Interim Results

China Chaintek United Co., Ltd

("Chaintek", the "Company" or the "Group")

Interim Results

Chaintek (AIM:CTEK), the provider of logistics services to manufacturers of consumer goods in China, today announces its interim results for the six months ended 30 June 2015 (the "period").

Financial Highlights

Shufang Zhuang, Executive Director and the Group's founder, commented: 

"Despite the slowdown in the growth of China's economy and the changes being implemented by our manufacturing customers, the Group remains focused on expanding capacity. The new transit warehouse facility and new regional distribution centre (RDC) in Changsha will maintain the high standards of service that our customers expect and will further progress the Group's aim of becoming a national logistics company within the PRC while servings its customers' needs.

"Our strategy for growth in logistic and inventory solutions, coupled with e-commerce opportunities, remains unchanged. Chaintek also continues to be a profitable cash generative company with very substantial cash reserves. This inflow of cash, together with the recent refund the Company received for its 2013 land use rights payment, will be instrumental for the Group to implement its expansion plan. The Board remains confident that the Company is building a solid foundation for the growth desired by management and shareholders alike. "

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Executive Director's Statement

Results

The Group's trading results for the first half of the year to end June 2015 show unaudited revenues 25 per cent down on those earned for the first half of 2014with the Inventory Solutions Division providing 14.7 per cent of total revenues. As anticipated with the final results for 2014, the Company's revenues and profits before tax for the first half year to end June 2015 are substantially below those of 2014.

During the first half of the year to end-June, Chaintek paid RMB20 million to its transportation partners. The business model of the Group is to be light in fixed assets with an aggregator of finished goods for third party hauliers (eight transportation partners) to maximise loads and reduce per unit transport costs for retailers. To provide long-haul logistics services to its manufacturing customers, Chaintek strongly depends on these eight transportation partners, who have worked with the Group for more than ten years. In line with the management's expectations of a slowdown in the growth of the Chinese economy and the changes being implemented by the Company's manufacturing customers, fewer delivery trips have been made by the transportation partners on behalf of Chaintek. Despite this, commission rates being paid to Chaintek by its transportation partners remain unchanged, to cash flow strains for them in this difficult period. To ensure Chaintek is in a position to meet anticipated future increased demand for efficient, modern and cost effective logistical services by manufacturers in China, Chaintek has taken a proactive approach to ease the difficulties for its current transportation companies caused by the slow down by subsidising them. The level of the payment of this subsidy will be assessed on a half yearly basis and further subsidies are expected to be paid in the second half.

Chaintek has also engaged a media company to promote the Company's services during the second half of the year for total cost of RMB8 million (including RMB5 million paid in the first half of the year to end June).

Chaintek is delighted to confirm that it has received a full refund for RMB273 million from Fujian Jinjiang Industrial Park Development and Construction Co., Ltd. ("LDC"), in respect of the land use rights that it paid to LDC in 2013 for a parcel of land in Cizao Town, Jinjiang City, Fujian Province. The moneys received will be deployed by Chaintek in pursuance of its expansion strategy, initially in Central China around Wuhan.

Outlook

With the current economic slowdown in China, Chaintek is anticipating a further reduction in revenues from its Inventory Solutions Division with full year revenues from this division now expected to be 40 per cent down on the full year from initial guidance of a 20 per cent shortfall. The anticipated reduction in revenue for the Logistics Services Division for the full year remains unchanged at 35 per cent. The Company also anticipates paying a further RMB10 to 15 million of subsidies to its transportation partners during the second half of the year with a total payments anticipated to amount to at least RMB30 million for the full year. Together with the additional marketing costs referred to above, Chaintek anticipates profits before tax for the full year to be some 65 per cent down on 2014, compared to the 50 per cent shortfall indicated at the time of our preliminary results.

The Group, however, remains a profitable cash generative company with very substantial cash reserves. This inflow of cash, together with the LUR repayment received recently, will allow the Group to further evaluate options to expand its business. Management is currently assessing suitable locations for setting up a new logistics hub similar to its Fujian logistics warehouse in Central China around Wuhan, which it considers to be a strategic area for Chaintek to expand in order to increase its national coverage and diversify its customer base. In conjunction, discussions with local government are ongoing to ensure that any identified sites are obtained on appropriate terms.

