TIDMGIPO
RNS Number : 4155R
Grand Group Investment PLC
26 June 2015
Press Release 26 June 2015
Grand Group Investment PLC
("Grand Group", the "Company" or the "Group")
Final Results
Grand Group Investment PLC (AIM:GIPO), a provider of expansion
capital and value added services to China-based SMEs with high
growth potential, today announces its maiden set of Final Results
for the period from 4 March 2014 to 31 December 2014 (the
"period").
Financial Highlights
-- Total assets stand at RMB 480 million (approximately GBP50
million)
-- Profit for the period of RMB 205 million (approximately GBP22
million)
-- Cash position excludes the proceeds from the Placing and Admission
to AIM, which occurred post period
Post period highlights
-- Successful Placing and Admission to AIM on 27 January 2015
raising GBP7.1 million gross
-- Robust cash position post Admission to AIM
-- Cash investment of RMB 20 million into Jinxuntong, a Chinese
online learning solutions provider
*The illustrative exchange rate as at 31 December 2014 was 1
GBP: 9.6 RMB
James Newman, Non-Executive Chairman of Grand Group Investment
PLC, said: "We are delighted to present our first set of results as
a newly quoted company on AIM. Our first investment, a 33.33%
holding in Wuxi Victory Media & Culture Co., Ltd. ("Victory
China"), grew rapidly in 2014, with revenue more than doubling to
RMB 237 million and net profit increasing by over 150% from RMB
55.8 million to RMB 144.5 million. After our fiscal year end, the
Group raised GBP7.1 million and was admitted to AIM in January
2015, which in turn allowed us to make our second investment in
Jinxuntong during the first half of 2015."
For further information:
Grand Group Investment PLC
James Newman, Non-Executive Chairman Tel: +44 (0) 20 7398
7714
Yang Xiao, Executive Director www.grandgroupplc.com
ZAI Corporate Finance Limited
Ray Zimmerman / Ivy Wang (Nomad) Tel: +44 (0) 20 7060
2220
Steven Baird (Broker) www.zaicf.com
Media enquiries:
Abchurch
Henry Harrison-Topham / Canace Wong Tel: +44 (0) 20 7398
7714
grand@abchurch-group.com www.abchurch-group.com
The financial information contained in this announcement does
not constitute, but has been extracted from, the Group's audited
financial statements for the period ended 31 December 2014 upon
which the auditors issued an unmodified audit opinion and which
will shortly be available on the Company's website at
www.grandgroupplc.com. They are expected to be posted to
shareholders on 29 June 2015 together with a Notice convening an
Annual General Meeting for 23 July 2015.
Chairman's Statement
2014 was an exciting year for Grand Group, which saw the
formation of the Company, a strong partnership with the Tan Kah Kee
Society ("TKK") established and the Group's initial investment into
Wuxi Victory Media & Culture Co., Ltd. ("Victory"). Post the
period end, the Group successfully joined the AIM market of the
London Stock Exchange on 27 January 2015 raising GBP7.1 million
(gross proceeds). The Board is pleased to announce today the
Group's maiden set of results as a publically quoted company.
About Grand Group
Grand Group was founded in 2014 by Mr Yang Xiao and other
founding shareholders. The Company has been established for the
purpose of identifying, acquiring and investing in small to
medium-sized companies with high growth potential, principally
operating in the People's Republic of China ("PRC").
Grand Group is a late stage incubator which focusses on
investing in established businesses with either technology or
intellectual property which the Board believes will benefit from
Grand Group's university research resources.
Partnerships
Through its partnership with the TKK Society, the Group has
fostered and maintained a broad network of contacts with
individuals at local and international higher education
institutions, including: Jiangnan University; Xiamen University;
Jimei University; Nanyang Technological University (China);
University of California Berkeley (Tan Kah Kee Hall); National
University of Singapore; University of Hong Kong; Oxford Brookes
University; Keuka College (New York State); and the University of
Greenwich.
Amongst these universities, Grand Group has already established
effective relationships with Jiangnan University and Jimei
University for its current projects and the Directors believe that
similar relationships can be developed with other universities.
Results
The results for the period from 4 March 2014 to 31 December 2014
(the "period") were encouraging, primarily reflecting the upward
revaluation of the Group's investment in Victory China. As at 31
December 2014, the fair value of the Company's investment in
Victory China was revalued by RMB 284 million to RMB 480 million
based on a review of peer competitors, and applying a discount to
reflect the lack of liquidity of the shares of Victory China, the
age profile of the investment and the Chinese market. This is
discussed in detail in Note 4 to the financial statements.
The Group's negative operating cash flow for the year is partly
due to the IPO closing just after the period end, but also reflects
the early stage of the Group's business: cash inflows will occur
primarily when Grand Group exits investments.
Portfolio
Victory China
Victory China produces vocational training software, and most
importantly training videos for blue collar jobs. Victory China
provides solutions to one of the fundamental social and industrial
issues in the PRC today: the migration of unskilled labour from the
countryside to urban areas and the need to train them for skilled
work. When Grand invested in Victory China, the vast majority of
its revenues came from training individuals in metal working.
During 2014 Victory China's management focused on diversifying its
revenues, and it now has five significant revenue sources.
Importantly, while expanding revenues so dramatically into other
sectors, margins were maintained. As of year-end, gross margin
still exceeded 90% and net margin exceeded 60%, up from 54% in
2013. Cash flow from operations reached RMB 100 million.
Upon completion of the pre-IPO reorganisation, Grand Group
acquired 33.33% of Victory from Shenzhen Grand Culture and
Technology Development Co. Ltd., which had previously made a cash
investment of RMB 196 million into Victory China. As at 31 December
2014, the fair value of the Company's investment in Victory China
was revalued by RMB 284 million to RMB 480 million as detailed
above. The Board understands that Victory China is targeting a
flotation within the next two years.
