RNS Number:7399I
ZTC Telecommunications plc
29 November 2007
Embargoed until 7am 29 November 2007
ZTC TELECOMMUNICATIONS PLC
("ZTC Plc" or "the Group")
FINAL RESULTS & Audited ACCOUNTS
FOR THE PERIOD ENDED 30 JUNE 2007
ZTC Telecommunications Plc (LSE AIM: ZTC.L), a fast-growing, China-based
domestic designer, assembler and seller of mobile phone handsets, today
announces its final results for the year ended 30 June 2007. The Group listed on
AIM on 21 March 2007.
HIghlights
* Revenue increased 63% to #22.2m (2006: #13.6m)
* Profit before tax increased 10.9% to #2.02m (2006: #1.82m) - excluding
admission and merger costs PBT was #2.29m, an increase of 26.2%
* Substantial increase in sales of ZTC branded handsets - up 111% to
512,600 units
* Launched 24 new handset models in the period and five since reporting
year end, plus upgrades to existing products, including Bluetooth, dual SIM and
long battery life
* China now has over 500 million mobile phone subscribers
* Since January, average monthly increase in new mobile users in China
is 6.9 million and rising - September 2007 saw 7.6 million new subscribers
* Established reputation for speed to market and quality, innovative
handsets: features include large 2.8" screens, dual SIM card functionality,
68-day standby time battery life and dual cameras
* Business trading inline with management expectations since year end
Charles Huang, CEO of ZTC Plc, commented, "I am delighted with the progress and
success during our first year as a listed company. We have seen great demand for
our handsets in our target rural markets, as well as in some larger Chinese
cities. We continue to strive to be the best in our industry and, through our
innovative mobile handsets, we are now being recognised as a leader in mobile
phone design within China. "
For further information, please contact:
ZTC Telecommunications Plc +44 20 7429 6666
Mark Syropoulo, Finance Director
Frank Lewis, Chairman
Conduit PR +44 20 7429 6609
Christian Taylor-Wilkinson or Jos Simson
Blue Oar Securities +44 20 7448 4400
Shane Gallwey or Romil Patel
29 November 2007
ZTC TELECOMMUNICATIONS PLC
Chairman's statement
Introduction
I have great pleasure in announcing ZTC Plc's first financial report as an AIM
quoted company, following our successful listing on 21 March 2007. The year to
30 June 2007 saw significant progress for the Company and its Chinese operations
(together the "Group"). The Group has continued to grow at an impressive pace
and, following our admission to trading on AIM, we have the balance sheet
strength and status associated with a London Stock Exchange listing to improve
on this performance in 2008. The Group comprises ZTC Telecommunications Plc ("
ZTC Plc"), Praise Ease Ltd ("Praise Ease"), its 100 per cent. owned Hong Kong
based subsidiary, and Shenzhen Zhong Tian Communication Equipments Company Ltd
("Zhong Tian"), its Shenzhen based operating subsidiary which is 100 per cent.
owned by Praise Ease.
Praise Ease came to AIM via a reverse acquisition of Cassian Investments plc ("
Cassian"). On 13 February 2007 Praise Ease, was acquired by Cassian for an
initial consideration of 70 million ordinary shares of 10p each ("Ordinary
Shares"), issued at 20p per Ordinary Share. On admission, the Company had
93,682,516 ordinary shares of 10p each in issue, and approximately #4million in
cash before expenses related to the listing.
The acquisition agreement also provided for the issue of up to 15 million
Ordinary Shares by way of deferred consideration to the previous shareholders of
Praise Ease, subject to Zhong Tian achieving a post tax profit in excess of RMB
35 million in the 12 month period to 30 June 2007. I am pleased to advise that
the business has achieved the agreed level of profitability for the period, and
therefore an additional 15 million Ordinary Shares will be issued to the vendors
prior to 31 December 2007.
Acquisition accounting
The consolidated results for the Group incorporate the financial statements of
ZTC Plc, Praise Ease and Zhong Tian for the financial year to 30 June 2007.
Under IFRS comparative figures for the year ended 30 June 2006 have also been
included, which relate to Praise Ease and Zhong Tian. Due to the relative size
of Praise Ease and Cassian, the acquisition was required to be accounted for
under the "Reverse Acquisition" method.