Dividends

On 16 March 2015, the Group announced a final scrip dividend of 4 pence net per share, at the reference price set at 49.6 pence, in respect of the year ended 31 December 2014, which was paid on 20 May 2015 to shareholders registered on 24 April 2015. In consequence, a total of 4,735,767 new ordinary shares was issued on 20 May 2015 in respect of the scrip dividend.

Shufang Zhuang

Executive Director and Founder

14 September 2015

Chairman's Statement 

Performance

As indicated with our preliminary results announcement and subsequently, Chaintek's trading environment for the reporting period to 30 June has been tough. This is reflected in the revenues which in total are 25 per cent below those for the same period in 2014 with a significant downturn both in the inventory solutions division of the Company and in the logistics services activity. EBITDA is consequently down 54 per cent to RMB 67.9 million and profit before tax down 56 per cent to RMB 64.2 million with a pretax profit margin of 49 per cent. The cash position of RMB 514.1 million at 30 June 2015 is 25.9 per cent higher than that at the same time in 2014 and has been further augmented by the expected reimbursement of RMB 273 million payment made by the Company to the Fujian Jinjiang Industrial Development Park Construction Company in 2013 for the Land Use Rights of a parcel of land at Cizao, Jinjiang City, originally planned as a new logistics park. That strong cash position will enable the Company to develop its strategic growth plan particularly in the context of increasing demand by Chinese consumers for lower cost Chinese manufactured products in second and third tier cities. Management predicted the downturn of consumer trends as manufacturing companies started to restructure and as a result, the Group has concentrated on preparing to achieve three primary goals of achieving national coverage, diversifying its customer base and servicing E-commerce companies.

Outlook and Strategy

During the interim period the Company established a new regional distribution center in Changsha, a strategically positioned mega conurbation 1,600km south east of Beijing in order to expand capacity and meet the changing needs of a customer manufacturing base. With the extra cash available from the land use rights repayment, the Company is also now looking in the Wuhan area on the Yangtze River for another important hub in Central China. These are important steps towards national coverage. The Company also has taken the strategic decision to subsidise the transport companies on whom it so critically depends. Helping relationships in difficult times is very important in China and this has been a calculated decision to support companies on whom it will remain very dependent in the foreseeable future.

Despite the difficulties, I endorse the comments of Chaintek's co-founder, Shufang Zhuang, that the Company is building a solid foundation for growth in logistics and inventory solutions on a transnational basis generated by the e-commerce opportunities. With its substantial cash reserves and a clear strategy, this belief is achievable. I thank shareholders for their continuing support for the Company through a challenging period.

The Company retains strong cash reserves crucial for achieving its growth objectives referred to above.

William Knight

Non-Executive Chairman

14 September 2015

Interim consolidated statement of financial position

(All amounts in RMB unless otherwise stated)

Interim consolidated statement of comprehensive income

(All amounts in RMB unless otherwise stated)

Interim consolidated statement of changes in equity

(All amounts in RMB unless otherwise stated)

Unaudited

Interim consolidated statement of cash flow

(All amounts in RMB unless otherwise stated)

1. General information

The Company was incorporated as an exempted limited liability company in the Cayman Islands on 13 April 2011 as a result of a group restructuring in preparation for the proposed listing of the Company's shares on the AIM market of the London Stock Exchange. The Company's registered office is at Floor 4, Willow House, Cricket Square, PO Box 2804, Grand Cayman, KY1-1112, Cayman Islands. The Company's shares were admitted to trading on the AIM market of the London Stock Exchange on 20 August 2012.

The principal activities of the Company are those related to investment holding. The principal activities of the subsidiaries are logistics services and inventory solutions.

These financial statements are the unaudited interim consolidated financial statements for the six month period ended 30 June 2015 (hereafter the 'interim period'). The interim financial statements have been approved for issue by the Board of Directors on 14 September 2015.

2. Historical information

On 3 March 2000, Fujian Xingtai Logistics Co., Ltd. ("Fujian Xingtai") was incorporated as a limited liability company in the People's Republic of China (the "PRC") controlled by Mr Shufang Zhuang (Mr Zhuang). The registered office is located at Mei Ling Industrial Park, Jinjiang City, Fujian Province, PRC.

