Grand Group Investment PLC
("Grand Group", the "Company" or the "Group")
30 September 2016
Further re suspension of trading
Disposal of Investments
The Company wishes to update the market following suspension of trading in its shares on 29 June 2016 pending publication of its audited report and accounts in respect of its year ended 31 December 2015.
The Company is an investing company which floated on AIM in January 2015, raising £7.16 million before expenses. It currently holds two investments:
· an indirect 33 per cent holding in Wuxi Victory Media and Culture Co., Ltd ("Victory") acquired on 3 June 2014. Victory is an unquoted company whose principal activity is as an online learning solutions provider to China's urban and rural vocational education industry. The holding was acquired, for a consideration of RMB 196 million. It is held at fair value through profit and loss and at 31 December 2014 was subject to a revaluation uplift of RMB 284 million to give a valuation of RMB 480 million in the Company's audited accounts for the year ended 31 December 2014.
· A 15 per cent holding in WuXi Jin Xun Tong Technology Limited ("JXT") acquired on 22 April 2015. JXT is an unquoted company whose principal activity is the production of video courseware for the provision of vocational training to migrant workers in China, through its website Gong Yuan Wang (http://www.gongyuannet.com/). This investment was acquired for a consideration of RMB 20 million.
Victory also has an 18 per cent shareholding in JXT and distributes courseware through JXT's website as well as Victory's own channels.
The Company's draft unaudited consolidated accounts for its year ended 31 December 2015 showed:
· a profit after tax of RMB 38.5 million (2014 audited RMB 205.0 million) after a gain on unquoted financial assets of RMB 46.0 million relating to its investment in Victory (2014 audited RMB 284.0 million) and dividend income, as announced on 19 October 2015, of RMB 19.8 million (2014 Nil). The investment in JXT is held at cost of RMB 20.0 million.
· net assets of RMB 512.8 million (2014 audited RMB 401.0 million) including unquoted financial assets at fair value through profit or loss of RMB 546.0 million (Victory RMB 526 million; JXT RMB 20 million) and cash and cash equivalents of RMB 66.6 million (2014 audited RMB 0.0 million) liabilities principally consist of a deferred tax liability of RMB 82.5 million and shareholder loans of RMB 13.0 million (2014 audited RMB 71.0 million and RMB 6.7 million respectively).
As stated in the Company's suspension announcement of 29 June 2016, the Company was looking for production of its investee company accounts prior to finalising its own audited accounts for the year ended 31 December 2015. Investee company accounts for their years ended 31 December 2015 have now been produced. These show:
· profit for the year of RMB 178.6 million (2014 RMB 144.5 million), up 23.6 per cent on revenue of RMB 352.4 million (2014 RMB 237.5 million), up 48.4 per cent.
· Net assets of RMB 552.8 million (2014: RMB 394.0 million) including prepayments of RMB 330.0 million (2014: RMB 18.5 million) and cash and trade receivables of RMB 54.7 million and RMB 64.8 million respectively (2014: RMB 181.0 million and RMB 119.2 million respectively). Non-current prepayments represent payment in advance in respect of the development of new courseware which are expected to be delivered over the course of 2016 and 2017.
· profit for the year of RMB 95.1 million, on revenue of RMB 230.7 million, increases of over 330 per cent (profit) and 460 per cent (revenue) on the previous year, as disclosed in the Company's further investment announcement dated 22 April 2015
· Net assets of RMB 166.3 million including non-current prepayments of RMB 210.0 million in respect of website enhancement, current prepayments of RMB 48.0 million in respect of advertising expenses, cash and cash equivalents of RMB 56.7 million and receipts in advance (being the unamortised portion of membership income received from members) of RMB 129.8 million.
The investee company accounts have now been audited. The auditors of the investee companies have not however been able to express an opinion on the relevant accounts, for Victory in respect of the carrying value of the RMB 330.0 million courseware acquisition prepayment and for JXT in respect of the RMB 210.0 million prepayment for website development and whether any adjustments might have been found necessary which would have a consequential effect on the investee companies' financial performance.
The Company's auditors have indicated that, because of the lack of opinion on the investee company accounts, they would be unable without more work to form an opinion on the carrying value of the Company's investments in Victory and JXT which amount to 89.1 per cent of the Company's consolidated total assets RMB 612.632 million and 106.5 per cent of its consolidated net assets.
The Directors do not believe that it is in the interests of the Company or its shareholders to produce accounts on which its auditors are unable to express an opinion. They have accordingly spent considerable time and effort, together with investee company management, to provide appropriate audit evidence sufficient for these purposes. However, because of the potential long term nature of the prepayment contracts in investee companies, they have as yet been unable to form a view. Regrettably the investee companies have also indicted that they are not prepared to commit further resource or effort to this process. If the Company is unable to publish its audited accounts on or before 29 December 2016, admission of its shares to trading on AIM will be cancelled. The Directors have therefore taken the decision to enter into sales contracts in respect of the Company's investments in both Victory and JXT. Given that the investment valuations are adjusted to agreed contracted sales values, this should serve to remove or ameliorate the auditors' concerns on the carrying values for each investment.
