TIDMYCI
RNS Number : 8103M
Yangtze China Investment Limited
23 August 2011
Press Release 23 August 2011
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 2011.
Financial Highlights
NAV stood at US$22.5 million (31 March 2010: US$23.8 million)
--
NAV per share at US$0.89 (31 March 2010: US$0.94)
--
Current cash and cash equivalents total US$1.2 million
--
Commenting on the results, Mr Wilfred Wong, Chairman of Yangtze
China Investment Limited, said: "I am able to report that our NAV
per share at 31 March 2011 stood at US$0.89. Aesthetic's beauty spa
franchise network continues to operate profitably in the current
year and the RMB 60 million new funding it received in March 2010
has been used to expand its successful franchise and for brand
building to prepare for a domestic listing. Although we remain
cautious in our investment decision-making, we are confident of the
growth opportunities in the Chinese consumer market."
"With China's economy remaining strong, Yangtze has been
actively looking for investment opportunities. I am particularly
pleased to report that on 30 November 2010 we successfully
completed the investment of US$3.74 million in V2 International
Vision Photography Co., Ltd., a professional photographic group. We
are excited to have this new investment, based in Chengdu, Sichuan,
one of the second tier cities in China in which incomes and
therefore consumer expenditure is growing fast and where market
competition is still relatively low."
"China's economy has been growing rapidly during the past few
years and its real GDP increased by 10.3 per cent in 2010. Given
China's strong growth in domestic consumption, the Board of
Directors is confident that opportunities will arise that the
Company can take advantage of."
- Ends -
For further information:
Yangtze Capital Advisory Limited
Richard Zhao Tel: +852 2281 7218
www.yangtzecn.com
Collins Stewart Europe Limited
Matt Goode / Rishi Shah Tel: +44 (0) 20 7523
8350
www.collinsstewart.com
Media enquiries:
Abchurch Communications Ltd
Henry Harrison-Topham / Quincy Allan Tel: +44 (0) 20 7398
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.
The economy of China has grown significantly since it began its
economic reforms in 1978. In 2001, China became a member of the
World Trade Organization, since then its GDP per capita has
experienced particularly strong growth with a CAGR of 10.1 per cent
over the period from 2001 to 2009 and an annual GDP growth of 10.3
per cent was recorded in 2010. 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 the audited final results for Yangtze
China Investment Limited for the year ended 31 March 2011. At 31
March 2011, the Company's NAV was US$22.5 million compared to
US$23.8millionat 31 March 2010. The Company's NAV was at US$0.89
per share compared to US$0.94 per share at 31 March 2010.
Since Yangtze's shares were admitted to AIM in May 2008, the
Chinese economy has remained robust, growing at a remarkable pace
and became the world's second largest economy in 2010. The
Company's focus is to invest in the rapidly growing consumer
sectors in China. China's consumer expenditure continues to grow
but the focus of high growth has gradually moved towards lower tier
cities where the level of market competition is lower and incomes
are rising faster. Accordingly, during the year under review,
Yangtze has identified and completed the closing of a US$3.74
million investment in a professional photographic group based in
Chengdu, Sichuan. Including this latest investment, Yangtze held
assets worth US$22.6 million at 31 March 2011 of which US$1.2
million is in cash and US$21.4 million has been invested in a
portfolio of four investments. The growth of the consumer sectors
in China has been driven by a number of factors, chief among them
being rising incomes, real consumption growth and a robust stock
market. Faced with such a favourable investment environment, the
competition between investment funds, strategic investors and
domestic corporate investors for attractive investment
opportunities has increased in the past few years. Many investors
are hoping for lucrative exists upon the listing of their
investments on China's domestic stock exchanges. Under such
circumstances, the key to securing transactions at a reasonable
valuation has narrowed down to being able to differentiate clearly
a fund's positioning and value-add. To this end, coupled with its
own proprietary deal flow, Yangtze has developed a clear industry
focus.
The capital that has been raised in 2008 has now been
substantially invested and the Company has been exploring options
to exit some of its investments to pave the way for new
investments. We believe the rapid growth of China's consumer sector
will continue to provide adequate investment opportunities for
Yangtze. The Board of Directorsremains confident that Yangtze's
existing investments will provide a representative, profitable
exposure to the consumer sectors in China. We will continue to
optimise our investment strategy and network and generate
satisfactory returns for our shareholders. As in previous years,
given the Company's focus on investing its capital in portfolio
companies with the aim of producing capital growth, the Board of
Directors have decided not to propose a dividend.
Wilfred Ying Wai Wong
Chairman
Investment Adviser's Report
In November 2010, Yangtze completed the investment of US$3.74
million, in the form of redeemable convertible preferred shares
(equivalent to not less than 27.5 per cent equity interest if fully
converted), into V2 International Vision Photography Co., Ltd., a
professional photographic group based in Chengdu, Sichuan,
China.
Throughout the year under review, the Investment Adviser
continued to focus on both exploring investment opportunities where
the Company could boost its valuation and implementing
post-investment monitoring initiatives to enhance the value of the
Company's investments. The Investment Adviser will continue to
place emphasis on these monitoring initiatives so as to enable our
investee companies to be well placed for a public listing of their
shares when more favourable market sentiment returns.
