Gowin New Energy Group Limited Lifting of the Suspension of the Company's Shares (5914K)

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     [phone] 
   David Scott                  Alexander David Securities Limited    [phone] 

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)