On 5 March 2010, Fujian Xingtai became a wholly owned entity of Mr Zhuang and his wife Mrs Meijin Xu (Mrs Xu).

On 7 December 2010, Chaintek United Holdings Ltd ("Chaintek United") was incorporated as a limited liability company in Hong Kong SAR. Chaintek United, an investment holding company, has its registered office at Room 1613, 16F, Tai Yau Building, 181 Johnson Road, Wan Chai, Hong Kong SAR. Chaintek United is wholly owned by Mr Zhuang and Mrs Xu.

On 29 January 2011, Chaintek United acquired 100% of the equity interest of Fujian Xingtai for a purchase consideration of RMB 10,204,100, fully paid in cash with an advance from Mrs Xu.

On 13 April 2011, the Company was incorporated in the Cayman Islands for the proposed listing of the Company's shares on the AIM market of the London Stock Exchange. The Company is majority owned and controlled by Mr Zhuang and Mrs Xu.

On 27 June 2011, the Company acquired 100% of the equity interest of Chaintek United for a purchase consideration of HK$10,000 based on the nominal issued share capital of Chaintek United.

The acquisitions of Fujian Xingtai by Chaintek United and Chaintek United by the Company were a combination of businesses under common control by Mr Zhuang and Mrs Xu. As a result, the Company accounted for the acquisitions in a manner similar to a pooling of interests.

3. Basis of preparation

The interim consolidated financial information (the interim financial statements) is for the six months ended 30 June 2015 and is presented in Renminbi (RMB), which is the presentation currency of the Group and the functional currency of the principal operating subsidiaries of the Group. The interim accounts have been prepared in accordance with recognition and measurement principles of IFRS as endorsed for use in the European Union using accounting policies that are expected to be applied in the full financial statements for the year ending 31 December 2015. The financial information for the period ended 30 June 2015 is unaudited and has not been reviewed by the Company's auditors.

4. Interim management report

Principal Risks and Uncertainties

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Group's risk management policies are established to set out its overall business strategies, tolerance of risk and general risk management philosophy. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities.

The main risks which the Group faces are market risk (comprising interest rate, foreign currency and price risk), credit risk and liquidity risk. Further details are given in note 24 to the full financial statement for the year ended 31 December 2014.

Related Parties Transactions

For the purposes of this interim financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.

During the six months of the current financial period, there are no transactions with related parties will have taken place which materially affect the financial position and performance of the Group.

Going Concern

Based on the Group's current expectations and projected cash flows, the Board believes that the Group will be able to satisfy its working capital requirements for at least the next twelve months. The Board has therefore concluded that it is appropriate to continue to adopt the going concern basis in preparing the interim financial statements.

5. Estimates

The preparation of the Interim Financial Statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities and the disclosure of contingent liabilities at the date of the Interim Financial Statements. If in the future such estimates and assumptions, which are based on management's best judgments at the date of the Interim Financial Statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.

6. Financial Risk Management

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 December 2014.

7. Land use rights prepayments

In 2014, the Group purchased a transit warehouse for the logistics services division from a third party for RMB 75.8 million of which RMB 60 million was paid in 2014 to secure the facility. Based on the agreement, the Group had the right to commence operations at this warehouse from the date the deposit was paid. The balance of RMB15.8 million was paid during the period when the land use rights ("LUR") confirmation and other administrative procedures were completed.

The Company requested an independent market valuation for the newly acquired premises to analyse the total cost of RMB75.8 million between land use rights and property and this valuation shows that the LUR element within total cost paid is in excess of the RMB60 million value shown above. The allocation of cost above is based on the proportion of land and building cost in accordance with the independent market valuation report. In 2014, the directors allocated all of the RMB 60 million deposit to land use rights. As the warehouse was not in operational use until just before the year end of 2014, no amortisation has been charged on the allocated land use rights and in the event that some element of the deposit had been allocated to property no depreciation would have been charged on the property and therefore the current method of allocation has no impact on recorded net assets or results.

