ZTC Telecoms plc

Half Yearly Report

RNS Number : 6676P
ZTC Telecommunications plc
30 March 2009
 



ZTC Telecommunications Plc

('ZTC' or the 'Company')


Unaudited Interim Results for the 6 Months Ended 31 December 2008


The Company announces that it has sent its unaudited interim results for the 6 months ended 31 December 2008 to shareholders. The Chairman's Statement and financial statements are reproduced below.


Contact:


ZTC Telecommunications plc

Frank Lewis, Chairman

+44 (0)7775 504 313


Fairfax I.S. PLC 

Nominated Adviser and Broker

Adam Hart / Laura Littley

+44 (0)207 598 5368



Chairman's Statement 


I would like to refer you to my statements in the audited accounts for the year ended 30 June 2008 and to my letter in the Circular to Shareholders dated 27 March 2009 (the 'Chairman's Letter').


Financial Review


As detailed in the Chairman's Letter, due to the sealing of the Group's factory and the sequestering of the Group's assets by the People's Court, the Directors have not had access to the financial information with regards to the trading of the Subsidiaries. Even though the Subsidiaries continued to trade normally up to the date of Charles Huang's disappearance, the Directors only have trading information in relation to the first two months of the 6 month period to 31 December 2008. Therefore, the unaudited interim statements only represent normal trading activity in July and August 2008. No trading information since 1 September 2008 is available to be included within the interim financial statements.  


On the balance sheet all of the Zhong Tian assets have been written down to nil and liabilities for Zhong Tian have been estimated, based on the year-end values. 


Based on the above assumptions, in preparing the consolidated income statement, a loss of £396,000 (after tax) has been reflected.


Frank Lewis

Chairman

27 March 2009


Consolidated Income Statement



Six months ended 

31 December 2008

£'000

Unaudited

Six months ended 

31 December 2007

£'000

Unaudited

Year ended

30 June 2008

£'000

Audited

Revenue

1,667

12,852

26,532

Cost of sales

(1,322)

(9,812)

(20,990)

Gross profit

345

3,040

5,542

Other Operating Income

-

135

445

Impairment of assets in subsidiary

-

-

(18,996)

Administrative expenses

(616)

(870)

(1,464)

Total administrative expenses

(616)

(870)

(20,460)

Distribution costs

(84)

(943)

(1,828)

Other operating expenses

(2)

(13)

(219)

Operating (loss)/profit

(357)

1,349

(16,520)

Finance income

5

35

70

Finance costs

(36)

(39)

(131)

(Loss)/profit before tax

(388)

1,345

(16,581)

Tax 

(8)

(133)

(251)

(Loss)/profit for the period attributable to equity holders of the parent

(396)

1,212

(16,832)

Basic (loss)/earnings per share

(0.39p)

1.3p

(16.6p)

Diluted (loss)/earnings per share

(0.39p)

1.3p

(16.6p)



Consolidated Statement of Changes in Equity



Share capital


£'000

Reverse acquisition reserve

£'000

Share premium reserve

£'000

General reserve


£'000

Merger reserve


£'000

Translation reserve


£'000

Capital contribution reserve

£'000

Retained earnings


£'000

Total equity


£'000

At 1 July 2007

9,368

(12,583)

6,377

427

766

(96)

-

3,495

7,754

Foreign currency translation

-

-

-

-

-

48

-

-

48

Net expense recognised directly in equity

-

-

-

-

-

48

-

-

48

Profit for the period

-

-

-

-

-

-

-

1,212

1,212

Total recognised income and expense for the period

-

-

-

-

-

48

-

1,212

1,260

Transfer of profit to general reserve

-

-

-

164

-

-

-

(164)

-

Issue of share capital by subsidiary 

-

-

-

-

-

-

448

-

448

Issue of deferred shares 

1,500

(1,987)

487

-

-

-

-

-

-

Recognition of share based payments

-

-

-

-

-

-

-

121

121

At 31 December 2007 (Unaudited)

10,868

(14,570)

6,864

591

766

(48)