Simultaneously, in line with the strategy of the Company in
managing its portfolio risk, possible realisation opportunities
including follow-on equity placement or trade sales 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 in 2011 and that Yangtze is
well positioned to benefit from this trend with its portfolio of
retail and consumer companies. Details of the Company's investments
are included below.
Portfolio
V2 International Vision Photography Co., Ltd. ("V2
International")
As announced on 30 November 2010,Yangtze successfully closed a
US$3.74 million investment in V2 International in the form of
redeemable convertible preferred shares (equivalent to not less
than 27.5 per cent equity interest if fully converted). V2
International is a professional photographic group based in
Chengdu, Sichuan and is engaged in the provision of professional
photographic service marketed under the brand names of "V2" and
"Xiqu". A wide range of professional photographic services and
products is provided through a network of self-owned and franchised
studios in the PRC together with another one in New Zealand.
The group specialises in high-end outdoor wedding and portrait
photography, offering customers a differentiated, contemporary
style of photography experience. In order to ensure high quality
and artistically appealing portraits, customers are assigned an
exclusive team of a professional photographer, lighting crew,
make-up and hair stylists during their photo-shoot sessions. The
group is believed to be the pioneer in launching and promoting
"Wedding Photography with Travelling" in China and all their
studios are located in cities renowned for stunning scenery and
historic attractions. In addition, the group also provides
professional and amateur photographers with various training
courses to meet market demand driven by the increased popularity of
digital cameras.
To date, V2 International operates at a small profit and
generates revenues principally through the provision of
photographic services and sale of image-related merchandise. The
funds invested by Yangtze have been used to: raise the group's
profile through increased marketing and promotion of its brands and
products, expand the in-house image processing centre and the
photographic training school, and fund the establishment of a sales
and customer management centre as well as procuring photographic
equipment to meet technological changes.
As the disposable income of the Chinese continues to grow,
expenditure on weddings which are considered a "once-in-a-lifetime"
event, is expected to increase significantly. Since the post-1980s
generation, a large social group is reaching marriageable age, the
wedding sector is expected to maintain strong growth momentum over
the next ten years.
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 profitability during the year.
In March 2010, Aesthetic completed a second round funding and
raised RMB 60 million (approximately US$8.8 million) from a Chinese
venture capital fund. Upon satisfaction of certain conditions
including a group re-organisation, this new investor in Aesthetic
will become a 13 per cent holder of the enlarged registered capital
of a PRC subsidiary of Aesthetic and Yangtze's interest in
Aesthetic upon full conversion of the convertible note will then
become approximately 22 per cent. The proceeds raised by Aesthetic
in this round of funding have been used to expand its franchise
network in China's beauty market, to engage actively in marketing
activities for brand building and to prepare for a potential
domestic listing in the PRC.
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 2011, the number of
Aesthetic's franchised and self-owned beauty centres had increased
to over 2,800 and they are located in 30 provinces and 160 cities
acrossChina.
In addition to its headquarters in Beijing, Aesthetic has
established four regional management centres in Chengdu, Shenyang,
Guangzhou and Dalian. These new 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.
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, pricing,
positioning and branding. Following the roll-out of a new
toiletries and cosmetics product line under the brand name of
"Befly" in 2009, products of Aesthetic are now being sold in the
market under three different brands. "Aesthetic" and "O'Rola"
specialise in skincare with "Befly" products specialising in
cosmetics.
During the year, Aesthetic has signed a famous Chinese actress
who is seen as a fashion icon, as its spokesperson and celebrity
face for the "Befly" brand. Endorsement of the brand by a well
known celebrity attracts high levels of awareness in the brand and
its products, the ultimate goal being the achievement of higher
sales and a greater market share.
To attract affluent consumers looking for more expensive,
high-end premium cosmetics and personal care treatment, Aesthetic
also has a medical beauty clinic in Shenyang. The clinic provides a
wide range of medical and cosmetic therapies in addition to Chinese
health and beauty treatments. These include hair replacement, botox
and cosmetic surgery and body reshaping. This clinic is a joint
venture with a renowned, licensed practitioner of Chinese medicine,
and Aesthetic's aim is to strengthen its corporate image as a
market leader within the beauty sector in China.
An increasing number of women in China are in well-paid jobs,
many of them having deferred 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 tastes 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. Greater market volatility is common in China's
securities markets, in particular the ChiNext, the newest stock
exchange for growth enterprises, and the regulatory framework for
the securities industry in China is continuing to develop. The
guideline recently issued by the China Securities Regulatory
Commission on the limited range of industries recommended for
listing on ChiNext has narrowed the window for Aesthetic to seek a
listing in China. 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 continued be explored by
the Investment Adviser to recoup a portion of the Company's cost of
investment.
Owing to the increased market competition and the uncertainty
over domestic listing process, there was a decline of approximately
US$0.4 million in the fair value of this investment to US$11.9
million at 31 March 2011.
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.
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.
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.
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. The products for the initial sales order are about
to be delivered to customers after completion of the software
upgrade.