Included in the above figures is Land Use Rights ("LUR") at a cost and net book value of RMB273 million which cost was fully paid during 2013 for a parcel of land in Cizao Town, Jinjiang City, Fujian Province, China. The payments were made to Fujian Jinjiang Industrial Park Development and Construction Co., Ltd. ("LDC"), a land development company established and owned by Local Government ("LDC"). The formal LUR Certificate that is required before the Group is able to use the land has still to be issued. Consequent to the delay in the issue of the formal LUR Certificate, the Group signed a supplementary agreement with the LDC dated 6 March 2015. This agreement confirmed, inter alia, that the LUR in respect of the parcel of land specified in the initial purchase agreement is not now able to be obtained from the LDC, that the LDC is seeking to locate an acceptable alternate parcel of land for the Group and that the Group has the right to request full payment of RMB273 million from the LDC at any time up to the date that a formal LUR Certificate is issued by the LDC.

After the period end, the Group applied to the LDC for the full refund of RMB273 million. The full amount of RMB273 million was received subsequent to first half year to end-June.

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8. Property, plant and equipment

Please also refer to Note 7 above in respect of the transit warehouse purchased in 2014.

9. Earnings per share

10. Dividends

On 16 March 2015, the Group announced a final scrip dividend of 4 pence net per share at the reference price set at 49.6 pence, in respect of the year ended 31 December 2014, paid on 20 May 2015 to shareholders on the register on 24 April 2015. In consequence, a total of 4,735,767 new ordinary shares was issued on 20 May 2015 in respect of the scrip dividend. No interim dividend is proposed in respect of the current period (2014: interim scrip dividend of 2 pence or 1 pence cash alternative).

11. Operating segments

For management reporting purposes, the Group is organised into the following reportable operating segments:

(a) Logistics services - includes the provision of land transportation services.

(b) Inventory solutions - includes the provision of warehousing services.

(c) Corporate - includes investment holdings and Corporate Office which incurs general corporate expenses.

Segment accounting policies are the same as the policies described above. Intra- and inter-segment transactions were carried out at terms agreed between the parties during the financial year. Intra- and inter-segment transactions were eliminated in preparing consolidated financial information.

Segment revenue and expense:

Segment revenue and expenses are the operating revenue and expenses reported in the Group's statement of comprehensive income that are directly attributable to a segment and the relevant portion of such revenue and expense that can be allocated on a reasonable basis to a segment.

Segment assets and liabilities:

Segment assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Capital expenditure includes the total cost incurred to acquire plant and equipment directly attributable to the segment.

Group cash resources, financing activities and income taxes are managed on a Group basis and are not allocated to operating segments. Unallocated assets comprise cash and cash equivalents. Unallocated liabilities comprise income tax payable.

The Group Chief Executive Officer ("Group CEO") monitors the operating results of its operating segments for the purpose of making decisions about resource allocation and performance assessment.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before income tax, as included in the internal management reports that are reviewed by the Group CEO.

Operating segments (Cont'd)

Operating segments (Cont'd)

Reconciling items shown above include: administrative expenses and other income in profit for the year, rental deposits and partial non-current assets in total assets, and other tax payable and partial employee benefits payable in total liabilities.

Operating segments (Cont'd)

Geographical information

The Group's operations are located in the PRC and all of the Group's revenue is derived from services provided to customers in the PRC. Hence, no analysis by geographical area of operations is provided.

Major customers

None of the manufacturing companies (that the company regards as its customers) for its logistics services business accounted for 10% or more of the Group's total revenues for the periods ended June 30, 2014 and 2015 and for the full year ended 31 December 2014. However, the company receives all its logistics services revenue from the transport companies that are used to transport goods on behalf of the company rather than from its manufacturing customers. Whilst the company has flexibility in its choice of transport company it is noted that five of these transport companies account individually for more than 10% of total revenue in both the current period and prior year. None of the manufacturing companies that use the inventory solutions service accounted for 10% or more of the Group's total revenues for the period ended 30 June 2015 or the year ended 31 December 2014.

12. Events after the reporting period

Subsequent to first half year to end-June, the Group received a full refund of RMB273 million from Fujian Jinjiang Industrial Park Development and Construction Co., Ltd. ("LDC"), in respect of the land use rights that it paid to LDC for a parcel of land in Cizao Town, Jinjiang City, Fujian Province in 2013.

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