Approval of the Prospectus

Transcription

Prospectus
Dated 30 May 2016
for the public offering in Germany and Luxembourg
of
3,000,000 newly issued ordinary bearer shares from a capital increase for a contribution in cash
to be resolved by an extraordinary general shareholders’ meeting of the Company presumably
on 20 June 2016
(the “New Shares”)
and
for admission to trading on the regulated market segment (Regulierter Markt) of the
Frankfurt Stock Exchange (General Standard)
of
30,000,000 existing ordinary bearer shares (the “Existing Shares”)
and of
up to 3,000,000 New Shares
-each such share with no par value and a notional value of Euro (“EUR”) 1.00 each and
full dividend rights for the financial year 2016of
Decheng Technology AG
Cologne, Germany
International Securities Identification Number (ISIN): DE000A1YDDM9
German Securities Identification Number (WKN): A1YDDM
Ticker Symbol: 333
Global Coordinator, Lead Manager, Underwriter and Bookrunner
ACON Actienbank AG
This document constitutes a prospectus for the purposes of the public offerings in Germany and Luxembourg and listing
of the shares on the regulated market (Regulierter Markt) of the Frankfurt Stock Exchange (the “Prospectus”). This
Prospectus has been prepared in the English language with a German-language summary in accordance with the
Commission Regulation (EC) No 809/2004 of 29 April 2004 and conforms to the requirements of the German Securities
Prospectus Act (Wertpapierprospektgesetz). This Prospectus has been approved by the German Federal Financial
Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin”) after a review for completeness of the
Prospectus, including a review for coherence and comprehensibility of the presented information, according to section
13 subsection 1 of the German Securities Prospectus Act, and notified to the competent authority in Luxembourg in
accordance with section 18 subsection 1 of the German Securities Prospectus Act and the European passport
mechanism set out in the Prospectus Directive (No 2003/71/EC).
Page 1
TABLE OF CONTENTS
1.
SUMMARY .............................................................................................. 8
Section A – Introduction and warnings............................................................... 8
Section B – Issuer ............................................................................................. 8
Section C – Securities ..................................................................................... 16
Section D – Risks ............................................................................................ 18
Section E – Offer ............................................................................................. 21
2.
GERMAN TRANSLATION OF THE SUMMARY
(ZUSAMMENFASSUNG) ...................................................................... 25
Abschnitt A – Einleitung und Warnhinweise ..................................................... 25
Abschnitt B – Emittent ..................................................................................... 26
Abschnitt C – Wertpapiere ............................................................................... 34
Abschnitt D – Risiken ...................................................................................... 36
Abschnitt E – Angebot ..................................................................................... 40
3.
4.
5.
RISK FACTORS .................................................................................... 44
3.1
Risks related to DECHENG’s Operations ............................................. 44
3.2
Risks related to Conducting Business in the PRC ................................ 60
3.3
Risks Related to the Offering ............................................................... 69
GENERAL INFORMATION ................................................................... 73
4.1
Responsibility Statement ...................................................................... 73
4.2
Subject Matter of this Prospectus ......................................................... 73
4.3
Statutory Auditors ................................................................................ 73
4.4
Documents Available for Inspection ..................................................... 74
4.5
Statements Relating to Future Events, Statistical Data, Market
Data and Estimates .............................................................................. 74
4.6
Note Regarding Financial Data and Currency ...................................... 75
4.7
Third Party Data ................................................................................... 76
THE OFFERING .................................................................................... 77
5.1
Subject Matter of the Offering .............................................................. 77
5.2
Offering Period, Subscription, Offer Price and Number of
Allotted Shares..................................................................................... 77
5.3
Rights Attached to the Offered Shares ................................................. 79
5.4
Projected Timetable for the Offering ..................................................... 80
5.5
Information Concerning the Shares in the Company ............................ 80
5.6
Allotment Criteria ................................................................................. 82
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6.
7.
8.
5.7
Stock Exchange Admission and Commencement of Trading ............... 82
5.8
Delivery and Settlement ....................................................................... 82
5.9
Designated Sponsor............................................................................. 82
5.10
Consent to the use of the Prospectus................................................... 83
5.11
Market Protection Agreements (Lock up) ............................................. 83
REASONS FOR THE OFFERING, USE OF ISSUE PROCEEDS,
ISSUE COSTS AND INTERESTED THIRD PARTIES .......................... 84
6.1
Issue Proceeds and Costs ................................................................... 84
6.2
Reasons for the Offering ...................................................................... 84
6.3
Use of the Issue Proceeds ................................................................... 84
6.4
Interested Parties Involved in the Offering ............................................ 85
DIVIDEND POLICY; EARNINGS PER SHARE .................................... 86
7.1
Dividend Rights and Dividend Policy .................................................... 86
7.2
Dividends and Earnings per Share ....................................................... 86
GENERAL DESCRIPTION OF THE SHARES ...................................... 88
8.1
Class of Shares, Voting Rights ............................................................. 88
8.2
Certification of Shares .......................................................................... 88
8.3
Dividend Rights .................................................................................... 88
8.4
Takeover Offers, Exclusion of Minority Shareholders (SqueezeOut) and Shareholding Notification Requirements ................................ 89
8.5
Transferability of the Shares ................................................................ 92
8.6
Notices ................................................................................................. 92
8.7
Securities Identification Number, Stock Symbol, Ticker Symbol ........... 92
8.8
Paying Agent........................................................................................ 92
9.
DILUTION .............................................................................................. 93
10.
CAPITAL STRUCTURE AND NET FINANCIAL LIABILITIES ............. 94
10.1
Capitalization and Indebtedness .......................................................... 94
10.2
Contingent and Indirect Liabilities ......................................................... 95
10.3
Borrowing Requirements ...................................................................... 95
10.4
Working Capital Statement................................................................... 95
10.5
Significant Changes ............................................................................. 95
11.
SELECTED FINANCIAL INFORMATION ............................................. 96
12.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............. 99
12.1
Overview of Business........................................................................... 99
12.2
Key Factors affecting Results of Operations....................................... 100
12.3
Results of Operations......................................................................... 101
12.4
Balance Sheet Data ........................................................................... 108
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12.5
Liquidity and Capital Resources ......................................................... 112
12.6
Off-Balance Sheet and other Arrangements ....................................... 113
12.7
Basis of Preparation ........................................................................... 113
12.8
Critical Accounting Policies ................................................................ 113
12.9
Additional Information from the Financial Statements of the
Company ........................................................................................... 115
12.10 Additional Information from the Financial Statements of
DECHENG HK ................................................................................... 115
13.
