OVERSEAS REGULATORY ANNOUNCEMENT

Transcription

1 HKEX Stock Code : 395 TSX Stock Symbol : CZL OVERSEAS REGULATORY ANNOUNCEMENT (This overseas regulatory announcement is issued pursuant to Rule 13.09(2) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited) Please refer to the attached Management Discussion and Analysis prepared in accordance with Canadian Securities Law dated 18 August 2008 with respect to the Company s unaudited consolidated results for the second quarter and half-year ended 30 June As at the date of the announcement, the Directors of the Company are: Executive Directors: Mr. Yang Xin Min (Chairman) Mr. Zhou Quan Ms. Huang Yue Qin Mr. Li Fu Ping Independent Non-executive Directors: Mr. Cheng Faat Ting Gary Mr. Andrew Leinwand Mr. Carl F. Steiss Mr. Shi You Chun Hong Kong, 18 August 2008 * For identification purpose only 1

2 HKEX Stock Code : 395 TSX Stock Symbol : CZL MANAGEMENT DISCUSSION AND ANALYSIS PREPARED IN ACCORDANCE WITH CANADIAN SECURITIES LAW For the Quarter Ended: June 30, 2008 Date of Report: August 18, 2008 Principal Business China Zirconium Limited (the Company or CZL ) was incorporated under the Companies Law of the Cayman Islands on July 18, The Company was listed on the Stock Exchange of Hong Kong Limited (the HKEX ) on October 28, 2002 and became dual listed on the Toronto Stock Exchange (the TSX ) on August 15, The Company is an internationally recognized manufacturer of various types of zirconium chemicals with production capacity of over 45 thousand tonnes per year. The Company started its operation in 1977 with its base in Yixing, Jiangsu Province, the People s Republic of China ( PRC ). The principal business of the Company is the research, development, manufacture and sale of a wide range of zirconium chemical products. All of the Company s zirconium chemicals are sold under the registered Long Jing brand name. The Company s customers purchase zirconium chemicals for use in the production of catalysts, cosmetics, ceramics, electronic materials, mobile electronic devices, jewellery (cubic zironia), nuclear power, paints, coatings, refractory materials and other products. Reporting Currency All monetary amounts contained in this Management s Discussion and Analysis ( MD&A ) are reported in Renminbi ( RMB ) unless otherwise indicated. * For identification purpose only 2

3 Caution Regarding Forward-Looking Statements This Management Discussion and Analysis ( MD&A ) contains forward-looking statements which reflect the Company s current beliefs with respect to future events and are based on information currently available to the Company. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. When reviewing the Company s forward-looking statements, investors and others should not place undue reliance on these forward-looking statements and should carefully consider the foregoing factors and other uncertainties and potential events. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to update the forward-looking statements. The Company has an ongoing obligation to disclose material information as it becomes available. CHANGE OF FINANCIAL REPORTING STANDARDS The Company s consolidated financial statements for the financial years prior to December 31, 2007 were prepared in accordance with Hong Kong Financial Reporting Standards. During the financial year ended December 31, 2007, the Company decided to prepare its consolidated financial statements in accordance with International Financial Reporting Standards ( IFRSs ) and convert the comparative financial information for the financial year ended December 31, 2006 to accord with IFRS. The Company decided to adopt IFRSs because it is working to expand its shareholder base internationally. The Company considers that IFRSs should be more widely acceptable by international investors. CRITICAL ACCOUNTING POLICIES A summary of the accounting policies that the Company believes to be critical to its financial statements is set out below. For all accounting polices, refer to note 1 of the Notes to the audited consolidated financial statements for the year ended December 31, Basis of preparation The measurement basis used in the preparation of the consolidated financial statements is the historical cost basis. Items included in the financial statements for the Company are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity. For the purposes of presenting the consolidated financial statements, the 3