There was little progress in 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.
Onbest is in discussion with UnionPay, the only domestic bank
card organisation in China, to co-operate with major mobile network
operators for the development of a specific mobile phone with
Onbest POS handheld technology to cater for payment through mobile
phones in China.
The People's Bank of China announced in May 2011 the granting of
the first batch of electronic payment licenses to a number of
qualified third-party online payment platforms. Third-party payment
enterprises refer to those non-financial operators who work as the
party between buyers and sellers to provide payment settlement
through devices such as internet, telephones or mobile phones. This
move to provide a legal status for the third-party payment sector
has been long awaited by the market and it is anticipated to have a
significant positive impact on the development of the sector
including the equipment provider.
The fair value of the Company's investment in Onbest increased
by approximately US$0.1 million to US$4.1million at 31 March
2011.
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 Hollywood blockbuster movie
"Avatar", gadgets with 3-D features can now be used in the living
room, and in the not so distant future, may also be found in
handheld devices such as notebook computers and mobile phones. This
particular technological innovation is beginning to change how
people enjoy entertainment, and very shortly, could become part of
people's daily lives. Boosted by this unprecedented demand for 3-D
entertainment and equipment, the market is undergoing significant
changes in terms of resources allocation and number of market
players. Creative Picture possesses a number of patents over the
glass-free 3-D display technology for seamless joint panels,
notebook computers, photo-frames and outdoor LED panels, and will
focus on 3-D content production and licensing of rights to market
players of traditional display devices.
Creative Picture completed the conversion of another 3-D movie
"Legend of the Daming Palace" and, being the first Chinese IMAX 3-D
movie, it was shown in cinemas during the China National Day
holidays in October 2010. In addition to the previous two movies -
"Journey to the West" and "The King of Milu Deer" - Creative
Picture so far has participated in approximately 500 minutes of 3-D
content production.
The movie "Legend of the Daming Palace", which illustrates the
royal palace of the prosperous Tang Dynasty and the era's
architecture is now being used by Daming Palace National Heritage
Park as a site attraction to promote heritage protection and
tourism for Xi'an, Shaanxi, China.
An agreement has been signed with an advertising devices company
for the licensing right to use Creative Picture's glass-free 3-D
technology on their devices for a lump sum license fee as well as
the right to share in the proceeds arising from the sales of
advertising devices.
A strategic co-operation agreement has been signed with a
subsidiary of a state-owned TV channel as the exclusive partner in
3-D content conversion for country-wide TV broadcast on their 3-D
TV channel, which is in the process of setting up.
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 content development and the
sale of visualisation facilities.
The fair value of the Company's investment in Creative Picture
remained unchanged at approximately US$1.6 million at 31 March
2011.
China's Economy
In 2010, the Chinese government successfully implemented a
series of restructurings, policies and measures to improve the
economy's performance. As a result, China's GDP increased by 10.3
per cent in 2010 to RMB 39.8 trillion (approximately US$5.98
trillion) to become the second largest economy in the world after
the US.
The Chinese government's strategy of expanding domestic
consumption via increases in the minimum wage and continuing
job-creation has been largely effective, with total retail sales of
consumer goods rising by 18.4 per cent in 2010. However, strong
consumer demand has in turn created substantial inflationary
pressure in the Chinese economy. The CPI and PPI rose 3.3 per cent
and 5.5 per cent respectively in 2010 which suggests the higher
cost in raw materials to the manufacturing sector is being passed
on to consumers. In response, policymakers have stepped up efforts
to stabilize the prices of both consumer goods and raw materials
through price control and monetary measures. Containing inflation
has moved to the top of the government's agenda for 2011, while
labour costs, assets prices and RMB appreciation will continue to
be closely monitored.
Income distribution reforms and economic development policies
targeting urban areas announced in March 2011 under the 12(th)
Five-Year Plan for National Economic and Social Development suggest
that future economic conditions will mostly favour low and middle
income earners. The Plan also states that the China's government
will target GDP growth of 8 per cent in 2011 and an average 7 per
cent growth from 2011 to 2015. We believe that such an outcome will
stimulate the growth of the consumer sector and create further
opportunities for Yangtze's portfolio companies.
Outlook
China has emerged as the world's second largest economy with
continued growth driven by its expanding domestic market and also
by its policies. Aggressive plans for urbanisation and social
benefits should help support further growth in the consumer and the
retail sectors, which have been at the core of Yangtze's strategy
since its inception. The Investment Adviser has been actively
looking for further investment opportunities and is determined to
provide value to its investee companies and most importantly the
Company through another phase in China's growth.
Yangtze Capital Advisory Limited
Investment Adviser
Portfolio Summary
At 31 March 2011, the Company's total assets amounted to
US$22.6million. About US$21.4 million were investments in the form
of redeemable convertible preferred shares and convertible notes at
fair values.