BUSINESS ACTIVITIES OF DECHENG ............................................. 116
13.1
Overview ............................................................................................ 116
13.2
History of DECHENG ......................................................................... 117
13.3
Competitive strength .......................................................................... 117
13.4
Strategies........................................................................................... 118
13.5
Products............................................................................................. 119
13.6
Production .......................................................................................... 120
13.7
Quality Assurance .............................................................................. 121
13.8
Environmental Protection ................................................................... 122
13.9
Research and Development (R&D) .................................................... 123
13.10 Intellectual Property Rights ................................................................ 123
13.11 Information Technology ...................................................................... 125
13.12 Licenses and Permits ......................................................................... 126
13.13 Sales and Marketing .......................................................................... 127
13.14 Major Customers ................................................................................ 128
13.15 Raw Materials and Suppliers .............................................................. 129
13.16 Inventory Management ...................................................................... 130
13.17 Credit Management............................................................................ 130
13.18 Awards and Recognitions................................................................... 131
13.19 Employees ......................................................................................... 131
13.20 Business Locations, Property, Plant and Equipment .......................... 133
13.21 Insurances ......................................................................................... 134
13.22 Material Contracts .............................................................................. 134
13.23 Loan Agreements / Credit Line Agreements ....................................... 135
13.24 Mortgage/Guarantee Agreements ...................................................... 135
13.25 Legal Proceedings ............................................................................. 136
13.26 Investments........................................................................................ 136
14.
MARKET ENVIRONMENT AND COMPETITIVE SITUATION ............ 137
14.1
Introduction ........................................................................................ 137
14.2
Economic Growth in the PRC ............................................................. 137
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15.
14.3
Urbanization in the PRC ..................................................................... 138
14.4
Disposable Income of urban and rural households in the PRC ........... 138
14.5
Retail sales of consumer goods in the PRC ....................................... 138
14.6
Overview of the global polyurethane industry ..................................... 139
14.7
Analysis of the PU industry in the PRC .............................................. 143
14.8
Overview of PU for textile applications in the PRC ............................. 150
14.9
Overview of PU for synthetic leather applications in the PRC ............. 153
REGULATORY ENVIRONMENT ........................................................ 156
15.1
PRC Legal System ............................................................................. 156
15.2
The General Principles of the Civil Law .............................................. 156
15.3
PRC Company Law............................................................................ 156
15.4
M&A Provisions .................................................................................. 157
15.5
Foreign Investment Regulations ......................................................... 157
15.6
Foreign Exchange Regulation ............................................................ 158
15.7
Dividend Distribution by WFOE .......................................................... 159
15.8
Taxation of Dividends received from PRC in Hong Kong ................... 160
15.9
PRC Tax Laws ................................................................................... 160
15.10 Tort Liability Law ................................................................................ 162
15.11 Product Liability Law .......................................................................... 162
15.12 Protection of Intellectual Property Rights............................................ 163
15.13 Labor Law .......................................................................................... 164
15.14 The PRC Land System ...................................................................... 166
15.15 Environmental Laws ........................................................................... 167
15.16 Laws and regulations on production safety ........................................ 169
15.17 Other National and Provincial Level Laws and Regulations................ 171
16.
17.
GENERAL INFORMATION ON THE COMPANY AND
DECHENG ........................................................................................... 172
16.1
Incorporation, Entry in the Commercial Register, Company
Name and Registered Office .............................................................. 172
16.2
Financial Year, Auditor and Duration .................................................. 172
16.3
Current Structure of DECHENG ......................................................... 173
16.4
Restructuring of DECHENG and Corporate History............................ 173
16.5
Share Transfer and Capital Increase by Contribution in Kind
(Sachkapitalerhöhung) ....................................................................... 175
16.6
Current Shareholder Structure of the Company ................................. 176
16.7
Notices ............................................................................................... 177
SHAREHOLDER STRUCTURE OF THE COMPANY BEFORE
AND AFTER THE OFFERING ............................................................ 178
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18.
19.
20.
21.
22.
23.
INFORMATION ON THE SHARE CAPITAL OF THE COMPANY
AND GENERAL RULES ..................................................................... 179
18.1
Issued Share Capital .......................................................................... 179
18.2
Development of Share Capital ........................................................... 179
18.3
Authorized Share Capital ................................................................... 179
18.4
General Rules on the Increase of Share Capital ................................ 180
18.5
General Rules on Subscription Rights ................................................ 180
18.6
General Rules Relating to Use of Profits and Dividend
Payments ........................................................................................... 180
18.7
General Rules Relating to a Liquidation of the Company ................... 181
CORPORATE BODIES AND MANAGEMENT ................................... 182
19.1
Overview ............................................................................................ 182
19.2
Management Board (Vorstand) .......................................................... 183
19.3
Senior Management ........................................................................... 187
19.4
Supervisory Board (Aufsichtsrat) ........................................................ 188
19.5
Specific Information on the Members of the Supervisory Board
(Aufsichtsrat), the Management Board (Vorstand) and the
Senior Management ........................................................................... 193
19.6
General Shareholders’ Meeting (Hauptversammlung) ........................ 193
19.7
Corporate Governance Code ............................................................. 195
TRANSACTIONS AND LEGAL RELATIONS WITH RELATED
PARTIES ............................................................................................. 198
20.1
Related Parties .................................................................................. 198
20.2
Related Party Transactions ................................................................ 198
TAXATION IN GERMANY .................................................................. 201
21.1
Taxation of the Company ................................................................... 201
21.2
Taxation of Shareholders ................................................................... 203
21.3
Taxation of Dividends ......................................................................... 203
21.4
Taxation of Capital Gains ................................................................... 206
21.5
Inheritance and Gift Tax ..................................................................... 208
21.6
Other Taxes ....................................................................................... 208
TAXATION IN LUXEMBOURG ........................................................... 209
22.1
Taxation of Income Derived from and Capital Gains Realized on
the Shares Held by Luxembourg Residents ....................................... 209
22.2
Other Taxes ....................................................................................... 212
UNDERWRITING ................................................................................ 214
23.1
Underwriting Agreement..................................................................... 214
23.2
Commissions and Fees ...................................................................... 214
23.3
Conditions Precedent, Termination .................................................... 214
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23.4
Indemnification ................................................................................... 215
23.5
Selling and Transfer Restrictions........................................................ 215
24.
RECENT DEVELOPMENTS AND OUTLOOK .................................... 217
25.
FINANCIALINFORMATION ……..…………………………...……........ F-1
26.
GLOSSARY ……………………………………………………………….. G-1
27.
SIGNATURE ………………………………………………………………. S-1
Page 7
1.
