Shares digital

ZTC Communications (ZTC:AIM) - Interims PTP: £1.35m (£0.86m) Divi: n/a (n/a)

A range of new models and tight cost control enabled pre-tax profit growth to outstrip even a 43% leap in own-branded unit shipments. Yet adverse winter weather and ongoing funding requirements mean the Chinese mobile phone expert faces several challenges if it is to maintain its strong momentum.

Although ZTC still has £1.9 million in cash on its balance sheet, the working capital required to fund its recent rapid growth resulted in a £2 million cash outflow from operations during the half. The £10 million cap therefore repeated February’s statement that it is seeking additional funding, so it can capitalise fully on a distribution deal with Beijing Vosia Information Technology, which could see ZTC ship up to 400,000 handsets.

‘The problem we have is it is very difficult in China for smaller companies to borrow on their balance sheets,’ chairman Frank Lewis explains. ‘The banks want cross guarantees from other sources as the banking system there is not as mature, so the issue for us is to get the right mix of debt and equity.’

ZTC also admitted sales early in the second half were disrupted by the appalling winter weather, which gripped the People’s Republic of China in February, the key New Year holiday selling season.

Lewis was quick to reassure shareholders business has returned to anticipated levels with the return of more clement conditions. But ZTC’s shares remained mired at their all-time low of 9.5p, way below the 20p price at which the firm joined the market last year via a reverse takeover of unlisted shell Cassian Investments.

Shares says: Cheap and packed with potential but wait until the funding situation has been clarified.

by: Russ Mould