RNS Number : 8516X
CEC UNET PLC
30 June 2008
CECUNET PLC: PRELIMINARY RESULTS FOR THE YEAR ENDED
31 DECEMBER 2007
London, Beijing, June 30, 2008: CEC Unet plc ("CECU" or "Company"), the Chinese mobile media services company listed on AIM (AIM: CECU)
is pleased to announce its preliminary results for the 12 months ended December 2007.
Operational Highlights
* Successful acquisition and integration of the mobile payments services business acquired from China Electronic Appliance
Corporation;
* Mobile payments services in both Henan and Guangdong provinces in 2007, now providing services to approximately 7 million
customers through over 57,000 retail outlets;
* The monthly number of transactions undertaken by the mobiles payments services division have increased by 358.55 percent between
October 2007 and May 2008.
* The Company has launched mobile payments services in Beijing, the host city of the 2008 summer Olympic Games , and is prepared to
meet increased demand during the Olympic Games
* Five year exclusive partnership with CMCA to distribute up to 25 million P Phones (Payment and Personal Media Capable Handsets)
completed
* Appointment of Mr Li Gang as CEO. Mr Li Gang is a senior executive of China Electronic Appliance Corporation
* Sales, marketing and distribution rights to the China Business Post ("CBP"), the leading business weekly newspaper; acquired
* Successful placing of over 72.6m shares raising EUR8.7m, net of expenses
Net revenue for the year ended December 31, 2007 was EUR2,845,000 compared with EUR170,000 for the comparable period of 2006, an
increase of 1573.53 percent. This is due to the consolidation into the financial statements of the final quarter accounts of the mobile
payment services division. Diluted losses per share of EUR0.13, an increase of over 116.67 percent, compared with EUR0.06 per diluted share
in 2006, were due to the amortisation of intangible fixed assets of EUR4,874,000, impairment of intangible assets of EUR32,663,000 and
impairment of goodwill of EUR19,225,000.
These charges reflect the cost of closing the mobile contents and services division which occurred in the final quarter as it did not
fit in with the Company's new strategy of concentrating on the profitable payment services industry.
Mr. Chen Zhaobin, Chairman of CEC Unet Plc, commented:
"We are now firmly established as the second largest payment services provider in China with plans to roll out further provinces during
the remainder of 2008.
"Our longer term vision continues toward the development of an integrated community based payments platform combining payments and
collection services with content management and distribution.
"I am confident that our medium term strategy of building China's largest payment services business in addition to continuing the
development of our media assets, will generate significant shareholder returns in the coming years".
ENDS
For further information:
William Vandyk +44 (0) 20 7448 4400
Blue Oar Securities
Paul Quade +44 (0)20 7248 8010
CityRoad Communications
Jie Niu +86 (0)10 8776 2828 / niujie@ceac.com. cn
Corporate Affairs Department
CEC Unet plc is an AIM-listed ("CECU") mobile media and services company based in Beijing, China. It is focused on two related but
separate areas in China's fast growing mobile phone industry: content and services, distribution and payment.
It has strategic partnerships with China Mobile, the country's largest mobile phone operator, and the China Mobile Communications and
Telecom Association, whose members include all six Chinese telecom companies and the leading chip and handset manufacturers and
distributors.
CECU believes its unique combination of assets, distribution network and experienced management team gives it an historic opportunity in
China's mobile services industry.
The company began trading on AIM in July 2006 before changing its name in October 2007 from Sun3C Media having acquired certain
China-based assets.
Market Data
* There are currently 583 million mobile phone users in China
* This is predicted to rise to 800 million by 2012.
* China Mobile's market share is estimated at around 74 per cent
* Currently 70 per cent of all mobile phones in China are pre-pay
* Estimated worth of the Chinese mobile services industry $52.7 billion pa
Data Sources. 2007-2008 data from China Mobile and Ministry of Information Industry of the People's Republic of China (MOI). All
2008e-2010e estimates are internal projections of the CEC Unet team, based on predicted growth rates by the MOI and China Mobile.
The full published accounts for the period ended 31st December 2007 are available on the Company's web site, www.sun3cmedia.com, and can
be obtained from the registered office of the company.
consolidated INCOME STATEMENT Year ended 31 Dec Year ended 31 Dec
for the year ended 31 december 2007
2007 2006
EUR'000 EUR'000
Revenue 2,845 170
Cost of sales (1,253) (57)
gross profit 1,592 113
Administrative expenses (7,007) (1,878)
Amortisation of intangible fixed assets (4,874) (5,385)
Impairment of intangible fixed assets (32,663) (1,971)
Share based payments charge - (2,498)
Impairment of goodwill (19,225) -
Impairment of investment available for (811) -
sale
Loss on disposal of intangible assets (794) -
Other operating income 67 -
Operating loss (63,715) (11,619)
Interest receivable 171 60
Finance costs (67) -
Loss on ordinary activities before tax (63,611) (11,559)
Tax expense (1) -
Loss for the year (63,612) (11,559)
Loss for the year attributable to (48) -
minority interests
Loss for the year attributable to equity (63,564) (11,559)
interests
(63,612) (11,559)
Loss per share EUR EUR
Basic and diluted (0.13) (0.06)
CONSOLIDATED balance sheet As at As at
as at 31 december 2007 31 Dec 31 Dec
2007 2006
EUR'000 EUR'000
ASSETS
Non-current assets
Intangible assets 13,881 64,205
Goodwill 4,285 12,418
Property, plant and equipment 5,681 60
Investments available for sale 1,218 60
25,065 76,743
Current assets
Trade and other receivables 2,690 681
Cash and cash equivalents 3,852 2,737
6,542 3,418
LIABILITIES
Current liabilities
Trade and other payables (7,183) (3,135)
Obligations under finance leases (18) (128)
(7,201) (3,263)
Net current (liabilities)/ assets (659) 155
Non-current liabilities
Obligations under finance leases (42) (84)
NET ASSETS 24,364 76,814
SHAREHOLDERS' EQUITY
Called up share capital - equity 5,408 3,851
Called up share capital - non equity - 750
Share premium account 92,801 82,115
Share based payments reserve 2,499 2,499
Other reserves (587) 8
Currency translation reserve (104) (7)
Retained earnings (75,966) (12,402)
Total equity attributable to equity holders of the 24,051 76,814
parent
Minority interest 313 -
TOTAL EQUITY 24,364 76,814
CONSOLIDATED CASH FLOW STATEMENT Year ended 31 Dec Year ended 31 Dec
for the year ended 31 december 2007