SUMMARY
Summaries are made up of disclosure requirements known as “Elements”. These elements are
numbered in Sections A – E (A.1 – E.7). This summary contains all the Elements required to be
included in a summary for this type of securities and issuer. Because some Elements are not required
to be addressed, there may be gaps in the numbering sequence of the Elements. Even though an
Element may be required to be inserted in the summary because of the type of securities and issuer, it
is possible that no relevant information can be given regarding the Element. In this case a short
description of the Element is included in the summary with the mention of “not applicable”.
Section A – Introduction and warnings
A.1
Warnings
This summary should be read as an introduction to the Prospectus.
Any decision to invest in the securities should be based on consideration of the
Prospectus as a whole by the investor.
In the event a claim relating to the information contained in this Prospectus is
brought before a court, the plaintiff investor may, under the respective national
legislation of the relevant member state of the European Economic Area
(“EEA”), be required to bear the costs of translating this Prospectus before
legal proceedings are commenced.
Decheng Technology AG, with its registered office in Cologne, Federal
Republic of Germany (“Germany”) (the “Company” and together with its direct
and indirect subsidiaries “DECHENG” or the “Group”) as well as ACON
Actienbank AG, Heimeranstraße 37, 80339 Munich, Germany (“Global
Coordinator” or “Underwriter” or “ACON”) assume responsibility for the
contents of this summary, including the German translation hereof, pursuant to
section 5 subsection 2b no. 4 of the German Securities Prospectus Act
(Wertpapierprospektgesetz - WpPG). Those persons who are responsible for
the summary, including any translation thereof, or for the issuing thereof, can
be held liable, however, only if this summary is misleading, incorrect or
contradictory when read together with other parts of this Prospectus or it does
not provide, when read together with the other parts of the Prospectus, all
necessary key information.
A.2
Consent for
use of the
prospectus,
use of
prospectus
during
offering
period,
conditions for
use and note
for the
investors
The consent of the Company regarding the use of the Prospectus in Germany
and Luxembourg for a sale and placement of securities has been granted to
ACON Actienbank AG, Heimeranstraße 37, 80339 Munich, Germany (also the
“Lead Manager”).
The consent to the use of the Prospectus by the Lead Manager is given for the
period which commences on 6 June 2016 and ends on 20 June 2016
(“Offering Period”).
In the event of an offer being made by the Lead Manager, the Lead
Manager will provide information to investors on the terms and
conditions of the offer at the time the offer is made.
Section B – Issuer
B.1
Legal and
commercial
name
The legal name of the Company is Decheng Technology AG. The Company
acts under the commercial name “Decheng Technology AG”.
B.2
Domicile /
legal form /
legislation /
country of
incorporation
The registered office (Satzungssitz) of the Company is in Cologne, Germany
and the Company is registered with the commercial register of the local court
(Amtsgericht) of Cologne under the registration number HRB 87176. The
business address is c/o RSM Altavis GmbH, Martin-Luther-Platz 26, 40212
Düsseldorf, Germany.
Page 8
The Company is a German stock corporation (Aktiengesellschaft).
The legislation under which the Company operates is German Law.
Country of incorporation is Germany.
B.3
The Issuer’s
current
operations
and its
principal
activities,
including the
main
categories of
products sold
and/or
services
performed
and
identification
of the
principal
markets in
which the
Issuer
competes
The Company
The current operations and principal activities of the Company are the
management of companies and the administration of interests in companies, in
particular companies active in the following business fields: development,
production and distribution of polyurethane products.
The operations of the Company include in particular the acquisition, holding
and administration as well as the sale of participations in companies, their
combination under common management and the provision of support and
advice to them, including the provision of services on behalf of such
companies.
The Company may itself be directly active in the business fields specified
above.
The Group
The Company is the ultimate holding company of DECHENG.
DECHENG is a Chinese polyurethane (“PU”) resin producer. Polyurethane
resins of DECHENG are used to add properties to customers’ textiles and
leathers such as waterproofness and flame resistance as well as a range of
other enhancing features.
Polyurethane resin oil based products as produced by DECHENG are (i) single
as well as two liquid type polyurethane resins for dry fabrics, (ii) polyurethane
produced by wet winding technology and (iii) polyurethane resin for fiber
coating. DECHENG produces its polyurethane resins from methylene diphenyl
diisocyanate (MDI), and toluene diisocyanate (TDI), with polyester polypol
mixes. DECHENG also produces bridging agents and accelerator additives
which are combined with DECHENG’s polyurethane resins by leather and
textile customers.
DECHENG’s resin products are used as product enhancement mainly in the
textile and leather industry. Applications for the textile industry are in particular
outdoor supplies, waterproof jackets and windbreakers, fast dry clothing, tents,
backpacks, sleeping bags and mats. Applications for the leather industry are in
particular leather products such as leather sofas, leather clothing, shoes and
footballs. The bridging agents and accelerator additives, which are produced,
serve the purpose of strengthening the functions of the resin products, e.g.
increasing the stickiness to textiles or facilitating the dryness of the resin.
DECHENG sells its products only in the Chinese market, mainly directly to
textile and leather manufacturers in Fujian, Guangdong, Zhejiang, Jiangsu,
Guangxi and Shanghai.
The revenue generated from polyurethane resin and additives products
increased from Euro (“EUR”) 38.79 million in the financial year (“FY”) 2013, to
EUR 49.44 million in FY 2014 as well as to EUR 69.76 million in FY 2015,
representing a compounded annual growth rate (“CAGR”) of 34.11%.
DECHENG’s profit after tax for FY 2013, FY 2014 and FY 2015 was EUR 8.46
million, EUR 12.32 million as well as EUR 17.85 million respectively,
representing a CAGR of 45.27%.
DECHENG’s operating facilities are located at Pu’an Leather Center,
Quangang District, Quanzhou City, Fujian Province, Postal Code 362801,
People’s Republic of China (“PRC” or “China”). DECHENG’s production
facilities have generated a total output of approx. 25.47 million kilogram (“kg”)
of polyurethane resin and 0.64 million kg of additives in FY 2015.
Page 9
As at 31 December 2015, DECHENG employed 123 employees. Until the date
of this Prospectus, no material change in the number of employees has
occurred.
Strengths
The Company believes that the following strengths are the main drivers of its
future growth:

Modern production technology

Strong R&D expertise

Good working relationship with customers

Strong marketing and sales team

Dedicated and experienced management team
Strategies
DECHENG is pursuing the following strategic objectives:
B.4a Most
significant
recent trends
affecting the
issuer and the
industries in
which it
operates

Geographic expansion and strive for a greater market share

Functional expansion and development of new products

Increase of brand awareness

Further strengthening of R&D Expertise

Expansion of production facilities
Growing industry in China
The annual demand of the PU resin industry in China grew continuously from
6.7 million tons in 2011 to 9.4 million tons in 2015 at a CAGR of 8.8% (Source:
Market research report “Polyurethane Resin Industry”, dated March 2016,
prepared by Frost & Sullivan GIC Malaysia Sdn Bhd (“Market Research
Report”)). However, the annual growth rate of demand slowed down in 2013.