4 Company adopted RMB as its presentation currency, rounded to the nearest thousand. The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other various factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. This MD&A should be read in conjunction with the Company s: - audited consolidated financial statements and notes thereto as at and for the three years ended December 31, 2005, 2006 and 2007; and - unaudited consolidated financial statements and notes thereto as at and for the six months ended June 30, This MD&A include the accounts of the Company and its subsidiaries (the Group ). significant inter-company accounts and transactions have been eliminated on consolidation. All 2. Revenue Recognition Revenue on the sale of goods is recognized when the customer has accepted the related risks and rewards of ownership, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably and there is no continuing management involvement with the goods. Revenue excludes value added tax or other sales tax, and is net of any trade discounts and goods returns. 3. Translation of Foreign Currencies Foreign currency transactions are translated at the foreign exchange rate at the transaction date. 4

5 Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates applicable as at the balance sheet date. Gains and losses in foreign exchange transactions are recognized as a profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates prevailing at the date the fair value was determined. Results of operations outside the PRC are translated into RMB at the exchange rates prevailing at the date of the transactions. Balance sheet items are translated into RMB at the foreign exchange rate applicable at the balance sheet date. The resulting exchange differences are recognized directly as a separate component of equity 4. Income Tax Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognized as a profit or loss in a particular fiscal year, except to the extent that they relate to items recognized directly in equity, in which case they are recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted as at the balance sheet date, and any adjustment to taxes payable in respect of previous years. Deferred tax assets and liabilities arise from temporary differences in deductible and taxable liabilities, respectively. These differences arise from the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. 5. Property, Plant and Equipment Property, plant and equipment are stated in the balance sheet at cost less accumulated depreciation and impairment losses. 5

6 Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognized as profit or loss on the date of retirement or disposal. Depreciation is calculated to write-off the cost of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives as follows: Property Term Buildings (1) Machinery and equipment Office equipment and fixtures Motor vehicles No more than 50 years after the date of completion 5-20 years Office 5 years 5 years Note: (1) Buildings held for its own use which are situated on leasehold land are depreciated over the shorter of the unexpired term of the lease and their estimated useful lives. Both the useful life of an asset and its residual value, if any, are reviewed annually. 6. Inventories Inventories are carried at the lower of cost and net realizable value. Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. When inventories are sold, the carrying amount of those inventories is recognized as an expense in the period in which the related revenue is recognized. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs. 6

7 OVERALL PERFORMANCE AND SIGNIFICANT EVENTS On May 13, 2008, the Company filed with the applicable Canadian securities regulators a preliminary prospectus to qualify the distribution of shares of the Company to the public in certain jurisdictions of Canada. On August 15, 2008, the Company successfully completed its public offering (the Offering ) in the provinces of British Columbia, Alberta and Ontario at a price of CDN$1.20 per share for gross proceeds of CDN$779, The costs of the Offering are estimated to be CDN$1,787, plus retail or sales commissions in the aggregate amount of CDN$25, The accounting treatment of the costs has not yet been determined and upon determination, will be reflected in the Company s subsequent financial statements. The Offering was conducted to facilitate the completion of the listing of the shares of the Company on the Toronto Stock Exchange (the TSX ) and establish the Company s presence in the North American capital markets. The shares of the Company started trading on the TSX on August 15, 2008 under the symbol CZL. During the first half year of 2008, zircon price was relatively stable but remained at a high level. Prices of other raw materials also increased significantly. However, the Company was able to improve its profit margins through the upward price adjustments on most of its zirconium chemical products. In June 2008, there was a gas supply disruption to the zircon mine operations of the world s major zircon producer in Western Australia. This caused a sudden drop in the zircon supply which in turn pushed up the zircon price. It is anticipated that the zircon price will continue to increase in the second half year. The Company is actively seeking to develop its own zircon separation and processing facilities through the joint venture in Indonesia at a faster pace. The construction works of the zircon separation and processing facilities have been completed and the installation of machinery and equipment is in progress. The schedule for commencement of operation in the third quarter of 2008 remains unchanged. Upon commencement of operation of the zircon separation and processing facility in Indonesia, the Company will be able to satisfy its own demand for zircon. The Company is also planning to become one of the major zircon suppliers in the China market. During the six months ended June 30, 2008, the construction of phase I of the Binhai new plant has also been substantially completed. Installation of machinery and equipment has begun in mid-august. With this new production plant becoming operational, the Company s capacity will be increased by 15 thousand tonnes per year. Upon completion of phase II of the Binhai facility, the Company s existing capacity for zirconium oxychloride will be doubled and the Company s competitive advantage of scale production will be further enhanced. Looking ahead, with an additional sizeable zirconium chemicals production facility becoming operational and the new zircon separation and processing facility in Indonesia providing a more 7