Wuxi Jinxuntong Technology Limited ("Jinxuntong" or "JXT")
In Q1 2015, after the period covered in these statements, Grand
acquired a 15% stake in Jinxuntong for RMB 20 million. JXT is an
online learning solutions provider to China's urban and rural
vocational education industry that was incorporated in 2010 in Wuxi
City, China. It operates an integrated online training website Gong
Yuan Wang (http://www.gongyuannet.com/), which provides online
training video courses for industrial workers. Gong Yuan Wang has
also developed an advanced data centre that is supported by one of
China Telecom's three five-star internet data centres. This
dedicated line for connectivity ensures the stability of the
system, speed of the website and security of the data.
JXT's website currently has approximately four million
registered members, of which approximately two million are paying
users who have already paid total membership fees of approximately
RMB 200 million. JXT's business is complementary with Victory
China's, and indeed Victory China distributes courseware through
JXT's website as well as Victory's own channels.
China's Economy
Grand Group is well established to capitalise on new
opportunities in the Chinese domestic market, especially in the
rapidly growing education sector. It is well known that China's
economy has been slowing as a result of structural transformation,
with the government encouraging an increase in domestic consumption
and reducing dependence on state investment. At the same time, the
Central Government's anti-corruption drive has had a negative
impact on certain aspects of consumption, such as luxury goods and
spending in restaurants and bars. As a result, GDP growth fell to
7.4% in 2014 and 7.0% in the first quarter in 2015, but the shift
is toward the government's goal of slower but more sustainable
growth. Technology and scientific sectors continue to expand,
driven by national initiatives on urbanisation and improvements in
production quality. Those same initiatives also encourage and even
require investments in training of workers, directly benefitting
our first two investments, Victory China and Jinxuntong.
Outlook
The Board has been very pleased with the Group's progress during
2014, both the continued maturing of its initial investment and its
successful IPO which completed just after the period end. Looking
forward to 2015, the Board is enthused by the opportunities that it
is seeing for further investment. Victory China's business is
developing rapidly which should position it well for a flotation in
due course.
James Newman
Non-Executive Chairman
26 June 2015
Corporate Governance
As an AIM-listed company, Grand Group does not comply with the
UK Corporate Governance Code published by the Financial Reporting
Council. However, the directors do place a high degree of
importance on ensuring that high standards of corporate governance
are maintained. The following sections note the governance
procedures applied by Grand Group.
Board Responsibilities
The Board currently comprises three independent Non-Executive
Directors and four Executive Directors. The Group will hold at
least four Board meetings per annum, at which the Directors review
the Group's performance and all other important issues to ensure
control is maintained over the Group's affairs. The Directors
expect to be kept fully informed of the Group's performance, and
other matters that are relevant to the business of the Group and
that should be brought to the attention of the Directors. The
Directors have access to the financial and legal advisers and,
where necessary in the furtherance of their duties, to independent
professional advice at the expense of the Group.
The Board has a breadth of experience relevant to the Group, and
the Directors believe that any changes to the Board's composition
can be managed without undue disruption. With any new appointment
of a Director to the Board, consideration will be given as to
whether a formal induction process is appropriate. The Board
believes that the mix of skills, experience, ages and length of
service are appropriate to the requirements of the Group.
In advance of a Board meeting, the Board considers agenda items
laid out in the formal meeting notice and agenda. Directors may
request any agenda items to be added that they consider appropriate
for the Board's discussion. Additionally, each Director is required
to inform the Board of any potential or actual conflicts of
interest prior to Board discussion.
All members of the Board are expected to attend each Board
meeting, whether by phone or in person, and to arrange their
schedules accordingly, although non-attendance is unavoidable in
certain circumstances.
Audit Committee
The Audit Committee of the Group, comprising Mark Hemmann and
James Newman, is chaired by Mark Hemmann and meets at least twice a
year. The Audit Committee is responsible for ensuring that the
Group's financial performance is properly monitored, controlled and
reported. The Audit Committee is responsible for the scope and
effectiveness of the external audit and compliance by the Group
with statutory and regulatory requirements. The Audit Committee
also advises the Board on the appointment of the external Auditors,
reviews their fees and the audit plan. It approves the external
Auditors' terms of engagement, their remuneration and any non-audit
work.
The Audit Committee also meets the Group's Auditors and reviews
reports from the Auditors relating to accounts and internal control
systems. The Audit Committee meets with the Auditors as and when
the Audit Committee requires.
In the period since fiscal year end, the most significant issues
that the Audit Committee considered in relation to the financial
statements were a) valuation of the company's investment in Victory
China, as the revaluation of that investment dominates the income
statement, and b) the proceeds from the Company's January 2015 IPO.
These were discussed at length, both internally and with the
Auditors.
Auditor objectivity and independence is safeguarded through
limiting non-audit services to tax and audit-related work that fall
within defined categories. Non-audit work is approved by the Audit
Committee if the committee concludes that it is in the interests of
the Group to purchase non-audit work from the external Auditors
(rather than another supplier). Any future non-audit work by Moore
Stephens LLP will be monitored and approved by the Audit
Committee.
Remuneration Committee
The Remuneration Committee comprises Stephen Roberts, Chairman,
and Mark Hemmann, both of whom are independent NEDs. The Committee
meets at least twice a year and is responsible for recommending the
remuneration policy for all executive directors and the Company's
Chairman, including pension rights and any compensation payments.
It also recommends and monitors the level of salary and structure
for senior management.
In determining such policy, the Committee takes account of all
factors which it deems necessary, including relevant legal and
regulatory requirements and the provisions and recommendations of
the UK Corporate Governance Code. The remuneration and the terms
and conditions of the Non-Executive Directors are determined by the
Directors with due regard to the interests of the Shareholders and
the performance of the Group. In this regard it will work closely
with all other Board Committees.
It should be noted that senior management and executive
directors' salaries are low. The annual remuneration of the 5
senior employees totals only RMB1.29 million, whilst the four
executive directors are paid a total of RMB 1.95 million per annum.
The executive directors are also shareholders in Shenzhen Grand
which receives a 0.5% fee on every company introduced to Grand
Group in which the latter invests. Details of this arrangement were
fully disclosed in the Admission Document.
There are currently no plans to amend the salaries of the
directors or the senior management or to introduce a mechanism to
link rewards to performance.