448

4,664

9,583

Foreign currency translation

-

-

-

-

-

540

-

-

540

Net income recognised directly in equity

-

-

-

-

-

540

-

-

540

Loss for the period

-

-

-

-

-

-

-

(18,044)

(18,044)

Total recognised income and expense for the period

-

-

-

-

-

540

-

(18,044)

(17,504)

Transfer of loss to general reserve

-

-

-

(591)

-

-

-

591

-

Recognition of share based payments

-

-

-

-

-

-

-

51

51

At 30 June 2008

10,868

(14,570)

6,864

-

766

492

448

(12,738)

(7,870)

Foreign currency translation

-

-

-

-

-

(5)

-

-

(5)

Net (loss) recognised directly in equity

-

-

-

-

-

(5)

-

-

(5)

(Loss) for the period

-

-

-

-

-

-

-

(396)

(396)

Total recognised income and expense for the period

-

-

-

-

-

(5)

-

(396)

(401)

At 31 December 2008 (Unaudited)

10,868

(14,570)

6,864

-

766

487

448

(13,134)

(8,271)



Consolidated Balance Sheet



31 December 2008

£'000

Unaudited

31 December 2007

£'000

Unaudited

30 June 2008

£'000

Audited

Non-current assets

 

 

 

Property, plant and equipment

-

537

90

Deferred taxation

-

1

-

Total non-current assets

-

538

90

Current assets

  

  

  

Inventories

-

2,361

-

Trade and other receivables

15

15,630

2,919

Cash and cash equivalents

89

1,865

1,962

Total current assets

104

19,856

4,881

Total assets

104

20,394

4,971

Current liabilities

 

 

 

Trade and other payables

(3,637)

(7,049)

(6,977)

Interest bearing liabilities

(1,743)

(2,294)

(2,877)

Current tax liabilities

(2,995)

(1,468)

(2,987)

Total current liabilities

(8,375)

(10,811)

(12,841)

Total liabilities

(8,375)

(10,811)

(12,841)

Net (liabilities)/assets

(8,271)

9,583

(7,870)

Equity

 

 

 

Share capital

10,868

10,868

10,868

Reverse acquisition reserve

(14,570)

(14,570)

(14,570)

Share premium reserve

6,864

6,864

6,864

General reserve

-

591

-

Merger reserve

766

766

766

Translation reserve

487

(48)

492

Capital contribution reserve

448

448

448

Retained earnings

(13,134)

4,664

(12,738)

Total equity attributable to equity holders of the parent 

(8,271)

9,583

(7,870)



Consolidated Cash Flow Statement



Six months ended 

31 December 2008

£'000

Unaudited

Six months ended 

31 December 2007

£'000

Unaudited

Year ended

30 June  2008

£'000

Audited

Cash flows from operations

 

 

 

Net cash outflow from operations

(1,919)

(2,045)

(734)

Tax received

-

441

-

Tax refunded

-

-

1

Net cash outflows from operating activities

(1,919)

(1,604)

(733)

Investing activities




Interest received

5

35

37

Purchase of property, plant and equipment

-

(39)

(26)

Net cash used in investing activities

5

(4)

11

Financing activities

 

 

 

Interest paid

(36)

(39)

-

New loans

-

1,106

-

Net (decrease) / increase in cash from financing activities

(36)

1,067

-

Net (decrease) in cash and cash equivalents

(1,950)

(541)

(722)

Cash and cash equivalents at beginning of period

1,962

2,499

2,499

Exchange gains on cash and cash equivalents

77

(93)

185

Cash and cash equivalents at end of period

89

1,865

1,962



Notes to the Interim Financial Statements 

Accounting policies

Basis of accounting


The interim financial information in this condensed report is prepared on the basis of the accounting policies set out in the 2008 annual report and accounts and using accounting policies consistent with IFRS. The interim financial information for the 6 months ended 31 December 2008 and 31 December 2007 is unaudited and does not constitute statutory accounts as defined in section 240 of the Companies Act 1985.