8 secure source of zircon, the Company believes that its zirconium business will expand at an accelerated pace in the coming years. SELECTED ANNUAL INFORMATION The following information derived from the Company s audited consolidated financial statements for each of the three most recently completed financial years: Year ended December 31 (in RMB 000, unless otherwise stated) Turnover 541, , ,767 Profit from operations 87,558 83,586 76,210 Profit after taxation 61,464 57,797 61,886 Earnings per share ( EPS ) - basic (RMB) (note 1) diluted (RMB) (note 1) N/A N/A Cash dividends (HK$ per share) Total assets 861, , ,210 Total long-term liabilities nil nil nil Note: (1) All the EPS presented in the above table were calculated without adjusting for the effect of the Share Consolidation became effective on June 30, The Company prepared its consolidated financial statements for the year ended December 31, 2007 in accordance with IFRS. For comparative presentation purpose, the consolidated financial statements for the years ended December 31, 2006 and 2005 have also been presented in accordance with IFRS. Review of operations During the years ended December 31, 2005, 2006 and 2007, total turnover of the Company grew from RMB425.8 million to RMB446.7 million and to RMB541.5 million, respectively. Compared to the year ended December 31, 2005, the profit after taxation dropped in 2006 mainly due to an increase in the income tax rate that was levied on the Company s operation in the PRC. The Company s wholly-owned subsidiary, Yixing Xinxing Zirconium Co., Ltd. ( YXZL ), was exempt from income tax for 2001 and 2002, and paid income tax at the discounted rate of 12% in 2003 to The applicable tax rate increased to 24% from January 1, The annual capacity of the Company grew to over 45 thousand tonnes in The Company is currently expanding the capacity for the production of medium and high margin products at its 8

9 production facilities in Yixing city, PRC. The Company is also building a new production plant in Binhai city, PRC, which is expected to provide a capacity of 15 thousand tonnes in phase I and another 15 to 20 thousand tonnes in phase II. Upon completion of phase II of the new plant in Binhai, the Company existing capacity of zirconium oxychloride will be doubled. Total assets increased from RMB610.2 million in 2005 to RMB659.8 million in 2006 and RMB861.1 million in 2007, representing a 8% increase from 2005 to 2006 and a 31% increase from 2006 to This increase was mainly due to an increase in investment activities related to the expansion of production facilities. Cash and bank balances also increased as a result of the unused portion of the new proceeds raised from the private placements of the Company s ordinary shares that were completed during RESULTS OF OPERATIONS (Unaudited) Six months ended (Unaudited) Three months ended (in RMB 000, unless otherwise stated) June 30, 2008 June 30, 2007 June 30, 2008 June 30, 2007 Turnover 292, , , ,563 Gross profit 76,043 67,682 42,980 35,725 Profit from operations 59,521 51,646 34,078 27,628 Profit before taxation 53,068 49,940 29,775 27,074 Profit after taxation 38,846 37,153 21,992 17,048 Earnings per share ( EPS ) - basic (RMB) diluted (RMB) N/A 0.63 N/A 0.27 During the six months ended June 30, 2008, the Group s sales increased to RMB292.2 million from RMB275 million of the same period last year, representing a 6% increase. The sales growth in the first half of 2008 was primarily attributable to the increased sales of zirconium chemicals. The Group s revenue from its zirconium segment increased to RMB269.8 million, a 6% increase as compared to the same period last year. The Group continued to see a strong market for zirconium chemical products in the first half-year period of 2008 and is expecting the growth to sustain. Gross profit of the Group for the first half-year period of 2008 was RMB76 million, with a gross margin of 26%, as compared to the gross profit for the same period of 2007 in the amount of RMB67.7 million with a gross margin of 25%. The improvement in gross margin was mainly due to the increase in the selling prices of the Company s zirconium products. Revenue contributed by the new energy materials segment of the Group during the six months ended June 30, 2008 was RMB16.1 million, representing a 25% increase from the same period last year. The increase was mainly attributable to the increase in sales of nickel hydroxide. As the price of nickel, a key material for the production of nickel hydroxide, dropped significantly in the first half-year period of 2008 which improved the profit margin, the management decided to expand the 9