Growing demand for textile in international and domestic market
In 2014, China stood as the world’s largest exporter of textiles, accounting for
35.6% of global textile exports. Textiles export grew at a CAGR of 9.8% from
United States dollar (“USD”) 76.87 billion in 2010 to USD 111.66 billion in
2014. Revenue in China’s garment industry, both wholesale and retail, also
grew strongly at a CAGR of 9.5% from Renminbi (“RMB”) 506.8 billion (approx.
EUR 73.6 billion) in 2010 to RMB 729.2 billion (approx. EUR 105.5 billion) in
2014 (Source: Market Research Report).
Growing demand for synthetic leather
By 2014, China’s production capacity accounted for more than 80% of the total
global synthetic leather output (Source: Market Research Report).
Chinese consumption for PU synthetic leather products experienced strong
growth at a CAGR of 12.3% from 3.03 billion square meters (“sqm”) in 2010 to
4.29 billion sqm in 2013. Among the various synthetic leather products, in
2013, leather shoes represented the largest synthetic leather end-application
market (at 37.4%), followed by leather furniture (18.1%), and leather clothing
(16.3%). However, leather clothing was the fastest-growing end-application
market with a CAGR of 28.0% from 2010 to 2013, followed by car interiors
(11.3%) and leather shoes (10.9%) (Source: Market Research Report).
Page 10
B.5
Description of
the Issuer and
its position
within the
group
The Company is the ultimate holding company of the Group and the sole
shareholder of Hong Kong De Cheng Holding Company Limited (“DECHENG
HK”) being a limited liability company incorporated under the laws of Hong
Kong. DECHENG HK is an intermediate holding company and the sole
shareholder of Quanzhou De Cheng Tech Resin Co., Ltd (“DECHENG PRC”)
being incorporated as a limited liability company under the laws of the PRC.
The operational business of DECHENG is exclusively carried out by
DECHENG PRC with its business address at Pu’an Leather Center, Quangang
District, Quanzhou City, Fujian Province, PRC. The current structure of
DECHENG is shown in the chart below:
(Germany)
100%
Hong Kong De Cheng Holding Company Limited
(Hong Kong)
- DECHENG HK 100%
Quanzhou De Cheng Tech Resin Co., Ltd
(PRC)
- DECHENG PRC -
B.6
Persons who,
directly or
indirectly,
have an
interest in the
issuer’s
capital or
voting rights
As of the date of this Prospectus, the Company’s share capital amounts to
EUR 30,000,000 divided into 30,000,000 no par value ordinary bearer shares
(Inhaber-Stückaktien) (“Existing Shares”) with a structure of the following
existing shareholders ( the “Existing Shareholders”) as follows:
Existing Shareholder
Mr. ZHU Xiaofang (1)
Number of Shares
%
20,430,000
68.10
Chen Capital Limited S.à r.l. (2)
1,470,000
4.90
Asia Small Capital V Limited S.à r.l. (3)
1,470,000
4.90
South China Fund II Limited S.à r.l. (4)
1,470,000
4.90
All-Time-Wonderful Limited (5)
2,049,000
6.83
Rongshang Limited (6)
2,049,000
6.83
Mr. OOi Guan Hoe (7)
1,062,000
3.54
30,000,000
100.00
Total
(1) Mr. ZHU Xiaofang is a Hong Kong resident with resident address at: Flat J 24/F BLK 4,
Bauhinia Garden, Tseung Kwan O NT, Hong Kong.
(2) Chen Capital Limited S.à r.l. is a company incorporated under the laws of Luxembourg with its
business address at: 7 rue Robert Stümper, 2557 Luxembourg. Sole shareholder is Mr. CHEN
Huocan.
Page 11
(3) Asia Small Capital V Limited S.à r.l. is a company incorporated under the laws of Luxembourg
with its business address at: 7 rue Robert Stümper, 2557 Luxembourg. Sole shareholder is Mr. WU
Qingquan.
(4) South China Fund II Limited S.à r.l. is a company incorporated under the laws of Luxembourg
with its business address at: 7 rue Robert Stümper, 2557 Luxembourg. Sole shareholder is Mr.
ZHU Jianyang.
(5) All-Time-Wonderful Limited is a company incorporated under the laws of the British Virgin
Islands with the Company Number 1903057 and with its business address at: P.O. Box 957,
Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. Sole shareholder is Mr.
QIAN Jiangang.
(6) Rongshang Limited is a company incorporated under the laws of the British Virgin Islands with
the Company Number 1901222 and with its business address at: P.O. Box 957, Offshore
Incorporations Centre, Road Town, Tortola, British Virgin Islands. Sole shareholder is Mr. ZHU
Yufang.
(7) Mr. OOi Guan Hoe is a Malaysian resident with resident address at: 89, Adora, 2A Persiaran
Residen, Desa Parkcity, 52200 Kepong, Kuala Lumpur, Malaysia.
Each bearer share representing EUR 1.00 of the share capital and each vested
with full dividend rights for the financial year 2016. Each share confers one
vote in the Company’s general shareholders’ meeting.
B.7
Different
voting rights
of the issuer’s
major
shareholders
Not applicable. Mr. ZHU Xiaofang as current direct majority shareholder of the
Company and the other Existing Shareholders do not have different voting
rights.
Whether the
issuer is
directly or
indirectly
owned or
controlled
and by whom
and
description of
the nature of
control
Mr. ZHU Xiaofang currently holds directly 68.10% of the shares in the
Company and the voting rights in the Company and therefore with this majority,
Mr. ZHU Xiaofang controls the Company and has substantial influence in the
general shareholders’ meeting and in the resolutions presented to the general
shareholders’ meeting.
Selected
historical
financial
information
The Company was founded as a shelf company (Vorratsgesellschaft) on 31
July 2013 and incorporated by registration in the commercial register
(Handelsregister) of the local court (Amtsgericht) of Munich on 13 February
2014. The Company disclosed the economic new formation (wirtschaftliche
Neugründung) to the commercial register (Handelsregister) of the local court
(Amtsgericht) of Cologne following the acquisition of all shares of the Company
by Mr. ZHU Xiaofang. By way of further restructuring measures, the Group
structure as set out in Section B.5 above was established.