2007 2006
EUR'000 EUR'000
Operating loss (63,715) (11,619)
Depreciation of property, plant and 971 3
equipment
Loss on disposal of property, plant and 53 -
equipment
Amortisation of intangible assets 4,874 5,385
Impairment of intangible assets 32,663 1,971
Loss on disposal of intangible assets 794 -
Impairment of goodwill 19,225 -
Impairment of investments available for 811 -
sale
Share based payments - 2,499
Decrease in trade and other receivables 618 (464)
Decrease in trade and other payables (1,879) 718
Cash flows from operating activities (5,585) (1,507)
Income tax paid (1) -
Net cash from operating activities (5,586) (1,507)
Cash flows from investing activities
Purchase of intangible fixed assets - -
Purchase of property, plant and equipment (157) (4)
Acquisition of subsidiary, including 135 (1,196)
overdraft acquired
Purchase of investments available for (1,536) (61)
sale
Payment of deferred consideration (1,254) -
Interest received 171 60
Interest paid (67) -
Net cash from investing activities (2,708) (1,201)
Cash flows from financing activities
Proceeds from issuance of own share 9,415 5,385
Repayment of finance leases (154) -
Net cash from financing activities 9,261 5,385
Increase in cash and cash equivalents 967 2,677
Foreign currency translation difference 131 60
Cash and cash equivalents at start of 2,737 -
year
Cash and cash equivalents at end of year 3,835 2,737
Acquisition of subsidiary undertakings includes non cash movement of EUR29,183,000 relating to assignment of shares held in escrow and
an assignment of intangible assets.
notes to the financial statements for the year ended 31 december 2007
1. Basis of preparation
CEC Unet plc is a public limited company incorporated and domiciled in Ireland. The principal activity of the company is the provision
of a suite of mobile phone services and publication of a newspaper, China Business Post, in the People's Republic of China. The company's
ordinary shares are traded on the AIM market of the London Stock Exchange plc ("AIM").
The registered office of the Company is Eagle House, 16 Wentworth, Eblana Villas, Dublin 2, Ireland.
The group has historically prepared its audited financial statements on the basis of accounting standards generally accepted in Ireland
as published by the Institute of Chartered Accountants in Ireland and issued by the Accounting Standards Board. In the current year the
group has adopted International Financial Reporting Standards ("IFRS") for the first time as the group is required to present its annual
consolidated financial statements in accordance with accounting standards adopted for use in the European Union. These accounts include
reconciliations of the group's equity to IFRS at the date of transition of 1 January 2006 and at the comparative balance sheet date of 31
December 2006, and reconciliations of the group's results for the comparative period ended 31 December 2006.
The financial statements use the Euro as the presentation currency as the company is incorporated in Ireland with Euro denominated
shares which are traded on AIM. Items included in the financial statements of each subsidiary of the group are measured using the currency
of the primary economic environment in which the subsidiary operates (the 'functional currency'). The primary functional currency of
companies within the group is the Chinese Renminbi.
The company has taken advantage of section 3(2) of the Companies (Amendment) Act 1986 not to publish its own profit and loss account.
The loss for the year dealt with in the parent company's account was EUR91,518,000
New Standards and Interpretations
The IASB and IFRIC have issued the following standards and interpretations which are in issue but not in force at 31 December 2007:
International Accounting standards (IAS/IFRSs)
IFRS 8 Operating segments
IAS 1 (revised) Presentation of Financial Statements
IAS 23 (revised) Borrowing costs
International Financial Reporting Interpretations Committee (IFRIC)
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer Loyalty Programmes
IFRIC 14 IAS 19 Limit on defined benefit asset, minimum funding requirement and
their interaction.
The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the
financial statements of the Group when the relevant standards and interpretations come into effect, except for IAS 1 (revised) Presentation
of Financial Statements. IAS 1 will have no quantitative effect but may impact disclosure and format that needs to be followed. The
directors do not anticipate the early adoption of any of the above standards.
The consolidated financial statements have been prepared under the historical cost basis, and following the implementation of IFRS, the
group's accounting policies have been consistently applied to all the periods presented unless otherwise stated. The principal policies are
set out below.
2. Accounting policies
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the
group's financial statements.
Basis of consolidation
The consolidated financial statements for the year to 31 December 2007 include the results of CEC Unet Plc, its subsidiary undertakings
and special purpose entities ("SPEs") for that period. Subsidiary undertakings are entities over which the group has the power to control
the financial and operating policies so as to obtain benefits from the activities. The group obtains and exercises control through voting
rights. The company has adopted IASB Interpretation SIC 12 Consolidation - Special Purpose Entities ("SIC 12") which requires a SPE to be
consolidated by a company if that company conducts its activities to meet the entity's specific needs and has decision making power to
obtain the majority of the benefits of the SPE's activities.
To comply with The People's Republic of China ("PRC") laws and regulations, the Company provides substantially all its mobile phone
services and the publication of the China Business Post newspaper in China via its SPEs. These SPEs are wholly or partially owned by certain
employees or shareholders of the company. The capital for the SPEs are funded by the company. Under various contractual agreements,
shareholders of the SPEs are required to transfer their ownership of their entities to the company's subsidiaries in China when permitted by
PRC law and regulations or to designees of the company at any time. The following is a summary of the significant SPEs of the company:
Caishi (Shanghai) Advertising Co. Limited ("Caishi SH") is a branch of a China company and has no registered share capital. During the
year, Caishi SH acquired the advertising and publication rights from Inner Mongolia Lianban Business Information Research Centre ("IML"),
and through a consultancy agreement, Optima Media International Limited (BVI) has decision making rights on all aspects of Caishi SH.
