TIDMYCI
RNS Number : 2213P
Yangtze China Investment Limited
13 July 2010
+-------------------------------+-------------------------------------+
| Press Release | 13 July 2010 |
+-------------------------------+-------------------------------------+
Yangtze China Investment Limited
("Yangtze" or the "Company")
Final Results
Yangtze China Investment Limited (AIM: YCI), a provider of expansion capital to
China-based enterprises, today announces its Final Results for the year ended 31
March 2010.
Financial Highlights
+-+------------------------------------------------------------------+
|-| NAV stood at US$23.8 million (31 March 2009: US$24.5 million) |
+-+------------------------------------------------------------------+
|-| NAV per share declined by 3.1 per cent to US$0.94 (31 March |
| | 2009: US$0.97) |
+-+------------------------------------------------------------------+
|-| Current cash and cash equivalents total US$6.0 million |
+-+------------------------------------------------------------------+
Commenting on the results, Mr Wilfred Wong, Chairman of Yangtze China Investment
Limited, said: "Although Yangtze recorded a decline of 3.1 per cent in NAV per
share for the financial year ended 31 March 2010, the beauty spa franchise
network Yangtze invested in has continued to operate withimpressive growth in
profitability, leading to a second round funding of RMB 60 million being
recently received by the company to fuel its successful franchise business.
Despite China's rapid recovery, the Investment Adviser remained cautiously
optimistic and continued to providing operational support to Yangtze's investee
companies throughout the financial year.
"The strong rebound in China's economy and the return of liquidity to the market
have prompted more investors to look to China for high-growth investment
opportunities. Our current cash position of US$6.0 million places the Company
in an excellent position to invest in good-quality assets at attractive entry
valuations as and when suitable opportunities arise.
"China has experienced rapid economic growth over the past few years. Despite
the recent global economic downturn, China's real GDP increased by 8.7 per
centin 2009. The Chinese government's stimulus package in November 2008
reinforces our investment strategy as it aims to support China's GDP growth and
to foster the long-term development of its domestic sector. Given China's
strong underlying economy and strong domestic growth, the Board of Directors is
confident that the Company is well positioned to capitalise on these
opportunities."
- Ends -
For further information:
+------------------------------------+------------------------+
| Yangtze Capital Advisory Limited | |
+------------------------------------+------------------------+
| Richard Zhao | Tel: +852 2281 7218 |
| Steven Feng | Tel: +852 2281 7223 |
+------------------------------------+------------------------+
| | www.yangtzecn.com |
+------------------------------------+------------------------+
+------------------------------------+------------------------+
| Collins Stewart Europe Limited | |
+------------------------------------+------------------------+
| Adrian Hadden | Tel: +44 (0) 20 7523 |
| | 8350 |
+------------------------------------+------------------------+
| | www.collinsstewart.com |
+------------------------------------+------------------------+
Media enquiries:
+------------------------------------+-------------------------+
| Abchurch Communications Ltd | |
+------------------------------------+-------------------------+
| Henry Harrison-Topham / Quincy | Tel: +44 (0) 20 7398 |
| Allan | 7710 |
+------------------------------------+-------------------------+
| quincy.allan@abchurch-group.com | www.abchurch-group.com |
+------------------------------------+-------------------------+
Notes to Editors
Yangtze China Investment Limited is a closed-end investment company established
to make minority equity and equity-related investments in a portfolio of small
and medium-sized growth businesses within, or associated with, the consumer
sector in China. With a proprietary deal flow, the Group focuses on unlisted
companies whose business operations are based principally in mainland China.
Yangtze will typically seek to invest in companies that are revenue generating,
ideally profitable or anticipated to generate profits in the near term and which
the Group believes have strong management teams and market leading potential.
Yangtze aims to capitalise on the growing disposable income in China, investing
primarily in companies operating in a variety of consumer sectors, including
consumer related technology, media and advertising, entertainment, distribution
and retailing of consumer goods and services, and health goods and services.
Since the free market reforms in 1978, China's GDP has grown on an average of
9.9 per cent a year and recorded annual GDP growth of 8.7 per cent in 2009.
Government reforms are transforming the economy, with a focus on domestic
consumption, infrastructure spending and increasingly upon environmental issues.
Yangtze was admitted to AIM on 14 May 2008. For further information, please see
www.yangtzecn.com
Chairman's Statement
I am pleased to present this set of audited final results for Yangtze China
Investment Limited for the year ended 31 March 2010. At 31 March 2010, the
Company's NAV was US$23.8 million as compared to US$24.5millionin 2009. This
reduction in the Company's NAV was translated in a per-share decline of 3.1 per
cent to US$0.94 per share.
The Company was established to capitalise on the immense growth opportunities in
the Chinese domestic market, and these opportunities are best reflected in 2009
when China achieved a GDP growth of 8.7 per cent when many industrialised
countries were experiencing a significant downturn in their economies. The
economic situation in the US and Europe had some impact on China's export
market, but I am pleased that, from the outset the Company chose to focus on
Chinese domestic growth driven by rising consumption levels within the country.
However, the Company has not been immune to the current adverse conditions in
the global economy and therefore adopted a cash-holding strategy while
cautiously screening for suitable investment opportunities. The challenges and
opportunities that may accompany China's economic development are likely to
result in a wide range of outcomes, in particular those small and medium-sized
growth businesses within, or associated with, the consumer sector which Yangtze
focuses on. The emerging winners will help transform China's economy and take
significant steps up the economic value chain. The Company remains confident
that China's underlying economic strength and the PRC Central People
Government's macroeconomic stimulus will continue to further position China as
one of the world's major economies.
Despite a decline in NAV, Yangtze is in a healthy financial position and
currently has cash balances of US$6.0 million. Whilst the Company continues to
follow a cautious approach, it also continues to actively pursue potential
investments with due diligence. The Board of Directors is confident that
Yangtze is well positioned to capitalise on the opportunities ahead.
Wilfred Ying Wai Wong
Chairman
Investment Adviser's Report
Following the Company's admission to AIM on 14 May 2008, in which Yangtze
successfully raised approximately US$25 million by way of an issue of new
equity, the Company immediately implemented and completed the acquisition of the
Initial Portfolio from Excellent Rise. In July2008, Yangtze completed the
investment of US$5 million, in the form of convertible loan notes (equivalent to
25 per cent equity interest if fully converted), into Aesthetic International
Holdings Group Limited, a beauty spa franchise network in China. For the year
ended 31 March 2010, Aesthetic continued to record impressive growth in
profitability and its excellent business performance also attracted a new PRC
investor to fuel its successful franchise business.
During the year, the Investment Adviser examined a number of investment
projects, in sectors ranging across the media, water treatment, food and
beverage, electronics, bio-medical, apparels and skincare products franchise.
Most of these investment projects have been evaluated, visited and classified
for future follow up.
Throughout the year under review, the Investment Adviser continued to focus on
implementing post-investment monitoring initiatives which included the
adjustment of business development plans, cost control and reduction, scrutiny
of cash flow and financial capabilities, and improvement in operational
efficiency to enhance the value of the Company's investee companies. The
Investment Adviser will continue to place emphasis on these monitoring
initiatives so as to enable our investee companies to be well-equipped for
public listing of their shares when more favourable market sentiment returns.
In addition, the Investment Adviser continues to explore investment
opportunities where the Company can boost its valuation by investing in
companies that are revenue-generating, ideally profitable or anticipated to
generate profits imminently. Simultaneously, in line with the exit strategy of
the Company to manage portfolio risk, possible realisation opportunities
including follow-on equity placement or trade sale to follow-on investor(s) will
also be explored to recoup a portion of the cost of investment.
The Investment Adviser believes that the growth momentum of China's economy will
be sustainable throughout 2010 and Yangtze is well positioned to benefit from
this trend with its portfolio of retail and consumer companies. Details of all
the Company's investees are included below.
Portfolio
Aesthetic International Holdings Group Limited ("Aesthetic")
Yangtze invested US$5.1 million in July 2008 for an equity interest of 25 per
cent in Aesthetic upon full conversion of the convertible note. Aesthetic, a
beauty spa franchise based in Beijing, China, has performed in line with
expectations and has continued to operate with impressive growth in
profitability during the year.
In March 2010, Aesthetic has successfully completed a second round of funding
raising RMB 60 million (approximately US$8.8 million) from a Chinese venture
capital fund and, upon satisfaction of certain conditions including a group
re-organisation, this new investor of Aesthetic will become a 13 per cent holder
of the enlarged registered capital of a PRC subsidiary of Aesthetic. This round
of funding represents an appreciation of 2.9 times in Aesthetic's pre-money
valuation since investment by the Company in July 2008. Following the
investment by this new investor in Aesthetic, the Company's interest in
Aesthetic upon full conversion of the convertible note becomes approximately 22
per cent. Aesthetic will use the proceeds from this round of funding to expand
its successful franchise in China's beauty market and to enable it to join up
with a partner in preparation for a potential domestic listing in the PRC.
Y Aesthetic has developed a variety of product lines totalling over 350 items
which are being marketed under the different brand names of "Aesthetic",
"O'Rola" and "Befly" targeting female consumers with mid to high levels of
disposable income. Aesthetic generates revenues principally through its product
sales as well as licensing and franchising fees. At 31 March 2010, Aesthetic
had both franchised and sub-franchised, through its agents, over 2,000 beauty
centres in 30 provinces and 160 cities acrossChina.
Y In addition to it's headquarters in Beijing, Aesthetic has established four
other regional management centres in Chengdu, Shenyang, Guangzhou and Dalian.
These five centres have helped to enhance management control over Aesthetic's
franchisees and are facilitating technical and logistical support to its beauty
centres. Aesthetic will continue to expand its customer base through the
organisation of demonstrations and workshops for potential customers.
Y A new toiletries and cosmetics product line under the brand name of "Befly"
has been rolled out by Aesthetic in the fourth quarter of 2009. Products under
"Befly" are specialised in cosmetics whereas products under "Aesthetic" and
"O'Rola" are specialised in skincare. The strategy of creating products
targeted at defined consumer groups and preferences helps Aesthetic to add value
and gain stronger competitive edge in the market. This strategy is being
achieved through specially formulated products, packaging, positioning and
pricing.
Y To tap into the affluent group of consumers looking for more expensive,
high-end premium cosmetics and personal care treatment, a medical beauty clinic
has been set up by Aesthetic in Shenyang and it commenced operations in the
fourth quarter of 2009. The clinic provides a wide range of medical and
cosmetic therapies in addition to Chinese health and beauty treatments which
include hair replacement, botox and cosmetic surgery and body reshaping. This
clinic is a joint venture with a renowned, licensed practitioner of Chinese
medicine, who aims to strengthen its corporate image as a market leader within
the beauty sector in China.
Y During the year, a beauty training school has also been established by
Aesthetic in Chengdu to provide cosmetology and beauty therapy-related courses.