The following table summarises the status of the Company's
portfolio at 31 March 2011:
Time of Investment
investment cost
Industry by the (1)
Description / Location Company (US$) At 31 March
-------------------------------------
% of
ownership
(on full
conversion
to shares)
Fair value (2)
------------------------
2011 2010 Change
(US$) (US$) (US$)
Investment in the form
of redeemable convertible
preferred shares:
V2
International Professional
Vision photographic
Photography services
Co., Ltd. / China Nov 2010 3.8m 3.8m - 3.8m 27.5%
Investment in the form
of convertible notes:
Aesthetic
International Beauty spa
Holdings franchise / 25.0%((3)
Group Limited China July 2008 5.1m 11.9m 12.3m (0.4m) ()
Fiscal
Arigata / POS
Holdings solutions
Inc. / China May 2008 3.0m 4.1m 4.0m 0.1m 30.0%
Creative
Picture 3-D display
Development technology
Limited / China May 2008 1.3m 1.6m 1.6m - 12.5%
Total 13.2m 21.4m 17.9m 3.5m
----------- ------- ------ -------
1. Includes capitalised directly attributable investment
expenses.
2. For reference only. The percentage of ownership represents,
upon full conversion to ordinary shares, the stake in the entire
equity share capital of the investee company on a fully diluted
basis.
3. Upon satisfaction of certain conditions including a group
re-organisation, the new investor of Aesthetic will become a 13 per
cent. holder of the enlarged registered capital of a PRC subsidiary
of Aesthetic and Yangtze's interest in Aesthetic upon full
conversion of the convertible note will then become approximately
22 per cent.
Consolidated statement of comprehensive income
for the year ended 31 March 2011
Notes 2011 2010
US$ US$
Income
Net gain on financial assets
at fair value through profit
or loss 11 - 208,279
Gain on sale of a subsidiary 16(b) 1 -
Bank interest income 6,300 23,355
----------------------------------------- ------ ------------ ----------
6,301 231,634
----------------------------------------- ------ ------------ ----------
Expenses
Auditors' remuneration (45,441) (39,890)
Administration fee 6 (106,755) (99,482)
Advisory fee 7 (451,815) (454,472)
Business valuation fee (80,888) (48,522)
Directors' fees 8 (80,000) (80,000)
Legal and professional fees (71,503) (121,572)
Marketing and communication fees (70,694) (68,897)
Net loss on financial assets
at fair value through profit
or loss 11 (284,357) -
Other operating expenses (61,930) (60,119)
----------------------------------------- ------ ------------ ----------
(1,253,383) (972,954)
----------------------------------------- ------
Loss before income tax (1,247,082) (741,320)
Income tax expense 9 - -
----------------------------------------- ------ ------------ ----------
Loss and total comprehensive
loss for the year attributable
to owners of the Company (1,247,082) (741,320)
----------------------------------------- ------ ------------ ----------
Loss per share for loss attributable
to owners of the Company during
the year 10
- Basic and diluted (0.05) (0.03)
----------------------------------------- ------ ------------ ----------
Consolidated statement of financial position
as at 31 March 2011
Notes 2011 2010
US$ US$
ASSETS AND LIABILITIES
Non-current assets
Financial assets at fair value
through profit or loss 11 21,381,750 17,855,321
----------------------------------- ------
Current assets
Prepayments and other receivables 12 29,574 29,659
Cash and cash equivalents 13 1,237,830 5,982,257
----------------------------------- ------ ----------- -----------
1,267,404 6,011,916
----------------------------------- ------ ----------- -----------
Current liabilities
Accrued expenses and other
payables 117,443 88,444
----------------------------------- ------ ----------- -----------
Net current assets 1,149,961 5,923,472
----------------------------------- ------ ----------- -----------
Net assets 22,531,711 23,778,793
----------------------------------- ------
EQUITY
Share capital 14 2,538,001 2,538,001
Reserves 19,993,710 21,240,792
----------------------------------- ------ ----------- -----------
Total equity 22,531,711 23,778,793
----------------------------------- ------ ----------- -----------
Number of ordinary shares in
issue 25,380,010 25,380,010
----------------------------------- ------ ----------- -----------
Net asset value per ordinary
share 15 0.89 0.94
----------------------------------- ------ ----------- -----------
Consolidated statement of cash flows
for the year ended 31 March 2011
2011 2010
US$ US$
Cash flows from operating activities
Loss before income tax (1,247,082) (741,320)
Adjustments for:
Net loss/(gain) on financial
assets at fair value through
profit or loss 284,357 (208,279)
Gain on sale of a subsidiary (1) -
Bank interest income (6,300) (23,355)
------------------------------------------- ------------ ------------
Operating loss before working
capital changes (969,026) (972,954)
(Increase)/Decrease in prepayments
and other receivables (269) 29
Increase/(Decrease) in accrued
expenses and other payables 28,999 (50,335)
Decrease in amounts due to directors - (44,381)
------------------------------------------- ------------ ------------
Cash used in operations (940,296) (1,067,641)
Interest received 6,654 24,886
------------------------------------------- ------------ ------------
Net cash used in operating activities (933,642) (1,042,755)
------------------------------------------- ------------ ------------
Cash flows from investing activities
Purchase of redeemable convertible
preferred shares (3,810,786) -
Proceeds from sale of a subsidiary* 1 -
------------------------------------------- ------------ ------------
Net cash used in investing activities (3,810,785) -
------------------------------------------- ------------ ------------
Net decrease in cash and cash
equivalents (4,744,427) (1,042,755)
Cash and cash equivalents at
beginning of the year 5,982,257 7,025,012
------------------------------------------- ------------ ------------
Cash and cash equivalents at
end of the year 1,237,830 5,982,257
------------------------------------------- ------------ ------------
* There was no cash held by the subsidiary at the date of
disposal.