CBP (Beijing) Advertising Co. Limited ("CBP (Beijing)") is a China company with registered share capital of Euro 46,760. During the
year, CBP (Beijing) acquired distribution rights from IML, and through a Trust agreement, Caijing Advertising Development Corporation
Limited (BVI) has decision making rights on all aspects of CBP (Beijing).
CEC Unet (Henan) Service Co. Limited ("CEC Henan") is a China company with registered share capital of Euro 46,760. CEC Henan's
principal activity is the provision of mobile "top up" services and telecommunication advisory services. During the year, China Electronic
Appliance Corporation ("CEAC") entered into a sale and purchase agreement with the Company for the transfer of all its equity interest of
CEC Henan, and through a Trust agreement, the company has decision making rights on all aspects of CEC Henan.
CEC Unet (Beijing) Technology Services Co. Limited ("CEC (Beijing)") is a China company with registered share capital of Euro 990,468.
CEC Unet (Beijing)'s principal activity is to develop the provision of mobile "top up" services and telecommunications advisory services.
During the year, Sun TV Shop Limited entered into a trust agreement with shareholders of CEC Beijing, who are PRC resident, to allow Sun TV
Shop Limited to invest and receive all benefits arising from the 100% shareholding.
Business combinations
The group adopts the purchase method in accounting for the acquisition of subsidiaries. On acquisition the cost is measured at the fair
value of the assets given, plus equity instruments issued and liabilities incurred or assumed at the date of exchange plus any costs
directly attributable to the acquisition. The assets acquired and liabilities and contingent liabilities assumed in a business combination
are measured at their fair value at the date of acquisition. Any excess of the fair value of the consideration over the fair value of the
identifiable net assets acquired is recorded as goodwill.
Any deficiency of the fair value of the consideration below the fair value of identifiable net assets acquired is credited to the income
statement in the period of the acquisition.
The results of subsidiary undertakings acquired or disposed of during the year are included in the consolidated income statement from
the effective date of acquisition or up to the effective date of disposal.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with
those used by the group. Inter-company transactions and balances between group companies are eliminated.
Critical accounting estimates and judgments
Estimates and judgments 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.
Critical accounting estimates and assumptions
The group makes estimates and assumptions concerning the future. Whilst the directors believe that the estimates and assumptions used in
the preparation of the financial statements are reasonable, the resulting accounting estimates will, by definition, seldom equal the related
actual results. The estimates that have a significant risk of causing a material adjustment to the carrying values of assets and liabilities
within the next financial year are discussed below.
Impairment of goodwill and intangible assets
The group tests whether goodwill and intangible assets have suffered any impairment annually or when there is an indication of
impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations which require the use
of estimates.
Going concern
The financial statements have been prepared on the going concern basis. Set out below are details of a private placement of US$3.2
million convertible bonds and the option to subscribe for the balance of US$ 6.8 million of the bonds. The company has warranted amongst
other things levels of profit for 2008 and 2009. In the event that the performance criteria are not met the bondholder may demand immediate
repayment in whole or in part. In addition the successful development of the company's top up business in Mainland China may depend on the
subscription for the balance of the unsecured convertible bonds. The directors consider that the performance criteria will be achieved and,
for this reason, they continue to adopt the going concern basis in preparing the financial statements.
Segmental Reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns
that are different from those of other business segments. A geographical segment is engaged in providing products or services within a
particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic
environments.
The Group's primary reporting format is by business segment and its secondary format is by geographical segment.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the company's share of the net identifiable assets
of the acquired subsidiary at the date of acquisition. Goodwill is included in intangible assets and is tested annually for impairment or
when there is an indication of impairment. Any impairment is recognised immediately in the income statement and is not subsequently
reversed.
Goodwill arising on the acquisition of overseas subsidiaries is recorded in the functional currency of the acquired subsidiary and
translated into the presentation currency at the closing rate at each balance sheet date in accordance with the group accounting policy of
foreign currency.
On disposal of a subsidiary, the amount of attributable goodwill is included in the determination of the profit and loss on disposal.
Intangible fixed assets
Intangible assets include acquired product distribution rights, network use rights, media rights, and database rights and are measured
at acquisition cost.
The various media, television and database rights are capitalised in the balance sheet and amortised over the estimated economic life of
the asset of 10 years.
Network use rights are capitalised in the balance sheet and amortised over the estimated economic life of the asset of 20 years.
The Group carries out an impairment review of its intangible assets when a change in circumstances or situation indicates that those
assets may have suffered an impairment loss. Impairment is measured by comparing the carrying amount of a fixed asset or of a
cash-generating unit with the 'recoverable amount', that is the higher of its fair value less costs to sell and its 'value in use'. 'Value
in use' is calculated by discounting the expected future cash flows, using a discount rate based on an estimate of the rate that the market
would expect on an investment of comparable risk.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses.
The charge for depreciation is calculated to write down the cost of tangible fixed assets to their estimated residual values by equal
annual instalments over their expected useful lives which are as follows:
Plant and machinery 5 years
Fixtures and fittings 5 years
Motor vehicles 5 years
Impairment provisions are made where the carrying value of tangible fixed assets exceeds the recoverable amount.
Revenue recognition
Mobile content and services
Revenue, which arises principally from the sale of games software for mobile phones, represents net sales to customers outside the Group
and excludes Value Added Tax.
Mobile payment services
Revenues are derived principally from providing distributors and end users with mobile phone air time. Revenues are charged on a daily
or per usage basis. Such revenues are recognised in the period in which the services are performed, provided no significant company
obligations remain, and collection of the receivables is reasonably assured.
The company contracts with mobile operator China Mobile. In accordance with revenue recognition policy, revenues are recorded on a net
basis. Under the net basis, revenues are recorded net of fees charged or retained by the third party operators.
Due to the time lag between the services rendered and when the mobile phone operators bill, revenues are estimated based on company
internal billing records and transmissions for the month and adjusted when confirmation is received from China Mobile.