10 production of nickel hydroxide. this segment. Management will continue to closely monitor the performance of Sales of batteries dropped by 10% to RMB6.2 million as compared to the same period last year. The Group will continue to allocate considerable resources to develop the market for the new high temperature battery with zirconium additive. Net finance costs increased to RMB6.5 million from RMB1.8 million of the same period last year due to the appreciation of RMB against U.S. dollars. Net exchange loss for the first half-year period of 2008 was RMB6.4 million, which accounted for a substantial part of the net finance costs. Profit attributable to shareholders for the six months ended June 30, 2008 increased by 5% to RMB38.8 million as compared to the same period last year. Net margin remained stable at around 13%. In an extraordinary general shareholder meeting of the Company held on June 27, 2008, the Company obtained the requisite shareholder approval for, among other things, the consolidation of its ordinary shares on a 10 for 1 basis (the Share Consolidation ). The Share Consolidation became effective on June 30, Basic earnings per share for the six months ended June 30, 2008 was calculated after giving effect to the Share Consolidation. For comparative purpose, the earnings per share presented for all of the previous periods were also restated to give effect to the Share Consolidation. The decrease in basic earnings per share from RMB0.63 to RMB0.55 was mainly due to the fact that the total number of shares in issue during the first half-year period of 2008 was higher than that of the same period last year. SUMMARY OF QUARTERLY RESULTS (Unaudited) Quarter ended (Unaudited) Quarter ended (in RMB 000, unless otherwise stated) June 30, 2008 June 30, 2007 March 31, 2008 March 31, 2007 Turnover 162, , , ,391 Gross profit 42,980 35,725 33,063 31,957 Profit from operations 34,078 27,628 25,443 24,018 Profit before taxation 29,775 27,074 23,293 22,866 Profit after taxation 21,992 17,048 16,854 20,105 Earnings per share ( EPS ) - basic (RMB) diluted (RMB) N/A 0.27 N/A 0.36 The number of shares used in the calculation of the quarterly EPS presented in the table above has been adjusted to give effect to the Share Consolidation. No discussion of quarterly results of the Company for the quarters ended December 31, 2007 and 2006 and the quarters ended September 30, 10

11 2007 and 2006 has been included in this MD&A, due to the fact that, other than the comparative interim financials statements for the three months ended June 30, 2008 and March 31, 2008, quarterly financial statements have not been prepared by the Company as they are not required under the Companies Law of Cayman Island or the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. Review of results for the three months ended June 30, 2008 vs June 30, 2007 The first quarter of each year is normally a slow quarter for the Company due to cold weather and the Chinese New Year holiday (normally 10 to 12 days). In 2008, the effect of this seasonal factor was accelerated due to the severe and unexpected snow storms which began just prior to the Chinese New Year. Notwithstanding the effect of the snow storms, turnover for the quarter ended March 31, 2008 increased by approximately RMB0.7 million as compared to the same period last year. Gross profit percentage has also improved from 24.7% in the quarter ended March 31, 2007 to 25.4% in the quarter ended March 31, The Company increased the selling prices of most of its products in 2008, which contributed to growth in both sales and gross profit percentage. For the quarter ended June 30, 2008, turnover increased by 11% to RMB162.1 million as compared to same period last year. The increase was resulted from the higher sales contributed by the zirconium chemicals segment. Gross profit increased by 20% from RMB35.7 million for the quarter ended June 30, 2007 to RMB43 million for the same quarter in Gross profit percentage also improved from 24.5% for the quarter ended June 30, 2008 to 26.5% in the current period. As explained above, the higher gross profit percentage for the current period was mainly resulted from the increase in selling prices of most of the Company s zirconium products. Profit from operations, profit before taxation and profit after taxation all increased at a similar level as the gross profit in the three months ended June 30, 2008 as there was no significant fluctuation in the distribution costs and administrative expenses. 11