Accordingly, the Company has today contracted for the sale of its entire holdings in each of Victory and JXT on the following terms:
In respect of Victory, for the sale of the Group's 33 per cent shareholding directly to Wuxi Victory Media and Culture Co., Limited for a total consideration of RMB 235.2 million to be settled in cash by instalments, with RMB 20.0 million payable within 10 working days of signature of the agreement, followed by ten monthly instalments of RMB 20.0 million with a final payment of RMB 15.2 million payable before 30 September 2017. This represents a premium of RMB 39.2 million to the Company's original April 2014 investment of RMB 196 million, or a simple annual return over a two and a half year period of 8 per cent per annum. It also represents a discount of RMB 244.8 million to the carrying value of the Company's investment in Victory in its audited 2014 accounts and the Company will write down the investment accordingly in its accounts for the year ended 31 December 2015.
In respect of JXT, for the sale of its 15 per cent shareholding directly to WuXi Jin Xun Tong Technology Limited for a total consideration of RMB 30.0 million to be settled in cash in two equal instalments of RMB 15.0 million, the first to be satisfied within 30 days with the second instalment to be paid before 31 December 2016. The consideration of RMB 30.0 million represents a premium of RMB 10.0 million or fifty per cent to the Company's original April 2015 investment of RMB 20.0 million.
Both contracts are subject to completion of legal modification and registration formalities in the PRC. The Company is additionally subject to a two year non-compete provision in respect of both the Victory and JXT businesses.
Sale proceeds of both transactions will be applied towards further investments in accordance with the Company's investing policy, set out at the end of this announcement. The Company will now work with its auditors to finalise its audited accounts in respect of its year ended 31 December 2015 and to making appropriate adjustments to the carrying value of its investments for the interim period ending 30 June 2016.
For further information:
Grand Group Investment PLC
James Newman, Non-Executive Chairman
Tel: +44 (0) 20 7398 7710
ZAI Corporate Finance Limited
Ray Zimmerman / Songdi Lin (Nomad and Broker)
Tel: +44 (0) 20 7060 2220
The Company seeks to be an active value-added investor and to operate as a later stage, value adding incubator fund. The Company will seek to identify potential investee companies where its access to research, technology and university support can have a positive effect on the investee companies.
The Company aims to provide equity and equity-related investment capital, such as convertible loans, to companies which are seeking capital for growth and development, consolidation or acquisition, or as a pre-IPO round of financing. These investments may be made in combination with additional debt or equity-related financing and, in appropriate circumstances, in collaboration with other financial and/or strategic investors.
The Company will aim to invest primarily in private companies with high growth potential, where a timely investment will allow the investee to increase market share and create shareholder value. The Company will target small and mid-sized companies and will seek substantial minority stakes with potential or actual board representation to enable participation in management with a view to improving performance and growth of the investee business. The Company intends to work closely with the management of each investee company to create value by focusing on driving growth through revenue creation, margin enhancement and extracting cost efficiencies, as well as by creating appropriate capital structures to enhance returns. The Company may on occasion take controlling stakes where sufficient separation is maintained between the Company and the investment to ensure that the Company does not become a trading company.
The Company may also invest up to 15 per cent. of its gross assets at the time of investment in publicly traded securities. No restrictions will be placed on the size of any public companies in which the Company may make an investment. The Company may in addition invest up to 20 per cent. of its gross assets at the time of investment in other collective investment undertakings, which themselves have substantially similar investing policies as the Company. Crossholdings between investments are possible. The Company will not invest in derivative financial instruments, money market instruments or currencies other than for the purposes of efficient portfolio management.
Grand will invest in companies operating within the Greater China Region. The Company will not invest in the natural resource or real estate sectors. Investments will be primarily in education or training related sectors or in sectors where investee company access to research, technology or university support should enhance or enable commercialisation of products or services. The Company will not invest in fundamental scientific research.
Typical investments are expected to range in size from £3 million - £50 million. There is no limit on the maximum size of an investment, nor any minimum number of investments. As investments are made and new opportunities arise, further equity funding of the Company may be required although the Company will not raise additional funds until at least 70 per cent. of the Placing proceeds have been invested.
It is not intended for the Company to use borrowings for long term structural gearing, and it is intended that any borrowing would only be used on a tactical basis where the Directors believe gearing will enhance returns to Shareholders. The Company will not be subject to any borrowing or leveraging limits.
The Company expects to derive returns on investments principally through capital gains and/or the receipt of dividends from investee companies. For private investee companies, the typical investment holding period is currently expected to be between two and four years. Exits may be effected by flotation on an international or domestic stock exchange, trade sale, secondary private equity buy-out, sale to institutional and/or private investors, or structured exit by contract. On flotation of any investee company, Grand would likely retain a part of its investment in the listed entity going forward. For publicly quoted investee companies the objective is to maximize capital appreciation without any generally expected investment holding period. Should the Company consider that any capital appreciation of a particular public equity investment has peaked or is likely to or has begun to decline, then the Company will consider the sale of that investment.
The Directors are confident that the Investing Policy can be substantially implemented within eighteen months of Admission, failing which they will seek the consent of Shareholders for the Investing Policy at the Company's next ensuing annual general meeting and on an annual basis thereafter until such time as its Investing Policy has been substantially implemented. If it appears unlikely that the Investing Policy can be substantially implemented at any time, the Directors may consider returning any remaining funds to Shareholders. The Investing Policy can only be varied materially by the prior consent of Shareholders in a general meeting.
This announcement contains inside information as defined in Article 7 of the EU Market Abuse Regulation no 596/2014 and has been announced in accordance with the Company's obligations under Article 17 of that Regulation.
This information is provided by RNS