TIDMYCI
RNS Number : 3148M
Yangtze China Investment Limited
14 September 2012
Press Release 17 September 2012
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 2012.
Financial Highlights
NAV stood at US$12.6 million (31 March 2011: US$22.5 million)
--
NAV per share at US$0.50 (31 March 2011: US$0.89)
--
Commenting on the final results, Mr Wilfred Wong, Chairman of
Yangtze China Investment Limited, said: "I regret to report that
the Company recorded a loss of approximately US$9.9 million during
the year, primarily as a result of the write-off of the US$4.1
million investment in Onbest and an unfavourable fair value change
of approximately US$4.9 million on our other investments to account
for their reduced level of profitability, the result primarily of a
slowing down in the growth of domestic consumption in China.
Accordingly, our NAV per share at 31 March 2012 declined to
US$0.50, compared to US$0.89 at the last year end.
"As announced earlier in our Interim Results announcement and
thereafter in an Investment Update dated 16 May 2012, owing to the
dispute with an external investor for a personal loan to the
founding shareholder and CEO of Onbest, all the operations of
Onbest have been suspended. Owing to the high level of uncertainty
in Onbest's ability to operate as a going concern in the
foreseeable future, the carrying value of Yangtze's investment in
Onbest, amounting to US$4.1 million has been written off.
"The past year has been a difficult year for global investors
and for Yangtze, with its focus on investment in China. Despite a
volatile global economy, the economy in China continued to report
GDP growth of 7.6 per cent in the first half of 2012, a figure that
helped to dispel fears of a hard landing for the economy amid
tightening policies to curb inflation."
- Ends -
For further information:
Yangtze China Investment Limited
Wilfred Wong Tel: +852 2281 7222
www.yangtzecn.com
Yangtze Capital Advisory Limited
Richard Zhao Tel: +852 2281 7218
www.yangtzecn.com
Canaccord Genuity Limited
Bruce Garrow Tel: +44 (0) 20 7523
8350
Philippa Underwood www.canaccordgenuity.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 typically seeks 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.
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 2012. In this
financial year, the Company recorded a loss of approximately US$9.9
million compared to a loss of approximately US$1.2 million last
year. The loss was mainly attributable to the write-off of the
US$4.1 million investment in Onbest following the suspension of its
operations which we reported at the interim results stage and an
unfavourable fair value change of approximately US$4.9 million on
our other investments to account for their reduced level of
profitability, the result primarily of a slowing down in the growth
of domestic consumption in China. Accordingly, at 31 March 2012,
the NAV per share of Yangtze was at US$0.50 (31 March 2011:
US$0.89) and the Group's NAV was US$12.6 million compared to
US$22.5 million at the last year end.
Despite a volatile global economy, China continued to report GDP
growth of 7.6 per cent in the first half of 2012. This growth
helped to dispel fears of a hard landing for the Chinese economy
amid tightening policies to curb inflation. We believe China will
continue to treat managing inflation as a top priority and this,
coupled with the uncertainty over implementation of an easier
monetary policy, will exert constraint on both China's financial
markets and the business environment. Tight credit, surging
production costs and weaker export growth have already proved to be
a drag on corporate profitability as well as general consumer
spending. Although the growth rate in China slowed down recently,
other major developed economies, such as the US, Europe and Japan,
remained in near recession.
With limited financial resources, we have remained cautious and
selective in making investments but our portfolio base is,
inevitably, not broad enough to weather the ups and downs of the
fast changing business environment in China. In light of the
disappointing results for the year and the fact the capital that
was raised in 2008 has now been substantially invested, the Board
is considering an additional capital raise in the near future, for
the purposes of working capital and to broaden our portfolio base.
Further details of this capital raising will be announced in due
course.
Wilfred Ying Wai WONG
Chairman
Investment Adviser's Report
The Investment Adviser monitors existing investments. In line
with managing the portfolio risk, possible realisation
opportunities, including follow-on equity placement or trade sales
to follow-on investor(s), are explored to recoup a portion of the
cost of investment so as to pave the way for new investment. The
latest information on the Company's investments is set out
below.
Portfolio
V2 International Vision Photography Co., Ltd. ("V2
International")
Yangtze invested US$3.74 million in November 2010 for an equity
interest of not less than 27.5 per cent in V2 International upon
full conversion of the redeemable convertible preferred shares. V2
International is a professional photographic group based in
Chengdu, Sichuan and is engaged in the provision of professional
photographic services 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 compromising 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.