The operative business of DECHENG is exclusively carried out by DECHENG
PRC, which is an indirect wholly owned subsidiary of the Company. All shares
in DECHENG PRC are directly held by DECHENG HK which has been
incorporated on 15 August 2014. The Company is the sole shareholder of
DECHENG HK.
DECHENG PRC was during the reporting period the only operating subsidiary
of DECHENG. Hence in order to present the business, financial condition and
results of operations for the last three financial years in relation to the business
of DECHENG, the Company has prepared single entity financial statements of
DECHENG PRC as at and for the financial years ended on 31 December 2013
(“FY 2013”), 31 December 2014 (“FY 2014”) and 31 December 2015 (“FY
2015”) in accordance with International Financial Reporting Standards and
International Accounting Standards and Interpretations as endorsed for
application in the EU (“IFRS”) and consolidated financial statements of
Page 12
DECHENG HK as at and for the financial year ended on 31 December 2015 in
accordance with IFRS (together the “Annual Financial Statements”).
The Annual Financial Statements were audited by MSW GmbH
Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Straße des
17. Juni 106-108, 10623 Berlin, Germany (“MSW GmbH”).
Furthermore, the Company has prepared its single entity financial statements
in accordance with IFRS for the financial year ended on 31 December 2015
with respective comparative information and in accordance with the German
Commercial Code (Handelsgesetzbuch) for the financial years ended on
31 December 2013, 31 December 2014 and 31 December 2015. The single
entity financial statements were audited by MSW GmbH.
The selected financial information, which is reflected in this section, was
derived from the aforementioned financial statements.
The aforementioned financial statements of DECHENG are, apart from the
single entity financial statements of the Company for the financial years ended
on 31 December 2013, 31 December 2014 and 31 December 2015 in
accordance with the German Commercial Code (Handelsgesetzbuch), not the
legally required financial statements of the Company, but have been prepared
on a voluntary basis for the purpose of this Offering. The purpose of these
financial statements is to put the investor in the position to better compare the
development of the business, financial condition and the results of operations
of DECHENG over the last three years.
The following figures were subject to rounding adjustments that were carried
out according to established commercial standards. As a result, the figures
stated in a table may not exactly add up to the total values that may also be
stated in the table
Page 13
Selected Financial Statement Data
DECHENG PRC
All figures below are taken from the financial statements of DECHENG PRC.
2013
Selected Statement of Comprehensive Income
Revenue
Cost of sales
Gross profit
Other income
Selling and distribution expenses
Administration expenses
Finance result
Profit before tax
Tax expense
Profit after tax
38,785,440
-25,963,199
12,822,241
44,979
-194,440
-1,253,043
-151,665
11,268,072
-2,808,327
8,459,745
2014
(in EUR)
(audited)
49,442,710
-31,769,960
17,672,750
177,079
-223,038
-1,120,619
-165,551
16,340,621
-4,024,735
12,315,886
2015
69,759,801
-43,054,665
26,705,136
250,037
-285,342
-2,475,675
-178,697
24,015,459
-6,162,269
17,853,190
31 December
2013
2014
(audited)
2015
3,095,824
17,839,728
20,935,552
13,687,000
0
7,248,552
7,248,552
20,935,552
2,998,502
28,735,406
31,733,908
20,874,842
0
10,859,066
10,859,066
31,733,908
2,718,334
41,147,674
43,866,008
30,961,867
0
12,904,141
12,904,141
43,866,008
2013
2014
(audited)
2015
Selected Statement of Cash Flow
Profit before taxation
11,268,072
16,340,621
24,015,459
Operating profit before working capital changes
11,867,290
16,961,237
24,652,465
Net cash from operating activities
Net cash for investing activities
Net cash for financing activities
7,656,731
-124,720
-4,118,887
12,672,052
40,920
-6,210,519
19,051,609
75,727
-8,068,011
Net (decrease)/increase in cash and cash equivalents
3,413,124
6,502,453
11,059,325
11,306,180
19,867,121
31,748,448
Selected Statement of Financial Position
Non-current assets
Current assets
Total assets
Total equity
Non-current liabilities
Current liabilities
Total liabilities
Total Equity and liabilities
Cash and cash equivalents at end of the financial year/period
31. Dezember
Other selected Financial Data
EBIT(2)
EBIT margin(3)
Net profit margin(4)
Number of employees at end of the financial year/period
2013
2014
(unaudited) (1)
2015
11,448,308
29.5%
21.8%
112
16,550,555
33.5%
24.9%
121
24,274,326
34.8%
25.6%
123
(1) Unaudited information provided by the Company.
(2) EBIT = Profit before taxation plus finance cost.
(3) EBIT divided by revenue multiplied by 100.
(4) Profit after Tax (Net Profit) for the period divided by revenue multiplied by 100.
Page 14
All figures below are taken from the IFRS financial statements of Decheng Technology AG.
ASSETS
31 Dec. 2015
EUR
31 Dec. 2014
EUR
12,500
12,500
12,500
12,500
31 Dec. 2015
EUR
31 Dec. 2014
EUR
50,000
50,000
(37,500)
(37,500)
12,500
12,500
12,500
12,500
Current assets
Cash and cash equivalents
EQUITY AND LIABILITIES
Equity
Issued capital
Not fully paid capital
Significant
changes to
the issuer's
financial
condition and
operating
results during
and
subsequent to
the period
covered by
the historical
key financial
information
Revenue increased by 27.48% and 41.09% in FY 2014 and FY 2015
respectively.
Cost of sales increased by 22.37% and 35.52% in FY 2014 and FY 2015
respectively which is in line with the increase in sales.
Gross profit increased by 37.83% and 51.11% in FY 2014 and FY 2015
respectively which is in line with the increase in sales.
The main reason for the increase in sales and gross profit for the past 3 years
is a successful research and development, proven business model coupled
with good customer feedback on DECHENG's products.
The sales volume of DECHENG's products has increased by over 22.14% for
the 3 months financial period ended 31 March 2016 (2016/Q1) compared to
the 3 months financial period ended 31 March 2015 (2015/Q1). Due to the
drop in oil based raw material prices, the selling price for most of DECHENG`s
products though decreased resulting in a decrease of revenue by 6.84% in
RMB (10.56% in EUR) for the same period. However, since the cost of sales
for this period has also decreased by 6.62% in RMB (10.35% in EUR)
compared to 2015/Q1, which is in line with the decrease in revenue and drop
in raw material prices, the gross profit margin remained stable for 2016/Q1 at
39.30% compared to 39.44% for 2015/Q1. Crude oil prices have started to
increase again so that this will have again a corresponding effect on the upcoming revenues for the FY 2016. The figures regarding 2016/Q1 and
2015/Q1 are unaudited and have been provided by the accounting department
of DECHENG.