Results for 2007
The Group's turnover increased 63% to #22.16 million in the 12 month period to
30 June 2007. Profit before taxation for the year ended 30 June 2007 increased
10.9% to #2.02m (2006: #1.82m), and is stated after charges for non-recurring
costs associated with the reverse acquisition and admission to AIM, which
amounted to #280,000. Without these one off costs, the Group has shown an
increase in profit before taxation over the previous year of 26.2%.
Operations
The Group shipped 512,600 ZTC branded handsets during the reporting period, an
increase of 111% over the previous year. Overall, the year's performance was
very encouraging and is a credit to the hard work of the management and staff,
as well as proving the technical excellence of our innovative mobile handsets.
The Board made a conscious decision during the period to improve the Group's
infrastructure in order to meet demand for increased production. The result of
this implementation is an overall increase in running costs, but the necessary
expansion of the infrastructure will position us well for the future.
Strategy
ZTC's handsets are aimed primarily at the estimated 800 million Chinese
nationals who reside in the lesser developed north, central and western regions
of China. The Group's strategy is focused on producing handsets that are "
Fashionable, Economical and Practical" and which are retailed at the lower to
mid price range. The success of this strategy to date means the Group can now
look to expand its offering by focusing on the following areas:
* investing in the ZTC brand to increase consumer awareness;
* continuing to invest in new handsets and the improvement of existing
models;
* establishing additional and improved distribution and sales outlets. In
particular the Group will focus on securing agreements with the major
service providers such as China Mobile, in its targeted areas which could
result in more rapid market penetration;
* doubling our production capacity in the medium term by adding a further
four assembly lines to meet future sales growth; and
* exploiting the cost advantages that ZTC may obtain to develop overseas
markets with similar characteristics to China, such as Indonesia, India and
Africa.
Recent Developments
In October 2007 at the highly regarded China Hi-Tech Fair in Shenzhen, the Group
displayed its newest products and launched its latest catalogues to both
domestic and overseas industry targets, including phones with dual SIM cards,
stock market functions (such as share dealing and stock quotes), ultra-long
standby batteries and dual multi-megapixel cameras.
ZTC achieved both 'Excellent Product' and 'Excellent Show' awards at the China
Hi-Tech Fair which were granted by the China Hi-Tech Commission. These awards
have provided encouragement to the Group in its strategy to help exploit
opportunities within the rapidly expanding Chinese and international
telecommunications markets, as well as generating significant interest in its
products.
Employees
The Board would like to extend their personal thanks to all employees of the
Group in both the UK and China for their enthusiasm, hard work and commitment.
In particular, the Board would like to thank the Chief Executive Officer,
Charles Huang, for his continued excellent contribution to the development of
the Group.
Dividend
The Board will not be recommending the payment of a dividend this year.
Outlook
Since the year end we have continued to successfully upgrade existing handsets
and bring new models to the market, bringing the total number of new handsets
launched in the current financial year to five. The Group has upgraded its
financial reporting procedures and systems, and will maintain its rigorous
approach to corporate governance practices as it continues to grow. We are now
seeing solid growth in our business which is trading in line with our
expectations. Given a combination of positive local market conditions and
continued acceptance of recent product launches, the Board remains optimistic
for the trading year ahead.
With a clear strategy in place and a strong team to drive the business forward,
the Board believes that we have the ambition, commitment and technical ability
to take ZTC to the next stage of its development. I look forward to reporting on
progress at the half year.
Frank Lewis
Chairman
28 November 2007
REPORT OF THE CHIEF EXECUTIVE
During the year we have made considerable progress towards our goal of becoming
a leading designer, assembler and marketer of mobile handsets in China ("PRC").
The new funding gained from the reverse acquisition has allowed ZTC Plc to
accelerate its development of new models, the lifeblood of the business, and to
implement systems that will enable the Group to manage strong future growth.
Financial Performance
The Group's net sales increased 63% to #22.16m (2006: #13.57m). ZTC branded
mobile phones shipped increased 111% to 512,600 (2006: 242,400) units, whilst
OEM handsets produced under contract fell, in accordance with strategy, 84.7% to
62,500 (2006: 406,900) units.