V2 International 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 fund the establishment of a sales and customer
management centre, as well as procuring photographic equipment to
meet technological changes.
The financial performance of V2 was not in line with
expectation. A drop in revenue was recorded as domestic consumption
weakened and the coming year of 2013, in the Chinese lunar
calendar, is seen as an unsuitable year for marriage. V2 has
therefore realigned its strategy to focus on improving and
strengthening its existing strategic locations at Chengdu, Lijiang
and Sanya while aiming to achieve growth from new product lines
targeted at kids markets. Accordingly, at 31 March 2012, the fair
value of the Company's investment in V2 International reduced by
approximately US$0.5 million as compared to the last year end and
stood at US$3.3 million.
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 is a beauty spa franchise with its
headquarters in Beijing, China. 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
product sales as well as licensing and franchising fees. During the
year, Aesthetic was awarded the title of National High-Tech
Enterprise. At 31 March 2012, the number of Aesthetic's franchised
and self-owned beauty centres had increased to over 3,400 located
in 30 provinces and 160 cities across China.
Aesthetic completed a second round of funding and raised RMB 60
million (approximately US$8.8 million) from a Chinese venture
capital fund in March 2010. 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 reduce to approximately 22 per cent. During the year
ended 31 March 2012, the convertible note matured and, pursuant to
the terms of the convertible note instrument, a notice for full
conversion into shares of Aesthetic was served by Yangtze. During
the year, Aesthetic has been undergoing a group restructuring,
hence certain terms of the conversion have been renegotiated and
supplementary agreements have been entered into between the
parties, with the ultimate rights and benefits to Yangtze in
Aesthetic remaining unchanged. Up to the date of this report, the
conversion is still in process and is expected to be completed
within the third quarter of 2012. We have been advised the
completed conversion will fully reflect our continuing equity
interest of approximately 22 per cent.
During the year under review, Aesthetic continued to operate
with impressive profitability despite a slowdown of the cosmetics
and toiletry retail market in the PRC. However, inflationary
pressures and market competition, as well as the increased
uncertainty over its domestic listing process, are expected to have
an unfavourable impact on Aesthetic's profitability growth.
Accordingly, there has been a decline of approximately US$3.4
million in the fair value of this investment to US$8.5 million at
31 March 2012.
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, had changed its strategy to develop handheld
Point-of-Sales ("POS") devices featuring certain ATM functions with
advanced security.
As detailed in our Interim Results announcement dated 22
December 2011 and an Investment Update dated 16 May 2012, the
founding shareholder and CEO of Onbest and the sole operating
subsidiary of Onbest (the "Onbest Sub") were involved in litigation
regarding the RMB 15 million portion of a personal loan for a total
sum of RMB 20 million that was made in 2010 to the founding
shareholder and CEO of Onbest by an external investor. The personal
loan is interest bearing and secured by a corporate guarantee from
Onbest Sub and the pledge of certain equity interests in Onbest
held by the founding shareholder and CEO of Onbest. The external
investor claimed the loan agreement was invalid and called for
judgement by the Court in the PRC for repayment of the loan plus
interest.
In March 2012, the Court in the PRC issued a judgement and
ordered the repayment of the loan plus interest to the external
investor by the founding shareholder and CEO of Onbest and Onbest
Sub, which, as the guarantor for the loan, was also liable for the
loan repayment should the founding shareholder and CEO of Onbest
fail to meet the repayment obligation.
Owing to the dispute, all the operations of Onbest have been
suspended and a majority of its employees have resigned from
Onbest. It is believed that as there is a high level of uncertainty
that Onbest could operate as a going concern in the foreseeable
future, the carrying value of Yangtze's investment in Onbest
amounting to US$4.1 million has therefore been written off during
the year under review.
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.
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 is focused on
3-D content production and licensing of rights to marketers of
traditional display devices.
The 3-D technology now possessed by Creative Picture is expected
could be widely used across a range of business areas but the
future revenue of Creative Picture is expected to be derived
primarily from content development and the licensing of rights.
Although Creative Picture had been loss making over the years,
it has continued to seek potential partners who lack the 3-D
technology capability for co-operation. However, these
co-operations are progressing at a slow pace and did not bring
about sufficient revenue to Creative Picture. In view of the market
situation and the uncertainty over 3-D industry development
momentum in the PRC, the fair value of the Company's investment in
Creative Picture at 31 March 2012 stood at US$0.6 million and was
reduced by approximately US$1.0 million as compared to the last
year end.