The beauty training school is in the process of obtaining approvals and
confirmation of curriculum assessment and accreditation by the relevant
government bodies and is expected to commence operation by mid 2010. The beauty
training school provides skills training for aspiring professional beauticians
who would also become customers of Aesthetic and purchase its products.
An increasing number of women in China are enjoying well-paid jobs, many of them
having even put off marriage and children in favour of career progression. This
has resulted in an expanding consumer base for cosmetic and toiletry products
made up of affluent Chinese women with increasingly sophisticated taste and
enhanced purchasing power. Rising income, an increasing proportion of women in
the workforce, changing attitudes to personal grooming and growing awareness of
grooming trends are the fundamental drivers of Aesthetic's business as well as
China's cosmetics and toiletry industry. These circumstances, together with the
business direction and strategy now being implemented by Aesthetic, make Yangtze
confident that Aesthetic will continue to thrive in China's growing consumer
market.
The securities markets in China are undergoing a period of unprecedented growth
but trading has been erratic and valuations remain high for the time being. A
greater market volatility is common in securities market in China in particular
the ChiNext, the newest stock exchange in China for growth enterprises, and the
regulatory framework for the securities industry in China is still at the
developing stage as compared with those of developed countries. Consequently,
there is an uncertainty as to the time required for a domestic listing to be
completed. In line with the exit strategy of the Company to manage portfolio
risk, possible realisation opportunities including follow-on equity placement or
trade sale to follow-on investor(s) will be explored by the Investment Adviser
to recoup a portion of our cost of investment.
A fair value gain of US$0.4 million was recognised on this investment in the
year.
Arigata Holdings Inc. ("Onbest")
The Company invested US$3.0 million in May 2008 for an equity interest of 30 per
cent in Onbest upon full conversion of the convertible note. Onbest, initially a
designer and manufacturer of cash registers, has fine-tuned its product and
market strategy to develop handheld Point-of-Sales ("POS") devices that feature
certain ATM functions with advanced security. The strategic move has proved to
be sound as Onbest has received encouraging market feedback together with
initial sales orders.
Y Onbest is principally engaged in the design, manufacture and sales of
fiscal/tax processing solutions installed in integrated circuit ("IC") chips,
which are then embedded in the motherboards of POS machines, tax-controlled cash
registers and fiscal-tax controlled cash registers.
Y Based on its existing technological capability, Onbest has developed a
handheld POS device that features certain ATM functions with advanced security.
Onbest has recently obtained the final approval of compliance with industry
standards for the handheld POS device from VISA and MasterCard, which are known
to set extremely strict security requirements.
Y Following the successful certification and verification process performed in
North America, an agreement has been signed with a PRC e-payment service
provider to explore the replacement of its existing telephone payment terminals
in China with Onbest's POS handheld device. An initial sales order has been
received for product delivery in the third quarter of 2010.
Y There was little progress on the sale of the fiscal-tax controlled cash
register mainly because of inadequate legislative support in the PRC for the
promotion of the cash register and the complication in linking up the completely
separate taxation and banking systems in the PRC.
Y To widen its product application in the Chinese market, Onbest is making good
progress in performing ATM gateway certification procedures with UnionPay.
Y A portable docking device has also been successfully developed to enable both
wireless and cable connection to enhance the mobility of the handheld POS
device.
Creative Picture Development Limited ("Creative Picture")
The Company invested US$1.3 million in May 2008 for an equity interest of 12.5
per cent in Creative Picture upon full conversion of the convertible note.
Creative Picture carries out technological research, production and sales of 3-D
display technology in China. Following the huge success of the recent Hollywood
blockbuster movie "Avatar", the worldwide 3-D industry is making significant
adjustment to meet a new wave of demand for 3-D entertainment and equipment.
Under this unprecedented boom for 3-D entertainment, not only are world famous
film-producers lining up for 3-D movie projects but also the television industry
as well as network operators are luring more investment in their attempt to
bring 3-D pictures to the living rooms of average households. Boosted by this
increasing preference for 3-D entertainment, the business has achieved
significant progress and several new contracts have been won by Creative Picture
during the year.
Y Creative Picture completed a total of 300 minutes of 3-D production for a TV
drama and its movie version both of which will respectively be broadcasted on
China's state-owned TV channel and shown in cinemas in 2010. In addition to
receiving revenue income for the production of the 3-D content, Creative Picture
will also participate in sharing in the proceeds arising from the copyrights of
the movie.
Y In the 3-D Film Festival held in Belgium in December 2009, the animation movie
"The King of Milu Deer" produced by Creative Picture won The Perron of Crystal
award for "Best Feature Film".
Y In the first quarter of 2010, several world famous film-producers approached
Creative Picture to explore opportunity for converting 2-D box office movies
into 3-D and demo footages were produced for quality evaluation.
Y During the year, Creative Picture sold a number of 3-D panels to companies in
China and South America.
Y An agreement has been signed with one of the world's leading mobile phone
suppliers for installation of glass-free seamless 3-D panels for advertising
display in its flagship store in Beijing. In addition to the sales of 3-D
panels, Creative Picture will also be responsible for content production and the
installation is expected to be completed by the third quarter of 2010.
Y Creative Picture continues to market its products by means of model showcases
installed at prominent spots, including museums, airports and train stations and
has recently been invited to demonstrate its 3-D panels and contents at the 2010
Shanghai Expo.
Although 3-D technology is expected to be widely used across a range of business
areas, Creative Picture expects its future revenue to be derived primarily from
the content development and sale of visualisation facilities.
IGO Home Shopping Holdings Limited ("IGO")
As announced in Yangtze's interim results last year, Yangtze has taken a prudent
approach and written off the value of its investment in IGO in its entirety
because of uncertainties in its cash position.
Y Shanghai IGO Business Services Company Limited ("Shanghai IGO") designs and
produces TV home shopping programmes and supplies them to TV companies. As IGO
cannot invest in Shanghai IGO directly, due to the current regulations
restricting foreign ownership in the media industry in the PRC, it entered into
an exclusive product supply agreement and cooperation agreement with Shanghai
IGO.
Y Shanghai IGO embarked on an aggressive network expansion plan to increase its
coverage across three provinces. However, due to the unexpected slowdown of
China's retail market after the financial turmoil in 2008, the increased network
coverage was not able to generate the necessary income to offset the higher
media cost. In consultation with IGO, Shanghai IGO started scaling down media
coverage and retrenched staff in order to conserve its cash outflow.
As there has been no sign of turnaround in the business of IGO, the Company has
disposed of its entire interest on 3 June 2010 through disposal of all its
shares in Ace Aim Investments Limited, a special purpose entity solely
established to hold the Company's investment in IGO, at a nominal value to an
unrelated third party.
China's Economy
In November 2008, China's government announced a US$586 billion stimulus package
to boost economic growth. The stimulus package contained many elements that
supported China's overall long-term development of the domestic sector and
improvement of most people's living standards which are in line with the
objectives of the 11th five-year plan to rebalance the economy. With the
stimulus package, economic growth in China has been maintained with 8.7 per cent
full year GDP growth in 2009, much of this resulting from retail sales and fixed
asset investment. Despite being among the world's largest economies to emerge
from the financial downturn, the Chinese Government remains cautious over its
outlook in 2010. While the Government continues to support the domestic
consumption-driven economy, measures to control overheating asset prices and
rebalance the economy are also top of the 2010 agenda.
In order to avoid assets price bubbles bursting, the PRC central bank has
commenced controlling bank lending by increasing the bank reserve ratio
gradually since January 2010. More restrictions on loans to industries with
high energy consumption and high emissions or overcapacity have also been
unveiled.
The recent global economic downturn has been felt strongly in the US and Europe,
which account for over half of China's exports. The downturn has caused some
reduction in China's export growth. Despite China having strong macroeconomic
fundamentals and a large balance of payment surplus, its overall economic growth
is still susceptible to export performance. The RMB exchange rate is also
expected to appreciate gradually so that import prices can be reduced and
consumer spending can be boosted. In the long term, China will continue to
shift its economic growth pattern to promote domestic consumption as the main
driver of growth.
Outlook
The strong rebound in China's economy and the return of liquidity to the market
have prompted investors to look to China for high-growth investment
opportunities. The Investment Adviser has also been actively looking for
further investment opportunities and is dedicated to delivering value to the
Company and its investee companies as it manages the Company's portfolio through
the uncertainty of the current economic environment and continues to strive to
maximise the value of its holdings.With a current cash position of US$6.0
million, Yangtze is in an excellent position to invest in good-quality assets at
attractive entry valuations as and when suitable opportunities arise.
We look forward to presenting you our progress on this in our next interim
results announcement.
Yangtze Capital Advisory Limited
Investment Adviser
Portfolio Summary
At 31 March 2010, the Company's total assets amounted to US$23.9million. About
US$17.9 million were investments in the form of convertible note instruments at
fair values.
The following table summarises the status of the Company's portfolio at 31 March
2010:
+---------------+------------+------------+------------+--------------+----------------+--------+----------------+
| Description | Industry | Time | Investment | At 31 March |
| | / | of | cost (1) | |
| | Location | investment | (US$) | |
| | | by the | | |
| | | Company | | |
+ + + + +---------------------------------------------------------+
| | | | | Fair value | % of |
| | | | | | ownership |
| | | | | | (on full |
| | | | | | conversioninto |
| | | | | | shares) (2) |
+ + + + +----------------------------------------+ +
| | | | | 2010 | | 2009 | Change |
| | | | | (US$) | | (US$) | (US$) |
+---------------+------------+------------+------------+--------------+----------------+--------+----------------+
| Aesthetic | Beauty | July | 5.1m | 12.3m | 11.9m | 0.4m | 25.0% |
| International | spa | 2008 | | | | | |
| Holdings | franchise | | | | | | |
| Group Limited | / China | | | | | | |
+---------------+------------+------------+------------+--------------+----------------+--------+----------------+
| Arigata | Fiscal | May | 3.0m | 4.0m | 4.0m | - | 30.0% |
| Holdings | / tax | 2008 | | | | | |
| Inc. | processing | | | | | | |
| | solutions | | | | | | |
| | / China | | | | | | |
+---------------+------------+------------+------------+--------------+----------------+--------+----------------+
| Creative | 3-D | May | 1.3m | 1.6m | 1.8m | (0.2m) | 12.5% |
| Picture | display | 2008 | | | | | |
| Development | technology | | | | | | |
| Limited | / China | | | | | | |
+---------------+------------+------------+------------+--------------+----------------+--------+----------------+
| | | | | | | | |
| Total | | | 6.4m | 17.9m | 17.7m | 0.2m | |
+---------------+------------+------------+------------+--------------+----------------+--------+----------------+
| | | | | | | | |
+---------------+------------+------------+------------+--------------+----------------+--------+----------------+
1. Includes capitalised directly attributable investment expenses.
2. For reference only. The percentage of ownership represents, upon full
conversion, the stake in the entire equity share capital of the investee company
on a fully diluted basis.