Shenzhen Zhong Tian Communication Equipments Co. Ltd (Zhong Tian), the main trading entity in the Group is unable to continue trading. This is due to the major shareholder and Chief Executive Officer of ZTC Plc leaving the company and the factory and offices being closed off, with no access being given to employees or the directors. Given these extraordinary circumstances, a break-up basis of accounting has been adopted for Zhong Tian and its asset values have been written down accordingly. Where necessary in order to value the assets and liabilities in Zhong Tian, the Directors have used estimates based upon amounts recovered and expected to be recovered after the balance sheet date and a precise valuation of those assets and liabilities is not available.


The financial statements of ZTC Plc continue to be prepared on a going concern basis due to it having sufficient access to funds in order to continue meet its liabilities and its expected operating costs for the foreseeable future. Details of the change of circumstances and proposed change in investment strategy which are critical to ZTC's future trading are set out in the 2008 annual report and in the Circular to Shareholders.


Due to the loss of access to the factory the Directors have consequently not had access to the accounting records of Zhong Tian. This report, although covering the six months to 31 December 2008, therefore only includes the results for Zhong Tian for the two months to August 2008.


As all assets were written down at 30 June 2008, no value has been attributed to any trading activity from 1 September to 31 December 2008. The balance sheet at 31 December 2008 represents the assets and liabilities of ZTC plc and the estimated liabilities of Zhong Tian.

Details of the adjustments made to the asset values of Zhong Tian are again set out in the 2008 annual accounts.


The 2008 annual report and accounts, which received a qualified opinion from the auditors, and did include a reference to matters to which the auditors drew attention to by way of emphasis, and did contain a statement under section 237(2) or (3) of the Companies Act 1985, have been filed with the Registrar of Companies. 


Basis of consolidation


The consolidated interim financial statements incorporate the financial statements of ZTC Telecommunications Plc and all its subsidiaries made up to 31 December 2008.  


These interim accounts for ZTC Plc incorporate the consolidated financial statements of ZTC, Praise Ease and Shenzhen Zhong Tian Communications Equipment Co., Ltd ('Zhong Tian') for the six months ended 31 December 2008. Under IFRS comparative figures for the year ended 31 December 2007 have also been included. Praise Ease and Zhong Tian were acquired by ZTC Plc in March 2007 and, due to the relative size of the acquisition, was required to be accounted for under the 'Reverse Acquisition' method.


Control is achieved where the Company has the power to govern the financial and operational policies of an entity so as to gain benefit from its activities.


The Company's controlling interest in its indirectly held, wholly owned subsidiary, Shenzhen Zhong Tian Communication Equipments Co. Limited was acquired through a transaction under common control, as defined in IFRS 3, Business Combinations. The directors noted at the time of the acquisition that transactions under common control were outside the scope of IFRS 3 and that there is no guidance elsewhere in IFRS covering such transactions. This remains the case, with the International Accounting Standards Board commencing their project on transactions under common control in December 2007.


IAS contain guidance where a transaction falls outside the scope of IFRS. This guidance is covered in Paragraphs 10-12 of IAS 8, Accounting policies, Changes in Accounting Estimates and Errors. This requires, inter alia, that where IFRS does not contain guidance on a particular issue, the Directors may also consider the most recent pronouncements of other standard setting bodies that use a similar conceptual framework to develop accounting standards. In this regard it is noted that the United States Financial Accounting Standards Board (FASB) has issued an accounting standard covering Business Combinations (FAS 141), that is similar in a number of respects to IFRS 3. Further there is currently a major project being run jointly by the IASB and the FASB to converge IFRS and US GAAP.


In contrast to IFRS 3, FAS 141 does include, as an appendix, limited accounting guidance for transactions under common control, which as with IFRS 3, are outside the scope of that accounting standard. The guidance contained in FAS 141 indicates that a form of accounting that is similar to pooling of interests accounting, which was previously set out in Accounting Principles Board (APB) opinion 16, may be used when accounting for transactions under common control.


Having considered the requirements of IAS 8 and the guidance included within FAS 141, it is considered appropriate to use a form of accounting which is similar to pooling of interests when dealing with the transaction in which the Group acquired its controlling interest in Shenzhen Zhong Tian Communication Equipments Co. Ltd.