Consolidated statement of changes in equity
for the year ended 31 March 2011
Share Share Retained Total
capital premium* profits* equity
US$ US$ US$ US$
(note
14) (note 18)
Balance at 1 April
2009 2,538,001 19,831,685 2,150,427 24,520,113
Total comprehensive
loss for the year - - (741,320) (741,320)
------------------------- ---------- ----------- ------------ ------------
Balance at 31 March
2010 and 1 April
2010 2,538,001 19,831,685 1,409,107 23,778,793
Total comprehensive
loss for the year - - (1,247,082) (1,247,082)
------------------------- ---------- ----------- ------------ ------------
Balance at 31 March 2011 2,538,001 19,831,685 162,025 22,531,711
------------------------- ---------- ----------- ------------ ------------
* These reserve accounts comprise the Group's reserves of
US$19,993,710 (2010: US$21,240,792) in the consolidated statement
of financial position.
Notes to the financial statements
for the year ended 31 March 2011
1. GENERAL INFORMATION
Yangtze China Investment Limited (the "Company") is a closed-end
investment company incorporated in the Cayman Islands with limited
liability. 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 financial statements for the year ended 31 March 2011 were
approved for issue by the board of directors on 22 August 2011.
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 years
presented unless otherwise stated. The adoption of new or amended
IFRSs and their impact 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 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 the 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 made up to 31 March
each year.
Subsidiaries are all 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.
In the consolidated financial statements, the results of
subsidiaries acquired or disposed of during the year are included
in the consolidated statement of comprehensive income from the
effective date of acquisition and up to the effective date of
disposal, as appropriate.
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.
When the Group loses control of a subsidiary, the profit or loss
on disposal is calculated as the difference between the fair value
of the consideration received and the carrying amount of the assets
and liabilities of the subsidiary at the date when control is
lost.
2.3 Associates
Associates are those entities over which the Group is able to
exert significant influence, generally accompanying a shareholding
of between 20% and 50% of voting rights but which are neither
subsidiaries nor investmentsin joint venture.
Investments in associates are designated as financial assets at
fair value through profit or loss and are measured at fair value in
accordance with the Group's accounting policy for financial assets
(see note 2.5) as permitted by IAS 28 Investments in associates
which excludes investments held by entities akin to that of venture
capital organisations from its scope.
2.4 Foreign currency translation
The financial statements are presented in United States dollars
("US$"), which is also the functional currency of the Company and
its subsidiaries.
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 purchases of financial assets are
recognised on the trade 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, an 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 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 they are
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.
Financial assets are designated at initial recognition at fair
value through profit or loss if 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.
The Group's investments in associates are also designated at
fair value through profit or loss in accordance with IAS 39 (note
2.3).
Embedded derivatives are not separated as the hybrid instruments
are measured at fair value through profit or loss.
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.
The main financial instruments designated at fair value through
profit or loss by the Group are the investment in convertible notes
and redeemable convertible preferred shares. The Group has
documented risk management and investment strategies designed to
manage such assets at fair value, taking into consideration the
total return from its interest 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 and redeemable convertible preferred
shares include separate embedded derivatives such as a share
conversion option, put option and/or call option. The Group 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;
- Significant changes in the technological, market, economic or
legal environment that have an adverse effect on the debtor;
and
- The disappearance of an active market for that financial asset
because of financial difficulties.
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 a 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 include cash at bank and in hand,
demand deposits with banks and short term highly liquid investments
with original maturities 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. 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
Accrued expenses and other payables are recognised initially at
their fair value net of transaction costs incurred, 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 the 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 2010:
IFRS 3 Business combinations (Revised 2008)
IAS 27 Consolidated and separate financial statements (Revised
2008)
Various - Annual improvements to IFRSs 2009
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.
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 financial statements for the first period
beginning after the effective date of the respective
pronouncements. Information on new and amended IFRSs that are
expected to have an 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 on the
Group's financial statements.
IFRS 9 Financial instruments
The standard is effective for annual periods beginning on or
after 1 January 2013.
Under IFRS 9, all recognised financial assets that are within
the scope of IAS 39 Financial instruments: Recognition and
measurement are subsequently measured at either amortised cost or
fair value. Specifically, debt investments that are held within a
business model whose objective is to collect the contractual cash
flows, and that have contractual cash flows that are solely
payments of principal and interest on the principal outstanding are
generally measured at amortised cost at the end of subsequent
accounting periods. All other debt investments and equity
investments are measured at their fair values at the end of
subsequent accounting periods.
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.
IAS 24 Related party disclosures (Revised 2009)
The revised standard is applicable for annual periods beginning
on or after 1 January 2011. The revised standard modifies the
definition of a related party and simplifies disclosures for
government-related entities.