12 CASH FLOWS (Unaudited) Six months ended June 30 (in RMB 000, unless otherwise stated) Net cash generated from/(used in) operating activities 76,780 (3,131) Net cash used in investing activities (48,464) (12,845) Net cash (used in)/generated from/ financing activities (14,977) 178,479 Effect of exchange rate changes (597) (7,487) Net increase in cash and cash equivalents 12, ,016 Cash and cash equivalents at January 1 253, ,718 Cash and cash equivalents at June , ,734 The significant cash balance as at June 30, 2007 represented the unused portion of the proceeds from the private placements completed by the Company in May Net cash used in investing activities during the six months ended June 30, 2008 increased to RMB48,464,000 from RMB12,845,000 of the same period last year. This was mainly due to the addition of fixed assets during the period in connection with the aforementioned capacity expansions. LIQUIDITY AND CAPITAL RESOURCES 1. Liquidity (in RMB 000, except current ratio) As at June 30, 2008 As at March 31, 2008 As at December 31, 2007 Current ratio (note 1) 4.4:1 4.8:1 4.6:1 Cash and bank balances 265, , ,152 Working capital (note 2) 339, , ,847 Total assets 891, , ,101 Total interest-bearing borrowings (note 3) 10,649 Nil 12,249 Total equity 791, , ,764 Notes: (1) Current ratio is a measure of current assets divided by current liabilities. (2) Working capital is a measure of current assets less current liabilities. (3) The Company had no long-term interest-bearing borrowings as at June 30, 2008, March 31, 2008 and December 31, The above balances represented short-term interest-bearing loans. Review of liquidity as at March 31, 2008 vs December 31, 2007 The current ratio improved from 4.6:1 as at December 31, 2007 to 4.8:1 as at March 31,

13 Current assets as at March 31, 2008 was RMB443.3 million, representing an increase of RMB9.1 million (December 31, 2007: RMB434.2 million). Inventories decreased significantly from RMB64.8 million to RMB35.0 million due to a shipment of 2kt of zircon from Australia which did not arrive until early April Cash and bank balances increased by RMB34.5 million which represented funds generated from operational activities during the first quarter of The working capital balance as at March 31, 2008 was RMB351.1 million, an increase of RMB11.3 million from that as at December 31, Total assets increased by RMB13.8 million which resulted from the combined effect of movements in various current assets items and an increase in construction in progress by RMB13.6 million. The Company had no debt as at March 31, 2008 because all interest-bearing borrowings outstanding as at December 31, 2007 were repaid in the first quarter of 2008 and there was no new borrowings during the quarter ended March 31, Review of liquidity as at June 30, 2008 vs March 31, 2008 The current ratiodecreased from 4.8:1 as at March 31, 2008 to 4.4:1 as at June 30, Current assets as at June 30, 2008 was RMB438.9 million, representing a decrease of RMB 4.4 million as compared to March 31, Inventories balance dropped further in this quarter to RMB21.5 million because management decided to reduce the inventory level of zircon sand. Cash and bank balance reduced by RMB21.8 million as a result of the cash being used in acquiring property, plant and equipment (which included the payment for the construction works of the new production plant in Binhai). The working capital balance dropped to RMB339 million mainly because of the lower inventories level and cash and bank balances. The non-interest bank borrowings as at June 30, 2008 represented a trust receipt loan outstanding. The Company has no long-term debt as at June 30, The Group currently has unsecured banking facilities amounted to HK$400,000 in the form of corporate credit cards and US$3,800,000 trade financing facilities secured by corporate guarantee of the Company. Contractual obligations (in RMB 000) Payments due by period Total Less than 1 year Between 1-5 years Operating leases outstanding at June 30,