China's Economy and Outlook
China's GDP grew by 7.6 per cent in the first half of 2012, the
slowest growth rate recorded in the last three years, causing
increased concern of a slowdown in China's economy. The pace of
growth was dragged down by a combination of weak exports, stagnant
real estate investment and the inability of domestic consumption to
take up the slack.
It is expected that China will still achieve relatively healthy
economic growth in 2012 as inflation is gradually brought under
control, allowing the Central Bank in China flexibility to
fine-tune monetary conditions and supply the economy with modest
additional credit. Stability is a prime concern of the Chinese
government, especially when there will be political transition to
new leadership. Accordingly, it is anticipated that a further
loosening of monetary policy, a fine tuning of the RMB to a
weakened level and more fixed investments by the Chinese government
will be implemented to ensure the economy is stable. In addition,
China's battered real estate market appears to be turning around,
strengthening an important pillar of growth and reducing the
chances that the country's slowing economy will stall in the second
half of 2012. It is believed that further easing measures should
reduce the risk of a hard landing and could generate a modest
growth rate of not less than 7.5% over the year of 2012.
The 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 to increase the wages of domestic
workers, lower income and corporate taxes and improve domestic
welfare system is aiming to enable domestic citizens to have more
disposal income to consume. We believe this is realistic in view of
the uncertainties in global economies and should help growing the
consumer and retail sectors on which Yangtze's strategy has always
been focused. More importantly this will enable China's economy to
achieve sustainable and qualitative growth in the next decade.
Yangtze Capital Advisory Limited
Investment Adviser
Portfolio Summary
At 31 March 2012, the Group's total assets amounted to US$12.8
million. About US$12.4 million were investments in the form of
redeemable convertible preferred shares and convertible notes at
fair values.
The following table summarises the status of the Group's
portfolio at 31 March 2012:
Description Industry Time of Investment At 31 March
/ Location investment cost (1)
by the Company US$
--------------------------------------------
Fair value % of ownership
(on full
conversion
to shares)
(2)
--------------------------
2012 2011 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 3.3m 3.8m (0.5m) 27.5%
Investment in the form
of convertible notes:
Aesthetic
International Beauty spa
Holdings franchise
Group Limited / China July 2008 5.1m 8.5m 11.9m (3.4m) 25.0%(3)
Fiscal /
Arigata Holdings POS solutions
Inc. / China May 2008 3.0m - 4.1m (4.1m) 30.0%
Creative
Picture 3-D display
Development technology
Limited / China May 2008 1.3m 0.6m 1.6m (1.0m) 12.5%
------------------ --------------- -------------------
Total 13.2m 12.4m 21.4m (9.0m)
-------------------------------------------------------- ---------- ------- ------- --------
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. During the year ended 31 March 2012, the convertible notes
matured and pursuant to the terms of the convertible note
instrument, the Group has served a conversion notice to the issuer.
The conversion is still in process at the date of this report as
Aesthetic has been undergoing a group restructuring, hence certain
terms of the conversion have been renegotiated and supplementary
agreements were entered into between the parties with the ultimate
rights and benefits to the Group in Aesthetic remaining unchanged.
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.
Independent auditors' report
To the members of
Yangtze China Investment Limited
(incorporated in the Cayman Islands with limited liability)
We have audited the consolidated financial statements of Yangtze
China Investment Limited (the "Company") and its subsidiaries
(together, the "Group") which comprise the consolidated statement
of financial position as at 31 March 2012, and the consolidated
statement of comprehensive income, the consolidated statement of
changes in equity and the consolidated statement of cash flows for
the year then ended, and a summary of significant accounting
policies and other explanatory information.
Directors' responsibility for the financial statements
The directors of the Company are responsible for the preparation
and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and
for such internal control as the directors determine is necessary
to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or
error.
Auditors' responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audit and to report
our opinion solely to you, as a body, and for no other purpose. We
do not assume responsibility towards or accept liability to any
other person for the contents of this report.
We conducted our audit in accordance with International
Standards on Auditing. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
Auditors' responsibility (Continued)
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors'
judgement, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, the auditors
consider internal control relevant to the entity's preparation and
fair presentation of the consolidated financial statements in order
to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity's internal control. An audit also
includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by the
directors, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements give a
true and fair view of the financial position of the Group as at 31
March 2012 and of the Group's loss and cash flows for the year then
ended in accordance with International Financial Reporting
Standards.