Gross margins were 21.5%, an increase of 13.5% over the previous year. This
increase was primarily driven by our ability to rapidly introduce unique
products to market, commanding higher initial margins and a relatively long
shelf life, assisted by upgrades which have sustained attractive margins. The
forward purchases of certain strategic components have also contributed to
controlling production costs.
Total administrative and general expenses increased to #1.43m (2006: #312,000)
which includes non-recurring costs in respect to the reverse acquisition and
admission to trading on AIM amounting to #280,000 (2006: nil). Excluding these
costs, expenses were #1.15m. The increase in these costs is primarily
attributable to two factors. Firstly the increase in overhead relating to the
listed parent company, and secondly, an increase in personnel reflecting a
substantial increase in sales and new models.
Profit before tax increased 10.9% to #2.02m (2006: #1.82m). Excluding the
acquisition and admission costs, profit before tax was #2.29m, an increase of
26.2% over 2006. Whilst Group profits increased, earnings per share decreased to
2.4p basic and 2.3p diluted, compared to 4.2p basic and 4.2p diluted in the
previous financial year. This decrease in earnings per share is a result of the
increased number of shares in issue following the reverse acquisition.
Taxation paid increased to #128,000 (2006: #2,000). This is attributable to the
fact that the operating subsidiary, which is based in the Special Economic Zone
of Shenzhen, commenced payment of tax at a rate of 7.5% from 1 January 2007. The
Company receives a favourable taxation policy being located in Shenzhen, which
is a Special Economic Zone. Following this initial tax rate concession, the
Company expects the tax rate of the Company's operating subsidiary to increase
to 15% in 2010.
Operating cash outflow for the year ended 30 June 2007 was #1.40m (2006: inflow
of #1.47m) and total combined cash and other liquid assets were #7.63m (2006:
#4.10m). As at 30 June 2007, our net debt to equity ratio (gearing) was 0.29.
Cash at bank or in hand at the period end was #2.49m.
Operating Highlights
During the year under review ZTC Plc introduced 24 new models compared to 16 in
the previous period. These models typically catered for the middle to lower end
of the market with a focus on the lesser developed markets of China, including
the second to fourth tier cities and rural areas.
Utilising its local knowledge and ability to bring new products rapidly to
market, the Group has successfully capitalised on a number of new consumer
trends. Importantly, to diversify product portfolio risk, ZTC Plc was able to
develop a number of successful models catering for differentiated markets.
Successfully launched handsets include;
* December 2006: ZT2688 - One of the first large screen (2.8") models to be
launched in the PRC. Initial specifications included a camera, MP3 and MP4
players, touch screen functionality and ability to play games. This model
was an excellent performer achieving high margins. Since its introduction
additional features such as Bluetooth, dual SIM cards and ultra-long standby
battery life have allowed this model to continue to have robust sales beyond
the financial year end.
* February 2007: ZT3328 - One of the first models including two SIM cards to
be introduced in China. Every province in the PRC has a separate China
Mobile subsidiary resulting in significant roaming charges beyond provincial
boundaries. The dual SIM card model has effectively reduced roaming charges
which has proved popular with the ever cost conscious Chinese consumer.
* March 2007: ZT8810 - Packed with functionality such as touch display, MP3,
MP4, camera (including PC camera) and a flip light, targeted at the low end
of the price market it has appealed to the youth market.
* June 2007: ZT3158 - Dual SIM card facility but with more sophisticated
design and more expensive finish targeting higher income markets than the
ZT3328, which caters to much broader population.
Our People and Systems.
The average number of people employed in the Group was 422 in 2007 compared to
283 in the previous year. All full time employees are located in the PRC. The
Group's production facilities are credited with ISO9001 (2000 edition) and we
ensure that our staff are trained to meet the requirements of this standard and
the technical demands of our equipment.
During the year ZTC has also invested capital and significant effort to upgrade
the financial reporting procedures and systems, which has been accompanied by
significant staff training and education. These systems will provide a stable
platform to better manage the rapid growth of the Group.
Market
ZTC's primary focus continues to be China's domestic market. The overall mobile
penetration rate was at 39.9% at the end of the third quarter 2007 and
substantially lower in the rural and less developed areas of China. The PRC now
has more than 500 million mobile phone subscribers and has witnessed an average
monthly increase of 7 million new users since the start of 2007, presenting an
excellent market opportunity for ZTC.
