ZTE posts 2bn yuan annual loss as US export fine bites

Shares close up 6.07pc in Hong Kong, as uncertainty over violation of trade sanctions lifted. Telecoms giant now predicts 21-31pc improvement in Q1 profit

PUBLISHED : Wednesday, 08 March, 2017, 8:14pm
UPDATED : Wednesday, 08 March, 2017, 11:00pm

ZTE Corp has reported its first annual loss since 2012, after China’s largest listed telecommunications equipment supplier set aside money for a record fine to the United States government as settlement for violating trade sanctions against Iran and North Korea.

The company lost 2.36 billion yuan (US$342 million) in 2016, compared with a profit of 3.21 billion yuan in 2015.

In a regulatory filing on Wednesday, ZTE chairman and president Zhao Xianming said the company made a provision for losses of US$892 million in the 12 months ended December 31 related to the penalty it expected to incur from a settlement with the US government.

Shares in the Shenzhen-based company jumped as much as 8.9 per cent to HK$13.28 in Hong Kong, their biggest intraday advance in 19 months, before easing back to close up 6.07 per cent to HK$12.94. Trading in its shares in Shenzhen was halted for the announcement of the settlement.

Excluding that provision for losses, the Shenzhen-based company estimated it would have reported a 19 per cent increase in annual net profit to 3.82 billion yuan, up from 3.21 billion yuan in 2015.

Total revenue last year was basically flat, advancing just 1 per cent to 101.23 billion yuan from 100.19 billion yuan a year earlier.

The world’s fourth-largest telecoms equipment supplier, ZTE agreed to pay combined criminal and civil penalties of US$1.2 billion to the Bureau of Industry and Security (BIS) under the US Department of Commerce, the Department of Justice and the Office of Foreign Assets Control under the Department of Treasury.

Of that total amount, payment for a US$300 million civil penalty to the BIS was suspended during ZTE’s seven-year probationary period, to deter future violations.

“The company has taken an overhaul of its organisation and structure, business procedures and internal control,” Zhao said, adding the company had “taken necessary measures to ensure the company’s compliance with US export laws and performance of its obligations under the agreements”.

ZTE was slapped with US export restrictions in March 7 last year, but was granted by Washington with five consecutive reprieves from those curbs, so the firm could get chips and other essential components from its US suppliers.

Following the record settlement for a US export control case, ZTE’s guidance for its first-quarter financial results look somewhat rosier, with a predicted 21.1 per cent to 31.6 per cent improvement in first-quarter net profit, ranging from 1.15 billion yuan to 1.25 billion yuan, up from 949.5 million yuan in the same period last year.