Emphasis of matter - material uncertainty regarding the going
concern assumption
Without qualifying our opinion, we draw your attention to note
2.1 in the consolidated financial statements concerning the
adoption of the going concern basis on which the consolidated
financial statements have been prepared. At 31 March 2012, based on
the one year budget plan and the existing cash position, the Group
may have insufficient working capital for maintaining its daily
operations. These conditions indicate the existence of a material
uncertainty regarding the Group's ability to continue as a going
concern. The validity of the going concern basis depends on the
continuing financial support from Mr. Wilfred Ying Wai Wong ("Mr.
Wong"), the chairman of the Company. Mr. Wong has confirmed in
writing his intention to provide continuing financial support to
the Group for the period from 1 April 2012 to 31 March 2013. The
consolidated financial statements do not include any adjustments
that would result from a failure to obtain the necessary
finance.
Grant Thornton
Certified Public Accountants
20th Floor, Sunning Plaza
10 Hysan Avenue
Causeway Bay
Hong Kong
14 September 2012
Consolidated statement of comprehensive income
for the year ended 31 March 2012
Notes 2012 2011
US$ US$
Income
Gain on sale of a subsidiary - 1
Bank interest income 1,024 6,300
-------------------------------------- ------ -------------- --------------
1,024 6,301
-------------------------------------- ------ -------------- --------------
Expenses
Auditors' remuneration (47,174) (45,441)
Administration fee 6 (99,603) (106,755)
Advisory fee 7 (365,200) (451,815)
Business valuation fee (59,425) (80,888)
Directors' fees 8 (80,000) (80,000)
Legal and professional fees (48,742) (71,503)
Marketing and communication fees (72,709) (70,694)
Fair value loss on financial assets
at fair value through profit or
loss 11 (8,953,778) (284,357)
Other operating expenses (61,224) (61,930)
-------------------------------------- ------ -------------- --------------
(9,787,855) (1,253,383)
-------------------------------------- ------ -------------- --------------
Loss before income tax (9,786,831) (1,247,082)
Income tax expense 9 (130,000) -
-------------------------------------- ------ -------------- --------------
Loss and total comprehensive loss
for the year attributable to owners
of the Company (9,916,831) (1,247,082)
-------------------------------------- ------ -------------- --------------
Loss per share for loss attributable
to owners of the Company during
the year 10
- Basic and diluted (0.39) (0.05)
-------------------------------------- ------ -------------- --------------
Consolidated statement of financial position
as at 31 March 2012
Notes 2012 2011
US$ US$
ASSETS AND LIABILITIES
Non-current assets
Financial assets at fair value
through profit or loss 11 12,427,972 21,381,750
--------------------------------------- ------ ----------- -----------
Current assets
Prepayments 12 23,159 29,574
Cash at bank 392,059 1,237,830
--------------------------------------- ------ ----------- -----------
415,218 1,267,404
--------------------------------------- ------ ----------- -----------
Current liabilities
Accrued expenses and other
payables 98,310 117,443
--------------------------------------- ------ ----------- -----------
Net current assets 316,908 1,149,961
--------------------------------------- ------ ----------- -----------
Total assets less current liabilities 12,744,880 22,531,711
--------------------------------------- ------ ----------- -----------
Non-current liabilities
Deferred tax liabilities 9 130,000 -
--------------------------------------- ------ ----------- -----------
Net assets 12,614,880 22,531,711
--------------------------------------- ------ ----------- -----------
EQUITY
Share capital 13 2,538,001 2,538,001
Reserves 10,076,879 19,993,710
--------------------------------------- ------ ----------- -----------
Total equity 12,614,880 22,531,711
--------------------------------------- ------ ----------- -----------
Number of ordinary shares in
issue 25,380,010 25,380,010
--------------------------------------- ------ ----------- -----------
Net asset value per ordinary
share 14 0.50 0.89
--------------------------------------- ------ ----------- -----------
Consolidated statement of cash flows
for the year ended 31 March 2012
2012 2011
US$ US$
Cash flows from operating activities
Loss before income tax (9,786,831) (1,247,082)
Adjustments for:
Fair value loss on financial assets
at fair value through profit or loss 8,953,778 284,357
Gain on sale of a subsidiary - (1)
Bank interest income (1,024) (6,300)
------------------------------------------- ------------ ------------
Operating loss before working capital
changes (834,077) (969,026)
Decrease/(Increase) in prepayments
and other receivables 6,415 (269)
(Decrease)/Increase in accrued expenses
and other payables (19,133) 28,999
------------------------------------------- ------------ ------------
Cash used in operations (846,795) (940,296)
Interest received 1,024 6,654
------------------------------------------- ------------ ------------
Net cash used in operating activities (845,771) (933,642)
------------------------------------------- ------------ ------------
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 (845,771) (4,744,427)
Cash and cash equivalents at beginning
of the year 1,237,830 5,982,257
------------------------------------------- ------------ ------------
Cash and cash equivalents at end of
the year,
represented by cash at bank 392,059 1,237,830
------------------------------------------- ------------ ------------
* 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 2012
Retained
Share Share profits/ Total
capital premium* (losses)* equity
US$ US$ US$ US$
(note (note
13) 17)
Balance at 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
and 1 April 2011 2,538,001 19,831,685 162,025 22,531,711
Total comprehensive loss
for the year - - (9,916,831) (9,916,831)
-------------------------- ---------- ----------- ------------ ------------
Balance at 31 March 2012 2,538,001 19,831,685 (9,754,806) 12,614,880
-------------------------- ---------- ----------- ------------ ------------
* These reserves accounts comprise the Group's reserves of
US$10,076,879 (2011: US$19,993,710) in the consolidated statement
of financial position.
