


14.  Share capital
                                                                         Ordinary shares of £0.0025 each
                                                                          No. of shares            £'000
Authorised:
     At 30 June 2005, 31 December 2005 and 30 June 2006 (unaudited)          50,000,000              125

Issued and fully paid:
     At 30 June 2005 (unaudited)                                             20,000,000               50
     Issue of shares                                                          4,413,333               11

     At 31 December 2005 and 30 June 2006 (unaudited)                        24,413,333               61



15.  Other reserves (Unaudited)
                                   Employee       Share      Exchange    Merger      Retained      Total
                                share-based     premium                 reserve       profits
                               compensation               translation  (Note 1)      (Note 2)
                                    reserve                   reserve
                                   (Note 3)
                                      £'000       £'000         £'000     £'000         £'000      £'000

At 30 June 2005                           -           -            92      (49)         3,480      3,523
Exchange translation                      -           -           245         -             -        245
difference
Issue of shares                           -         228             -         -             -        228
Employee share option                     6           -             -         -             -          6
benefit
Loss  for the period                      -           -             -         -         (240)      (240)
At 31 December 2005                       6         228           337      (49)         3,240      3,762
Exchange translation                      -           -         (170)         -             -      (170)
difference
Employee share option                     3           -             -         -             -          3
benefit
Profit for the period                     -           -             -         -           344        344
                                          9         228           167      (49)         3,584      3,939

At 30 June 2006

      Note:

1.   The merger reserve represents the difference between the nominal value of
shares of the subsidiary company acquired, and the nominal value of the
Company's shares issued in 2005.

2.   The Group's accumulated profits included an amount of approximately
£172,000 (June 2005 and December 2005: £172,000) reserved by the subsidiary in
the People's Republic of China (the 'PRC') in accordance with the relevant PRC
regulations. This reserve is only distributable in the event of liquidation of
this PRC subsidiary.

3.   On 12 July 2005, 341,787 share options were granted for nil consideration
to the directors and senior employees of the Group (no share options were
granted during the six months ended 30 June 2006 and 2005).  Each option gives
the holder the right to subscribe for one ordinary share of £0.0025 each of the
Company at an exercise price of £0.30.  Unless otherwise cancelled or amended,
the share options will remain in force for 10 years from 12 July 2005.

      No options were exercised during the six months ended 30 June 2006 or in
2005.


16.  Commitments


Capital expenditure commitments
                                                             As at               As at              As at
                                                           30 June             30 June
                                                              2006                2005        31 December
                                                                                                     2005
                                                       (unaudited)         (unaudited)          (audited)
                                                             £'000               £'000              £'000

Contracted but not provided net of deposit paid                 15                   -                 15
in the financial statements


       Commitments under operating leases

The company leases a number of properties under operating leases, which
typically run for an initial period of 2 - 5 years, with an option to renew the
lease when all terms are renegotiated.  None of the leases include contingent
rentals.

At the balance sheet date, the Company had total future minimum lease payments
under non-cancellable operating leases, which are payable as follows:

                                                            As at               As at               As at
                                                     30 June 2006        30 June 2005         31 December
                                                                                                     2005
                                                      (unaudited)         (unaudited)           (audited)
                                                            £'000               £'000               £'000

Within one year                                                42                  40                  55
In the second to fifth years inclusively                       17                  37                  35

                                                               59                  77                  90




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