Nomination Committee
The Nomination Committee comprises James Newman, Chairman, and
Stephen Roberts and meets at least once a year. The function of the
Nomination Committee is to consider the appointment and
reappointment of Directors as well as all key appointments of
management.
When considering the appointment and reappointment of Directors,
the Nomination Committee and the Board consider whether the Board
and its committees have the appropriate balance of skills,
experience, independence and knowledge to enable them to discharge
their respective duties and responsibilities effectively.
The key appointment this Committee will deliberate during 2015
is that of the Finance Director. In the future, the FD will work
closely with the board and management on such key issues as the
audit and corporate governance, not to mention the Group's own
capital needs and the listing of its investments. Shareholders vote
on the re-appointment of all Directors at the first Annual General
Meeting and Directors retire by rotation thereafter.
Share Dealing
The Group has adopted a share dealing code for Directors'
dealings. The Directors will comply with Rule 21 of the AIM Rules
for Companies relating to Directors' dealings and will take all
reasonable steps to ensure compliance by the Group's applicable
employees as well.
The Takeover Code
As a company incorporated in the Cayman Islands, the Group will
not be subject to the Takeover Code. As a result, certain
protections that are afforded to Shareholders under the Takeover
Code, for example in relation to a takeover of a company or certain
stake-holding activities by Shareholders, do not apply to the
Group.
However, certain protections have been incorporated into the
Group's Articles which, to an extent, mirror the provisions of Rule
9 of the Takeover Code (the "Relevant Code Provisions"). The
Articles provide that if an acquisition of Ordinary Shares were to
increase the aggregate holding of the acquirer and its concert
parties to shares carrying 30% or more of the voting rights of the
Group, the acquirer and, depending on the circumstances, the
concert parties, will be required (except with the agreement of the
Group in a general meeting by ordinary resolution of independent
Shareholders) to make a cash offer for the outstanding shares in
the Group at a price not less than the highest price paid by the
acquirer or its concert parties during the previous 12 months. This
requirement would also be triggered by any acquisition of shares by
a person holding (together with its concert parties) shares
carrying between 30% and 50% of the voting rights in the Group if
the effect of such acquisition were to increase the person's
percentage of voting rights. The main difference between these
provisions and the Relevant Code Provisions is that the Takeover
Panel does not have any jurisdiction to enforce these
provisions.
Disclosure and Transparency Rules
The provisions of DTR 5 shall be deemed to apply to the Group,
so that Shareholders are required under the Articles to notify the
Group of the percentage of their voting rights if the percentage of
voting rights which they hold as a Shareholder or through their
direct or indirect holding of financial instruments falling within
paragraph 5.1.3R of DTR 5 (or a combination of such holdings)
reaches, exceeds or falls below 3%, 4%, 5%, 6%, 7%, 8%, 9%, 10%,
and each 1% threshold thereafter up to 100%, or reaches or exceeds
or falls below any of these thresholds as a result of events
changing the breakdown of voting rights. If any Shareholder fails
to comply with these requirements, the Directors may, by notice to
the holder of the shares, suspend their rights as to voting,
dividends and transfer.
Such suspension shall have effect from the date on which the
default notice is delivered to the Shareholder until a date that is
not more than seven days after the Board has determined that the
holder of the shares has resolved the non-compliance. During the
period of such suspension, any dividend or other amount payable in
respect of the shares shall be retained by the Group without any
obligation to pay interest thereon.
The Directors have the power, by giving notice, to require any
Shareholder to disclose to the Group the identity of any person
other than the Shareholder who is interested in the shares held by
the Shareholder or who has been at any time during the preceding
three years so interested, in both cases together with details of
the nature of such interest.
If any Shareholder has been duly served with such a notice and
is in default of the prescribed period in supplying the information
required then certain restrictions shall apply. A disclosure notice
may direct that the Shareholder shall not be entitled to vote at a
general meeting or meeting of the holders of any class of shares of
the Group or exercise any other right conferred by membership in
relation to the meetings of the Group or holders of any class of
shares.
Where the default shares represent at least 0.25% of the issued
shares of that class, any dividend or other money which would
otherwise be payable may also be retained by the Group and
transfers of default shares will be restricted until the
restrictions cease to apply.
Statements of Comprehensive Income
For the period from 4 March 2014 (date of incorporation) to 31
December 2014
Note Period from
4 March
2014 to
31 December
2014
RMB'000s
Administrative expenses (8,020)
Financial expenses (5)
Unrealised gain on unquoted financial
assets 284,000
-------------
Profit before tax 275,975
Taxation 13 (71,000)
-------------
Total comprehensive profit for the
financial period 204,975
=============
Profit per share - basic and diluted 11 8.2
=============
(expressed as RMB per share)
Statements of Financial Position
As at 31 December 2014
Note 31 December
2014
RMB'000
Assets
Non-current assets
Unquoted financial assets at fair value
through profit or loss 4 480,000
------------
480,000
------------
Current assets:
Cash and cash equivalents 10
------------
10
Total assets 480,010
============
Equity and liabilities
Shareholders' Equity:
Share Capital 6 10
Retained earnings 204,975
Contributed capital 7 196,000
------------
Total equity 400,985
------------
Non-current liabilities:
Deferred tax liability 13 71,000
------------
71,000
Current liabilities:
Accruals 1,317
Amount due to shareholders 5 6,708
------------
8,025
Total liabilities 79,025
Total equity and liabilities 480,010
============
Statements of Changes in Equity
For the period from 4 March 2014 (date of incorporation) to 31
December 2014
Share Retained Contributed Total
Capital earnings Capital RMB'000
RMB'000 RMB'000 RMB'000
On incorporation 10 - - 10
Total comprehensive
income for the period - 204,975 - 204,975
Capital contribution - - 196,000 196,000
---------- ------------ ----------
31 December 2014 10 204,975 196,000 400,985
---------- ------------ ----------
Statements of Cash Flows
For the period from 4 March 2014 (date of incorporation) to 31
December 2014
Period from
4 March 2014
to 31 December
2014
RMB'000
Cash flows from operating activities
Profit before tax 295,975
Unrealised gain on unquoted financial assets (284,000)
Increase in other payables and accruals 1,317
Net cash outflow from operating activities (6,708)
----------------
Cash flows from financing activities
Cash proceeds from issue of shares 10
Loan from shareholders 6,708
Net cash inflow from financing activities 6,718
----------------
Net increase in cash and cash equivalents 10
Cash and cash equivalents at the beginning of -
the period
----------------
Cash and cash equivalents at the end of the period 10
================
Non-cash transaction
During the period, the Company made an investment of RMB 196
million in Wuxi Victory & Culture Co., Ltd, contributed by its
shareholders through a VIE and WFOE arrangement as detailed per
Note 4.