Media content
Revenue is mainly derived from providing advertising service using its own media resource "China Business Post". Revenue is recognised
when the advertisement is published with the newspaper according to the contract or order.
Interest income
Interest income is recognised on time proportion basis based using the effective interest method.
Taxation
Current tax, including Irish corporation tax and foreign tax, is provided on the group's taxable profits, at amounts expected to be paid
using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date.
Deferred taxation is provided in full using the liability method on temporary differences between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates that have been
enacted at or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or
the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
Foreign currencies
Group companies
The consolidated financial statements are presented in Euro, which is considered by management to be the most appropriate presentation
currency for its consolidated financial information as the parent company is registered in Ireland. The functional currency of the majority
of the companies in the group is the Chinese Renminbi.
On consolidation, the assets and liabilities of the Group's overseas operations are translated at exchange rates prevailing on the
balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if
any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or
as expenses in the period in which the operation is disposed of.
Fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
The following rates of exchange have been applied:
2007 2006
Closing rate/ Average rate Closing rate/ Average rate
1 Chinese RMB to Euro 0.09315/ 0.09616 0.09696/ 0.09696
1 Sterling to Euro 1.3571/ 1.46206 1.49117/ 1.49117
1 HK Dollar to Euro 0.08708/ 0.09368 0.09761/ 0.09761
Transactions and balances
Transactions in currencies other than the Euro are recorded at the rates of exchange prevailing on the dates of the transactions or
translated at the average exchange rates for the period. Exchange differences resulting from the settlement of transactions denominated in
foreign currency are included in the statement of income using the exchange rate ruling on that date.
At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates
prevailing on the balance sheet date. Foreign currency gains and losses arising from the translation of assets and liabilities are reflected
in the income statement as foreign exchange translation movements.
Leased assets
Expenditure on operating leases is charged to the income statement on a basis representative of the benefit derived from the asset,
normally on a straight line basis over the lease period.
Where fixed assets are financed by financing arrangements which give rights approximating to ownership they are treated as if they had
been purchased outright at their fair value and the corresponding commitments are shown in the balance sheet as obligations under finance
leases and hire purchase contracts. Depreciation of fixed assets acquired under finance leases and hire purchase contracts is calculated to
write off the attributed cost over the shorter of the lease or contract term and their estimated useful lives by equal annual instalments.
The excess of the total rentals over the amount capitalised is treated as interest which is charged to the profit and loss account in
proportion to the amounts outstanding under the lease and hire purchase contracts.
Share based payments
The Company operates an employee share scheme under which it makes equity-settled share based payments to certain employees. For share
based payments to employees of the Company, the fair value is determined at the date of grant using a Black Scholes model, and is expensed
on a straight line basis together with a corresponding increase in equity over the vesting period, based on the group's estimate of the
number of shares that will vest.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks, other short term highly liquid funds with original
maturities of three months or less and bank overdrafts. Bank overdrafts are shown within borrowing in current liabilities on the balance
sheet.
Borrowing costs
All borrowing costs are recognised in the income statement for the period in which they are incurred.
Investments available for sale
Investments classified as available for sale are initially recorded at fair value including transaction costs. Quoted investments are
held at fair value and measured either at bid price or latest traded price, depending on convention of the exchange on which the investment
is quoted. Such instruments are subsequently measured at fair value with gains and losses being recognised directly in equity until the
instrument is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is
recycled to the income statement and recognised in profit or loss for the period. Impairment losses are recognised in the Income Statement
when there is objective evidence of impairment.
Financial instruments
Financial assets and liabilities are recognised in the balance sheet when the Group becomes party to the contractual provisions of the
instrument.
Trade and other receivables
Trade receivables are measured at cost less any provision necessary when there is objective evidence that the group will not be able to
collect all amounts due.
Trade and other payables
Trade and other payables are not interest bearing and are measured at original invoice amount.
3. Segmental information
i) Primary business segment
Segment information is presented in respect of the group's business segments. The primary business segments are based on the group's
reporting structure.
Segmental results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise mainly corporate and head office items.
Mobile content & Mobile payment
service services Media content TV shopping Total Group
Unallocated
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Year ended 31 December 2007
Revenue
Sales to external customers 1,088 1,573 184 - - 2,845
Result
Operating loss before charges (2,053) (1,060) (372) - (2,074) (5,559)
against goodwill and
intangible assets
Impairment of goodwill (11,764) (4,595) (2,866) - - (19,225)
Impairment of investments - - (811) - - (811)
available for sale
Amortisation of intangible - (181) (212) (4,481) - (4,874)
assets
Loss on disposal of intangible - - (794) - - (794)
assets
Impairment of intangibles - (700) (81) (31,882) - (32,663)
Loss before interest and tax (13,817) (6,536) (4,925) (36,363) (2,074) (63,715)
Net finance income (1) 1 - - 104 104
Loss before tax (13,818) (6,535) (4,925) (36,363) (1,970) (63,611)
Taxation - - (1) - - (1)
Loss for the year (13,818) (6,535) (4,926) (36,363) (1,970) (63,612)
Assets and liabilities
Segment assets 169 20,399 6,531 - 4,508 31,607
Segment liabilities (723) (3,092) (2,888) - (540) (7,243)
Total net assets (554) 17,307 3,643 - 3,968 24,364
Other segment information
Capital expenditure
Property, plant & equipment 9 61 1 - 87 158
Intangible assets - - 1,491 - - 1,491
Depreciation 44 887 25 - 15 971
Amortisation of intangible - 181 212 4,481 - 4,874
assets
Mobile content & Mobile payment
service services Media content TV shopping Total Group
Unallocated
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Year ended 31 December 2006
Revenue
Sales to external customers 170 - - - - 170
Result
Operating loss before charges (357) (145) - - (3,761) (4,263)
against goodwill and
intangible assets
Amortisation of intangible - - (5,385) - (5,385)
assets
Impairment of intangibles - - - (1,971) - (1,971)
Loss before interest and tax (357) (145) - (7,356) (3,761) (11,619)
Net finance income - - - - 60 60
Loss before tax (357) (145) - (7,356) (3,701) (11,559)
Taxation - - - - - -
Loss for the year (357) (145) - (7,356) (3,701) (11,559)
Assets and liabilities
Segment assets 13,259 33,727 - 30,552 2,624 80,162
Segment liabilities (2,581) - - - (767) (3,348)
Total net assets 10,678 33,727 - 30,552 1,857 76,814
Other segment information
Capital expenditure
Property, plant & equipment 4 - - - - 4
Intangible assets - - - 75,561 - 71,561
Depreciation 3 - - - - 3
Amortisation of intangible - - - 5,385 - 5,385
assets
ii) Geographical segment
Geographical analysis by location of operating company:
Revenue Year ended 31 Dec Year ended 31 Dec
2007 2006
EUR'000 EUR'000
The People's Republic of China 1,757 -
Ireland 705 166
Japan 383 4
2,845 170
Operating loss Year ended 31 Dec Year ended 31 Dec
2007 2006
EUR'000 EUR'000
The People's Republic of China (61,663) (11,261)
Ireland (1,477) (199)
Japan (575) (159)
(63,715) (11,619)
Net assets Year ended 31 Dec Year ended 31 Dec
2007 2006
EUR'000 EUR'000
The People's Republic of China 24,899 77,864
Ireland 774 (134)
Japan (1,309) (916)
24,364 76,814
iii) Discontinued activities
The Directors have taken the decision to close the Mobile Content and Services division, which comprises of Upstart Games Limited and
Upstart Kabushiki Kaisha. The segmental information disclosed in note 3 (i) for Mobile Content and Services therefore relates to a
discontinued activity.