Consolidated statement of comprehensive income
for the year ended 31 March 2010
+---------------------------------+-------+-----------+----------------+
| | | | From 5 |
| | | Year | July 2007 |
| |Notes | ended | (date of |
| | | 31 March | incorporation) |
| | | 2010 | to 31 March |
| | | | 2009 |
+---------------------------------+-------+-----------+----------------+
| | | US$ | US$ |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| Income | | | |
+---------------------------------+-------+-----------+----------------+
| Net gain on financial | 11 | 208,279 | |
| assets at fair value | | | 3,126,118 |
| through profit or loss | | | |
+---------------------------------+-------+-----------+----------------+
| Bank interest income | | 23,355 | 61,989 |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| | | 231,634 | 3,188,107 |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| Expenses | | | |
+---------------------------------+-------+-----------+----------------+
| Auditors' remuneration | | (39,890) | (58,016) |
+---------------------------------+-------+-----------+----------------+
| Administration fee | 6 | (99,482) | (96,841) |
+---------------------------------+-------+-----------+----------------+
| Advisory fee | 7 | (454,472) | (343,240) |
+---------------------------------+-------+-----------+----------------+
| Business valuation fee | | (48,522) | (77,146) |
+---------------------------------+-------+-----------+----------------+
| Directors' fees | 8 | (80,000) | (202,500) |
+---------------------------------+-------+-----------+----------------+
| Legal and professional | | (121,572) | (89,165) |
| fees | | | |
+---------------------------------+-------+-----------+----------------+
| Marketing and | | (68,897) | (65,991) |
| communication fees | | | |
+---------------------------------+-------+-----------+----------------+
| Other operating | | (60,119) | (104,781) |
| expenses | | | |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| | | (972,954) | (1,037,680) |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| (Loss)/Profit before | | (741,320) | 2,150,427 |
| income tax | | | |
+---------------------------------+-------+-----------+----------------+
| Income tax expense | 9 | - | - |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| (Loss)/Profit for the | | (741,320) | 2,150,427 |
| year/period | | | |
| attributable to owners | | | |
| of the Company | | | |
+---------------------------------+-------+-----------+----------------+
| Other comprehensive | | - | - |
| income for the | | | |
| year/period | | | |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| Total comprehensive | | (741,320) | 2,150,427 |
| (loss)/income for the | | | |
| year/period | | | |
| attributable to owners | | | |
| of the Company | | | |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| (Loss)/Earnings per | | | |
| share for profit | 10 | | |
| attributable to owners | | | |
| of the Company during | | | |
| the year/period | | | |
+---------------------------------+-------+-----------+----------------+
| - Basic | | (0.03) | 0.08 |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
| - Diluted | | N/A | N/A |
+---------------------------------+-------+-----------+----------------+
| | | | |
+---------------------------------+-------+-----------+----------------+
Consolidated statement of financial position
as at 31 March 2010
+------------------------------+-------+------------+------------+
| |Notes | 2010 | 2009 |
+------------------------------+-------+------------+------------+
| | | US$ | US$ |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| ASSETS AND LIABILITIES | | | |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| Non-current assets | | | |
+------------------------------+-------+------------+------------+
| Financial assets at fair | 11 | 17,855,321 | 17,647,042 |
| value through profit or loss | | | |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| Current assets | | | |
+------------------------------+-------+------------+------------+
| Prepayments and other | 12 | 29,659 | 31,219 |
| receivables | | | |
+------------------------------+-------+------------+------------+
| Cash and cash equivalents | 13 | 5,982,257 | 7,025,012 |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| | | 6,011,916 | 7,056,231 |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| Current liabilities | | | |
+------------------------------+-------+------------+------------+
| Accrued expenses and other | | 88,444 | 138,779 |
| payables | | | |
+------------------------------+-------+------------+------------+
| Amounts due to directors | 14 | - | 44,381 |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| | | 88,444 | 183,160 |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| Net current assets | | 5,923,472 | 6,873,071 |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| Net assets | | 23,778,793 | 24,520,113 |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| EQUITY | | | |
+------------------------------+-------+------------+------------+
| Share capital | 15 | 2,538,001 | 2,538,001 |
+------------------------------+-------+------------+------------+
| Reserves | | 21,240,792 | 21,982,112 |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| Total equity | | 23,778,793 | 24,520,113 |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| Number of ordinary shares in | | 25,380,010 | 25,380,010 |
| issue | | | |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
| Net asset value per ordinary | 17 | 0.94 | 0.97 |
| share | | | |
+------------------------------+-------+------------+------------+
| | | | |
+------------------------------+-------+------------+------------+
Consolidated statement of cash flows
for the year ended 31 March 2010
+---------------------------------+------+-------------+----------------+
| | | Year | From 5 |
| | | ended | July 2007 |
| | | 31 March | (date of |
| | | 2010 | incorporation) |
| | | | to 31 March |
| | | | 2009 |
+---------------------------------+------+-------------+----------------+
| | | US$ | US$ |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
| Cash flows from operating | | | |
| activities | | | |
+---------------------------------+------+-------------+----------------+
| (Loss)/Profit before | | (741,320) | 2,150,427 |
| income tax | | | |
+---------------------------------+------+-------------+----------------+
| Adjustments for: | | | |
+---------------------------------+------+-------------+----------------+
| Net gain on | | (208,279) | |
| financial assets | | | (3,126,118) |
| at fair value | | | |
| through profit | | | |
| and loss | | | |
+---------------------------------+------+-------------+----------------+
| Bank interest | | (23,355) | (61,989) |
| income | | | |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
| Operating loss before working | | (972,954) | (1,037,680) |
| capital changes | | | |
+---------------------------------+------+-------------+----------------+
| Decrease/(Increase) | | 29 | (29,334) |
| in prepayments and | | | |
| other receivables | | | |
+---------------------------------+------+-------------+----------------+
| | | (50,335) | 138,779 |
| (Decrease)/Increase | | | |
| in accrued expenses | | | |
| and other payables | | | |
+---------------------------------+------+-------------+----------------+
| (Decrease)/Increase in | | (44,381) | 44,381 |
| amounts due to directors | | | |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
| Cash used in operations | | (1,067,641) | (883,854) |
+---------------------------------+------+-------------+----------------+
| Interest received | | 24,886 | 60,104 |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
| Net cash used in operating | | (1,042,755) | (823,750) |
| activities | | | |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
| Cash flows from investing | | | |
| activities | | | |
+---------------------------------+------+-------------+----------------+
| Purchase of convertible notes | | - | (5,136,718) |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
| Net cash used in investing | | - | (5,136,718) |
| activities | | | |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
| Cash flows from financing | | | |
| activities | | | |
+---------------------------------+------+-------------+----------------+
| Net proceeds from issuance of | | - | 12,985,480 |
| ordinary shares | | | |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
| Net cash from financing | | - | 12,985,480 |
| activities | | | |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
| Net | | (1,042,755) | 7,025,012 |
| (decrease)/increase | | | |
| in cash and cash | | | |
| equivalents | | | |
+---------------------------------+------+-------------+----------------+
| Cash and cash | | 7,025,012 | - |
| equivalents at | | | |
| beginning of the | | | |
| year/period | | | |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
| Cash and cash | | 5,982,257 | 7,025,012 |
| equivalents at end of | | | |
| the year/period | | | |
+---------------------------------+------+-------------+----------------+
| | | | |
+---------------------------------+------+-------------+----------------+
Consolidated statement of changes in equity
for the year ended 31 March 2010
+--------------------------+-----------+------------+-----------+------------+
| | Share | Share | Retained | Total |
| | capital | premium* | profits* | equity |
+--------------------------+-----------+------------+-----------+------------+
| | US$ | US$ | US$ | US$ |
+--------------------------+-----------+------------+-----------+------------+
| | (note | (note | | |
| | 15) | 16) | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
| Balance at 5 | - | - | - | - |
| July 2007 (date | | | | |
| of | | | | |
| incorporation) | | | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
| Net proceeds | | | | |
| from issuance | | | | |
| of ordinary | | | | |
| shares: | | | | |
+--------------------------+-----------+------------+-----------+------------+
| - non-public | 1 | - | - | 1 |
| subscription | | | | |
+--------------------------+-----------+------------+-----------+------------+
| - public | | | | |
| subscription | 2,538,000 | 19,831,685 | - | 22,369,685 |
| on admission | | | | |
| to | | | | |
| AIM of | | | | |
| London Stock | | | | |
| Exchange | | | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
| Transactions | 2,538,001 | 19,831,685 | - | 22,369,686 |
| with owners | | | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
| Profit for the | - | - | 2,150,427 | 2,150,427 |
| period | | | | |
+--------------------------+-----------+------------+-----------+------------+
| Other | - | - | - | - |
| comprehensive | | | | |
| income for the | | | | |
| period | | | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
| Total | - | - | 2,150,427 | 2,150,427 |
| comprehensive | | | | |
| income for the | | | | |
| period | | | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
| Balance at 31 | 2,538,001 | 19,831,685 | 2,150,427 | 24,520,113 |
| March 2009 and | | | | |
| 1 April 2009 | | | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
| Loss for the | - | - | (741,320) | (741,320) |
| year | | | | |
+--------------------------+-----------+------------+-----------+------------+
| Other | - | - | - | - |
| comprehensive | | | | |
| income for the | | | | |
| year | | | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
| Total | - | - | (741,320) | (741,320) |
| comprehensive | | | | |
| loss for the | | | | |
| year | | | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
| Balance at 31 March | 2,538,001 | 19,831,685 | 1,409,107 | 23,778,793 |
| 2010 | | | | |
+--------------------------+-----------+------------+-----------+------------+
| | | | | |
+--------------------------+-----------+------------+-----------+------------+
* These reserves accounts comprise the Group's reserves of US$21,240,792
(2009: US$21,982,112) in the consolidated statement of financial position.
Notes to the financial statements
for the year ended 31 March 2010
1. GENERAL INFORMATION
Yangtze China Investment Limited (the "Company") is a closed-end investment
company incorporated in the Cayman Islands with limited liability on 5 July
2007. The address of its registered office is One Capital Place, P.O. Box 847,
Grand Cayman KY1-1103, Cayman Islands.
The Company was admitted to the Alternative Investment Market ("AIM") of the
London Stock Exchange on 14 May 2008.
The principal activity of the Company and its subsidiaries (the "Group") is
investment holding. The investment objective of the Group is to provide the
owners of the Company with an attractive return on its investments,
predominantly through capital appreciation by making minority equity and
equity-related investments both directly and through convertible note
instruments in small and medium-sized growth businesses with, or associated
with, different consumer sectors in the People's Republic of China (the "PRC").