Notes to the financial statements
for the year ended 31 March 2012
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 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 2012 were
approved for issue by the board of directors on 14 September
2012.
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.
In preparing the consolidated financial statements, the
directors of the Company have given consideration to the future
liquidity of the Group. Based on the one year budget plan and the
existing cash position, the Group may have insufficient working
capital for maintaining its daily operations. The financial
statements have been prepared on the assumption that the Group will
continue to operate as a going concern notwithstanding the
conditions prevailing at 31 March 2012 and subsequently thereto up
to the date of approval of these financial statements. The going
concern basis has been adopted on the basis that Mr. Wilfred Ying
Wai Wong, the chairman of the Company, has confirmed in writing his
intention to continue to provide the Group with the necessary
financial support for the period from 1 April 2012 to 31 March 2013
to meet the Group's liabilities and commitments as and when they
fall due. The financial statements do not include any adjustments
that would result from a failure of the Group to operate as a going
concern.
Should the Group be unable to continue to operate as a going
concern, adjustments would have to be made in the financial
statements to restate the values of the assets to their recoverable
amounts, to provide for any further liabilities which might arise
and to reclassify non-current assets and liabilities as current
assets and liabilities respectively. The effect of these
adjustments has not been reflected in the financial statements.
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 itssubsidiaries 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 investments in joint ventures.
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 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 other than at fair
value through profit or loss 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 designated upon initial recognition at fair value
through profit or loss.
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 as at
fair value through profit or loss in accordance with IAS 39
"Financial Instruments: Recognition and Measurement" (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 as 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 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 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 cash at bank, 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 includes but is 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.
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 2011:
IAS 24 Related Party Disclosures (Revised 2009)
Annual improvements to IFRSs 2010
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. The directors are currently assessing the impact of
these IFRSs but are not yet in the position to state whether they
would have any material impact on the Group's financial
statements.
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 a 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 Corporate Appraisal and Advisory
Limited (formerly known as 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
required 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 note
18 to the financial statements.
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 2012 and 2011 as the Group is principally engaged in
investment business, which accounts for the total revenue and loss
of the Group for the years. The Group uses consolidated loss before
income tax as a measure of segment profit or loss. The Group's
consolidated income mainly represents 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
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:
2012 2011
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.
Pursuant to the relevant rules and regulations in the PRC, the
Group is subject to PRC capital gain tax of an amount equal to 10%
of any gain from the transfer (directly or indirectly) of equity
interest of a PRC resident company. Provision for deferred tax of
US$130,000 has been made during the year ended 31 March 2012 on the
revaluation of certain investments of the Group (2011: Nil).
The movement during the year in the deferred tax liabilities is
as follows:
2012 2011
US$ US$
At 1 April - -
Recognised in profit or loss 130,000 -
----------------------------- -------- -----
At 31 March 130,000 -
----------------------------- -------- -----
10. LOSS PER SHARE
The calculation of basic loss per share is based on the loss
attributable to owners of the Company of US$9,916,831 (2011:
US$1,247,082) and on the weighted average of 25,380,010 (2011:
25,380,010) ordinary shares in issue during the year.
Diluted loss per share for the year ended 31 March 2012 and 2011
equates the basic loss per share as there is no dilutive potential
share in existence during the year.
11. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
The entire portfolio of the Group's financial instruments
comprises unlisted convertible notes and redeemable convertible
preferred shares.
At the reporting date, the unlisted convertible notes have
maturities ranging from 1 month to 11 months (2011: ranging from 1
month to 23 months) and with coupon interest rates ranging from 10%
to 15% (2011: 10% to 15%) per annum. All the convertible note
instruments contain a share conversion feature and a put option.
The convertible note instruments issued by Aesthetic International
Holdings Group Limited and Arigata Holdings Inc. also contains a
call option.
The redeemable convertible preferred shares contain a put option
and cumulative dividend of 12% per annum (2011: 12%).
The Group's convertible note instruments and redeemable
convertible preferred shares at the reporting dates, designated as
at fair value through profit or loss, are set out below:
2012 2011
US$ US$
Convertible notes at fair value,
as issued by:
* Aesthetic International Holdings Group Limited
("Aesthetic") (note a) 8,550,000 11,883,111
* Arigata Holdings Inc.("Onbest") - 4,098,881
* Creative Picture Development Limited ("Creative
Picture") (note b) 591,972 1,588,972
------------------------------------------------------------- ------------ ------------
9,141,972 17,570,964
Redeemable convertible preferred
shares at fair value, as issued
by:
* V2 International Vision Photography Co., Ltd. ("V2
International") (note c) 3,286,000 3,810,786
------------------------------------------------------------- ------------ ------------
12,427,972 21,381,750
------------------------------------------------------------- ------------ ------------
Notes:
(a) During the year ended 31 March 2012, the convertible notes
matured and pursuant to the terms of the convertible note
instrument, the Group served a conversion notice to the issuer.
During the year, Aesthetic was undergoing a group restructure,
hence certain terms of the conversion have been renegotiated and
supplementary agreements have been entered between the parties with
the ultimate rights and benefits to the Group in Aesthetic
remaining unchanged. At the reporting date and up to the date of
this report, the conversion is still in progress and is expected to
be completed in due course.
(b) Subsequent to the reporting date, the Group has entered into
agreements with all relevant parties that the maturity date of the
convertible note was further extended for one year to 24 April
2013.
(c) During the year ended 31 March 2011, 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 15, 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:
2012 2011
US$ US$
At the beginning of the year 21,381,750 17,855,321
Additions - 3,810,786
Fair value loss (note a, b) (8,953,778) (284,357)
------------------------------ ------------ -----------
At end of the year 12,427,972 21,381,750
------------------------------ ------------ -----------
Notes:
(a) 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 2012 and 2011, the valuation of
the convertible notes and redeemable convertible preferred shares
were carried out by an independent professional valuer, Jones Lang
LaSalle Corporate Appraisal and Advisory Limited. During the year,
a fair value loss of US$8,953,778 (2011: US$284,357) has been
recognised in the consolidated statement of comprehensive
income.
(b) Onbest is principally engaged in the design, manufacture and
sales of fiscal and POS solutions in the PRC. As detailed in the
Interim Results announcement dated 22 December 2011 and an
Investment Update dated 16 May 2012, litigation was brought against
both the founding shareholder/CEO of Onbest, Mr. David Tian ("Mr.
Tian"), and the sole operating subsidiary of Onbest (the "Onbest
Sub") by an external investor, regarding the RMB15 million portion
of a personal loan for a total sum of RMB20 million, made in 2010
to Mr. Tian. The personal loan is interest-bearing and is secured
by a corporate guarantee from Onbest Sub and the pledge of certain
equity interest in the intermediate holding company of Onbest Sub
held by Mr. Tian. The external investor claimed the loan agreement
was invalid and called for judgement by the Court in the PRC for
repayment of the loan plus interest.
In March 2012, the Court in the PRC issued a judgement and
ordered the repayment of the loan plus interest to the external
investor by Mr. Tian and Onbest Sub, which, as the guarantor for
the loan, was also liable for the loan repayment should Mr. Tian
fail to meet the repayment obligation.
Upon the advice of the legal counsel, Mr. Tian filed a counter
lawsuit on 18 April 2012 against the external investor and claimed
for damages arising from the suspension of operations. In addition,
a petition was filed to the Court in the PRC by Mr. Tian in
conjunction with Onbest Sub for a delay to compliance with the
March 2012 judgement, on the basis that a counter suit had already
been filed and the March 2012 judgement would cause further
financial strain to the parties involved. On 28 May 2012, the Court
in the PRC issued a judgement to dismiss Mr. Tian's counter
suit.