Principle accounting policies adopted during the period


The principle accounting policies adopted during the period by the board are set out below. The chairman's statement provides an updated assessment of the financial position of the company.


Reverse acquisition accounting 


The acquisition of Praise Ease Limited by ZTC Telecommunications Plc on 21 March 2007 was accounted for under the principles of reverse acquisition accounting. Although the consolidated financial statements have been prepared in the name of the legal parent, ZTC Telecommunications Plc, they are in substance a continuation of the consolidated financial statements of the legal subsidiary, Praise Ease Limited. The following accounting treatment was applied in respect of the reverse acquisition:


*  The assets and liabilities of the legal subsidiary, Praise Ease Limited are recognised and measured in the consolidated financial statements at the pre-combination carrying amounts, without restatement to fair value;


*  The retained earnings and other equity balances recognised in the consolidated financial statements reflect the retained earnings and other equity balances of Praise Ease Limited immediately before the business combination and the results of the period from 1 July 2006 to the date of the business combination are those of Praise Ease Limited. However, the equity structure appearing in the consolidated financial statements reflects the equity structure of the legal parent, ZTC Telecommunications Plc, including the equity instruments issued in order to effect the business combination; and


Revenue recognition


Revenue is measured at the fair value of the consideration received or receivable and represents amounts received or receivable for goods provided in the normal course of business, net of discounts and sales related taxes.

Sales of goods and services are recognised when goods are delivered and title has passed.


Group property, plant and equipment


Property, plant and equipment are stated at cost less accumulated depreciation and are depreciated over their estimated useful lives on the following annual bases:


Leasehold improvements

(straight line)

4.5%

Office equipment 

(straight line)

33.3%

Motor vehicles

(straight line)

11.25%

Machinery

(straight line)

18%

Fixtures, fittings and equipment

(straight line)

18%


Where any items of property, plant and equipment are deemed to be impaired, they are written down to their recoverable value.


Operating profit 


Operating profit is stated before finance income and finance costs.


Cash and cash equivalents


Cash and cash equivalents comprise cash balances, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

Inventories


Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Where any items of property, plant and equipment are deemed to be impaired, they are written down to their recoverable value.


Trade receivables


Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit and loss when there is objective evidence that the asset is impaired. Any impairment allowances made represent the difference between the asset's carrying amount and the present value of the estimated future cash flows from that asset. Any impairment losses are realised immediately in the income statement.


Other financial liabilities


Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method.


Borrowings


Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost, with any difference between the proceeds (net of transaction costs) and the redemption value recognised in the income statement over the period of the borrowings using the effective interest method.


Equity instruments


An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.


Leases


Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Rentals payable under operating leases are charged to income on a straight line basis over the term of the relevant lease.


Taxation


The tax expense represents the sum of the tax currently payable and deferred tax.


The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.


Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.


The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.


Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.


Foreign currencies


The separate financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the company and the presentational currency for the consolidated financial statements.


The Directors have determined the currency of the primary economic environment in which the Group operates to be Renminbi ('RMB'). Sales and major costs of providing goods and services including major operating expenses are primarily influenced by fluctuations in RMB. The presentation currency of the Group is pounds sterling and therefore on consolidation the financial information of the subsidiaries has been translated from RMB to pounds sterling.


Transactions in currencies other than the functional currency are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date. Profits and losses arising on the retranslation are included in the income statement.


Share based payments


The Group issues equity settled share based payments to certain employees. Equity settled share based payments are measured at fair value at the date of the grant. The fair value determined at the grant date of the equity settled share based payments is expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.


Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects on non-transferability, exercise restrictions and behavioural considerations.