14 2. Capital resources As at June 30, 2008, the Company had the following capital commitments in relation to the purchase of machinery and equipment and for construction in progress: (in RMB 000) At June 30, 2008 Capital expenditures with contractual obligations 20,296 Capital expenditures approved but not yet contracted for 99,840 Total 120,136 As at June 30, 2008, capital expenditures with contractual obligations of RMB20.3 million consist mainly of contracts for construction work or purchases of machinery and equipment for the Binhai project and for certain capacity expansion work at the Yixing facility. Sufficient internal funds have been set aside to meet these obligations. Capital expenditures approved but not yet contracted for were also related to the Binhai project. The balance decreased from RMB106.9 million as at March 31, 2008 to RMB99.8 million as at June 30, 2008 because some contracts were concluded during the three months ended June 30, 2008, thus moving part of the amount from this line item to that with contractual obligations. No contractual obligation was attached to the RMB99.8 million and the Company may revise the investment plan as required. In addition, at June 30, 2008, the Company had a commitment of US$765,000 (equivalent to approximately RMB5,969,000 representing capital contribution for setting up a joint venture pursuant to the agreement entered into between the Company and PT. Indra Putra Mega on September 18, The Company did not complete any financings during the three months ended June 30, Management of the Company is not aware of any expected fluctuations in the Company s capital resources. OFF-BALANCE SHEET ARRANGEMENTS AND CONTINGENT LIABILITIES As at June 30, 2008, the Company did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or the financial conditions of the Company, including, without limitation, such consideration as liquidity and capital resources that has not been previously discussed. 14

15 FINANCIAL INSTRUMENTS During the periods under review and for the years ended December 31, 2005, 2006 and 2007, the Company and no financial instruments other than trade receivables and payables and interest bearing short-term borrowings. TRASNACTIONS WITH RELATED PARTIES 1. Recurring transactions (in RMB 000) Six months ended June 30, 2008 Water supply from a related party (Note (a)) 1,003 Notes: (a) YXZL purchased water for manufacturing purpose from Yixing City Xushe Water Supply Plant (the Water Plant ), a collectively-owned enterprise in Xushe Town of Yixing City. The Water Plant is related to the Company to the extent that Ms. Bao Xi Mei, being the spouse of a director of the Company, is the legal representative of the Water Plant. (b) Pursuant to a trademark licensing agreement dated July 12, 2000 entered into between YXZL and a related company whereas the related company has agreed to grant exclusive rights to YXZL for the use of the Long Jing trademarks in specified areas at nil consideration. 2. Amounts due (to)/from related parties (in RMB 000) Notes At June 30, 2008 Amount due from a related party (i) & (ii) 63 Amounts due to related parties: - Jiangsu Xinxing Chemicals Group Corporation (i) & (ii) (1,138) - Directors of the Company (i) (5,596) Notes: (i) (ii) (iii) The balances at June 30, 2008 are unsecured, non-interest bearing and repayable on demand. The party is related to the extent that Mr. Yang Xin Min, a major shareholder and director of the Company, is also the sole owner of the related company. The party is related to the extent that Mr. Yang Xin Min, is the father of the related party. 15

16 PROPOSED TRANSACTIONS The Company is not a party to any proposed business acquisition or disposition or any proposed transaction that may have an effect on the financial condition, results of operations, or cash flows of the Company. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the Company s Chairman and Chief Executive Officer and Chief Financial Officer, on a timely basis so that appropriate decisions can be made regarding public disclosure. As at the end of the period covered by this MD&A, management of the Company, with the participation of the Chairman and Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the Company s disclosure controls and procedures as required by Canadian securities laws. Based on that evaluation, the Chairman and Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this MD&A, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the Company s annual filings and interim filings (as such terms are defined under Multilateral Instrument Certification of Disclosure in Issuers Annual and Interim Filings) and other reports filed or submitted under Canadian securities laws is recorded, processed, summarised and reported within the time periods specified by those laws and that material information is accumulated and communicated to management of the Company, including the Chairman and Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. ADDITIONAL INFORMATION Additional information relating to CZL may be found on SEDAR at com, the HKSE website at or the Company s website at Additional financial information is provided in the Company s unaudited consolidated Interim Financial Report for the six months ended June 30, Copies of these documents, together with copies of this MD&A and copies of any documents or the pertinent pages of any documents incorporated by reference in this MD&A, are available upon request to the Company, provided that the Company may require payment of a reasonable charge if the request is made by a person who is not a security holder of the Company. 16