4. Administrative expenses
31 December 2007 31 December
2006
EUR'000 EUR'000
Depreciation 971 3
Employee benefit expenses 1,871 521
Operating costs 4,165 1,354
7,007 1,878
5. Other interest receivable and similar income
31 December 2007 31 December
2006
EUR'000 EUR'000
Bank Interest 171 61
171 61
6. Taxation
31 December 2007 31 December
2006
EUR'000 EUR'000
Current tax charge 1 -
Factors affecting the tax charge for the
period
Loss on ordinary activities before taxation (63,611) (11,559)
Loss on ordinary activities before taxation (7,951) (1,445)
multiplied by standard rate of corporation
tax of 12.5%
Effects of:
Non deductible expenses 7,592 1,232
Other tax adjustments - 213
Current tax charge 1 -
7. Loss per share
31 December 2007 31 December
2006
Basic
Loss attributable to ordinary (63,611) (11,559)
shareholders (EUR'000)
Weighted average number of shares 471,451,045 208,454,868
(number)
Basic loss per share (EUR) (0.13) (0.06)
There was no dilutive effect from the share options outstanding during the year.
8. Intangible fixed assets
On July 6, 2006, CEC Unet Plc acquired 100% of the share capital of Sun TV Shop Limited, a company controlled by Dr. B Wu. Sun TV Shop
Limited owned the following intangible assets at the time it was acquired:
* Network Use Rights: The exclusive use rights to a 34,000km fibre-optic network in the People's Republic of China
* Media Rights: The online rights to various magazine publications, including Wine & Dine
* Television Rights: The ownership of the 2005 catalogue of the Chinese television shows C'est La Vie and 66 Places of a Lifetime, and
the 2005 catalogue and 5 year ongoing rights to Yang Lan One-on-One
* Product Distribution Rights: A contract to distribute various products, namely jewellery, in the People's Republic of China through
online and TV shopping channels.
On July 24, 2007, the company entered into a binding heads of agreement with it's largest shareholders Sun Media Investment Holdings,
Ltd ("SMIH") and Sun Media Investment International Ltd ("SMII") to assign the rights to a number of these intangible assets acquired at
listing back to SMIH and SMII as they were deemed to no longer be relevant to the company's core business model. The assets affected
included Media Rights, Television Rights and the Product Distribution Rights ("the assigned rights").
The consideration for the assignment of the Agreements relating to the above rights was the waiver by SMIH and SMII of their rights to
96,913,946 shares currently held in Escrow ("the Escrow Shares") and their irrevocable instruction to the Escrow Agent to transfer the
Escrow Shares (as defined below).
The terms of the Escrow Agreement was varied and the Escrow Agent transferred the Escrow Shares as follows (or as otherwise directed by
CEC Unet):
(i) 19,558,000 Ordinary Shares were transferred to Panpac Tech Strategic Limited as consideration for completion of that transaction
pursuant to the terms of a share sale and purchase agreement dated December 1, 2006 as amended by a supplemental agreement dated June 30,
2007 (together, the "CBP Agreement") between (1) CEC Unet (formerly Sun 3C) (2) The Lexicon Group Limited (formerly Sun Business Network
Limited) (3) The Observer Star Global Publishing Holdings Ltd and (4) Sun Media Investment Holdings Limited as the Purchaser 2 Consideration
Shares (as defined in the CBP Agreement) for the acquisition of an 80 per cent interest in the companies holding the sales, marketing and
distribution rights to the China Business Post ("CBP Rights"); and
(ii) 77,355,946 Ordinary Shares were transferred to China Electronic Appliance Corporation as consideration for the completion of that
transaction pursuant to the terms of the asset sale and purchase agreement dated April 26, 2007 as amended by a supplemental agreement dated
September 18, 2007 between (1) CEC Unet (formerly Sun 3C), (2) CECUnet and (3) China Electronic Appliance Corporation for the acquisition of
certain assets ("CEC-Unet Assets").
At 31 December 2007, the directors obtained independent valuation reports to support the carrying value of the following intangible
assets:
* Distribution network;
* Customer resources;
* Publication rights;
* Advertising rights.
Where the valuation report indicated a value lower than the book value, an impairment provision was made with a resulting charge to the
Income Statement. The realisation of these intangible non current assets, which is considered to be the recoverable amount of the asset, is
dependent on the successful development of the distribution network, customer resources and publication rights and advertising rights
relating to provision of mobile phone services and the publication of a newspaper, the China Business Post, in the People's Republic of
China.