The investment activities of the Group are managed by Yangtze Capital Advisory
Limited (the "Investment Adviser") whilst the Company's Administrator is Trident
Trust Company (Cayman) Limited.
The consolidated financial statements for the current year cover the
twelve-month period from 1 April 2009 to 31 March 2010. The corresponding
comparative amounts shown for the consolidated statement of comprehensive
income, the consolidated statement of changes in equity, the consolidated
statement of cash flows and related notes cover the period from 5 July 2007
(date of incorporation) to 31 March 2009 and therefore may not be comparable
with amounts presented for the current year.
The financial statements for the year ended 31 March 2010 were approved for
issue by the board of directors on 12 July 2010.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation
The financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRSs") which collective term includes all
applicable individual International Financial Reporting Standards and
Interpretations approved by the International Accounting Standards Board
("IASB"), and all applicable individual International Accounting Standards and
Interpretations as originated by the Board of the International Accounting
Standards Committee and adopted by the IASB. The financial statements also
include the applicable disclosure requirements of the AIM Rules for Companies of
the London Stock Exchange.
The significant accounting policies that have been used in the preparation of
these financial statements are summarised below. These policies have been
consistently applied to all the year/period presented unless otherwise stated.
The adoption of new or amended IFRSs and the impacts on the Group's financial
statements, if any, are disclosed in Note 3.
The financial statements have been prepared on the historical cost basis except
for financial instruments classified as at fair value through profit or loss,
which are stated at fair values. The measurement bases are fully described in
the accounting policies below.
It should be noted that accounting estimates and assumptions are used in
preparation of the financial statements. Although these estimates are based on
directors' best knowledge and judgement of current events and actions, actual
results may ultimately differ from those estimates. The areas involving a higher
degree of judgement or complexity, or areas where assumptions and estimates are
significant to the financial statements, are disclosed in Note 4.
2.2 Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and its subsidiaries (see 2.3 below) (together referred to as the
"Group") made up to 31 March each year.
Subsidiaries are consolidated from the date on which control is transferred to
the Group. They are excluded from consolidation from the date that control
ceases.
Intra-group transactions, balances and unrealised gains and losses on
transactions between group companies are eliminated in preparing the
consolidated financial statements. Where unrealised losses on intra-group asset
sales are reversed on consolidation, the underlying asset is also tested for
impairment from the Group's perspective. Amounts reported in the financial
statements of subsidiaries have been adjusted where necessary to ensure
consistency with the accounting policies adopted by the Group.
2.3 Subsidiaries
Subsidiaries are entities (including special purpose entities) over which the
Group has the power to control the financial and operating policies so as to
obtain benefits from their activities. The existence and effect of potential
voting rights that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity.
2.4 Foreign currency translation
The financial statements are presented in United States dollars ("US$"), which
is also the functional currency of the Group.
In the individual financial statements of the consolidated entities, foreign
currency transactions are translated into the functional currency of the
individual entity using the exchange rates prevailing at the dates of the
transactions. At the reporting date, monetary assets and liabilities
denominated in foreign currencies are translated at the foreign exchange rates
ruling at that date. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the reporting date retranslation of
monetary assets and liabilities are recognised in profit or loss.
2.5 Financial assets
Financial assets of the Group are classified into financial assets at fair value
through profit or loss and loans and receivables.
The directors determine the classification of financial assets at initial
recognition depending on the purpose for which the financial assets were
acquired and, where allowed and appropriate, re-evaluate this designation at
every reporting date.
All financial assets are recognised when, and only when, the Group becomes a
party to the contractual provisions of the instrument. Regular way purchase or
sales of financial assets are recognised on settlement date. When financial
assets are recognised initially, they are measured at fair value, plus, in the
case of investments not at fair value through profit or loss, directly
attributable transaction costs.
Derecognition of financial assets occurs when the rights to receive cash flows
from the investments expire or are transferred and substantially all of the
risks and rewards of ownership have been transferred.
At each reporting date, financial assets are reviewed to assess whether there is
objective evidence of impairment. If any such evidence exists, impairment loss
is determined and recognised based on the classification of the financial asset.
(i) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include:
· Financial assets held for trading; and
· Financial assets designated upon initial recognition as at fair
value through profit or loss
Financial assets are classified as held for trading if they are acquired for the
purpose of selling in the near term, or it is part of a portfolio of identified
financial instruments that are managed together and for which there is evidence
of a recent pattern of short-term profit-taking. Derivatives, including
separated embedded derivatives are also classified as held for trading unless
they are designated as effective hedging instruments or financial guarantee
contracts.
Where a contract contains one or more embedded derivatives, the entire hybrid
contract may be designated as a financial asset at fair value through profit or
loss, except where the embedded derivative does not significantly modify the
cash flows or it is clear that separation of the embedded derivative is
prohibited.
Financial asset may be designated at initial recognition as at fair value
through profit or loss if the following criteria are met:
- the designation eliminates or significantly reduces the inconsistent
treatment that would otherwise arise from measuring the assets or recognising
gains or losses on them on a different basis; or
- the assets are part of a group of financial assets which are managed
and their performance is evaluated on a fair value basis, in accordance with a
documented risk management strategy and information about the group of financial
assets is provided internally on that basis to the key management personnel; or
- the financial asset contains an embedded derivative that would need
to be separately recorded.
Subsequent to initial recognition, the financial assets included in this
category are measured at fair value with changes in fair value recognised in
profit or loss. Fair value is determined by reference to active market
transactions or using a valuation technique where no active market exists. Fair
value gain or loss does not include any dividend or interest earned on these
financial assets.
The main financial instrument designated as at fair value through profit or loss
by the Group is the investment in convertible notes. The Group has documented
risk management and investment strategies designed to manage such assets at fair
value, taking into consideration the total return from interests and the changes
in equity value, in a way that maximises the investment returns. Information
about fair values is provided internally to key management personnel. The
convertible note investment includes separate embedded derivatives such as share
conversion option, put option and/or call option. The Company has designated the
entire combined contract at fair value through profit or loss.
(ii) Loans and receivables
Loans and receivables include other receivables, and are non-derivative
financial assets with fixed or determinable payments that are not quoted in an
active market. Loans and receivables are subsequently measured at amortised
cost using the effective interest method, less any impairment losses. Amortised
cost is calculated taking into account any discount or premium on acquisition
and includes fees that are an integral part of the effective interest rate and
transaction cost.
Impairment of financial assets
At each reporting date, financial assets other than at fair value through profit
or loss are reviewed to determine whether there is any objective evidence of
impairment.
Objective evidence of impairment of individual financial assets includes
observable data that come to the attention of the Group about one or more of the
following loss events:
- Significant financial difficulty of the debtor;
- A breach of contract, such as a default or delinquency in
interest or principal payments;
- It becoming probable that the debtor will enter bankruptcy or
other financial reorganisation; and
- Significant changes in the technological, market, economic or
legal environment that have an adverse effect on the debtor.
Loss events in respect of a group of financial assets include observable data
indicating that there is a measurable decrease in the estimated future cash
flows from the group of financial assets. Such observable data include but are
not limited to adverse changes in the payment status of debtors in the group and
national or local economic conditions that correlate with defaults on the assets
in the group.
If any such evidence exists, the impairment loss is measured and recognised as
follows:
(i) Financial assets carried at amortised cost
If there is objective evidence that an impairment loss on loans and receivables
carried at amortised cost has been incurred, the amount of the loss is measured
as the difference between the asset's carrying amount and the present value of
estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial asset's original effective interest rate
(i.e. the effective interest rate computed at initial recognition). The amount
of the loss is recognised in profit or loss in the period in which the
impairment occurs.
If, in subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment
was recognised, the previously recognised impairment loss is reversed to the
extent that it does not result in a carrying amount of the financial asset
exceeding what the amortised cost would have been had the impairment not been
recognised at the date the impairment is reversed. The amount of the reversal
is recognised in profit or loss in the period in which the reversal occurs.
Impairment losses of financial assets other than financial assets at fair value
through profit or loss are written off against the corresponding assets
directly. Subsequent recoveries of amounts previously written off directly are
recognised in profit or loss.
2.6 Cash and cash equivalents
Cash and cash equivalents represent cash at bank and short term deposits with
original maturity of three months or less that are readily convertible into
known amounts of cash and which are subject to an insignificant risk of change
in value.
2.7 Financial liabilities
The Group's financial liabilities include accrued expenses and other payables
and amounts due to directors. They are included on the face of the statement of
financial position.
Financial liabilities are recognised when the Group becomes a party to the
contractual provisions of the instrument. All interest related charges are
recognised in profit or loss.
A financial liability is derecognised when the obligation under the liability is
discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is treated as a
derecognition of the original liability and the recognition of a new liability
and the difference in the respective carrying amount is recognised in profit or
loss.
Accrued expenses and other payables and amounts due to directors
Accrued expenses and other payables and amounts due to directors are recognised
initially at their fair value and subsequently measured at amortised cost, using
the effective interest method.
2.8 Share capital
Ordinary shares are classified as equity. Share capital is determined using the
nominal value of shares that have been issued.
Any transaction costs associated with the issuing of shares are deducted from
share premium (net of any related income tax benefit) to the extent they are
incremental costs directly attributable to the equity transaction.
2.9 Revenue recognition
Provided it is probable that economic benefits will flow to the Group and the
revenue and costs, if applicable, can be measured reliably, revenue is
recognised as follows:
Interest income is recognised on a time-proportion basis using the effective
interest method.
2.10 Accounting for income taxes
Income tax comprises current tax and deferred tax.
Current income tax assets and/or liabilities comprise those obligations to, or
claims from, fiscal authorities relating to the current or prior reporting
period, that are unpaid at the reporting date. They are calculated according to
the tax rates and tax laws applicable to the fiscal periods to which they
relate, based on the taxable profit for the year. All changes to current tax
assets or liabilities are recognised as a component of tax expense in profit or
loss.
Deferred tax is calculated using the liability method on temporary differences
at the reporting date between the carrying amounts of assets and liabilities in
the financial statements and their respective tax bases. Deferred tax
liabilities are generally recognised for all taxable temporary differences.
Deferred tax assets are recognised for all deductible temporary differences, tax
losses available to be carried forward as well as other unused tax credits, to
the extent that it is probable that taxable profit, including existing taxable
temporary differences, will be available against which the deductible temporary
differences, unused tax losses and unused tax credits can be utilised.
Deferred tax assets and liabilities are not recognised if the temporary
difference arises from initial recognition (other than in a business
combination) of assets and liabilities in a transaction that affects neither
taxable nor accounting profit or loss.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries, except where the Group is able to
control the reversal of the temporary differences and it is probable that the
temporary differences will not reverse in the foreseeable future.
Deferred tax is calculated, without discounting, at tax rates that are expected
to apply in the period the liability is settled or the asset realised, provided
they are enacted or substantively enacted at the reporting date.