Due to the dispute, Onbest and its subsidiaries have suspended
their operations and the majority of their employees have resigned
from the business. As Onbest and its subsidiaries had been loss
making during the year ended 31 March 2012 and were in net
liability position, the directors believed that there is a high
uncertainty in the foreseeable future that Onbest could be operated
as a going concern. As such, the directors are of the view that, at
31 March 2012, there was no fair value in the convertible notes
issued by Onbest. Accordingly, the carrying amounts of the
investment in the convertible notes as issued by Onbest, amounting
to US$4,098,881, were fully written off and included as fair value
loss during the year ended 31 March 2012.
12. PREPAYMENTS
The directors of the Group consider that the fair values of
prepayments are not materially different from their carrying
amounts because these balances have short maturity periods on their
inception.
13. SHARE CAPITAL
2012 2011
US$ 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
------------------------------- ----------- -----------
14. 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$12,614,880
(2011: US$22,531,711) and on the ordinary shares in issue of
25,380,010 shares at the reporting date (2011: 25,380,010).
15. 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 redeemable convertible preferred shares.
Particulars of the subsidiaries are as follows:
Country/place Particulars Percentage
of incorporation/ of issued of equity
registration/ and interests Principal
Name operations fully held by activities
paid up the Company
capital
Direct Indirect
Mission Deluxe British Virgin US$1 100% - Investment
International Islands holding
Limited
Mission Rich British Virgin US$1 100% - Investment
International Islands holding
Limited
Camay International British Virgin US$1 100% - Investment
Limited Islands holding
Fonnex Investment British Virgin US$1 100% - Investment
Limited Islands holding
Notes:
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 an
immaterial effect on the Group's financial statements.
16. 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 Adviser is
regarded as a related party. During the year ended 31 March 2012,
the Group incurred a total advisory fee of US$365,200 (2011:
US$451,815) paid/payable to the Investment Adviser.
17. RESERVES
Share premium
The application of the share premium account is governed by the
Companies Law of the Cayman Islands. Share premium of the Company
is distributable to shareholders subject to the provisions of the
Company's Memorandum and Articles of Association and provided that
immediately following the distribution the Company is able to pay
its debts as they fall due in the ordinary course of business.
18. FINANCIAL RISK MANAGEMENT AND FAIR VALUE MEASUREMENTS
The Group is exposed to financial risks through its use of
financial instruments in its ordinary course of operations and in
its investment activities. The financial risks include market risk
(including foreign currency risk and other price risk), credit risk
and liquidity risk.
In the view of the directors, the Group's risk management is
coordinated by the Investment Adviser in close cooperation with the
directors and focuses on actively securing the Group's short to
medium term cash flows.
There has been no change to the types of the Group's exposure in
respect of financial instruments or the manner in which it manages
and measures the risks.
18.1 Categories of financial assets and liabilities
The carrying amounts presented in the statement of financial
position relate to the following categories of financial assets and
financial liabilities:
2012 2011
US$ US$
Financial assets
Financial assets at fair
value through profit or loss
* Unlisted convertible notes and redeemable convertible
preferred shares designated upon initial recognition 12,427,972 21,381,750
Loans and receivables
* Cash at bank 392,059 1,237,830
----------------------------------------------------------------- ----------- -----------
12,820,031 22,619,580
----------------------------------------------------------------- ----------- -----------
Financial liabilities
Financial liabilities measured
at amortised cost
* Accrued expenses and other payables 98,310 117,443
----------------------------------------------------------------- ----------- -----------
18.2 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 18.1.
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.
During the year, a default risk is used in determining the fair
value of the convertible notes issued by Creative Picture. At 31
March 2012, had the default risk increased by 5% with all other
variables held constant, post-tax loss for the year and retained
losses would have been US$73,997 higher. Had the default risk
decreased by 5% with all other variables held constant, post-tax
loss for the year and retained losses would have been US$73,997
lower.
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 99% (2011: 95%) of the net assets of the Group.
18.3 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 other price 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.
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 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 18.4 and 18.5 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 and redeemable convertible preferred shares.