The disclosure exemptions introduced in the revised standard do
not affect the Group because the Group is not a government-related
entity. However, disclosures regarding related party transactions
and balances in these financial statements may be affected when the
revised standard is applied in future accounting periods because
some counterparties that did not previously meet the definition of
a related party may come within the scope of the revised
standard.
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.
4.1 Critical accounting estimates and assumptions
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:
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 adiscounted 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 Black-Scholes 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
require the directors to make estimates. Changes in assumptions
about these factors could affect the reported fair values of
financial instruments. Sensitivity analyses are disclosed in notes
19.3 and 19.7.
4.2 Critical judgements in applying the entity's accounting
policies
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 ended 31
March 2011 and 2010 as the Group is principally engaged in
investment business, which accounts for the total revenue and loss
of the Group. The Group uses consolidated loss before income tax as
a measure of segment profit or loss. The Group's consolidated
income mainly 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 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
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 and in respect of services
provided to the Group, are set out below:
2011 2010
US$ US$
Directors' fees in respect of services
and duties:
Wilfred Ying Wai Wong - -
Timothy Gwynne Barker 20,000 20,000
Anthony Nigel Clifton Griffiths 20,000 20,000
Hoon Tai Meng 20,000 20,000
Stephen Shu Kwan Ip 20,000 20,000
--------------------------------------------- ------- -------
80,000 80,000
--------------------------------------------- ------- -------
The Group's key management personnel comprise only the directors
of the Company.
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 the British Virgin Islands.
10. LOSS PER SHARE
The calculation of basic loss per share is based on the loss
attributable to owners of the Company of US$1,247,082 (2010:
US$741,320) and on the weighted average of 25,380,010 (2010:
25,380,010) ordinary shares in issue during the year.
Diluted loss per share for the year ended 31 March 2011 and 2010
are not presented as there is no dilutive potential share.
11. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The entire portfolio of the Group's financial instruments
comprises unlisted convertible notes and redeemable convertible
preferred shares.
At the reporting date, the unlisted convertible notes have
maturities ranging from 1 month to 23 months (2010: ranging from 1
month to 35 months) and with coupon interest rates ranging from 10%
to 15% (2010: 10% to 15%) per annum. All the convertible note
instruments contain a share conversion feature and a put option.
The convertible note instruments issued by Aesthetic International
Holdings Group Limited and Arigata Holdings Inc. also contain a
call option.
The redeemable convertible preferred shares contain a put option
and cumulative dividend of 12% per annum (2010: nil).
The Group's convertible note instruments and
redeemableconvertible preferred shares at the reporting dates,
designated at fair value through profit or loss, are set out
below:
2011 2010
US$ US$
Convertible notes at fair value,
as issued by:
- Aesthetic International Holdings
Group Limited* 11,883,111 12,327,321
- Arigata Holdings Inc. 4,098,881 3,971,436
- Creative Picture Development Limited** 1,588,972 1,556,564
--------------------------------------------- ----------- -----------
17,570,964 17,855,321
Redeemable convertible preferred
shares at fair value, as issued by:
- V2 International Vision Photography
Co., Ltd. ("V2 International")(#) 3,810,786 -
--------------------------------------------- ----------- -----------
21,381,750 17,855,321
--------------------------------------------- ----------- -----------
* Subsequent to the reporting date, the convertible notes
matured and pursuant to the terms of the convertible note
instrument, the Group has served a conversion notice to the
issuer.
** Subsequent to the reporting date, a Supplemental Agreement
was entered into among all relevant parties that the maturity date
of the convertible note was further extended for one year to 24
April 2012.
(#) During the year, the Group had acquired 2,750 Redeemable
Convertible Preferred Shares in V2 International (the "V2
International Convertible Preferred Shares"). The Group is able to
exercise significant influence over V2 International as it holds
more than 20% of voting power in V2 International and has other
certain investor rights in accordance with the investment
guidelines.
As disclosed in note 16, the Group invests in each of above
investments through four wholly-owned subsidiaries of the
Group.
The movements in financial assets at fair value through profit
or loss during the year are as follows:
2011 2010
US$ US$
At the beginning of the
year 17,855,321 17,647,042
Additions 3,810,786 -
Fair value (loss)/gain
(note) (284,357) 208,279
------------------------- ----------- -----------
At end of the year 21,381,750 17,855,321
------------------------- ----------- -----------
Note: The fair value of the Group's convertible notes and
redeemable convertible preferred shares has been measured as
described in note 4. At 31 March 2011 and 2010, the valuations of
the convertible notes and redeemable convertible preferred shares
were carried out by an independent professional valuer, Jones Lang
LaSalle Sallmanns Limited. During the year, a fair value loss of
US$284,357 (2010: fair value gain of US$208,279) has been
recognised in the consolidated statement of comprehensive
income.