Changes in deferred tax assets or liabilities are recognised in profit or loss,
or in other comprehensive income or directly in equity if they relate to items
that are charged or credited to other comprehensive income or directly to
equity.
Current tax assets and current tax liabilities are presented net if, and only
if,
(a) the Group has the legally enforceable right to set off the recognised
amounts; and;
(b) intends either to settle on a net basis or to realise the asset and
settle the liability simultaneously.
The Group presents deferred tax assets and deferred tax liabilities net if, and
only if,
(a) the entity has a legally enforceable right to set off current tax
assets against current tax liabilities; and
(b) the deferred tax assets and the deferred tax liabilities relate to
income taxes levied by the same taxation authority on either:
(i) the same taxable entity; or
(ii) different taxable entities which intend either to settle current tax
liabilities and assets on a net basis, or to realise the assets and settle the
liabilities simultaneously, in each future period in which significant amounts
of deferred tax liabilities or assets are expected to be settled or recovered.
2.11 Related parties
For the purposes of these financial statements, a party is considered to be
related to the Group if:
(i) the party has the ability, directly or indirectly through one or
more intermediaries, to control the Group or exercise significant influence over
the group in making financial and operating policy decisions or has joint
control over the Group;
(ii) the Group and the party are subject to common control;
(iii) the party is an associate of the Group or a joint venture in which
the Group is a venturer;
(iv) the party is a member of key management personnel of the Group or
the Group's parent, or a close family member of such an individual, or is an
entity under the control, joint control or significant influence of such
individuals;
(v) the party is a close family member of a party referred to in (i) or
is an entity under the control, joint control or significant influence of such
individuals; or
(vi) the party is a post-employment benefit plan which is for the benefit
of employees of the Group or of any entity that is a related party of the Group.
Close family members of an individual are those family members who may be
expected to influence, or be influenced by, that individual in their dealings
with the entity.
3. ADOPTION OF NEW OR AMENDED IFRSs
In the current year, the Group has applied for the first time the following new
standards, amendments and interpretations (the "new IFRSs") issued by the IASB,
which are relevant to and effective for the Group's financial statements for the
annual period beginning on 1 April 2009:
+---------------+-----------------------------------------+
| IAS 1 | Presentation of financial statements |
| (Revised | |
| 2007) | |
+---------------+-----------------------------------------+
| IFRS 7 | Improving disclosures about financial |
| (Amendments) | instruments |
+---------------+-----------------------------------------+
| IFRS 8 | Operating segments |
+---------------+-----------------------------------------+
Other than as noted below, the adoption of the new IFRSs has had no material
impact on how the results and financial position for the current and prior
periods have been prepared and presented.
IAS 1 (Revised 2007) Presentation of financial statements
The adoption of IAS 1 (Revised 2007) makes certain changes to the format and
titles of the primary financial statements and to the presentation of some items
within these statements. A third statement of financial position as at the
beginning of the earliest comparative period is required when an entity applies
an accounting policy retrospectively or makes a retrospective restatement of
items in its financial statements or when it reclassifies items in its financial
statements. It also gives rise to additional disclosures.
The measurement and recognition of the Group's assets, liabilities, income and
expenses is unchanged. However, some items that were recognised directly in
equity are now recognised in other comprehensive income. IAS 1 affects the
presentation of owner changes in equity and introduces a "Statement of
comprehensive income". Comparatives have been restated to conform with the
revised standard.
IFRS 7 (Amendments) Improving disclosures about financial instruments
The amendments require additional disclosures for financial instruments, which
are measured at fair value in the statement of financial position. These fair
value measurements are categorised into a three-level fair value hierarchy,
which reflects the extent of observable market data used in making the
measurements. In addition, the maturity analysis for derivative financial
liabilities is disclosed separately and should show remaining contractual
maturities for those derivatives where this information is essential for an
understanding of the timing of the cash flows. The Group has taken advantage of
the transitional provisions in the amendments and has not provided comparative
information in respect of the new requirements.
IFRS 8 Operating segments
The adoption of IFRS 8 has not affected the identified and reportable operating
segments for the Group. However, reported segment information is now based on
internal management reporting information that is regularly reviewed by the
chief operating decision maker. In the previous annual financial statements,
segments were identified by reference to the dominant source and nature of the
Group's risks and returns. The Group's internal management reporting information
is not reported by segments because the Group is principally engaged in
investment business. Therefore the adoption of IFRS 8 has no effect on the
presentation and disclosure of financial statements.
At the date of authorisation of these financial statements, certain new and
amended IFRSs have been published but are not yet effective and have not been
adopted early by the Group.
The directors anticipate that all of the pronouncements will be adopted in the
Group's accounting policies for the first period beginning after the effective
date of the respective pronouncements. Information on new and amended IFRSs that
are expected to have impact on the Group's accounting policies is provided
below. Certain other new and amended IFRSs have been issued but are not expected
to have a material impact of the Group's financial statements.
IFRS 3 Business combinations (Revised 2008)
The standard is applicable in reporting periods beginning on or after 1 July
2009 and will be applied prospectively. The new standard still requires the use
of the purchase method (now renamed the acquisition method) but introduces
material changes to the recognition and measurement of consideration transferred
and the acquiree's identifiable assets and liabilities, and the measurement of
non-controlling interests (previously known as minority interest) in the
acquiree. The new standard is expected to have a significant effect on business
combinations occurring in reporting periods beginning on or after 1 July 2009.
IFRS 9 Financial instruments
The standard is effective for accounting periods beginning on or after 1 January
2013 and addresses the classification and measurement of financial assets. The
new standard reduces the number of measurement categories of financial assets
and all financial assets will be measured at either amortised cost or fair value
based on the entity's business model for managing the financial assets and the
contractual cash flow characteristics of the financial asset. Fair value gains
and losses will be recognised in profit or loss except for those on certain
equity investments, which will be presented in other comprehensive income. The
directors are currently assessing the possible impact of the new standard on the
Group's results and financial position in the first year of application.
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the
next financial year are discussed below:
(a) Fair value of financial assets not quoted in an active market
The fair value of financial assets at fair value through profit or loss that are
not quoted in an active market is determined by using valuation techniques,
primarily the discounted cash flow model and the option pricing model. The
models used to determine fair values are selected by the directors, which are
then validated and reviewed by Jones Lang LaSalle Sallmanns Limited, an
independent professional valuer.
The discounted cash flow model is for business valuation, which is based on
company-generated cash flows and observable market data. A terminal multiple is
applied to the projected cash flows at terminal year to derive the value of the
business beyond the projection period. An income approach technique is used to
devolve the future value of the business into present market value. Weighted
Average Cost of Capital ("WACC") was adopted as the discount rate for the
valuation. WACC comprises two components: cost of equity and cost of debt. The
discount rates used for valuing equity securities are determined using the
Capital Asset Pricing Model ("CAPM"), which is based on historic equity returns
for other entities operating in the same industry for which market returns are
observable. The cost of debt made reference to the PRC long-term loan rates.
Average weight of debt and equity of its industry comparables were then used. A
discount for lack of marketability has been taken into consideration to reflect
the illiquidity of converting the privately-held business into cash.
The option pricing model is used to value the derivative portion of the
financial instruments. The discounted cash flow model is adopted to value the
debt portion of the financial instruments using an appropriate discount rate at
the valuation date. The model uses independently sourced market parameters, to
the extent practicable, including interest rate yield curves, liquidity premium,
option volatilities and dividend yield. Equity values are determined as
described above. Most market parameters are either directly observable or are
implied. However, areas such as counterparty default risk or the valuation of
the equity interest required the directors to make estimates. Changes in
assumptions about these factors could affect the reported fair values of
financial instruments.
(b) Functional currency
The directors consider the currency of US$ most faithfully represents the
economic effect of the underlying transactions, events and conditions. The US$
is the currency in which the Group and the Company measures its performance and
reports its results, as well as the currency in which it receives subscriptions
from its investors.
5. SEGMENT INFORMATION
No segment information has been presented for the year/period ended 31 March
2010 and 2009 as the Group is principally engaged in investment business, which
accounts for the total revenue and loss/profit of the Group for the year/period.
The Group uses consolidated loss/profit before income tax as a measure of
segment profit or loss. The Group's consolidated income represents net gain on
financial assets at fair value through profit or loss and bank interest income,
which are all attributable to a single geographical region, namely the PRC.
6. ADMINISTRATION FEE
Trident Trust Company (Cayman) Limited was appointed as the Administrator of the
Group and is entitled to receive the fees based on the actual working hours
incurred on the relevant services provided to the Group.
7. ADVISORY FEE
Yangtze Capital Advisory Limited is the Investment Adviser and is entitled to an
advisory fee of 2% per annum on the amount equal to the net asset value of the
Group in respect of the initial 12 months period after the admission to the AIM
of the London Stock Exchange. Thereafter, the advisory fee is calculated based
on 2% per annum of the amount equal to the net asset value less the value of
cash and cash equivalents, and 1.5% of the amount equal to the value of cash and
cash equivalents.
8. DIRECTORS' FEES AND INTERESTS
Each of the non-executive directors has entered into a service agreement with
the Group. The directors' fees, incurred in the course of their duties during
the year/period and in respect of services provided to the Group, are set out
below:
+------------------------------------+------------+----------------+
| | Year ended | From 5 July |
| | 31 March | 2007 |
| | 2010 | (date of |
| | | incorporation) |
| | | to |
| | | 31 March |
| | | 2009 |
+------------------------------------+------------+----------------+
| | US$ | US$ |
+------------------------------------+------------+----------------+
| | | |
+------------------------------------+------------+----------------+
| Directors' fees in | | |
| respect of services | | |
| and duties: | | |
+------------------------------------+------------+----------------+
| Timothy Gwynne Barker | 20,000 | 50,625 |
+------------------------------------+------------+----------------+
| Anthony Nigel Clifton Griffiths | 20,000 | 50,625 |
+------------------------------------+------------+----------------+
| Hoon Tai Meng | 20,000 | 50,625 |
+------------------------------------+------------+----------------+
| Stephen Shu Kwan Ip | 20,000 | 50,625 |
+------------------------------------+------------+----------------+
| | | |
+------------------------------------+------------+----------------+
| | 80,000 | 202,500 |
+------------------------------------+------------+----------------+
| | | |
+------------------------------------+------------+----------------+
The interests of the directors and their immediate families in the ordinary
shares of the Company at the reporting dates are set out below:
+--------------------------+--------+------------+-------------+
| | Note | Number of shares |
+--------------------------+--------+--------------------------+
| | | 2010 | 2009 |
+--------------------------+--------+------------+-------------+
| | | | |
+--------------------------+--------+------------+-------------+
| Wilfred Ying Wai Wong | 20(c) | 10 | 10 |
+--------------------------+--------+------------+-------------+
| Timothy Gwynne Barker | 20(c) | 60,000 | 60,000 |
+--------------------------+--------+------------+-------------+
| | | | |
+--------------------------+--------+------------+-------------+
9. TAXATION
No provision for income tax has been made as the income of the Group is not
liable to any income tax or capital gain tax in the Cayman Islands and is
excluded from the charge to profits tax in other jurisdictions for which the
Group does not generate taxable income.