The network use rights are no longer considered core for CEC Unet Plc. Due to uncertainty over the realisation of this asset, an
impairment provision has been made to reduce the book value of this asset to EURnil.
During the year ended 31 December 2007, the company acquired certain database and electronic rights through its acquisition of Business
New Media Limited (formerly 21st Century News Agency Limited) for a consideration of 5,000,000 ordinary shares at a value of 20 pence per
share. On 27 December 2007, the company entered into an agreement to dispose of the database and electronic rights back to Sun Media
Investment Holdings Limited in exchange for the return of the 5,000,000 ordinary shares.
Database &
Electronic rights Product distribution Network use
rights rights
Media rights Television Distribution network
Customer resources Publication rights Advertising rights
Rights
Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
EUR'000 EUR'000 EUR'000 EUR'000
Cost
At 1 January 2006 - - - - - -
- - - -
Additions - 2,333 27,497 35,424 6,307 -
- - - 71,561
At 1 January 2007 - 2,333 27,497 35,424 6,307 -
- - - 71,561
On acquisition of subsidiaries - - - - - 7,058
3,071 1,549 3,228 14,906
Additions 1,491 - - - - -
- - - 1,491
On disposal (1,491) (2,333) (27,497) - (6,307) -
- - - (37,628)
At 31 December 2007 - - - 35,424 - 7,058
3,071 1,549 3,228 50,330
Accumulated amortisation and
impairment
At 1 January 2006 - - - - - -
- - - -
Charge for the year - 233 2,750 1,771 631 -
- - - 5,385
Impairment charge - 98 1,873 - - -
- - - 1,971
At 1 January 2007 - 331 4,623 1,771 631 -
- - - 7,356
Charge for the year 149 175 2,062 1,771 474 126
55 20 43 4,874
Impairment charge - - - 31,882 - 596
104 26 55 32,663
On disposal (149) (506) (6,685) - (1,105) -
- - - (8,445)
At 31 December 2007 - - - 35,424 - 722
159 46 98 36,449
Net book value
At 31 December 2007 - - - - - 6,336
2,912 1,503 3,130 13,881
At 31 December 2006 - 2,002 22,874 33,653 5,676 -
- - - 64,205
9. Goodwill
2007 2006
EUR'000 EUR'000
Cost
At 1 January 2007 12,418 -
Adjustment to fair value of deferred (758) -
consideration
Goodwill arising on acquisition in the year 11,850 12,418
At 31 December 2007 23,510 12,418
Amortisation
At 1 January 2007 - -
Impairment charge 19,225 -
At 31 December 2007 19,225 -
Net book value
At 31 December 2007 4,285 12,418
The adjustment to the fair value of deferred consideration relates to changes in estimates to deferred consideration payable under earn
out arrangements in accordance with the terms of the Upstart Games Limited acquisition agreement.
At 31 December 2007, the directors obtained independent valuation reports to support the carrying value of goodwill for the entities
acquired in the period. Where the valuation report indicated a value lower than the book value, an impairment provision was made with a
resulting charge to the Income Statement. The carrying value of goodwill, considered to be its recoverable amount, is dependent on the
successful provision of mobile phone services and the publication of a newspaper, the China Business Post, in the People's Republic of
China.
10. Investments - available for sale
Unquoted investments Quoted investments Total
EUR'000 EUR'000 EUR'000
Cost and net book
value
At 1 January 2007 - 60 60
Investment during 2,018 - 2,018
the year
Impairment provision (811) - (811)
Fair value - (47) (47)
adjustment
Foreign exchange - (2) (2)
translation
At 31 December 2007 1,207 11 1,218
11. Trade and other receivables
Group
31 December
2007 2006
EUR'000 EUR'000
Trade receivables 732 52
Amounts due from subsidiary undertakings - -
Amounts due from related parties 724 -
Other receivables 751 367
Prepayments and accrued income 483 262
2,690 681
12. Trade and other payables
Group
31 December
2007 2006
EUR'000 EUR'000
Bank overdraft 17 -
Trade payables 680 67
Amounts due to group undertakings - -
Amounts due to related parties 4,988 -
Deferred consideration - 2,013
Taxation and social security 118 25
Other payables 819 263
Accruals and deferred income 561 767
7,183 3,135
Included in amounts due to related parties is a loan due to China Electronic Appliance Corporation, a shareholder of the company. The
loan is unsecured, has no fixed terms of repayment and accrues interest at 6.5% per annum.
13. Non current liabilities
Group
31 December
2007 2006
EUR'000 EUR'000
Obligations under finance leases and hire 42 84
purchase contracts
42 84
14. Share capital
Group
31 December
2007 2006
EUR'000 EUR'000
Authorised
1,176,524,970 ordinary shares of EUR0.01 each 11,765 11,765
75,000,000 preference shares of EUR0.01 each 750 750
248,475,030 deferred shares of EUR0.01 each 2,485 2,485
15,000 15,000
Allotted, called up and fully paid
540,772,902 (2006: 385,067,792) ordinary shares 5,408 3,851
of EUR0.01 each
- (2006: 75,000,000) preference shares of - 750
EUR0.01 each
5,408 4,601
All ordinary shares rank equally in respect of shareholders' rights.
On 27 February 2007 the Company allotted 5,000,000 ordinary shares of EUR0.01 ("21CN Acquisition"). The amount to be treated as paid on
each share was STG �0.20. The shares allotted were in consideration of the acquisition of the entire issued share capital of Business New
Media Limited (formerly 21st Century News Agency Limited).
On 2 April 2007 the Company allotted 75,000,000 ordinary shares of EUR0.01 pursuant to the conversion of 75,000,000 preference shares of
EUR0.01.
On 26 April 2007 the Company allotted 3,137,255 ordinary shares of EUR0.01 ("50 Lessons Acquisition"). The amount to be treated as paid
on each share was STG �0.13. The shares allotted were in consideration of the acquisition of ordinary shares in Les50ns Holdings Limited.
On 15 May 2007 the Company allotted 22,555,932 ordinary shares of EUR0.01. The amount paid on each share was STG �0.118. A total of
�2,661,600 was received by the company pursuant to this placing of shares.