The country is not only the largest mobile handset market worldwide but is home
to approximately 50% of the global handset production with Shenzhen a major
centre. This brings to ZTC the possible exposure to benefits of scale and
centralisation of component production, design expertise and talent.
Given the current strong growth in demand for handsets both in China and the
worldwide emerging markets, major potential market opportunities are available
for innovative developers in the mobile phone sector over the next few years. We
are currently evaluating a number of export opportunities primarily in emerging
market countries in the Middle East, Asia and Africa.
Outlook
At this point in time we believe the PRC will continue to experience relatively
strong economic growth over the balance of this financial year. We also
anticipate that the handset market should continue to enjoy robust sales
throughout the same period.
Going forward, our strategy will continue to focus on new product development
with the view to developing a balanced portfolio, a necessity to diversifying
product risk. We will also continue to concentrate on existing and new markets
by developing our marketing channels both through national and regional
distributors in China with the latter focusing on the second to fourth tier
cities and rural markets.
We look forward to demonstrating continued growth and building shareholder value
in 2007/2008.
Consolidated Income Statement
2007 2006
#'000 #'000
Revenue 22,157 13,571
Cost of sales (17,384) (10,995)
Gross profit 4,773 2,576
Other Operating Income 435 290
Exceptional IPO Expenses (280) -
Other Administrative expenses (1,151) (312)
Total Administrative expenses (1,431) (312)
Distribution costs (1,368) (658)
Other operating expenses (373) (79)
Operating profit 2,036 1,817
Finance income 19 1
Finance costs (39) -
Profit before tax 2,016 1,818
Tax (128) (2)
Profit for the financial year 1,888 1,816
Basic earnings per share 2.4p 4.2p
Diluted earnings per share 2.3p 4.2p
Consolidated Balance Sheet
2007 2006
#'000 #'000
Non-current assets
Property, plant and equipment 554 697
Other intangibles 17 -
Deferred taxation 1 1
Total non-current assets 572 698
Current assets
Inventories 889 233
Trade and other receivables 10,898 3,365
Cash and cash equivalents 2,499 1,772
Total current assets 14,286 5,370
Total assets 14,858 6,068
Current liabilities
Trade and other payables (6,213) (2,551)
Current tax liabilities (891) (355)
Total current liabilities (7,104) (2,906)
Non-current liabilities
Other - (663)
Total non-current liabilities - (663)
Total liabilities (7,104) (3,569)
Net assets 7,754 2,499
Equity
Share capital 9,368 1
Reverse acquisition reserve (12,432) -
Share premium reserve 6,226 -
General reserve 427 178
Merger reserve 766 766
Translation reserve (96) (42)
Retained earnings 3,495 1,596
Total equity 7,754 2,499
Consolidated Cash Flow Statement
2007 2006
#'000 #'000
Operating activities
Net cash outflow from operations (1,578) 1,413
Interest paid (39)
Tax paid (1) 2
Net cash outflow from operating activities (1,618) 1,415
Investing activities
Interest received 19 -
Purchase of property, plant and equipment (23) (118)
Net cash inflow from investing activities (4) (118)
Financing activities
Contribution form the investors 461
Issue of share capital 3,123 -
Expenses connected to the issue of share (774) -
capital
Net cash inflow from financing activities 2,349 461
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year 1,772 14
Cash and cash equivalents at end of year 2,499 1,772
Notes to the Financial Statements
1. ACCOUNTING POLICIES
Basis of accounting
The group financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) and interpretations adopted
by the European Union and as applied in accordance with the provisions of the
Companies Act 1985. Therefore the group financial statements comply with
Article 4 of the EU IAS Regulation.
The financial statements have been prepared under the historical cost
convention. The principal accounting policies adopted are set out below.
