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ZTC Telecoms plc (ZTC)

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Tuesday 01 July, 2008

ZTC Telecoms plc

Pre-close Statement and Relat

RNS Number : 9509X
ZTC Telecommunications plc
01 July 2008

ZTC Telecommunications plc

('ZTC' or the 'Company')

Pre-close Statement and Related Party Transaction

As the Company's year end closed on 30 June 2008, the board of ZTC wishes to provide an update on trading seen in 2008. 

  • Profits before taxation for the year end 30 June 2008 are expected to be at least 10% more than the £2,016,000 reported for the year ended 30 June 2007.

  • The Company has performed impressively despite several high profile natural disasters experienced in the PRC in 2008 which have disrupted routes to market throughout the PRC to a significant degree.

  • Strong sales have been seen for the Company's new ZT 2189, ZT 2199 and B606 handsets and distributor reaction to the Company's new range, announced in May 2008 has been very positive boding well for trading in 2008/09.  

  • The Company's working capital available to it to expand its business continues to be constrained but nevertheless it has been able to demonstrate the strength of the demand for its innovative products and has grown the number of distributors with which it is working and has increased the number of handsets sold.

The Company's accounts are still subject to audit over the next few months and it expects to be able to announce its final results before 30 October 2008.

Market conditions

China has experienced several high profile and unusual climatic events in the first 6 months of 2008, namely heavy snowfall, wide spread flooding as well as the earthquake that struck the Sichuan province in MayMost recently, parts of southern China are experiencing a spate of typhoons.

These natural disasters have adversely impacted the Chinese economy and although there has been no damage to the ZTC facilitiesthe Company's ability to distribute its products to its customers has been disrupted and, as a result, trading has been negatively impactedDespite this, the Company has continued to perform impressively and expects that profits before taxation for the year end 30 June 2008 will be at least 10% more than the £2,016,000 reported for the year ended 30 June 2007.  

Strong sales have been seen for the Company's new ZT 2189, ZT 2199 and B606 handsets (see for further details) and distributor reaction to the Company's new range, announced in May 2008 has been very positive boding well for trading in 2008/09.

Working capital

The Company's working capital available to it to expand its business continues to be constrained but nevertheless it has been able to demonstrate the strength of the demand for its innovative products and has grown the number of distributors with which it is working and has increased the number of handsets sold. The directors believe that had the Company had access to additional working capital facilities, even better results for 2008 could have been possible.

As announced on the 4th February 2008, the Company signed a distribution agreement with Vosia Information Technology Co., Ltd ('Vosia'), a logistics and procurement partner of China Mobile, to deliver up to 400,000 handsets. As stated in the announcement, this agreement was subject to ZTC securing additional working capitalMarket conditions for raising equity capital have been poor and the availability of debt for smaller enterprises in China is difficult. The Company has now agreed with Vosia that it will be treated as a standard distributor rather than trade under the formal distribution agreement that had been envisaged and around 14,000 handsets were delivered to Vosia in June 2008.  The Company hopes that in the future, it will be able to engage with Vosia on a long term agreement as had been anticipated.

Charles Huang, Chief Executive Officer of ZTC and beneficial holder of 74.3 per cent of the Company's share capital, has made 3 loans to the Company since July 2006. Each of these loans have been made available to provide the Company with working capital to grow its business, facilitating in part the purchase of key components  on a forward basis ensuring supply at advantageous prices.  Such components are generally supplied only with payment in advance and delivery may take place over a period of up to 3-4 months. The board believes that as the Company grows, its terms of trade will improve, but in the short and middle term, it will only be able to grow its business in line with the working capital available to it.

2 loans made by Charles Huang to the company were disclosed in the Company's AIM Admission document dated 13 February 2007. On 14 January 2007 Charles Huang agreed to lend the Company HKD 11,700,000 (approximately $1,704,920) free of interest and with no formal repayment date of which HKD 1,690,210 (approximately $216,660) is currently outstanding and on 1 July 2006 Charles Huang agreed to lend the Company RMB 9,775,780 (approximately $1,424,670at an interest rate of 6% per annum repayable on 30 June 2008. On 20 March 2008, Charles Huang made a further loan to the Company of RMB 6,440,000 (approximately $938,530at an interest rate of 9.3%, repayable on 20 July 2008. Charles Huang has now agreed with the Company that the terms of each of the 3 loans will be amended such that they are now due for repayment on 30 June 2009 and that no repayments shall be made in respect of any of these loans until that date unless the Company is able to replace such sums with alternative loans or other sources of finance. All of the other terms of the loans remain the same.

As the amendments to the loans are classified as transactions with a related party under the AIM Rules, the directors of the Company (with the exception of Charles Huang) consider, having consulted with the Company's Nominated Adviser, Fairfax I.S. PLC, that the amendments are fair and reasonable insofar as the Company's shareholders are concerned.


Subsidiary's Capital Reduction

The Company's admission document dated 13 February 2007, included a statement that under PRC laws the minimum required registered capital for its Chinese subsidiary, Zhong Tian, to operate as a mobile phone handset manufacturer is RMB 200 million. At that date, Zhong Tian's registered capital was RMB 30,348,000 and it was the Company's stated intention that Zhong Tian would achieve its registered capital of RMB 200 million by no later than 31 December 2009 largely by the capitalisation of any profits, both from the year to 30 June 2006 and subsequent years. Failure to achieve this minimum level of capitalisation by this date (or obtain a permit for extension of this date) would have left Zhong Tian at risk of having its business licence withdrawn by the relevant authority, and its certificate of approval invalidated.

Zhong Tian was recently advised that relevant laws in China had changed and the RMB 200 million minimum capital requirement was removed for new entrants to the market. Zhong Tian intends to amend its articles of association to reduce its registered capital from RMB 200 million to RMB 35 million. This will be done by way of a capital reduction and is subject to Chinese authority approval for the capital reduction itself and also to confirmation from the relevant Chinese authorities that Zhong Tian's licence continues in force at the lower level of capitalZhong Tian is advised that the capital reduction and licence amendment should be approved by the relevant authorities within six months of application. The appropriate steps to gain the necessary approvals have been initiated.  

Frank Lewis, Chairman of ZTC, stated:

'ZTC has demonstrated the demand for its innovative products by indicating that it expects to report a significant increase in pre-tax profits in 2008 when compared with 2007. Were it not for the exceptional climatic events in China which constrained our ability to distribute our products to our customers, our board would have expected to have been able to report even better results. The board notes reports of slowing sales of mobile handsets in China. However, we are happy to report that we are continuing to experience solid demand for our products as the ZTC brand experiences increased acceptance driven by quality and the ability to innovate new products for the rapidly changing Chinese market.

We are delighted that Charles Huang continues to show his support for the business by making loans available to it. Without the availability of such working capital, the Company's ability to grow its business would have been constrained.'

For further information:

ZTC Telecommunications plc 

Mark Syropoulo, Finance Director

+86 21 6867 0012

Frank Lewis, Chairman

+44 20 7429 6666

Fairfax I.S. PLC

Nominated Adviser & Broker

Adam Hart/Laura Littley

+44 20 7598 5368

Conduit PR

Jos Simson/Charlie Geller

+44 20 7429 6609

Company's website:

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

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