10. (LOSS)/EARNINGS PER SHARE
The calculation of basic (loss)/earnings per share is based on the loss
attributable to owners of the Company of US$741,320 (Period ended 31 March 2009:
profit of US$2,150,427) and on the weighted average of 25,380,010 (2009:
25,380,010) ordinary shares in issue during the year/period.
As the Group was dormant prior to the admission to AIM, the calculation of basic
earnings per share for the period ended 31 March 2009 does not take into account
the weighted average effect of the number of ordinary shares in issue during the
period from the date of incorporation to 31 March 2009.
Diluted (loss)/earnings per share for the year/period ended 31 March 2010 and
2009 are not presented as there is no dilutive potential share.
11. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The entire portfolio of the Group's financial instruments comprises unlisted
convertible notes with maturities ranging from 1 month to 35 months at 31 March
2010 (2009: ranging from 8 months to 47 months) and with coupon interest rates
ranging from 10% to 15% (2009: 8% to 15%) per annum. All the convertible note
instruments contain a share conversion feature and a put option. The convertible
note instrument issued by Aesthetic International Holdings Group Limited and
Arigata Holdings Inc. also contains a call option.
The Group's convertible notes instruments at the reporting dates, designated at
fair value through profit or loss, are set out below:
+------------------------------------+-------------+-------------+
| | 2010 | 2009 |
+------------------------------------+-------------+-------------+
| | US$ | US$ |
+------------------------------------+-------------+-------------+
| | | |
+------------------------------------+-------------+-------------+
| Convertible notes at fair | | |
| value, as issued by: | | |
+------------------------------------+-------------+-------------+
| - Aesthetic | 12,327,321 | 11,911,769 |
| International Holdings | | |
| Group Limited | | |
+------------------------------------+-------------+-------------+
| - Arigata Holdings Inc. | 3,971,436 | 3,948,274 |
+------------------------------------+-------------+-------------+
| - Creative Picture | 1,556,564 | 1,786,999 |
| Development Limited* | | |
+------------------------------------+-------------+-------------+
| - IGO Home Shopping | - | - |
| Holdings Limited ("IGO") | | |
+------------------------------------+-------------+-------------+
| | | |
+------------------------------------+-------------+-------------+
| | 17,855,321 | 17,647,042 |
+------------------------------------+-------------+-------------+
| | | |
+------------------------------------+-------------+-------------+
* Subsequent to the reporting date, a Supplemental Agreement was entered among
all relevant parties that the maturity date of the convertible note was further
extended for one year to 24 April 2011.
As disclosed in note 18, the Group invests in each of above four convertible
notes instruments through four wholly-owned subsidiaries of the Group.
The movements in financial assets at fair value through profit or loss during
the year/period are as follows:
+------------------------------+-------+-------------+----------------+
| | | | From 5 |
| | | | July 2007 |
| | | Year ended | (date of |
| | | 31 March | incorporation) |
| |Notes | 2010 | to 31 March |
| | | | 2009 |
+------------------------------+-------+-------------+----------------+
| | | US$ | US$ |
+------------------------------+-------+-------------+----------------+
| | | | |
+------------------------------+-------+-------------+----------------+
| At the beginning of the | | 17,647,042 | - |
| year/period | | | |
+------------------------------+-------+-------------+----------------+
| Additions | (a) | - | 14,520,924 |
+------------------------------+-------+-------------+----------------+
| Fair value gain | (b) | 208,279 | 8,183,088 |
+------------------------------+-------+-------------+----------------+
| Impairment loss on financial | (c) | - | (5,056,970) |
| assets | | | |
+------------------------------+-------+-------------+----------------+
| | | | |
+------------------------------+-------+-------------+----------------+
| At end of the year/period | | 17,855,321 | 17,647,042 |
+------------------------------+-------+-------------+----------------+
| | | | |
+------------------------------+-------+-------------+----------------+
Notes:
(a) The additions to the financial assets at fair value through profit or
loss during the year/period are analysed as follows:
+--------------------------------+------------+-+----------------+
| | Year ended | From 5 July |
| | 31 March | 2007 |
| | 2010 | (date of |
| | | incorporation) |
| | | to 31 March |
| | | 2009 |
+--------------------------------+--------------+----------------+
| | US$ | US$ |
+--------------------------------+--------------+----------------+
| | | |
+--------------------------------+--------------+----------------+
| Acquisition by cash | - | 5,136,718 |
+--------------------------------+--------------+----------------+
| Received in share capital of | - | 9,384,206 |
| subsidiaries (note 19) | | |
+--------------------------------+--------------+----------------+
| | | |
+--------------------------------+--------------+----------------+
| | - | 14,520,924 |
+--------------------------------+--------------+----------------+
| | | |
+--------------------------------+------------+------------------+
| | | | |
+--------------------------------+------------+-+----------------+
(b) The fair value of the Group's convertible notes has been measured as
described in Note 4(a). At 31 March 2010 and 2009, the valuation of the
convertible note instruments was carried out by an independent professional
valuer, Jones Lang LaSalle Sallmanns Limited. During the year/period, a fair
value gain of US$208,279 (Period ended 31 March 2009: US$8,183,088) has been
recognised in the consolidated statement of comprehensive income.
(c) IGO operates a home shopping business mainly by way of television
media in the PRC. As IGO had been making significant losses during the period
ended 31 March 2009 and was in a net liability position then, the directors
believed that there was a high uncertainty in the foreseeable future that IGO
could be operated as a going concern. As such, the directors were of the view
that, at 31 March 2009, there was no fair value in the convertible notes issued
by IGO. Accordingly, the carrying amounts of the investment in the convertible
notes as issued by IGO, amounting to US$5,056,970, were fully impaired during
the period ended 31 March 2009. In the opinion of the directors of the Company,
there does not exist objective evidence that a reversal of impairment loss has
occurred as at 31 March 2010. Accordingly, no reversal of impairment loss is
considered necessary.
12. PREPAYMENTS AND OTHER RECEIVABLES
+--------------------------------+----------------+-------------+
| | 2010 | 2009 |
+--------------------------------+----------------+-------------+
| | US$ | US$ |
+--------------------------------+----------------+-------------+
| | | |
+--------------------------------+----------------+-------------+
| Prepayments | 29,305 | 29,334 |
+--------------------------------+----------------+-------------+
| Other receivables | 354 | 1,885 |
+--------------------------------+----------------+-------------+
| | | |
+--------------------------------+----------------+-------------+
| | 29,659 | 31,219 |
+--------------------------------+----------------+-------------+
| | | |
+--------------------------------+----------------+-------------+
The directors of the Group consider that the fair values of prepayments and
other receivables are not materially different from their carrying amounts
because these balances have short maturity periods on their inception.
13. CASH AND CASH EQUIVALENTS
+--------------------------------+------------------+-----------+
| | 2010 | 2009 |
+--------------------------------+------------------+-----------+
| | US$ | US$ |
+--------------------------------+------------------+-----------+
| | | |
+--------------------------------+------------------+-----------+
| Cash at bank | 282,257 | 3,010,412 |
+--------------------------------+------------------+-----------+
| Short term bank | 5,700,000 | 4,014,600 |
| deposits (maturing | | |
| within 3 months) | | |
+--------------------------------+------------------+-----------+
| | | |
+--------------------------------+------------------+-----------+
| | 5,982,257 | 7,025,012 |
+--------------------------------+------------------+-----------+
| | | |
+--------------------------------+------------------+-----------+
14. AMOUNTS DUE TO DIRECTORS
The amounts due are unsecured, interest-free and repayable on demand. The
directors of the Group consider that these balances' carrying amounts
approximates to their fair value.
15. SHARE CAPITAL
+-----------------------------------+-------+-------------+------------+
| | | Number of | Nominal |
| | Notes | shares | value |
+-----------------------------------+-------+-------------+------------+
| | | | US$ |
+-----------------------------------+-------+-------------+------------+
| Authorised: | | | |
+-----------------------------------+-------+-------------+------------+
| Ordinary shares | (a) | 200,000,000 | 20,000,000 |
| of US$0.1 each | | | |
+-----------------------------------+-------+-------------+------------+
| | | | |
+-----------------------------------+-------+-------------+------------+
| | | | |
+-----------------------------------+-------+-------------+------------+
| Issued and fully paid: | | | |
+-----------------------------------+-------+-------------+------------+
| At 5 July 2007 (date of | | - | - |
| incorporation) | | | |
+-----------------------------------+-------+-------------+------------+
| Issuance of ordinary | | | |
| share of US$1 each | | 1 | 1 |
| - non-public subscription | | | |
+-----------------------------------+-------+-------------+------------+
| | | | |
+-----------------------------------+-------+-------------+------------+
| Subdivision of ordinary | (a) | 10 | 1 |
| shares on 15 April 2008 | | | |
+-----------------------------------+-------+-------------+------------+
| Issuance of ordinary | (b) | 25,380,000 | 2,538,000 |
| shares of US$0.1 each | | | |
| - public subscription on | | | |
| admission to | | | |
| AIM of the London Stock | | | |
| Exchange | | | |
+-----------------------------------+-------+-------------+------------+
| | | | |
+-----------------------------------+-------+-------------+------------+
| At 31 March 2009 and 31 March | | 25,380,010 | 2,538,001 |
| 2010 | | | |
+-----------------------------------+-------+-------------+------------+
| | | | |
+-----------------------------------+-------+-------------+------------+
Notes:
(a) The Company was incorporated on 5 July 2007 with an authorised share
capital of US$50,000 divided into 50,000 ordinary shares of a nominal value of
US$1 each. By the resolution of the shareholders dated 21 February 2008, the
Company increased its authorised share capital from US$50,000 to US$200,000,000
by the creation of 199,950,000 ordinary shares of US$1 each. By the resolution
of the shareholders dated 15 April 2008, the Company subdivided each ordinary
share of US$1 each into 10 ordinary shares of US$0.1 each, following which the
authorised share capital of the Company was reduced to 200,000,000 ordinary
shares by the cancellation of 1,800,000,000 unissued ordinary shares.
(b) On the admission of its shares to trading on the AIM of the London
Stock Exchange on 14 May 2008, the Company issued 25,380,000 ordinary shares of
US$0.1 each at a consideration of US$25,380,000 in aggregate to provide
additional working capital for financing the investments of the Group. The gross
nominal value of ordinary shares in respect of the listing proceeds was
US$2,538,000 and the balance, amounting to US$22,842,000, was credited to share
premium.