12. PREPAYMENTS AND OTHER RECEIVABLES
2011 2010
US$ US$
Prepayments 29,574 29,305
Other receivables - 354
------------------- ------- -------
29,574 29,659
------------------- ------- -------
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
2011 2010
US$ US$
Cash at bank 1,237,830 282,257
Short term bank deposits (maturing
within 3 months) - 5,700,000
--------------------------------------- ---------- ----------
1,237,830 5,982,257
--------------------------------------- ---------- ----------
14. SHARE CAPITAL
2011 2010
US$ US$
Authorised:
200,000,000 ordinary shares of
US$0.1 each 20,000,000 20,000,000
-------------------------------------- ----------- -----------
Issued and fully paid:
25,380,010 ordinary shares of US$0.1
each 2,538,001 2,538,001
-------------------------------------- ----------- -----------
15. 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$22,531,711
(2010: US$23,778,793) and on the ordinary shares in issue of
25,380,010 shares at the reporting date (2010: 25,380,010).
16. INVESTMENTS IN SUBSIDIARIES
All subsidiaries of the Company were solely established or
acquired, as special purpose entities and as investment holding
companies, to hold the Company's investments in the convertible
note instruments or redeemableconvertible preferred shares.
Particulars of the subsidiaries are as follows:
Name Country/place Particulars Percentage Principal
of of of activities
incorporation/ issued equity interests
registration/ and held by the
operations fully paid Company
up capital
Direct Indirect
Mission British Virgin US$1 100% - Investment
Deluxe Islands holding
International
Limited
Mission Rich British Virgin US$1 100% - Investment
International Islands holding
Limited
Camay British Virgin US$1 100% - Investment
International Islands holding
Limited
Fonnex British Virgin US$1 100% - Investment
Investment Islands holding
Limited (note
a)
Notes:
(a) During the year ended 31 March 2011, the Company subscribed
for one issued and fully paid-up share of Fonnex Investment Limited
("Fonnex"), representing a 100% interest in Fonnex, for a
consideration of US$1. Fonnex was solely established and acquired,
as a special purpose entity and as an investment holding company,
for holding the V2 International Redeemable Convertible Preferred
Shares (note 11).
(b) During the year ended 31 March 2011, 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
convertible notes issued by IGO Home Shopping Holdings Limited, to
a third party at a consideration of US$1. The disposal has
immaterial effect on the Group's financial statements.
17. RELATED PARTY TRANSACTIONS
The Investment Adviser has been appointed to provide investment
advisory services to the Group. The non-executive chairman of the
Company, Mr. Wilfred Ying Wai Wong, 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 2011,
the Group incurred a total advisory fee of US$451,815 (2010:
US$454,472) paid/payable to the Investment Adviser.
18. RESERVES
Share premium
The application of the share premium account is governed by the
Companies Law of the Cayman Islands. Share premium of the Company
is distributable to shareholders subject to the provisions of the
Company's Memorandum and Articles of Association and provided that
immediately following the distribution the Company is able to pay
its debts as they fall due in the ordinary course of business.
19. FINANCIAL RISK MANAGEMENT AND FAIR VALUE MEASUREMENTS
The Group is exposed to financial risks through its use of
financial instruments in its ordinary course of operations and in
its investment activities. The financial risks include market risk
(including foreign currency risk and other price risk), credit risk
and liquidity risk.
In the view of the directors, the Group's risk management is
coordinated by the Investment Adviser in close cooperation with the
directors and focuses on actively securing the Group's short to
medium term cash flows.
There has been no change to the types of the Group's exposure in
respect of financial instruments or the manner in which it manages
and measures the risks.
19.1 Categories of financial assets and liabilities
The carrying amounts presented in the statement of financial
position relate to the following categories of financial assets and
financial liabilities:
2011 2010
US$ US$
Financial assets
Financial assets at fair value through
profit or loss
- Unlisted convertible notes and
redeemable convertible preferred
shares designated upon initial recognition 21,381,750 17,855,321
Loans and receivables
- Other receivables - 354
- Cash and cash equivalents 1,237,830 5,982,257
---------------------------------------------------- ----------- -----------
22,619,580 23,837,932
---------------------------------------------------- ----------- -----------
Financial liabilities
Financial liabilities measured at
amortised cost
- Accrued expenses and other payables 117,443 88,444
---------------------------------------------------- ----------- -----------
19.2 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 in note 19.1.
The Group's exposure to credit risk is primarily attributable to
its investments in convertible note instruments and redeemable
convertible preferred shares. 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 and the redeemable
convertible preferred shares, for which the money was lent to
investees. Continuing evaluations are performed by the directors
during the year on the financial status and potential growth of the
investee companies.
The credit risk for liquid funds is considered negligible as the
counterparties are reputable international banks with high quality
external credit ratings.
Concentration risk
At the reporting date, the Group's financial assets exposed to
credit risk are concentrated in unlisted convertible note
instruments and redeemable convertible preferred shares, which
approximate to 95% (2010: 75%) of the net assets of the Group.
19.3 Other price risk
Other 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 values (other than changes in interest rates
and foreign exchange rates). The Group is exposed to changes in
market prices in respect of its investments classified as financial
assets at fair value through profit or loss. Changes in market
values are generally affected by the overall conditions in the
economy of the PRC.
