TIDMGWIN
RNS Number : 5914K
Gowin New Energy Group Limited
31 December 2015
31 December 2015
Gowin New Energy Group Ltd
("Gowin" or the "Company")
Termination of Yichia Optoelectronics Technology Co.Ltd
("Yichia Optoelectronics") VIE Contracts
Resignation of Directors
Lifting of the suspension of the Company's shares
Termination of the VIE Contracts
The Directors announce today that the Variable Interest Entity
(VIE) contracts (VIE Contracts) between the Company and certain of
its subsidiaries ("Group") and Yichia Optoelectronics have been
terminated with immediate effect due to legal action taken against
Yichia Optoelectronics in the People's Republic of China ("PRC") by
its employees and creditors. This legal action, which was taken
without prior notice to the Board, led, on 25 November 2015, to the
Dongguan First People Court assigning a PRC local valuation company
to assess the value of Yichia Optoelectronics' machinery and
equipment and through a Court prohibition, prohibited anyone
entering the Yichia Optoelectronics factory. As a result, Yichia
Optoelectronics was forced to cease trading. As Yichia
Optoelectronics has ceased to trade it is in breach of the VIE
Contracts and the Group has accordingly terminated these
contracts.
As at 30 June 2015 the Company was owed a sum of 10m RMB from
Yichia Optoelectronics. The Directors are currently considering
what action can be taken to recover this loan, including potential
legal action. However, the Directors believe the prospects of
recovery are remote. Accordingly following the termination of the
VIE Contracts the Directors have fully impaired this loan. The
results to 31 December 2015 will reflect this impairment.
Gowin will no longer have an office address in Dongguan and has
changed its office address to be in Taiwan, from where the business
will be managed and sales operation directed.
A detailed history of the VIE contracts between the Company and
Yichia Optoelectronics is set out in the notes to this
announcement.
Resignation of Directors
As result of the termination of the VIE structure with Yichia
Optoelectronics, the roles of executive directors Chinlung Hsieh
and Cao Juping in the management of Yichia Optoelectronics cease.
Accordingly, they have resigned as Executive Directors of Gowin,
effective 17 December 2015.
The Board will operate with 3 directors for the time being - non
executive Chairman Dr. Garry Willinge, CEO Mr. Chen Chih-Lung and
non-executive director Chou Huan-Nan. The Board intends to add new
Directors in the near future and will continue its focus to protect
the rights of the Group's shareholders.
Current trading and future prospects
The company has for some time carried out its operations in
three areas - Sales, R&D (for specific contracts) and
manufacturing. Manufacturing was undertaken either within Yichia
Optoelectronics (under the Company's VIE Contracts) or through
third party manufacturers. The Directors believe that the
termination of the VIE Contracts will not have a material effect on
the Company's operations.
The Company is accelerating its outsourcing business model for
its manufacturing requirements and is developing new LED related
manufacturing and distribution channels, that amongst other
outcomes, is expected to result in higher gross profit margins and
sustainable free cash flow in the next financial year. Overall this
is expected to reduce the Group's working capital requirements and
the Directors believe that this new business model will enhance the
Company's margins and shareholder value.
Sales in the current financial year have been lower than in the
year to 31 December 2014. However, the company has also worked hard
to reduce costs of sales and expects the current year to show a
reduction in the losses of the Company.
A forecasted working capital statement has been prepared. The
Directors believe after due and careful consideration that the
Company has sufficient working capital for the period of 12 months
following re admission of the Company's shares to trading on the
ISDX Growth Market.
Resumption of Trading
The Board, having completed the assessment of its current
business believes the Company continues to have strong prospects
for the future. Accordingly the Directors have requested that the
Company's shares be readmitted to trading on the ISDX Growth
Market. The Board will continue to comply with the ISDX Growth
Market rules and corporate governance code in all aspects including
financial reporting and disclosure of information obligations.
An application has been made by the Company to ISDX for the
resumption of trading in its shares on the Stock Exchange with
effect from 9.00 a.m. on 4 January 2016.
The Directors of Gowin are responsible for the content of this
announcement.
For further information please visit www.gowinyichia.com or
contact the following:
Garry Willinge Gowin New Energy Group Limited +852 9100 9972
David Scott Alexander David Securities Limited +44 20 7448 9820
Additional information on the suspension and background on
Yichia Optoelectronics
At the request of the Group for the purpose of protecting the
rights of shareholders, trading in the shares of the Company on the
ISDX Growth Market was suspended with effect from 5:00p.m. on 27
November 2015 pending the release of this announcement.