NOTES TO THE FINANCIAL INFORMATION
For the period from 4 March 2014 (date of incorporation) to 31
December 2014
1. GENERAL INFORMATION
The financial information set out herein is in respect of Grand
Group Investment PLC ("Grand Group" or the "Company") for the
period from 4 March 2014 (date of incorporation) to 31 December
2014 and has been prepared by the directors of the Company (the
"Directors").
The Company was incorporated on 4 March 2014 and is domiciled in
the British Cayman Islands and its registered office is 89 Nexus
Way, Camana Bay, KY1-9007, British Cayman Islands. The principal
place of business is Room 2023, South Building, Lihu Technology
Innovation Center, No. 11, Wuhu Road, Wuxi City, Jiangsu Province,
PRC.
On 4 September 2014, it was resolved by the shareholders that
the Company change its name from Grand Group Investment Limited to
Grand Group Investment PLC.
2. PRINCIPAL ACTIVITIES
The Company is a value-added and technology innovation private
equity investment vehicle, which principally focuses on investing
in small & medium sized enterprises in the People's Republic of
China.
3. ACCOUNTING POLICIES
a) Basis of Preparation
The financial information has been prepared in accordance with
International Financial Reporting Standards ("IFRS"), which
collective term includes all applicable individual IFRS,
International Accounting Standards ("IAS") and Interpretations
issued by the International Accounting Standards Board ("IASB") and
International Financial Reporting Interpretations Committee
("IFRIC").
The financial information has been prepared under the historical
cost convention, except for the revaluation of certain financial
assets. The financial information is presented in Renminbi ("RMB"),
rounded to the nearest thousand, unless otherwise stated.
b) Revenue recognition
Revenue is recognised when it is probable that the economic
benefits will flow to the Company and when the revenue can be
measured reliably and on the following basis:
-- Dividend income is recognised when the Company's right to receive payment is established.
c) Financial instruments
Financial assets and financial liabilities are recognised on the
Statement of Financial Position when a company becomes a party to
the contractual provisions of the instrument. Financial assets and
financial liabilities are initially measured at fair value.
Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at fair
value through profit or loss) are added to or deducted from the
fair value of the financial assets or financial liabilities, as
appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of
financial assets or financial liabilities at fair value through
profit or loss are recognised immediately in profit or loss.
Unquoted financial assets at fair value through profit or
loss
Classification
The Company classifies its unquoted financial assets as
financial assets at fair value through profit or loss. These
financial assets are designated by the Directors as at fair value
through profit or loss at inception.
Financial assets designated as at fair value through profit or
loss at inception are those that are managed as part of an
investment portfolio and their performance evaluated on a fair
value basis in accordance with the Company's investment
strategy.
Recognition/derecognition
Purchases and sales of investments are recognised on the trade
date - the date on which the Company commits to purchase or sell
the investment.
A fair value through profit or loss asset is derecognised when
the Company loses control over the contractual rights that comprise
that asset. This occurs when rights are realised, expire or are
surrendered and the rights to receive cash flows from the
investments have expired or the Company has transferred
substantially all risks and rewards of ownership. Realised gains
and losses on fair value through profit or loss assets sold are
calculated as the difference between the sales proceeds and cost.
Fair value through profit or loss assets that are derecognised and
corresponding receivables from the buyer for the payment are
recognised as of the date the Company has transacted an
unconditional disposal of the assets.
Measurement
Financial assets at fair value through profit or loss are
initially recognised at fair value. Transaction costs are expensed
through the profit or loss. Subsequent to initial recognition, all
financial assets at fair value through profit or loss are measured
at fair value in accordance with IFRS 13 'Fair value measurement'.
For determining a suitable valuation technique the company applies
International Private Equity and Venture Capital Valuation
("IPEVCV") guidelines, as the Company's business is to invest in
financial assets with a view to profiting from their total return
in the form of capital growth and income.
Gains and losses arising from changes in the fair value of the
financial assets at fair value through profit or loss are presented
in the period in which they arise.
Other payables and accruals
Other payables and accruals are not interest bearing and are
stated at their fair value.
Cash and cash equivalents
For the purpose of the Statement of Cash Flows, cash and cash
equivalents, measured at fair value, represent short-term, highly
liquid investments which are readily convertible into known amounts
of cash and which were within three months of maturity when
acquired.
Impairment of financial assets
An assessment for impairment is undertaken at least at the end
of each reporting period whether or not there is objective evidence
that a financial asset or a group of financial assets is impaired.
Impairment loss on financial assets are recognised when there is
objective evidence that the Company will not be able to collect all
the amounts due to it in accordance with the original terms of the
receivables. The amount of the impairment loss is determined as the
difference between the asset's carrying amount and the present
value of estimated future cash flows.
Financial liabilities
The Company's financial liabilities include amounts due to
shareholders. Financial liabilities are recognised when it becomes
a party to the contractual provision of the instrument. All
financial liabilities are recognised initially at their fair value,
net of transaction costs, and subsequently measured at amortised
cost, using the effective interest method, unless the effect of
discounting would be insignificant, in which case they are stated
at cost.
The Company derecognises financial liabilities when, and only
when, the Company's obligations are discharged, cancelled or they
expire.
Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.
d) Earnings per share
Basic earnings per share is computed using the weighted average
number of shares outstanding during the period. Diluted earnings
per share is computed using the weighted average number of shares
during the period plus the dilutive effect of dilutive potential
ordinary shares outstanding during the period.
e) Foreign currency translation
Functional and presentation currency
Items included in the financial information of the Company is
measured using the currency of the primary economic environment in
which it operates ("functional currency"), which is Chinese
Renminbi ("RMB").