Standards issued but not yet effective
At the date of authorisation of these financial statements the following
Standards and Interpretations which have not been applied in these financial
statements were in issue but not yet effective:
IFRS 8 Operating Segments (effective for periods beginning on or after 1 January 2009)
IFRIC 11 IFRS 2 - Group and Treasury Share Transactions (effective for periods beginning on or after 1
March 2007)
IFRIC 12 Service Concession Arrangements (effective for periods beginning on or after 1 January 2008)
IFRIC 13 Customer Loyalty Programmes (effective for periods beginning on or after 1 July 2008)
IFRIC 14 IAS 19 - The limit on a Defined Benefit Asset Minimum Funding Requirements and their
interaction (effective for periods beginning on or after 1 January 2008)
IAS 1 Amendment - Capital disclosures (effective for periods beginning on or after 1 January 2007)
IAS 23 Amendment - Borrowing costs (effective for periods beginning on or after 1 January 2009)
The directors anticipate that the adoption of these Standards and
Interpretations in future periods will have no material impact on the financial
statements of the Group when the relevant standards and interpretations come
into effect. The directors do not anticipate the early adoption of any of the
above standards.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
ZTC Telecommunications plc and all its subsidiaries made up to 30 June each
year.
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 IFRS3,
Business Combinations. The directors note that transactions under common control
are outside the scope of IFRS 3 and that there is no guidance elsewhere in IFRS
covering such transactions.
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.
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.
The company has taken advantage of the exemption under section 230 of the
Companies Act 1985 and has not presented its income statement in these financial
statements. The group profit for the year includes a loss after tax of #436,794
(2006: Nil due to the principles involved in reverse acquisition accounting)
which is dealt with in the accounts of the company.
Reverse acquisition accounting
The acquisition of Praise Ease Limited by ZTC Telecommunications plc on 21 March
2007 has been 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 has been 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
Comparative numbers presented in the financial statements are the consolidated
numbers of Praise Ease Limited for the year ended 30 June 2006.
Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts received or receivable for goods and services
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.
2. EARNINGS PER SHARE
The calculation of basic and diluted earnings per share is based on the
following data.
Earnings 2007 2006
#'000 #'000
Earnings for the purpose of basic earnings per share 1,888 1,816
Effect of dilutive potential ordinary shares:
Share options - -
Earnings for the purpose of diluted earnings per share 1,888 1,816
Number of shares '000 '000
Weighted average number of ordinary shares for the purpose of basic 77,937 42,875
earnings per share
Effect of dilutive potential ordinary shares: 4,192 -
Share options
Weighted average number of ordinary shares for the purpose of diluted 82,129 42,875
earnings per share
The denominators for the purposes of calculating both basic and diluted earnings
per share in 2006 have been adjusted for the share division that took place in
2007.
3. TRADE AND OTHER RECEIVABLES
Group Company
2007 2006 2007 2006
#'000 #'000 #'000 #'000
Due within one year:
Amounts receivable for the sale of goods 4,273 2,300 - -
Other receivables 853 29 1,837 -
Prepayments and accrued income 5,772 1,036 16 3
10,898 3,365 1,853 3
The directors consider that the carrying amount of trade and other receivables
approximates to their fair value.
4. CASH AND CASH EQUIVALENTS
Group Company
2007 2006 2007 2006
#'000 #'000 #'000 #'000
Cash and cash equivalents per balance sheet 2,499 1,772 1,525 828
Cash and cash equivalents per cash flow statement 2,499 1,772 1,525 828
All of the group's cash and cash equivalents at 30 June 2007 are at floating
interest rates.
All of the group's cash and cash equivalents at 30 June 2007 are in sterling
except for #5,297 held in $HK and #968,796 held in Chinese RMB. In 2006, #8,000
was held in $HK and the remainder in Chinese RMB. There were no amounts held in
sterling.
The directors consider that the carrying amount of cash and cash equivalents
approximates their fair value.
5. TRADE AND OTHER PAYABLES
Group Company
2007 2006 2007 2006
#'000 #'000 #'000 #'000
Trade payables 2,637 1,094 - 6
Income tax payable 127 - - -
Other payables 292 208 - 19
Accruals and deferred income 1,469 784 109 9
Amounts owed to related parties 1,688 465 - -
Due to group undertakings - - 326 -
6,213 2,551 435 34
Trade creditors principally comprise amounts outstanding for trade purchases and
ongoing costs. The average credit period taken for trade purchases is 137 days
(2006: 96 days).
The directors consider that the carrying of trade and other payables
approximates to their fair value.
Included in amounts owed to related parties is an amount owed to a director of
#760,943.
-ends-
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EANFPASXXFFE
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