The Investment Adviser assesses the exposure to otherprice risk
when making each investment recommendation to the Board and
monitors the overall level of other price risk on the whole of the
investment portfolio on an ongoing basis. The policies to manage
other price risk have been followed by the Group since the prior
year and are considered to be effective.
The carrying amount of the convertible notes and redeemable
convertible preferred shares 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 key market risk variables used in the valuations, interest
rates and foreign exchange rates.
Movements in foreign exchange rates and interest rates are
covered in notes 19.4 and 19.5 respectively. Movements in the
values 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 values, 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 for the year and on retained profits. The
analysis is based on the assumption that the discount rate had
increased/decreased by 2% (2010: 2%) with all other variables held
constant:
2011
Key Impact Impact Impact Impact
market on on on on
Valuation risk post-tax retained post-tax retained
methodology variable Change loss profits Change loss profits
US$ US$ US$ US$
Financial
assets at
fair value
through
profit or
loss
Discounted
- Aesthetic cash
International flow
Holdings and option
Group pricing Discount
Limited model rate +2% 676,746 (676,746) -2% (743,188) 743,188
Discounted
cash
flow
- Arigata and option
Holdings pricing Discount
Inc. model rate +2% 94,467 (94,467) -2% (151,846) 151,846
Discounted
cash
- Creative flow
Picture and option
Development pricing Discount
Limited model rate +2% 55,988 (55,988) -2% (122,426) 122,426
Discounted
- V2 cash
International flow
Vision and option
Photography pricing Discount
Co., Ltd model rate +2% 359,492 (359,492) -2% (478,479) 478,479
----------------- ------------ --------- ------- ---------- ------------ ------- ------------ ----------
1,186,693 (1,186,693) (1,495,939) 1,495,939
----------------- ------------ --------- ------- ---------- ------------ ------- ------------ ----------
2010
Key Impact Impact Impact Impact
market on on on on
Valuation risk post-tax retained post-tax retained
methodology variable Change loss profits Change loss profits
US$ US$ US$ US$
Financial
assets at
fair value
through
profit or
loss
Discounted
- Aesthetic cash
International flow
Holdings and option
Group pricing Discount
Limited model rate +2% 1,121,506 (1,121,506) -2% (1,537,736) 1,537,736
Discounted
cash
flow
- Arigata and option
Holdings pricing Discount
Inc. model rate +2% 298,617 (298,617) -2% (477,324) 477,324
Discounted
cash
- Creative flow
Picture and option
Development pricing Discount
Limited model rate +2% 82,730 (82,730) -2% (248,119) 248,119
1,502,853 (1,502,853) (2,263,179) 2,263,179
19.4 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 year and are considered to be
effective.
At 31 March 2011, had the exchange rate between US$ and RMB
increased by 5% (2010: 5%) with all other variables held constant,
post-tax loss for the year would have been US$788,676 (2010:
US$665,317) higher and retained profits would have been US$788,676
(2010: US$665,317) lower. Had the exchange rate between US$ and RMB
decreased by 5% (2010: 5%) with all other variables held constant,
post-tax loss for the year would have been US$834,183 (2010:
US$750,797) lower and retained profits would have been US$834,183
(2010: US$750,797) 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.
19.5 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.
19.6 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 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.
19.7 Fair value measurements recognised in the statement of
financial position
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.
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
2011 2010
US$ US$
Assets
Unlisted convertible note instruments
and redeemable convertible preferred
shares designated at fair value
through profit or loss (note a) 21,381,750 17,855,321
------------------------------------------ ----------- -----------
Net fair values 21,381,750 17,855,321
------------------------------------------ ----------- -----------
Note:
(a) Unlisted convertible note instruments and redeemable
convertible preferred shares 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:
2011 2010
US$ US$
Unlisted convertible note instruments
and redeemable convertible preferred
shares designated at fair value
through profit or loss
Opening balance 17,855,321 17,647,042
Addition 3,810,786 -
Fair value (loss)/gain recognised
in profit or loss (284,357) 208,279
------------------------------------------ ----------- -----------
Closing balance 21,381,750 17,855,321
------------------------------------------ ----------- -----------
There have been no transfers into or out of Level 3 in the
reporting period. In determining the fair value, an earnings growth
factor and a risk adjusted discount factor are used. If these
inputs to the valuation model were 5% (2010: 5%) higher while all
the other variables held constant, the carrying amount of the
convertible notes and redeemable convertible preferred shares would
decrease by US$1,066,406 (2010: an increase of US$658,236). If
these inputs to the valuation model were 5% (2010: 5%) lower while
all the other variables held constant, the carrying amount of the
convertible notes and redeemable convertible preferred shares would
increase by US$1,878,835 (2010: a decrease of US$603,890).
20. 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 provide returns for the shareholders, to support the
Group's sustainable growth and to provide capital for the purpose
of potential investment.
The Group actively and regularly reviews its capital structure
and makes adjustments in light of changes in economic conditions.
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 2011, US$22,531,711 (2010:
US$23,778,793) is considered sufficient by the directors giving due
cognisance to the projected return on net assets and the forecast
investment opportunities.
- ENDS -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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