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions or valuation where items are re-measured. Foreign
exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies
are recognised in the Statement of Comprehensive Income.
f) Related parties
For the purpose of the financial information, related parties
are defined as:
1. A person, or a close member of that person's family, is
related to the Company if that person:
i. has control or joint control over the Company;
ii. has significant influence over the Company; or
iii. is a member of key management personnel of the Company.
2. An entity is related to the Company if any of the following conditions applies:
i. The entity and the Company are members of the same group.
ii. One entity is an associate or joint venture of the other
entity (or an associate or joint venture of a member of a group of
which the other entity is a member).
iii. Both entities are joint ventures of the same third party.
iv. One entity is a joint venture of a third entity and the
other entity is an associate of the third entity.
v. The entity is a post-employment benefit plan for the benefit
of employees of either the Company or a related entity.
vi. The entity is controlled or jointly controlled by a person identified in (1).
vii. A person identified in (1)(i) has significant influence
over the entity or is a member of the key management personnel of
the entity (or of a parent of the entity).
g) Deferred tax
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 income, and is accounted for using the
statement of financial position 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.
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. Deferred tax is charged or credited in the statement of
comprehensive income, except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also
dealt with in equity.
h) Critical accounting estimates and judgements
Preparation of financial information in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. The estimates
and associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources.
In particular, significant areas of estimation, uncertainty and
critical judgements in applying accounting policies that have the
most significant effect on the amount recognised in the financial
information are in the following areas:
Going concern
The financial information has been prepared on a going concern
basis, which contemplates the realisation of assets and settlement
of liabilities in the ordinary course of business. The Company's
current liabilities exceeded its current assets by RMB 79,015,000
as at 31 December 2014. The Company's continuance in business as a
going concern is based on the successful post year end fundraising
and admission to trading on AIM (see note12).
Valuation of unquoted investments
In estimating the fair value for an investment, the Company
applies a methodology that is appropriate in light of the nature,
facts and circumstances of the investment and its materiality in
the context of the total investment portfolio using reasonable
market-data. Carrying values are dealt with in Note 4.
The Company has adopted the "multiple methodology" prescribed in
the International Private Equity and Venture Capital Valuation
("IPEVCV") guidelines to value its investments at fair value
through profit or loss.
4. UNQUOTED FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
RMB'000
On incorporation -
Additions 196,000
Fair value changes through profit and loss 284,000
--------
Balance as at 31 December 2014 480,000
========
Wuxi Victory Media & Culture Co., Ltd ("Victory China")
The Company holds an indirect, non-controlling, 33.33% interest
in Wuxi Victory Media and Cultural Co. Limited ("Victory China")
which was acquired on 3 June 2014. Victory China's principal
activity is the production of video courseware for the training of
vocational courses to migrant workers in China.
The Company is outside the scope of IAS 28 "Investments in
Associates" on the basis it is a private equity investment vehicle.
The Company has therefore elected to measure the investment at fair
value through profit or loss in accordance with IFRS 9 "Financial
Instruments".
As PRC law and regulations prohibit foreign control of companies
involved in internet content, the Company is unable to take a
direct equity interest in Victory China. As a result:
i. the Company's 33.33% interest in Victory China is held via
Weirui Culture Development (Wuxi) Company Limited ("Victory WFOE"),
a company incorporated in PRC in which the Company indirectly owns
33% of the equity (as described below); and
ii. Victory WFOE holds an effective 100% interest in Victory
China through a series of contractual arrangements referred to as
Variable Interest Entities Agreements dated 3 June 2014 (the "VIE
Agreements"). These agreements are explained in detail below.
The equity interests of Victory WFOE are legally held directly
or indirectly by the shareholders of the Company via intermediary
holding companies as follows:
Victory Education Investment Limited
The Company has a 33% equity interest in Victory Education
Investment Limited ("Victory Cayman", a company incorporated in
Cayman Islands) under a subscription agreement dated 21 April 2014.
This company is a non-trading holding company.
Victory Education Investment Holding Limited
Victory Cayman owns 100% of the equity of Victory Education
Investment Holding Limited ("Victory Hong Kong", a company
incorporated in Hong Kong). Victory Hong Kong owns 100% of the
equity of Victory WFOE.
VIE Agreements
Whilst Victory WFOE does not hold the equity in Victory China,
it has effective control and beneficial ownership of Victory China
via the VIE Agreements. The risks inherent in the nature of the
Company's investment in Victory China are disclosed in Note 9.
In April 2014, Shenzhen Grand Culture and Technology Development
Co., Ltd ("Shenzhen Grand", a related party by virtue of the fact
that it has a common shareholder structure, see Note 8) was issued
33.33% of the equity of Victory China for a total consideration of
RMB 196m. In June 2014, Shenzhen Grand, together with the other
shareholders of Victory China entered into the VIE Agreements to
transfer their interests in Victory China (as described below) to
Victory WFOE.
The VIE Agreements include an Exclusive Business Cooperation
Agreement, an Exclusive Option Agreement, a Loan Agreement, a
series of Equity Pledge Agreements, Spouse Consent Letters, and a
Power of Attorney.
Victory WFOE does not enjoy direct equity ownership of Victory
China. Instead, the VIE Agreements enable Victory WFOE to:
- receive substantially all of the economic benefits and
residual returns from Victory China as if it were a wholly owned
subsidiary;
- exercise effective control over Victory China; and
- have an exclusive option to acquire all of the equity interests in Victory China.
Below is a summary of the VIE Agreements:
Exclusive Business Cooperation Agreement
An Exclusive Business Cooperation Agreement was entered into by
and between Victory WFOE and Victory China on 3 June 2014, whereby
Victory WFOE shall provide Victory China with technical support,
consulting services and other services on an exclusive basis in
relation to the businesses conducted by Victory China, utilising
the advantages of Victory WFOE in technology, human resources and
information. Under the terms of the agreement, Victory China shall
pay to Victory WFOE a service fee equaling 100% of the net income
of Victory China.