16. SHARE PREMIUM
+---------------------------------------+------------+-------------+
| | 2010 | 2009 |
+---------------------------------------+------------+-------------+
| | US$ | US$ |
+---------------------------------------+------------+-------------+
| | | |
+---------------------------------------+------------+-------------+
| At beginning of the year/period | 19,831,685 | - |
+---------------------------------------+------------+-------------+
| Share premium arising on issue of | - | 22,842,000 |
| shares | | |
+---------------------------------------+------------+-------------+
| Less: offering costs | - | (3,010,315) |
+---------------------------------------+------------+-------------+
| | | |
+---------------------------------------+------------+-------------+
| At end of the year/period | 19,831,685 | 19,831,685 |
+---------------------------------------+------------+-------------+
| | | |
+---------------------------------------+------------+-------------+
The above offering costs, which are directly attributable to the issue of new
shares in relation to the fund-raising of the Group on the AIM of the London
Stock Exchange, were debited to share premium.
17. NET ASSET VALUE PER ORDINARY SHARE
The net asset value per ordinary share of the Group is based on net assets
attributable to owners of the Company of US$23,778,793 (2009: US$24,520,113) and
on the ordinary shares in issue of 25,380,010 shares at the reporting date
(2009: 25,380,010).
18. INVESTMENTS IN SUBSIDIARIES
The Company invests in the convertible note instruments through its wholly-owned
subsidiaries. Particulars of the subsidiaries are as follows:
+------------------------+----------------+-------------+--------+----------+------------+
| | Country/place | Particulars | Percentage | |
| | of | of issued | of equity | |
| | incorporation/ | and fully | interests | Principal |
| Name | registration/ | paid up | held by | activities |
| | operations | capital | the | |
| | | | Company | |
+------------------------+----------------+-------------+-------------------+------------+
| | | |Direct |Indirect | |
+------------------------+----------------+-------------+--------+----------+------------+
| | | | | | |
+------------------------+----------------+-------------+--------+----------+------------+
| Ace Aim | British | US$1 | 100% | - | Investment |
| Investments | Virgin | | | | holding |
| Limited | Islands | | | | |
| (note a) | | | | | |
+------------------------+----------------+-------------+--------+----------+------------+
| | | | | | |
+------------------------+----------------+-------------+--------+----------+------------+
| Mission | British | US$1 | 100% | - | Investment |
| Deluxe | Virgin | | | | holding |
| International | Islands | | | | |
| Limited (note | | | | | |
| a) | | | | | |
+------------------------+----------------+-------------+--------+----------+------------+
| | | | | | |
+------------------------+----------------+-------------+--------+----------+------------+
| Mission | British | US$1 | 100% | - | Investment |
| Rich | Virgin | | | | holding |
| International | Islands | | | | |
| Limited (note | | | | | |
| a) | | | | | |
+------------------------+----------------+-------------+--------+----------+------------+
| | | | | | |
+------------------------+----------------+-------------+--------+----------+------------+
| Camay | British | US$1 | 100% | - | Investment |
| International | Virgin | | | | holding |
| Limited (note | Islands | | | | |
| b) | | | | | |
+------------------------+----------------+-------------+--------+----------+------------+
Notes:
(a) Wilfred Ying Wai Wong, the non-executive chairman of the Company, is
also the vice chairman of the parent company of Excellent Rise Investments
Limited ("Excellent Rise"). On admission of the Company's shares to trading on
the AIM of the London Stock Exchange, Excellent Rise subscribed a total of
12,820,000 ordinary shares of US$0.1 each of the Company for a consideration of
both US$3,435,794 cash (worth equivalent to 3,435,794 ordinary shares of the
Company) and 9,384,206 ordinary shares of the Company (worth the equivalent to
US$9,384,206) in exchange for these three subsidiaries' entire share interests
and respective subsidiaries' convertible note investments as the initial
portfolio.
The initial portfolio, representing the three convertible note investments
issued by IGO Home Shopping Holdings Limited, Creative Picture Development
Limited and Arigata Holdings Inc., were held by three wholly-owned subsidiaries
of the Company, namely Ace Aim Investments Limited, Mission Deluxe International
Limited and Mission Rich International Limited, respectively.
(b) During the period since listing on 14 May 2008, the Company acquired
one issued and fully paid-up share capital of Camay International Limited
("Camay"), representing a 100% interest in Camay, for a consideration of US$1.
Camay was solely established and acquired, as a special purpose entity and as an
investment holding company, for holding the investment of convertible notes
amounting to US$5 million issued by Aesthetic International Holdings Group
Limited.
All subsidiaries of the Company were solely established and acquired, as special
purpose entities and as investment holding companies, to hold the Company's
investments in the convertible notes.
19. MAJOR NON-CASH TRANSACTION
As disclosed in note 18(a), during the period ended 31 March 2009, there was a
major non-cash transaction in which 9,384,206 ordinary shares of US$0.1 each of
the Company were issued to and subscribed for by Excellent Rise at a
consideration of US$9,384,206, to acquire the three subsidiaries' entire issued
share capital and their respective subsidiaries' convertible note investments
upon the admission of the Company's shares to the AIM of the London Stock
Exchange.
20. RELATED PARTY TRANSACTIONS
(a) The Investment Adviser has been appointed to provide investment
advisory services to the Group. The non-executive chairman of the Company is
also the sole shareholder of the Investment Adviser and therefore the Investment
Advisor is regarded as a related party. During the year ended 31 March 2010,
the Group incurred a total advisory fee of US$454,472 (Period ended 31 March
2009: US$343,240) paid/payable to the Investment Adviser.
(b) As Wilfred Ying Wai Wong, the non-executive chairman of the Company,
is the vice chairman of the parent company of Excellent Rise, Excellent Rise is
regarded as a related party. As disclosed in note 18(a) and 19, during the
period ended 31 March 2009, Excellent Rise subscribed a total of 12,820,000
ordinary shares of the Company, worth equivalent to US$12,820,000. There
are no changes in the respective shareholdings during the year ended 31 March
2010.
(c) As disclosed in note 8, during the period ended 31 March 2009,
Wilfred Ying Wai Wong, the non-executive chairman of the Company and Timothy
Gwynne Barker, a non-executive director of the Company, subscribed 10 and 60,000
ordinary shares of the Company respectively. There are no changes in the
respective shareholdings during the year ended 31 March 2010.
21. FINANCIAL RISK MANAGEMENT
The Group is exposed to financial risks through its use of financial instruments
in its ordinary course of operations and in its investment activities. The
financial risks include market risk (including foreign currency risk and market
price risk), credit risk and liquidity risk.
In the view of the directors, the Group's risk management is coordinated by the
Investment Adviser in close cooperation with the directors and focuses on
actively securing the Group's short to medium term cash flows.
21.1 Categories of financial assets and liabilities
The carrying amounts presented in the statement of financial position relate to
the following categories of financial assets and financial liabilities:
+----------------------------------+------------+------------+
| | 2010 | 2009 |
+----------------------------------+------------+------------+
| | US$ | US$ |
+----------------------------------+------------+------------+
| | | |
+----------------------------------+------------+------------+
| Financial assets | | |
+----------------------------------+------------+------------+
| Financial assets at fair value | | |
| through profit or loss | | |
+----------------------------------+------------+------------+
| - Unlisted | 17,855,321 | 17,647,042 |
| convertible | | |
| notes | | |
| designated | | |
| upon initial | | |
| recognition | | |
+----------------------------------+------------+------------+
| | | |
+----------------------------------+------------+------------+
| Loans and receivables | | |
+----------------------------------+------------+------------+
| - Other receivables | 354 | 1,885 |
+----------------------------------+------------+------------+
| - Cash and cash | 5,982,257 | 7,025,012 |
| equivalents | | |
+----------------------------------+------------+------------+
| | | |
+----------------------------------+------------+------------+
| | 23,837,932 | 24,673,939 |
+----------------------------------+------------+------------+
| | | |
+----------------------------------+------------+------------+
| | | |
+----------------------------------+------------+------------+
| Financial liabilities | | |
+----------------------------------+------------+------------+
| Financial liabilities measured | | |
| at amortised cost | | |
+----------------------------------+------------+------------+
| - Accrued expenses | 88,444 | 138,779 |
| and other payables | | |
+----------------------------------+------------+------------+
| - Amounts due to | - | 44,381 |
| directors | | |
+----------------------------------+------------+------------+
| | | |
+----------------------------------+------------+------------+
| | 88,444 | 183,160 |
+----------------------------------+------------+------------+
| | | |
+----------------------------------+------------+------------+
21.2 Credit risk
Credit risk refers to the risk that the counterparty to a financial instrument
would fail to discharge its obligation under the terms of the financial
instrument and cause a financial loss to the Group. The Group's exposure to
credit risk mainly arises from its investing activities.
The Group's maximum exposure to credit risk on recognised financial assets is
limited to the carrying amounts at the reporting date as summarised below:
+--------------------------------+--------------+-+------------+
| | 2010 | 2009 |
+--------------------------------+----------------+------------+
| | US$ | US$ |
+--------------------------------+----------------+------------+
| Classes of | | |
| financial assets | | |
| - carrying | | |
| amounts: | | |
+--------------------------------+----------------+------------+
| Financial assets at fair value | 17,855,321 | 17,647,042 |
| through profit or loss | | |
+--------------------------------+----------------+------------+
| Other receivables | 354 | 1,885 |
+--------------------------------+----------------+------------+
| Cash and cash equivalents | 5,982,257 | 7,025,012 |
+--------------------------------+----------------+------------+
| | | |
+--------------------------------+----------------+------------+
| | 23,837,932 | 24,673,939 |
+--------------------------------+----------------+------------+
| | | |
+--------------------------------+--------------+--------------+
| | | | |
+--------------------------------+--------------+-+------------+
The Group's exposure to credit risk is primarily attributable to its investments
in convertible note instruments. To minimise the credit risk, the Group has
formulated a defined investment policy and delegated management of investment
risk to the Investment Adviser. The Group has obtained the subscribed
convertible notes, for which the money was lent to investees. Continuing
evaluations are performed by the directors during the year/period on the
financial status and potential growth of the investee companies. During the
period ended 31 March 2009, the directors considered that full impairment
provision should be made against the convertible notes issued by IGO.
The credit risk for liquid funds is considered negligible as the counterparties
are reputable international banks with high quality external credit ratings.
The credit and investment policies have been followed by the Group since the
prior period and are considered to have been effective in limiting the Group's
exposure to credit risk to a desirable level.
Concentration risk
At the reporting date, the Group's financial assets exposed to credit risk are
concentrated in four unlisted convertible note instruments, which approximate to
75% (2009: 72%) of the net assets of the Group.
21.3 Market price risk
Market price risk relates to the risk that the fair values or future cash flows
of a financial instrument will fluctuate because of changes in market prices
(other than changes in interest rates and foreign exchange rates). The Group is
exposed to changes in market prices in respect of its investments in convertible
note instruments classified as financial assets at fair value through profit or
loss. Changes in market prices are generally affected by the overall conditions
in the economy of the PRC.