Page 15
The Company was incorporated with a share capital of EUR 50,000
contributed in cash. No operational income of the Company was generated in
the reporting period up to 31 December 2015. On 2 March 2016, the
outstanding share capital in the amount of EUR 37,500 was fully paid in.
On 25 April 2016, the Existing Shareholders entered into a contribution
agreement (Einbringungsvertrag) with the Company, whereby they undertook
to transfer 100% of the shares in DECHENG HK, i.e. 10,000 shares, to the
Company against the issue of 29,950,000 new no par value ordinary bearer
shares (Inhaber-Stückaktien) in the Company to the Existing Shareholders in
relation to their shareholding ratio. The contribution agreement and the capital
increase by way of contribution in kind (Sachkapitalerhöhung) were approved
by an extraordinary shareholders’ meeting of the Company on 26 April 2016
and have been registered with the commercial register (Handelsregister) of the
local court (Amtsgericht) of Cologne on 12 May 2016.
Apart from the abovementioned and the payment of dividend in the amount of
RMB 76,500,000 (approx. EUR 11,063,000) from DECHENG HK to Mr. ZHU
Xiaofang, no significant change has occurred with respect to the financial
condition or operating results of DECHENG since 31 December 2015 until the
date of this Prospectus.
B.8
Pro forma
financial
information
Not applicable; no pro forma financial information are provided.
B.9
Profit forecast
or estimate
Not applicable; no profit forecasts or estimates are provided.
B.10 Qualifications
in the audit
reports
Not applicable; there are no qualifications in the audit reports.
B.11 Insufficiency
of the issuer’s
working
capital for its
present
requirements
Not applicable; DECHENG’s working capital is in the opinion of the Company
sufficient for its present requirements, that means sufficient to cover those
payment obligations which will become at least due within the next twelve
months from the date of this Prospectus.
Section C – Securities
C.1
Type and
class of the
securities
being offered
and admitted
to trading,
including any
security
identification
number
The Offering consists of 3,000,000 no par value ordinary bearer shares
(lnhaber-Stückaktien) of the Company, each with a notional value of EUR 1.00
and carrying full dividend rights for the financial year 2016 (the "Offered
Shares"), thereof 3,000,000 newly issued no par value ordinary bearer shares
from a capital increase for a contribution in cash expected to be resolved by an
extraordinary general shareholders’ meeting of the Company on 20 June 2016
(“New Shares”). In order to be able to timely deliver the shares to investors
after the Offering Period, Mr. ZHU Xiaofang will, if required, provide to the
Underwriter a securities loan free of charge for an equivalent number of
shares. Upon registration of the capital increase with the commercial register of
the Company, the New Shares will be transferred back to Mr. ZHU Xiaofang by
the Underwriter in order to fulfil its retransfer obligation under the securities
loan.
For the purposes of admission to trading to the regulated market segment
(Regulierter Markt) of the Frankfurt Stock Exchange (General Standard) (the
“Listing”), this Prospectus covers a total of up to 33,000,000 ordinary bearer
shares of the Company, consisting of:
 30,000,000 existing ordinary bearer shares (“Existing Shares”); and
Page 16
 up to 3,000,000 newly issued ordinary bearer shares from a capital
increase for a contribution in cash to be resolved by an extraordinary
general shareholders’ meeting of the Company with a fixed amount (“New
Shares”),
each such share with no par value and a notional value of EUR 1.00 in the
share capital and carrying full dividend rights for the financial year 2016.
Ticker Symbol: 333
C.2
Currency of
the securities
issue
EUR
C.3
Number of
shares issued
and fully paid
30,000,000 no-par value ordinary bearer shares (lnhaber-Stückaktien) of the
Company, each with a notional value of EUR 1.00, have been issued and fully
paid.
C.4
Rights
attached to
the securities
Dividend Rights
The shares in the Company carry full dividend rights for the financial year
2016.
Rights on Liquidation Proceeds
Should the Company be dissolved, any liquidation proceeds remaining after
discharging the Company’s liabilities will accrue to the shareholders pursuant
to the German Stock Corporation Act (Aktiengesetz) in proportion to the
respective shares they hold in the Company’s share capital.
Subscription Rights
Shareholders generally have the right to subscribe for new shares issued
pursuant to any future capital increases in a ratio proportionate to the
respective shares they hold in the Company’s share capital (subscription right)
in connection with share capital increases against cash contributions.
Exemptions are made with regard to conditional capital increases or the
issuance of convertible bonds, income bonds, profit participation rights or
bonds with warrants as well as in respect of the sale of treasury shares.
Furthermore, the general shareholders’ meeting (Hauptversammlung) may
partially or completely exclude the subscription rights in specific cases.
Voting Rights
In accordance with the Company’s articles of association, each share carries
one vote at the general shareholders’ meeting (Hauptversammlung). All shares
carry the same voting rights. No restrictions on voting rights exist with the
exception of those stipulated by law in specific cases. Attendance of the
general shareholders’ meeting (Hauptversammlung) and exercise of voting
rights are governed by the articles of association (Satzung) and general
company law.
C.5
Restrictions
on the free
transferability
of the
securities
Not applicable. The Company’s shares are freely transferable in accordance
with the legal requirements for ordinary no par value bearer shares.
C.6
Application
for admission
to trading for
the offered
The Company intends to list its shares on the regulated market (General
Standard) of the Frankfurt Stock Exchange irrespective of the result of the
Offering.
An application for admission of 30,000,000 Existing Shares and up to
Page 17
C.7
securities
3,000,000 New Shares to trading on the regulated market (Regulierter Markt)
of the Frankfurt Stock Exchange (General Standard) shall be filed on or around
3 June 2016. The Company expects that admission to trading on the regulated
market (General Standard) will be resolved by Frankfurt Stock Exchange on 24
June 2016 and that trading will commence on 28 June 2016.
Dividend
policy
DECHENG has in the recent past paid dividends. The Company intends to
distribute dividends in 2017 and to also pay dividends on a regular basis
thereafter, however depending on the results of operations of the Company, its
business strategy, its financial situation, its need for cash and the legal, tax and
regulatory environment as well as other factors.
The Existing Shareholders have declared their intention to waive their dividend
rights for the dividend to be distributed in the next three years 2017-2019.
Section D – Risks
Prior to making a decision on whether to purchase the Company’s shares, investors should, in
addition to the other information contained in this Prospectus, carefully consider certain risks.