Exclusive Option Agreement
An Exclusive Option Agreement was entered into by and between
Victory WFOE, Victory China and the shareholders of Victory China
(namely Jie Zhou, Haijun Liu, Xian Huang, Min Li, Jiazhong Yang,
Xiurong Wu, Ming Zhou, Xiaofeng Gao, Jun Zhang, Shenzhen Grand
Culture and Technology Development Co., Ltd ("Shenzhen Grand"),
together the "Victory China Shareholders"), on 3 June 2014, whereby
Shenzhen Grand granted Victory WFOE an irrevocable and exclusive
right to purchase, or to designate one or more persons to purchase
the equity interests in Victory China then held by any of them. The
purchase price for Victory WFOE to purchase the above equity
interest from Shenzhen Grand was RMB 10. The purchase price for
Victory WFOE to purchase the above equity interests from Jie Zhou,
Haijun Liu, Xian Huang, Min Li, Jiazhong Yang, Xiurong Wu, Ming
Zhou, Xiaofeng Gao, and Jun Zhang shall be equal to the principal
amount of the loan made by Victory WFOE to Jie Zhou, Haijun Liu,
Xian Huang, Min Li, Jiazhong Yang, Xiurong Wu, Ming Zhou, Xiaofeng
Gao, and Jun Zhang respectively under the Loan Agreement (as
described below).
Loan Agreement
A Loan Agreement was entered into by and between Victory WFOE,
Jie Zhou, Haijun Liu, Xian Huang, Min Li, Jiazhong Yang, Xiurong
Wu, Ming Zhou, Xiaofeng Gao, and Jun Zhang on 3 June 2014, whereby
Jie Zhou, Haijun Liu, Xian Huang, Min Li, Jiazhong Yang, Xiurong
Wu, Ming Zhou, Xiaofeng Gao, and Jun Zhang have obtained from
Victory WFOE loans in the amount of RMB 262,625, RMB 66,650, RMB
66,025, RMB 6,900 RMB 24,000, RMB 6,900, RMB 6,900, RMB 37,500 and
RMB 22,500 respectively. The term of the above loans shall be 10
years from the effective date of the Loan Agreement.
Equity Pledge Agreements
An Equity Pledge Agreement was entered into by and between each
of the Victory China Shareholders, Victory China and Victory WFOE
on 14 May 2014 and a respective equity pledge registration
certificate issued by Wuxi Huishan State Administration of Industry
and Commerce on 14 May 2014, whereby each of the Victory China
shareholders has pledged their respective equity interests in
Victory China to Victory WFOE for the purpose of securing these
shareholders and Victory China's full performance of their
obligations under the Loan Agreement, the Exclusive Business
Cooperation Agreement, the Exclusive Option Agreement and the Power
of Attorney.
Spouse Consent Letters
Spousal Consent Letters issued respectively by the spouse of Jie
Zhou, Haijun Liu, Xian Huang, Min Li, Jiazhong Yang, Xiurong Wu,
Xiaofeng Gao respectively on 3 June 2014, whereby the respective
spouse of Jie Zhou, Haijun Liu, Xian Huang, Min Li, Jiazhong Yang,
Xiurong Wu, and Xiaofeng Gao have agreed to the execution of the
other VIE Agreements by their spouse and the disposal of the equity
interests of Victory China held by their spouse and to provide
other assistance as to the appropriate performance of the other VIE
Agreements.
Power of Attorneys
Power of Attorneys were issued by the Victory China Shareholders
respectively on 3 June 2014, whereby the Victory China Shareholders
have authorised Victory WFOE to act on behalf of them as their
exclusive agent and attorney with respect to all matters concerning
their shareholding in the Victory China, to execute all the
documents they shall sign as stipulated in the Exclusive Option
Agreement and the Equity Pledge Agreement, and to perform the terms
of the Exclusive Option Agreement and the Equity Pledge
Agreements.
Fair value
The valuation is based on a using a share price on a Price /
Earnings ratio of 25, as determined from a review of peer
competitors. A discount applied to the multiple of 60% reflects the
lack of liquidity of the shares of Victory China, the age profile
of the investment and the Chinese market.
The discount applied is considered to be a significant input in
the valuation. At 31 December 2014, had the discount applied
increased/decreased by 10%, the effect in the results and equity
for the period would be a loss/gain of RMB 72 million.
5. AMOUNTS DUE TO SHAREHOLDERS
31 December
2014
RMB'000
Shareholder' loan 6,708
6,708
============
The shareholders' loan as at 31 December 2014 is unsecured,
interest-free and repayable on demand.
6. SHARE CAPITAL
The Company was incorporated in Cayman Islands on 4 March 2014
and is authorised to issue 25,000 shares of GBP1.00 (approximately
RMB10) each.
On 4 September 2014, it was resolved to subdivide the Company's
share capital by a ratio of 1:25,000. The resulting authorised and
issued share capital amounts to 625,000,000 shares and 25,000,000
shares respectively.
The issued shares have nominal value of each share amounts to
GBP0.00004 and are fully paid at par. There are no restrictions on
the distribution of dividends and the repayment of capital.
7. CONTRIBUTED CAPITAL
The capital reserve arose as a result of capital contributions
made by the shareholders of the Company in transferring effective
control and beneficial ownership of their interests in Victory
China under the VIE Agreements as disclosed at Note 4.
31 December
2014
RMB'000
Capital reserve 196,000
============
8. RELATED PARTY TRANSACTIONS
a) No remuneration was paid to key management personnel during the period.
b) Shenzhen Grand Culture and Technology Development Co., Ltd
("Shenzhen Grand"), is a related party by virtue of the fact that
the Company and Shenzhen Grand are subject to the same ownership
structure. The Company has a ten year Strategic Cooperation
Agreement (dated 24 November 2014) with Shenzhen Grand whereby the
Company is required to pay a 0.5% finder's fee for any investment
introduced. This is included within other payables and
accruals.
31 December
2014
RMB'000
Victory China finder's fee payable 980
============
The Strategic Cooperation Agreement includes a no competition
clause in relation to investment activities.