The Investment Adviser assesses the exposure to market price risk when making
each investment recommendation to the Board and monitors the overall level of
market price risk on the whole of the investment portfolio on an ongoing basis.
The polices to manage market price risk have been followed by the Group since
the prior period and are considered to be effective.
The carrying amount of the convertible notes at fair value is disclosed in note
11. At the reporting dates, the Group's market price risk is affected by changes
in the level or volatility of market rates or prices, such as equity prices,
interest rates and foreign exchange rates.
Movements in foreign exchange rates and interest rates are covered in notes 21.4
and 21.5 respectively. Movements in the prices of the equity instruments of the
investee companies, which are not traded on an active market, will affect the
fair values of the convertible notes. The following sensitivity analysis
illustrates the effect of changes in those equity prices, based on changes in
the key market risk variable.
The table below summarises the impact of increase/decrease of the key market
risk variable, which is the discount rate, on the Group's post-tax loss/profit
for the year/period and on retained profits. The analysis is based on the
assumption that the discount rate had increased/decreased by 2% (2009: 2%) with
all other variables held constant:
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| 2010 | | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | Key | | Impact | Impact | | Impact | Impact |
| | Valuation | market | | on | on | | on | on |
| | methodology | risk | Change | post-tax | retained | Change | post-tax | retained |
| | | variable | | loss | profits | | loss | profits |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | | | US$ | US$ | | US$ | US$ |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| Financial | | | | | | | | |
| assets at | | | | | | | | |
| fair | | | | | | | | |
| value | | | | | | | | |
| through | | | | | | | | |
| profit or | | | | | | | | |
| loss | | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| - | Discounted | Discount | +2% | 1,121,506 | (1,121,506) | -2% | (1,537,736) | 1,537,736 |
| Aesthetic International | cash flow | rate | | | | | | |
| Holdings Group Limited | and option | | | | | | | |
| | pricing | | | | | | | |
| | model | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| - | Discounted | Discount | +2% | 298,617 | (298,617) | -2% | (477,324) | 477,324 |
| Arigata | cash flow | rate | | | | | | |
| Holdings | and option | | | | | | | |
| Inc. | pricing | | | | | | | |
| | model | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| - | Discounted | Discount | +2% | 82,730 | (82,730) | -2% | (248,119) | 248,119 |
| Creative | cash flow | rate | | | | | | |
| Picture | and option | | | | | | | |
| Development | pricing | | | | | | | |
| Limited | model | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | | | 1,502,853 | (1,502,853) | | (2,263,179) | 2,263,179 |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| 2009 | | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | Key | | Impact | Impact | | Impact | Impact |
| | Valuation | market | | on | on | | on | on |
| | methodology | risk | Change | post-tax | retained | Change | post-tax | retained |
| | | variable | | profit | profits | | profit | profits |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | | | US$ | US$ | | US$ | US$ |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| Financial | | | | | | | | |
| assets at | | | | | | | | |
| fair | | | | | | | | |
| value | | | | | | | | |
| through | | | | | | | | |
| profit | | | | | | | | |
| or loss | | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| - | Discounted | Discount | +2% | (1,029,563) | (1,029,563) | -2% | 1,421,447 | 1,421,447 |
| Aesthetic | cash flow | rate | | | | | | |
| International | and option | | | | | | | |
| Holdings | pricing | | | | | | | |
| Group Limited | model | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| - | Discounted | Discount | +2% | (426,131) | (426,131) | -2% | 306,290 | 306,290 |
| Arigata | cash flow | rate | | | | | | |
| Holdings | and option | | | | | | | |
| Inc. | pricing | | | | | | | |
| | model | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| - | Discounted | Discount | +2% | (140,144) | (140,144) | -2% | 201,167 | 201,167 |
| Creative | cash flow | rate | | | | | | |
| Picture | and option | | | | | | | |
| Development | pricing | | | | | | | |
| Limited | model | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | | | (1,595,838) | (1,595,838) | | 1,928,904 | 1,928,904 |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
| | | | | | | | | |
+---------------------------------+-------------+----------+--------+-------------+-------------+--------+-------------+-----------+
21.4 Foreign currency risk
Foreign currency risk refers to the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes in foreign
exchange rates. The Group holds a relatively small portion of its financial
assets and liabilities in foreign currencies denominated other than in its
functional currency, which is US$. However, the investments in the convertible
notes held by the Group are issued by investee undertakings located in the PRC.
All the projected cash flows of the investee companies are denominated in RMB.
Any change in the US$/RMB exchange rate will therefore affect the fair value of
these investments.
The Investment Adviser monitors the Group's exposure to foreign currencies
periodically and reports to the board on a regular basis. The policies to manage
foreign currency risk have been followed by the Group since the prior period and
are considered to be effective.
At 31 March 2010, had the exchange rate between US$ and RMB increased by 5%
(2009: 5%) with all other variables held constant, post-tax loss for the year
would have been US$665,317 higher and retained profits would have been
US$665,317 lower (Period ended 31 March 2009: post-tax profit and retained
profitswould have been US$882,352 lower). Had the exchange rate between US$ and
RMB decreased by 5% (2009: 5%) with all other variables held constant, post-tax
loss for the year would have beenUS$750,797 lower and retained profits would
have been US$750,797 higher (Period ended 31 March 2009: post-tax profit and
retained profits would have been US$882,352 higher).
The Group does not hedge its foreign currency risks with RMB. However, the
Investment Advisor monitors the foreign currency exposure and will consider
hedging significant foreign currency exposure should the need arise.
21.5 Interest rate risk
Interest rate risk relates to the risk that the fair value or cash flows of a
financial instrument will fluctuate because of changes in market interest rates.
The Group is not exposed to any significant interest rate risk because the
convertible note instruments bear interest at fixed rates per annum from the
date of the instrument until the date of redemption or conversion of the
convertible note.
21.6 Liquidity risk
Liquidity risk relates to the risk that the Group will not be able to meet its
obligations associated with its financial liabilities that are settled by
delivering cash or another financial asset.
The Group is exposed to liquidity risk in respect of settlement of other
payables and also in respect of its cash flow management. The Group's objective
is to maintain an appropriate level of liquid assets to meet its liquidity
requirements in the short and longer term.
In the view of the directors, the Group is not exposed to any significant
liquidity risk, which requires the immediate meeting and settlement of any
significant liabilities or potential liabilities.
21.7 Fair value measurements recognised in the statement of financial
position
The Group adopted the amendments to IFRS 7 Improving Disclosures about Financial
Instruments effective from 1 April 2009. These amendments introduce a
three-level hierarchy for fair value measurement disclosures and additional
disclosures about the relative reliability of fair value measurements. The Group
has taken advantage of the transitional provisions in the amendments to IFRS 7
and accordingly, no comparatives for the hierarchy for fair value measurement
disclosures have been presented.
The following table presents financial assets and liabilities measured at fair
value in the statement of financial position in accordance with the fair value
hierarchy. The hierarchy groups financial assets and liabilities into three
levels based on the relative reliability of significant inputs used in measuring
the fair value of these financial assets and liabilities. The fair value
hierarchy has the following levels:
- Level 1: quoted prices (unadjusted) in active markets for
identical assets and liabilities;
- Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices); and
- Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The level in the fair value hierarchy within which the financial asset or
liability is categorised in its entirety is based on the lowest level of input
that is significant to the fair value measurement.
At 31 March 2010, the financial assets and liabilities measured at fair value in
the statement of financial position are grouped into the fair value hierarchy as
follows:
+---------------------------------------+------+------------+
| | | Level 3 |
+---------------------------------------+------+------------+
| | | US$ |
+---------------------------------------+------+------------+
| Assets | | |
+---------------------------------------+------+------------+
| Unlisted convertible note | | 17,855,321 |
| instruments designated at | | |
| fair value through profit or | | |
| loss (note a) | | |
+---------------------------------------+------+------------+
| | | |
+---------------------------------------+------+------------+
| Net fair values | | 17,855,321 |
+---------------------------------------+------+------------+
| | | |
+---------------------------------------+------+------------+
(a) Unlisted convertible note instruments designated at fair value
through profit or loss
The Group's financial assets classified in Level 3 use valuation techniques
based on significant inputs that are not based on observable market data. The
Group appointed an independent professional valuer to make assumptions based on
market conditions current at the reporting date. Valuation techniques such as
comparable recent arm's length transactions, discounted cash flow analysis and
other valuation techniques commonly used by market participants have been
applied. Due to the inherent uncertainty of valuations, however, estimated fair
values may differ significantly from the values that would have been used had a
readily available market existed and the differences could be material.
The methods and valuation techniques used for the purpose of measuring fair
value are unchanged compared to the previous reporting period.
The financial instruments within this level can be reconciled from opening to
closing balances as follows:
+------------------------------------+----+------------+
| | | 2010 |
+------------------------------------+----+------------+
| | | US$ |
+------------------------------------+----+------------+
| | | |
+------------------------------------+----+------------+
| Unlisted convertible note | | |
| instruments designated at | | |
| fair value through profit or | | |
| loss | | |
+------------------------------------+----+------------+
| Opening balance | | 17,647,042 |
+------------------------------------+----+------------+
| Fair value gain recognised in | | 208,279 |
| profit or loss | | |
+------------------------------------+----+------------+
| | | |
+------------------------------------+----+------------+
| Closing balance | | 17,855,321 |
+------------------------------------+----+------------+
| | | |
+------------------------------------+----+------------+
There have been no transfers into or out of Level 3 in the reporting period. In
determining the fair value, earnings growth factor and risk adjusted discount
factor are used. If these inputs to the valuation model were 5% higher while all
the other variables held constant, the carrying amount of the convertible notes
would increase by US$658,236. If these inputs to the valuation model were 5%
lower while all the other variables held constant, the carrying amount of the
convertible notes would decrease by US$603,890.
22. CAPITAL MANAGEMENT
The Group's primary objectives when managing capital are to safeguard the
Group's ability to continue as a going concern, so that it can continue to
provide returns for the shareholders, to support the Group's sustainable growth
and to provide capital for the purpose of potential investment.
The directors of the Company regard net assets attributable to owners of the
Company as capital, for capital management purposes. The amount of capital at 31
March 2010, US$23,778,793 (2009: US$24,520,113) is considered sufficient by the
directors giving due cognisance to the projected return on net assets and the
forecast investment opportunities.
23. EVENTS AFTER THE REPORTING DATE
On 3 June 2010, the Group has disposed of its entire interest in Ace Aim
Investments Limited, a wholly owned subsidiary of the Company which holds the
fully impaired convertibles notes issued by IGO, to a third party at a
consideration of US$1. The disposal has immaterial effect on the Group's
financial statements.
- ENDS -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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