These risks include the major risks cited below. The business, net assets, financial condition and
results of operations of DECHENG may suffer substantial harm due to the materialization of any
one or several of these risks. The stock price of the Company’s shares may decline considerably
if any one of these risks occurs, and investors may lose all or part of their investment.
The risks described below may, in retrospect, turn out not to be complete and therefore may not
be the only risks to which DECHENG is exposed. Additional risks and uncertainties of which the
Company is not currently aware of could have a material adverse effect on DECHENG’s
business, net assets, financial condition and results of operations. Investors should pay particular
attention to the fact that all operating entities of DECHENG are located in the PRC and governed
by a legal and regulatory environment, which in various respects differs from that of other
countries.
The order in which the risk factors are presented below does not indicate the likelihood of their
occurrence or the magnitude or the significance of the individual risks. The risks specified below
could occur individually or cumulatively.
D.1
Risks related
to the Issuer
or its industry
Risks related to DECHENG’s Operations
 DECHENG may not be able to continue competing successfully against
present and future competitors.
 DECHENG’s business and financial results are highly dependent on
demand and price levels for DECHENG’s polyurethane resin products.
 Fluctuations in consumer spending caused by changes in macroeconomic
conditions in the PRC may significantly affect DECHENG’s prospects.
 DECHENG may not be able to provide products meeting customers’
demand and requirements.
 DECHENG operates in an environmental hazardous industry and may fail
to comply with environmental protection laws and regulations in the PRC.
 The current PRC environmental protection laws and regulations may
change to the detriment of DECHENG.
 DECHENG’s operations may cause damage to human health and are
subject to the inherent hazards and other risks associated with chemical
processing, production, storage, and transportation.
 DECHENG’s reputation may be affected by complaints from its customers
and negative publicity.
 DECHENG has potential exposure to product liability claims.
 DECHENG might fail to execute its expansion plans successfully and
Page 18
manage its growth efficiently.
 The implementation of DECHENG’s growth strategy is capital intensive and
DECHENG’s growth could slow down if it could not secure additional
financing.
 DECHENG cannot ensure long-term business relationships with its existing
customer base.
 DECHENG is exposed to the credit risks of its customers.
 DECHENG may be subject to fluctuations in the prices of raw materials and
is dependent on the continuous and timely supply of quality raw materials.
 DECHENG’s business depends substantially on the continuing efforts of its
management and other key personnel.
 Labor costs in the PRC have risen significantly in recent years and could
continue to rise significantly, which increases DECHENG’s operational
costs.
 DECHENG’s customers, being mainly leather and textile manufactures,
may relocate outside the PRC due to rising labor costs.
 DECHENG is exposed to fluctuation in foreign exchange rates against the
RMB.
 DECHENG relies on the effective protection of its patents and its
confidential technical know-how.
 DECHENG may inadvertently infringe third-party intellectual property rights.
 DECHENG may not have validly acquired intellectual property rights from
its former cooperation with research institutions and universities in the past.
 Unexpected stoppages due to technological and IT malfunctions may
impact DECHENG’s sales and revenues.
 There can be no assurance that DECHENG will not encounter disruptions
in the supply of electricity and water which could cause a disruption to its
production and affect its overall operation efficiencies.
 A material disruption of the operations of DECHENG or the operations of its
suppliers from force majeure events could occur.
 DECHENG’s operational, trading and financial planning, internal key control
and management reporting systems may be inadequate and its
management resources may be insufficient to successfully manage and
support its future growth and to ensure accurate financial management.
 The Company’s management board (Vorstand) is not experienced in
complying with German legal requirements for listed companies and
DECHENG currently does not have a comprehensive risk management
system in place.
 The Company’s supervisory board (Aufsichtsrat) may have difficulties in
adequately supervising the management board (Vorstand) since the
management is located in the PRC and the chairman of the supervisory
board (Aufsichtsratsvorsitzender) resides in Germany.
 Mr. ZHU Xiaofang is majority direct shareholder of the Company as well as
holds management positions in DECHENG PRC. These positions will
enable him to exercise significant control over the Company and
DECHENG PRC and could subject them to conflicts of interest.
 DECHENG does not have the insurance coverage that is customary in
more economically developed countries for a business of its type and size
and the insurance may not be adequate for DECHENG’s operations.
Page 19
 DECHENG may not be able to maintain and/or obtain approvals and
licenses from PRC authorities necessary to carry out or expand its
business.
 DECHENG may not be able to obtain the ownership certificate for five
buildings which are currently used as, inter alia, warehouses and dormitory.
 DECHENG may have to pay housing fund contributions for the past.
 The Company is a holding company the liquidity of which depends upon
having access to the liquid funds of DECHENG PRC.
 The tax burden of DECHENG may increase as a result of tax audits.
Risks related to Conducting Business in the PRC
 DECHENG’s business, financial condition, results of operations and
prospects could be materially and adversely affected by changes in the
economic, political and legal environment and developments in China.
 Fluctuations in the global economy could materially and adversely affect
the economy of the PRC.
 Changes in the PRC’s political and economic policies could have a material
and adverse effect on the business operations of DECHENG.
 PRC legislation on offshore special purpose vehicles (“SPV”) which are
formed by PRC legal entities and/or individuals for the purpose of indirect
listings and that control PRC companies directly or indirectly may have a
material and adverse effect on DECHENG’s business.
 Regulations by the State Administration of Foreign Exchange relating to
offshore investments by PRC residents or passport holders, may materially
and adversely affect DECHENG’s business operations and financing
alternatives.
 PRC regulations pertaining to loans and direct capital investments by
offshore parent companies to PRC entities may delay or prevent
DECHENG from using the proceeds of this Offering.
 The PRC legal system contains inherent uncertainties and inconsistencies
which may make the enforcement of claims more difficult.
 The tax status of DECHENG PRC or tax legislation or its interpretation
might change.
 The Company and Hong Kong De Cheng Holding Company Limited
(“DECHENG HK”) may be treated as tax resident enterprises for PRC tax
purposes under the PRC enterprise income tax laws and therefore be
subject to PRC taxation.
 Greater scrutiny over acquisition and disposition transactions by the PRC
tax authorities may have a negative impact on DECHENG or the investors’
disposition of the Company’s shares.
 PRC accounting requirements may materially and adversely affect the
ability to pay dividends.
 A destabilization of the political system could threaten China's economic
liberalization.
 The PRC judiciary's lack of independence and limited experience and the
difficulty of enforcing court decisions and governmental discretion in
enforcing court orders could prevent DECHENG from obtaining effective
remedies in a court proceeding.
 Seeking recognition and enforcement in China of foreign judgments against
the Company, its assets, management personnel or directors might be
Page 20
difficult or impossible for investors.