The Company has carried out an extensive review of its
operations in the PRC, in particular, in relation to the PRC
company Dongguan Yichia Optoelectronics Technology Co. Ltd and the
events which have led up to the suspension of the Company's shares.
Set out below is the background to the Company's activities in
PRC.
1. Background to Yichia Optoelectronics
Gowin began trading on AIM in November 2013 whereby Yichia
Optoelectronics was connected contractually to the Company through
a Variable Interest Entity (VIE) structure which is described in
the original AIM Admission document, but is not actually owned by
the Group.
In accordance with IFRS regulations, Yichia Optoelectronics'
financial results are consolidated with the accounts of Gowin New
Energy Group Limited. The VIE structure consists of six agreements
which protect the rights of the Group in its operations in China
and gave the Group access to the factory in PRC operated by Yichia
Optoelectronics.
It is well publicised that the Chinese economy suffered a severe
downturn in 2014. According to PRC related statistics there were
more than 2500 bankrupt companies in Guangdong province alone.
Although the number of shipments in the LED industry has been
rising, gross margins sharply declined and businesses generally
faced increasing difficulties in receiving payments for goods and
services from clients. The Company experienced working capital
issues in 2014, relating to the operations of Yichia
Optoelectronics that resulted in Yichia Optoelectronics falling
into arrears with employee salaries and supplier payments. These
working capital difficulties were disclosed by the Group in various
trading updates. Additionally, disclosures were made in the
Company's audited 2014 annual report and the unaudited 2015
mid-year report, which were supported by the independent auditors'
unqualified audit opinion and Emphasis of Matter regarding the
Group continuing as a going concern.
The Board has throughout 2015 developed a strategy to deal with
the deteriorating financial situation at Yichia Optoelectronics.
New strategic investors joined the Group in January 2015, a new
Group CEO and CFO were appointed, new manufacturing and
distribution channels were sought and the Group has worked closely
with its auditors on going concern reviews. Yichia Optoelectronics'
finances continued to deteriorate in the second half of 2015 and
the Group had been working on solutions to address the Yichia
Optoelectronics liquidity issues that were becoming increasingly
unsustainable, including a potential sale of the business.
However, before any further action could be taken, creditors and
employees of Yichia Optoelectronics made representations to the
Dongguan First People Court to apply for auction of Yichia
Optoelectronics machinery and equipment. Without prior notice to
the Board on 25 November 2015, the Dongguan First People Court
assigned a PRC local valuation company to assess the value of the
machinery and equipment and through a Court prohibition, prohibited
anyone entering the Yichia Optoelectronics factory. As a result,
Yichia Optoelectronics was forced to cease trading. The Board only
received notice about this development from executive director
Chinlung Hsieh on 26 November 2015. The Board convened a meeting
together with its advisers immediately. In order to investigate the
situation of Yichia Optoelectronics further and to protect
shareholders' rights, the Board announced the suspension of trading
on 27 November 2015.
The VIE Agreements are subject to PRC law and legal advice was
sought in PRC concerning the failure of Yichia Optoelectronics in
relation to those agreements. In accordance with that advice Gowin
has terminated the VIE Agreements with immediate effect and will
consider taking proceedings for recovery of outstanding debts due
from Yichia Optoelectronics to the Group.
2. The impact of termination of the VIE Agreements on the Group
arising from the bankruptcy of Yichia Optoelectronics.
December 31, 2015 06:28 ET (11:28 GMT)
Due to working capital constraints Yichia Optoelectronics had
already moved to an outsourcing business model in 2014. Accordingly
the Yichia Optoelectronics factory in Guangdong Province is no
longer required for the ongoing operations of the Group and the
trading structure has already been replaced with Rosin Trading
Limited ("Rosin") and its subsidiaries. Former employees of Yichia
Optoelectronics have left the Group and new staff in Taiwan has
joined Rosin in departments such as R&D and Sales. The Group
continues its international sales and distribution strategy in
consumer, retail and industrial segments. The termination of the
VIE Agreements will also have positive consequences for the Group,
since the Company will no longer be required to lend any funds to
Yichia Optoelectronics or to manage production and also will no
longer have its financial statements impacted by losses
attributable to Yichia Optoelectronics. According to the current
Group's financial statements, Gowin has outstanding loans to be
repaid by Yichia Optoelectronics in the order of 10 million RMB,
which though now impaired in full, the Group is reviewing the
potential to pursue through legal action against Yichia
Optoelectronics.
This information is provided by RNS
The company news service from the London Stock Exchange
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December 31, 2015 06:28 ET (11:28 GMT)