On 21 October 2007 the Company allotted 50,011,923 ordinary shares of EUR0.01. The amount paid on each share was STG �0.0855. A total of
�4,276,019 was received by the company pursuant to this placing of shares.
Share options
During the year ended 31 December 2006, share options in the Company were granted to directors under a company share option scheme. All
options vested immediately on grant.
The following share options were issued by the Company:
Date of grant Number of ordinary Exercise price Exercise period
shares under option
6 July 2006 20,500,000 �0.20 6 July 2009 to 6 July 2016
The fair value of equity settled share options granted is estimated at the date of grant using a Black-Scholes option pricing model,
taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model:
Dividend yield 0%
Weighted average share price �0.215
Expected share price volatility 40%
Risk free interest rate 4.81%
Expected life of options 3.5 years
The expense recognised by the Group for share based payments during the year ended 31 December 2007 was EURnil (2006: EUR2,498,551).
15. Purchase of subsidiary undertakings
a) CEC Unet (Henan) Service Co., Ltd and CEC Unet (Guangzhou) Electronic
Communication Co. Ltd
On 30 September 2007, the Company acquired the entire issued share capital of CEC Unet (Henan) Service Co., Ltd and CEC Unet (Guangzhou)
Electronic Communication Co. Ltd.
Book value Adjustments Fair value
EUR'000 EUR'000 EUR'000
Non current assets 461 5,599 6,060
Intangible assets - 10,129 10,129
Cash and cash equivalents 688 - 688
Trade and other receivables 1,543 - 1,543
Trade and other payables (3,325) - (3,325)
15,095
Goodwill arising on acquisition 7,549
22,644
Satisfied by:
Fair value of shares (77,355,946 22,223
ordinary shares)
Cash 421
22,644
The fair value of shares issued has been calculated by reference to the fair value of the intangible assets which were exchanged as part
of the consideration for the entire issued share capital of CEC Unet (Henan) Service Co., Ltd and CEC Unet (Guangzhou) Electronic
Communication Co. Ltd.
Revenue and result for the period of the acquired subsidiary undertaking have not been disclosed as it is deemed impracticable, due to
the commencement date of trading.
b) Caijing Times Development Corporation Limited and Optima Media International Limited
On 30 September 2007, the Company acquired an 80% interest in the issued share capital of Caijing Times Development Corporation Limited
and Optima Media International Limited.
Book value Adjustments Fair value
EUR'000 EUR'000 EUR'000
Non current assets 135 252 387
Intangible assets - 3,771 3,771
Cash and cash equivalents 71 - 71
Trade and other receivables 867 - 867
Trade and other payables (3,674) - (3,674)
1,422
Goodwill arising on 4,197
acquisition
5,619
Satisfied by:
Fair value of shares (19,558,000 ordinary shares) 5,619
5,619
The fair value of shares has been calculated by reference to the fair value of the disposed intangible assets which were exchanged as
consideration for the 80% interest in the issued share capital of Caijing Times Development Corporation Limited and Optima Media
International Limited.
Revenue and result for the period of the acquired subsidiary undertaking have not been disclosed as it is deemed impracticable, due to
the commencement date of trading.
c) Upstart Games Limited
In January 2007 the Company paid a further EUR104,000 in respect of the acquisition of Upstart Games Limited.
16. Net cash and cash equivalents
Group
31 December
2007 2006
EUR'000 EUR'000
Cash at bank and in hand 3,852 2,737
Bank overdraft (17) -
3,835 2,737
17. Related party transactions
During the year ended 31 December 2006, the group acquired 120,000 shares of common stock in NextMart, Inc. The company is controlled
by Dr. B Wu.
During the year ended 31 December 2007 the group paid consultancy fees of EUR6,000 (2006:EUR56,000) to Mr G O'Mahony, director, and
EUR6,000 (2006:EURnil) to Mr T Jones, director.
During the year ended 31 December 2006 Sun TV Shop Limited was acquired. Sun TV Shop Limited was a company controlled by Dr. B Wu which
owned certain intangible assets. These intangible assets were disposed back to companies controlled by Dr. B Wu's during the year ended 31
December 2007 in exchange for certain other assets.
At 31 December 2007, the following amounts were due from/ (owed to) related parties:
31 December
2007 2006
EUR'000 EUR'000
China Electronic Appliance Corporation (2,445) -
Shanghai Panpac Management and Consulting Co., (858) -
Ltd
Shanghai Panpac Culture Co., Ltd (174) -
Sun Sino-Media (Beijing) Technology Co., Ltd (308) -
Shanghai Panpac Management and Consulting Co., (1,203) -
Ltd, Beijing Branch
Shanghai Panpac Management and Consulting Co., 2 -
Ltd, Dailian Branch
Sun New Media Investment Holding Ltd 192 -
NextMart, Inc. 530 -
(4,264) -
With the exception of China Electronic Appliance Corporation ("CEAC"), all the above companies are controlled by Dr B Wu, director.
The amounts owed are in respect of consultancy services provided to the group.
CEAC is a substantial shareholder in CEC Unet plc. The amount owed to CEAC relates to a loan. The loan is unsecured, interest bearing
at 6.5% p.a. with no fixed terms of repayment.
A profit guarantee fee condition included in the sale and purchase agreement dated April 26, 2007 states if net profit of the CEC
(Henan) business for the year ended 31 December 2008 is less than RMB 20 million, a profit guarantee fee from the vendor, CEAC is payable to
the company being the difference between RMB 20 million and the actual profit result. A profit guarantee fee of EUR443,109 was owing to the
company for the year ended 31 December 2007.
During the year ended 31 December 2007, CBP (Beijing) received advertising income of EUR14,000 from Sun Zhong Mei (Beijing)
International Advertising Co., Ltd, a company controlled by Dr B Wu.
18. Subsequent events
On May 7, 2008 the Company announced a private placement of US$3.2 million convertible bonds (the "Initial Bonds") to Evenstar Master
Fund SPC, on behalf of Evenstar Master Sub-Fund I Segregated Portfolio, a Hong Kong based Greater China investment fund ("Evenstar").