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
(losses)/profits. The analysis is based on the assumption that the
discount rate had increased/decreased by 2% (2011: 2%) with all
other variables held constant:
Key Impact Impact Impact Impact
market on on on on
Valuation risk post-tax retained post-tax retained
methodology variable Change loss losses Change loss losses
US$ US$ US$ US$
2012
Financial
assets at
fair value
through
profit or
loss
Discounted
cash
flow
and option
pricing Discount
* Aesthetic International Holdings Group Limited model rate +2% 729,900 729,900 -2% (931,500) (931,500)
Discounted
cash
flow
and option
pricing Discount
* Arigata Holdings Inc. model rate +2% - - -2% - -
Discounted
cash
flow
and option
pricing Discount
* Creative Picture Development Limited model rate +2% - - -2% - -
Discounted
cash
flow
and option
pricing Discount
* V2 International Vision Photography Co., Ltd model rate +2% 326,816 326,816 -2% (416,049) (416,049)
------------------------------------------------------ -------------- ---------- ------- ---------- ---------- -------- ------------ ------------
1,056,716 1,056,716 (1,347,549) (1,347,549)
-------------------------------------------------------------------------------- ------- ---------- ---------- -------- ------------ ------------
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$
2011
Financial
assets at
fair value
through
profit or
loss
Discounted
cash
flow
and option
pricing Discount
* Aesthetic International Holdings Group Limited model rate +2% 676,746 (676,746) -2% (743,188) 743,188
Discounted
cash
flow
and option
pricing Discount
* Arigata Holdings Inc. model rate +2% 94,467 (94,467) -2% (151,846) 151,846
Discounted
cash
flow
and option
pricing Discount
* Creative Picture Development Limited model rate +2% 55,988 (55,988) -2% (122,426) 122,426
Discounted
cash
flow
and option
pricing Discount
* V2 International Vision Photography 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
-------------------------------------------------------------------------------- -------- ---------- ------------ -------- ------------ ----------
18.4 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$. However, the investments in the convertible notes and
redeemable convertible preferred shares held by the Group are
issued by investee undertakings located in the PRC. All the
projected cash flows of the investee companies are denominated in
RMB. Any change in the US$/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 directors 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 2012, had the exchange rate between US$ and RMB
increased by 3% (2011: 5%) with all other variables held constant,
post-tax loss for the year and retained losses would have been
US$308,384 higher (2011: post-tax loss for the year would have been
US$788,676 higher and retained profits would have been US$788,676
lower). Had the exchange rate between US$ and RMB decreased by 3%
(2011: 5%) with all other variables held constant, post-tax loss
for the year and retained losses would have been US$308,183 lower
(2011: post-tax loss for the year would have been US$834,183 lower
and retained profits would have been US$834,183 higher).
The Group does not hedge its foreign currency risks with RMB.
However, the Investment Adviser monitors the foreign currency
exposure and will consider hedging significant foreign currency
exposure should the need arise.
18.5 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.
18.6 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.
As disclosed in note 2.1, the Group is exposed to liquidity risk
in respect of settlement of other payables and also in respect of
its cash flow management. Therefore the Group's objective is to
maintain an appropriate level of liquid assets and committed lines
of funding from related parties 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.
18.7 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
2012 2011
US$ US$
Assets
Unlisted convertible note
instruments and redeemable
convertible preferred shares
designated at fair value
through profit or loss (note
a) 12,427,972 21,381,750
------------------------------- ----------- -----------
Net fair values 12,427,972 21,381,750
------------------------------- ----------- -----------
Note:
(a) Unlisted convertible note instruments and redeemable
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:
2012 2011
US$ US$
Unlisted convertible note
instruments and redeemable
convertible preferred shares
designated at fair value
through profit or loss
Opening balance 21,381,750 17,855,321
Addition - 3,810,786
Fair value loss recognised
in profit or loss (8,953,778) (284,357)
------------------------------- ------------ -----------
Closing balance 12,427,972 21,381,750
------------------------------- ------------ -----------
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% (2011: 5%) higher while all
the other variables held constant, the carrying amount of the
convertible notes and redeemable convertible preferred shares would
increase by US$50,644 (2011: decrease by US$1,066,406). If these
inputs to the valuation model were 5% (2011: 5%) lower while all
the other variables held constant, the carrying amount of the
convertible notes and redeemable convertible preferred shares would
decrease by US$49,464 (2011: increase by US$1,878,835).
19. 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.
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 assetsattributable to
owners of the Company as capital, for capital management purposes.
The amount of capital at 31 March 2012 of US$12,614,880 (2011:
US$22,531,711) is considered sufficient by the directors giving due
cognisance to the projected return on net assets.
- ENDS -
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR USUARUNAKAAR
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