9. FINANCIAL INSTRUMENTS
Financial risk management objectives and policies
Management has adopted certain policies on financial risk
management with the objective of:
(i) ensuring that appropriate funding strategies are adopted to
meet the Company's short-term and long-term funding requirements
taking into consideration the cost of funding, gearing levels and
cash flow projections;
(ii) ensuring that appropriate strategies are also adopted to
manage related interest and currency risk funding; and
(iii) ensuring that credit risks on receivables are properly managed.
Financial instruments by category
The accounting policies for financial instruments have been
applied to the line items below:
Financial assets at fair value through profit or loss
The following table provides an analysis of financial
instruments that are measured subsequent to initial recognition at
fair value, grouped into Levels 1, 2, or 3 based on the degree to
which the fair value is observable:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities;
-- Level 2 fair value measurements are those derived from inputs
other than quoted prices included within Level 1 that are
observable for the assets or liability, either directly or
indirectly; and
-- Level 3 fair value measurements are those derived from inputs
that are not based on observable market data.
31 December
2014
RMB'000
Level 3
Unquoted financial assets at fair value through
profit or loss 480,000
============
The company did not hold any Level 1 or Level 2 financial assets
at fair value through profit or loss in the period.
The fair values of the Company's other financial assets and
liabilities approximate their carrying amounts at the reporting
date.
VIE agreement risk
As PRC law and regulations prohibit foreign control of companies
involved in internet content, the Company is unable to take a
direct equity interest in its sole investment, Victory China.
Currently, the Company has an indirect interest in Victory China
through a series of contractual arrangements (the VIE Agreements)
entered into between Victory WFOE, Victory China and its
shareholders (as detailed in Note 4).
In the opinion of the Company's management, the VIE Agreements
provide Victory WFOE with the ability to control Victory China and
the entitlement to substantially all of the economic benefits from
Victory China. Therefore, indirectly, the VIE Agreements provide
the Company with a 33.33% investment in Victory China.
Furthermore, in the opinion of the Company's PRC legal counsel,
the VIE Agreements do not violate any current applicable PRC laws,
rules and regulations.
However, due to the uncertainties regarding the interpretation
and enforcement of PRC laws, rules and regulations, including but
not limited to the laws, rules and regulations with respect to the
validity and enforcement of the VIE Agreements or the contractual
arrangements, the risk of being challenged by PRC regulatory
authorities may not be completely ruled out.
If the Company's ownership structure and the VIE Agreements were
found to be in violation of any existing or future PRC laws or
regulations by the relevant regulatory authorities, the Company may
be subject to penalties, which may include but not be limited to,
revocation of the business licenses or operating licenses of its
PRC associates or that of Victory China, being required to
restructure the Company's operations or discontinue the Company's
operating activities. If any of these penalties result in its
inability to receive economic benefit from Victory China, the
Company's investment in Victory China may be impaired.
In addition, if Victory China or its shareholders fail to
perform their obligations under the VIE Agreements, the Company and
its investee companies may have to incur substantial costs and
expend resources to enforce the Company's rights under the
contracts. The Company and its associates may have to rely on legal
remedies under PRC law, including seeking specific performance or
injunctive relief and claiming damages, which may not be effective.
All of these VIE Agreements are governed by PRC law and provide for
the resolution of disputes through arbitration in the PRC.
Accordingly, these contracts would be interpreted in accordance
with PRC law and any disputes would be resolved in accordance with
PRC legal procedures. The legal system in PRC is not as developed
as in other jurisdictions, such as the United Kingdom. As a result,
uncertainties in the PRC legal system could limit the Company's
ability to enforce these VIE Agreements. Under PRC law, rulings by
arbitrators are final, parties cannot appeal the arbitration
results in courts, and prevailing parties may only enforce the
arbitration awards in PRC courts through arbitration award
recognition proceedings, which would incur additional expenses and
delay. In the event the Company and its associates are unable to
enforce these VIE Agreements, the Company may not be able to
receive economic benefit from Victory China and its investment in
Victory China may be impaired.
Credit risk
The Company's exposure to credit risk, or the risk of
counterparties defaulting, arises from cash held with banks. As the
amount of cash and cash equivalents were not significant, the
exposure to credit rate risk is not considered to be material to
the Company.
Interest rate risks
As the Company has no borrowings from the bank and cash and cash
equivalents are not significant, the exposure to interest rate risk
is not considered to be material to the Company.
Liquidity risk
The Company manages its liquidity requirements by the use of
both short-term and long-term cash flow forecasts. The Company's
policy to ensure facilities are available as required is to issue
equity share capital in accordance with long-term cash flow
forecasts, as demonstrated in subsequent event note 12.
The Company's financial liabilities are primarily amounts due to
shareholders. The amounts are unsecured, interest-free and
repayable on demand.
Valuation risks
While investments in companies whose business operations are
based in China may offer the opportunity for significant capital
gains, such investments also involve a degree of business and
financial risk, in particularly for unquoted investments.
Generally, the Company expects to hold unquoted investments in the
mid to long term, in particular if the investee company is not in a
position for an admission to trading on a stock exchange. Sales of
securities in unquoted investments may be made at a discount to the
book value.
The Company has policies and procedures in place to ensure that
investments are made in accordance with the Company's investment
policy and its objectives. The Company expects to work closely with
potential investee companies for a period typically of 6 months to
18 months prior to making an investment, therefore increasing the
level of information and understanding available to make investment
decisions. All investment decisions are made with the benefit of
third party due diligence and on a majority decision of the
Board.
Currency risks
Since the Company operates primarily within its local currency
with little exposure to currency fluctuations, management considers
that foreign currency exposure is not significant to the
Company.
10. CAPITAL MANAGEMENT
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the return to
shareholders through the optimisation of the balance between debt
and equity.
The capital structure of the Company as at 31 December 2014
consisted of shareholders' loans of RMB 6.708m (Note 5) less bank
balances and cash of RMB 10,000 and equity attributable to the
equity holders of the Company, comprising capital contributions of
RMB 196m, paid in capital of RMB 10,000 and retained earnings of
RMB 205m (disclosed in the statement of changes in equity).