Other operating income



Six months ended 

31 December 2008

£'000

Unaudited

Six months ended 

31 December 2007

£'000

Unaudited

Year ended

30 June 2008

£'000

Audited

Sales of components

-

-

215

Processing

-

-

45

Provision of value added services

-

59

105

Other

-

76

80

 

-

135

445


Loss for the financial year



Six months ended 

31 December 2008

£'000

Unaudited

Six months ended 

31 December 2007

£'000

Unaudited

Year ended

30 June 2008

£'000

Audited

Loss for the financial year is arrived at after charging:

 

 

 

Depreciation on owned assets

-

88

155

Auditors' remuneration for audit services

-

-

90

Write down of inventories recognised as an expense

-

2

-

Operating lease payments

8

-

88

Impairment of assets in Zhong Tian to 'break-up' basis

-

-

18,996

Share based payments expense

-

121

-


(Loss)/Earnings per share


The calculation of basic and diluted (loss) / earnings per share is based on the following data:



Six months ended 

31 December 2008

£'000

Unaudited

Six months ended 

31 December 2007

£'000

Unaudited

Year ended

30 June 2008

£'000

Audited

(Loss)/earnings for the purpose of basic and diluted earnings per share

(396)

1,212

(16,832)

Number of shares

'000

'000

'000

Weighted average number of ordinary shares for the purpose of basic earnings per share

101,592

94,579

101,592


The denominators for the purposes of calculating both basic and diluted earnings per share in 2007 have been adjusted for the share division that took place in 2008.


Investments


The Company owns the following investments:


Name of undertaking

Place of Incorporation

% ownership

Principal activity

Praise Ease Limited

Hong Kong

100%

Holding company

Shenzhen Zhong Tian Communication Equipments Co. Ltd

China

100%*

Design, distribution and assembly of mobile phones


*This company is owned indirectly by ZTC Telecommunications Plc through Praise Ease Limited


Inventories



31 December 2008

£'000

Unaudited

31 December 2007

£'000

Unaudited

30 June 2008

£'000

Audited

Raw materials

-

1,859

1,164

Finished goods

-

502

5

Work in progress

-

-

88

Provision

-

-

(2)

Revaluation of assets to break-up value 

-

-

(1,255)

 

-

2,361

-


Trade and other receivables



31 December 2008

£'000

Unaudited

31 December 2007

£'000

Unaudited

30 June  2008

£'000

Audited

Due within one year:

 

 

 

Amounts receivable for the sale of goods

-

6,509

12,017

Other receivables

-

1,972

1,053

Prepayments and accrued income

15

7,149

7,184

Revaluation of assets to break-up value

-

-

(17,335)

 

15

15,630

2,919


The directors consider that the carrying amount of trade and other receivables approximates to their fair value.


All of the trade and other receivables recognised at 31 December 2008 are held in ZTC Plc.


Trade and other payables



31 December 2008

£'000

Unaudited

31 December 2007

£'000

Unaudited

30 June 2008

£'000

Audited

Trade payables 

3,637

4,902

4,377

Income tax payable

-

83

-

Other payables

-

962

1,169

Accruals and deferred income

-

1,102

1,431

 

3,637

7,049

6,977


The directors consider that the carrying of trade and other payables approximates to their fair value.


Of the trade and other payables noted above, £59,000 are payable by ZTC Plc at 31 December 2008.


Notes to the cash flow statement



Six months ended 

31 December 2008

£'000

Unaudited

Six months ended 

31 December 2007

£'000

Unaudited

Year ended

30 June 2007

£'000

Audited

(Loss)/Profit for the financial period

(396)

1,212

(16,832)

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

-

88

155

Share based payment expense

-

121

172

Finance income

(5)

(35)

(70)

Finance costs

36

39

131

Tax

8

133

251

Impairment of assets to break up value

-

-

18,996

Operating (loss)/profit before changes in working capital

(357)

1,558

2,803

Changes in working capital:

 

 

 

Increase in inventories

-

(1,472)

(366)

Decrease/(increase) in trade and other receivables

2,904

(4,732)

(9,358)

Decrease/(increase) in trade and other payables

(4,466)

2,601

6,187

Net cash outflow from operations

(1,919)

(2,045)

(734)


Of the cash recognised in the consolidated balance sheet at 31 December 2008, £90,000 is held in an account owned and controlled by ZTC Plc.


Availability of interim statement


Copies of this interim statement will be available on request from the Company's registered office at 14 New StreetLondon EC2M 4HE and on the Company's website at www.chinaevoline.com



This information is provided by RNS
The company news service from the London Stock Exchange
 
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