The Company will be creating up to US$10,000,000 principal amount of unsecured convertible bonds ("Bonds") and Evenstar has the option
to subscribe for the balance of US$6.8 million of the Bonds within 365 business days. The Initial Bonds were issued on May 6, 2008 and are
due for repayment on May 6, 2013. Any future issues will be repayable five years from the date of such issuances.
The Bonds pay a coupon of 3.5 per cent per annum, and are convertible at the bondholder's request at any time.
The initial conversion price of the Bonds, subjected to adjustments, is US$0.0745 (or approximately 3.756 pence), which represents 110
per cent of the 30 day volume weighted average price (VWAP) prior to the date of issue of the Initial Bonds. The conversion price also
represents a premium of approximately 30% to the previous day closing price of 2.880 pence; and approximately 28% to the previous 5-day
average closing price of 2.928 pence.
CEC Unet has warranted to Evenstar, amongst other things, that profit before tax for the core business will be no less than RMB15
million (�1.05 million) for 2008 and RMB 20 million (�1.4 million) for 2009. In the event that these performance criteria are not met, the
bondholder may demand immediate repayment (amongst other redemption rights), in whole or in part, of the Bonds or for reset of conversion
price.
The proceeds of the Bonds will be used to expand CEC Unet's mobile top up business in Mainland China.
To facilitate the issuance of the Bonds for the Company, Sun Media Investment Holdings Limited, Nextmart, Inc. and Mr. Tom Jones entered
into the stock lending agreement with Evenstar, and have transferred, for the consideration of EUR1 to each of the lenders, an aggregate
36,000,000 existing ordinary shares in the Company to Evenstar. Evenstar will return these shares for nil consideration in the event that
the Bonds are fully repaid or converted and new ordinary shares issued by the Company.
On April 1, 2008, Mr R Gee Hing Ang resigned as a director of the company.
19. Transition to IFRS
The key differences between Irish GAAP and IFRS that will impact the group are set out below.
The rules for the first time adoption of IFRS are set out in IFRS1 'First Time Adoption of International Financial Reporting Standards'.
The rules state that a company should use the same accounting policies in its opening IFRS balance sheet and throughout all periods
presented in its first IFRS financial statements.
Goodwill
Under Irish GAAP, the group was amortising goodwill arising on acquisitions over a period of between 10 years. Under IFRS 3 'Business
combinations', goodwill is not amortised but instead is subject to annual impairment tests or more frequently if there is an indication of
impairment.
Amortisation provided under Irish GAAP has been written back under IFRS with the result that net assets at 31 December 2006 have
increased by EUR1,242,000 and loss before taxation for the year ended 31 December 2006 has decreased by EUR1,242,000.
Foreign currency
Under Irish GAAP foreign exchange differences arising on the retranslation of the net assets of overseas subsidiaries were written off
directly to retained earnings. Under IAS 21 'The effects of changes in foreign exchange rates', these differences are required to be
separately identified as part of equity.
The change has no impact on the net assets of the business or the profit before taxation for any period but increases retained earnings
by EUR7,000 at 31 December 2006.
Reconciliations
The following pages show the reconciliation of Profit and Equity under Irish GAAP to Profit and Equity under IFRS for the year ended 31
December 2006 (the most recent annual financial statements). There were no adjustments made to reconcile Equity under Irish GAAP to Equity
under IFRS as at 1 January 2006 (date of transition). Whilst the format of the cash flow statement is different from Irish GAAP, there are
no material differences to group cash flow under Irish GAAP and IFRS.
Reconciliation of Profit from Irish GAAP to IFRS
The effect of the transition to IFRS on Profit for the year ended 31 December 2006 is shown below.
Year ended 31 December 2006
Under Effect of transition to IFRS Under
Irish GAAP IFRS
EUR'000 EUR'000 EUR'000
Revenue 170 - 170
Cost of sales (57) - (57)
gross profit 113 113
Administrative expenses (1,878) - (1,878)
Amortisation of intangible (6,627) 1,242 (5,385)
fixed assets
Impairment of intangible fixed (1,971) - (1,971)
assets
Other operating expenses (2,498) - (2,498)
Operating loss (12,861) 1,242 (11,619)
Other interest receivable and 60 - 60
similar income
Loss before tax (12,801) 1,242 (11,559)
Tax expense - - -
Loss for the period (12,801) 1,242 (11,559)
Loss per share EUR EUR
Basic and diluted (0.06) - (0.06)
EUR'000
Loss under Irish GAAP (12,801)
Amortisation of goodwill 1,242
Loss under IFRS (11,559)
Reconciliation of Equity from Irish GAAP to IFRS
The effect of the transition to IFRS on Equity as at 31 December 2006 is set out below.
As at 31 December 2006
Under Effect of transition to IFRS Under
Irish GAAP IFRS
EUR'000 EUR'000 EUR'000
ASSETS
Non-current assets
Intangible assets 75,381 (11,176) 64,205
Goodwill - 12,418 12,418
Property, plant and equipment 60 - 60
Investments 60 - 60
75,501 1,242 76,743
Current assets
Trade and other receivables 681 - 681
Cash and cash equivalents 2,737 - 2,737
3,418 3,418
LIABILITIES
Current liabilities
Trade and other payables (3,135) - (3,135)
Obligations under finance (128) - (128)
leases
(3,263) - (3,263)
Net current assets 155 - 155
Non-current liabilities
Obligations under finance (84) - (84)
leases
NET ASSETS 75,572 1,242 76,814
SHAREHOLDERS' EQUITY
Called up share capital 4,601 - 4,601
Share premium account 82,115 - 82,115
Share based payments reserve 2,499 - 2,499
Other reserves 8 - 8
Currency translation reserve - (7) (7)
Retained earnings (13,651) 1,249 (12,402)
TOTAL EQUITY 75,572 1,242 76,814
EUR'000
Equity under Irish GAAP 75,572
Amortisation of goodwill 1,242
Equity under IFRS 76,814
This information is provided by RNS
The company news service from the London Stock Exchange
END
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