The Company reviews the capital structure on an on-going basis.
As part of this review, the directors consider the cost of capital
and the risks associated with each class of capital. The Company
will balance its overall capital structure through the payment of
dividends, new share issues and the issue of new debt or the
repayment of existing debt.
The Company monitors capital using the net debt-to-capital
ratio, the percentage of which as at 31 December 2014 was as
follows:
Note 31 December
2014
RMB'000
Amount due to shareholders 5 6,708
Less: bank balance and cash 6 (10)
------------
Net debt 6,698
Equity 400,985
------------
Net debt to capital ratio 1.7%
11. PROFIT PER SHARE
31 December
2014
Profit attributable to ordinary shareholders 204,975,000
Weighted average number of shares 25,000,000
Profit per share (expressed as RMB per
share) 8.2
============
12. SUBSEQUENT EVENTS
On 27 January 2015, the Company raised GBP7.1 million (before
expenses) by placing 8,952,631 ordinary shares with institutional
and other investors at a placing price of 80 pence per ordinary
share in conjunction with admission of the Company to the AIM
market of the London Stock Exchange. This amounted to RMB 70
million. Monies received were deposited in the bank account of Wuxi
Cultural Development Limited, the company's wholly owned
subsidiary. WFOE status was granted to this entity in April 2014,
with effective ownership being transferred to the company on 14
January 2015 through its new 100% interest in Great International
Wealth and Wisdom, registered in Hong Kong.
On 22 April 2015, an agreement was entered into to make a cash
investment of RMB 20m to acquire a 15 percent holding in WuXi Jin
Xun Tong Technology Limited. The investment was made through WuXi
Cultural Development Limited.
13. TAXATION
Under current British Cayman Island law, the Company is not
obligated to pay any taxes in the British Cayman Islands on either
income, profits or capital gains. The Company has received a
certificate undertaking as to a tax concession issued by the
Cabinet Office of the British Cayman Islands dated 25 March
2014.
According to the PRC Enterprise Income Tax Law and its Detailed
Implementing Rules, a foreign company established out of China
where management is located inside China, will be regarded as a Tax
Resident Enterprise in China and subject to tax in China.
Management is defined as the management and control on the overall
production / business operation, personnel, books and records, and
assets of the company. Accordingly, Grand Group Investment Plc is
likely to be considered Tax Resident Enterprise in China.
Under PRC Enterprise Income Tax Law unrealised gains on
investment fair value reflected through or profit or loss are not
taxable in China. However, if Grand Group Investment Plc would be
regarded as a Tax Resident Enterprise in China, it will have PRC
tax exposure on the gains realised at transfer of shares in the
future. The deferred tax liability is based on the tax rate and tax
base that are consistent with the manner of recovery or settlement
of the asset i.e. through sale, and has been determined based on a
PRC corporate income tax rate of 25%.
RMB'000
On incorporation -
Deferred tax charge to statement of comprehensive
income 71,000
Deferred tax balance as at 31 December
2014 71,000
========
14. ULTIMATE CONTROLLING PARTY
In the opinion of the Directors there is no ultimate controlling
party.
15. Legal Representative
Every business established in China, whether domestic or
foreign, is required to have a legal representative. He/she is the
main principal of the company and is the employee with the legal
power to represent - and enter into binding obligations on behalf
of - the company in accordance with the law or articles of
association of the company. The legal representative is authorised
to perform all acts regarding the general administration of a
company according to the company's aims and objectives, which
includes:
-- Acting to conserve the company's assets;
-- Executing powers of attorney on the company's behalf;
-- Authorizing legal representation of and litigation by the company;
-- And executing any legal transactions that are within the
nature and scope of that company's business.
Chops (Company Seal)
In China, every company is required to have a "chop", or company
seal, which will be in the custody of the legal representative.
Control of the chop is important in order to minimize risks. The
legal representative's chop is required on numerous company
documents and is regarded as a signature. The legal representative
can, by using the chop, bind the company.
If a legal representative is to be changed, such a change has to
be chopped and approved by the outgoing legal representative. The
Company's legal representative in China is Mr Wu Xiaoyong.
16. RECENT ACCOUNTING PROUNCEMENTS
(a) New interpretations and revised standards effective for the
period ended 31 December 2014
The Company has adopted the new interpretations and revised
standards effective for the period ended 31 December 2014. The
adoption of these interpretations and revised standards had no
impact on the disclosures and presentation of the financial
statements during the period.
(b) Standards and interpretations in issue but not yet
effective
A number of new standards and amendments to existing standards
have been published which are mandatory, but are not effective for
the year ended 31 December 2014. The directors do not anticipate
that the adoption of these revised standards and interpretations
will have a significant impact on the figures included in the
financial statements in the period of initial application other
than the following:
IFRS 9: Financial Instruments
The standard makes substantial changes to the recognition and
measurement of financial assets and financial liabilities and
derecognition of financial assets. There will only be three
categories of financial assets whereby financial assets are
recognised at either fair value through profit and loss, fair value
through other comprehensive income or measured at amortised cost.
On adoption of the standard, the Group will have to re-determine
the classification of its financial assets based on the business
model for each category of financial asset. This is not considered
likely to give rise to any significant reclassifications.
The principal change to the measurement of financial assets
measured at amortised cost or fair value through other
comprehensive income is that impairments will be recognised on an
expected loss basis compared to the current incurred loss approach.
As such, where there are expected to be credit losses these are
recognised in profit or loss. For financial assets measured at
amortised cost the carrying amount of the asset is reduced for the
loss allowance. For financial assets measured at fair value through
other comprehensive income the loss allowance is recognised in
other comprehensive income and does not reduce the carrying amount
of the financial asset.
Most financial liabilities will continue to be carried at
amortised cost, however, some financial liabilities will be
required to be measured at fair value through profit or loss, for
example derivative financial instruments, with changes in the
liabilities' credit risk recognised in other comprehensive
income.
The standard is effective for periods beginning on or after 1
January 2018.
- Ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SELFLMFISEIM
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