 Certain facts, forecasts and other statistics with respect to China, China’s
economy and the polyurethane industry in this Prospectus are extracted
from official government publications and may not be reliable.
 Restrictions might be imposed upon foreign control of PRC companies.
D.3
Risks related
to the
Offering
 Public trading in the Company’s shares might not develop. There is no prior
market for its shares and this Offering may not result in an active or liquid
market for its shares.
 A devaluation of the RMB could have an adverse currency translation effect
on the Company’s financial statements.
 A volatile stock exchange price for the shares might develop and investors
could lose all or part of their investment.
 Future sales or issuances of a substantial number of the Company’s shares
may depress the market price of the Company’s shares. Future
capitalization measures could lead to substantial dilution of existing
shareholders’ interests in the Company.
 The Offering may not take place if the Underwriting Agreement is
terminated.
 Forward-looking information contained in this Prospectus may prove
inaccurate.
 Information in press articles or other media regarding DECHENG or the
Offering could turn out to be incorrect and therefore it cannot be excluded
that investors base their investment decision on incorrect information.
 The market price of the Company’s shares could fall below the Offer Price
at a later stage.
 The Offering may not be implemented in full which may negatively affect
the growth prospects of DECHENG and/or the liquidity of the shares in the
market.
 The Listing may not take place if the listing requirements are not fulfilled.
Section E – Offer
E.1
Total net
proceeds /
total
expenses
E.2a Reasons for
the offering /
use of
proceeds
The Company believes that based on the offer price of EUR 3.50 and on the
assumption that all Offered Shares will be placed, it is possible to generate
approximately EUR 8,634,000 in net issue proceeds.
Based on the offer price of EUR 3.50 and on the assumption that all Offered
Shares will be placed, the Company estimates that it will incur costs of the
Offering (including fees of the Underwriter) totaling approximately EUR
1,866,000.
The net issue proceeds accruing to the Company are intended to strengthen
the Company’s capitalization and financial position and support the intended
expansion of its activities and the implementation of its strategy, in particular by
developing and selling new advanced products such as solvent-free flame
retardant, waterproof / breathable PU resins. The Listing is also intended to
enable the Company to sharpen its public profile as well as its profile on the
international capital market.
The Company plans to use the net issue proceeds accruing to it as follows:
Page 21
Purpose
EUR
Approx. %
R&D
4,317,000
50%
Marketing
1,726,800
20%
Working capital
2,590,200
30%
As to the R&D part, the Company plans to purchase R&D equipment, hire new
local and also foreign experts and staff, send its R&D staff to local and
international universities/research centers for training, set up a R&D database
related to PU resin as well as enter into new cooperation with new research
institutions.
As to the working capital part, the Company intends to use it to purchase raw
materials without much credit terms in order to enjoy discounts and thus
helping to increase the gross profit margin of DECHENG.
If the net issue proceeds envisaged are not raised, DECHENG’s working
capital is still sufficient to cover those payment obligations which will become at
least due within the next twelve months. Regarding the financing of its further
growth, in such case, the Company might have to prolong existing short term
bank loans in the amount of RMB 29.8 million (approx. EUR 4.3 million) or use
internal funds generated from operational cash flow.
DECHENG plans to use the proceeds as set out above, However, it cannot be
excluded that based on the further development of the business, other uses of
the proceeds will be considered.
E.3
Terms and
conditions of
the offering
Subject Matter of the Offering
The Offering consists of a public offering in the Federal Republic of Germany
and Luxembourg as well as private placements in other jurisdictions outside
Germany, Luxembourg and the United States. The Offering consists of
3,000,000 no par value ordinary bearer shares (lnhaber-Stückaktien) of the
Company, each with a notional value of EUR 1.00 and carrying full dividend
rights for the financial year 2016 (the "Offered Shares"), thereof 3,000,000
newly issued no par value ordinary bearer shares originate from a capital
increase for a contribution in cash expected to be approved by an
extraordinary general shareholders’ meeting of the Company on 20 June 2016
(“New Shares”). In order to be able to timely deliver the shares to investors
after the Offering Period, Mr. ZHU Xiaofang will, if required, provide to the
Underwriter a securities loan free of charge for an equivalent number of
shares. Upon registration of the capital increase with the commercial register of
the Company, the New Shares will be transferred back to Mr. ZHU Xiaofang by
the Underwriter in order to fulfil its retransfer obligation under the securities
loan.
New Shares placed to investors will originate from a capital increase for a
contribution in cash expected to be approved by an extraordinary general
shareholders’ meeting of the Company on 20 June 2016. The existing
shareholders will waive their subscription rights to the New Shares.
Offering Period
The Offering is expected to commence on 6 June 2016 and to end on 20 June
2016 (“Offering Period”). Purchase orders are freely revocable until the
Offering Period expires. On the last day of the Offering Period, retail investors
and institutional investors will be able to submit offers to purchase shares until
10:00 a.m. (Central European Time).
Offer Price
The Offer Price for which purchase orders may be submitted amounts to
Page 22
EUR 3.50 per Offered Share. The Offer Price was set by the Company based
upon its own valuation using typical valuation methods such as discounting
cash flow.
Minimum Subscription
Only orders with a minimum subscription amount of one share will be
accepted.
Multiple Orders
Multiple orders of one subscriber will not be accepted.
Amendments to the Offer Terms
The Company, in agreement with ACON (“also the “Bookrunner”), reserves
the right to reduce the number of Offered Shares, to lower or raise the Offer
Price and/or to extend or shorten the Offering Period (collectively referred to as
the “Offer Terms”). In case of an amendment to the Offer Terms, a
supplement to this Prospectus will be filed with German Federal Financial
Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht –
“BaFin”) and published following approval thereof on the Company’s website
(www.dechengtechnology.com). To the extent legally required, any changes
will be published in an ad hoc disclosure. Investors will not be notified
individually.
Delivery of the Offered Shares
It is expected that delivery of the Offered Shares will take place presumably on
24 June 2016 against payment of the Offer Price.
Securities Loan
To facilitate a timely delivery of up to 3,000,000 New Shares of the Company to
the investors, Mr. ZHU Xiaofang will, if required, enter into a securities loan
agreement with the Underwriter to provide to the Underwriter a total number of
3,000,000 no-par value ordinary bearer shares (Inhaber-Stückaktien) by way of
securities loan free of charge.
General Allotment Criteria
The Company reserves the right to allot to investors less than the maximum
possible amount of New Shares that are being offered. The Company, Mr. ZHU
Xiaofang and the Bookrunner intend to comply with the “Principles for the
Allotment of Share Issues to Private Investors” ("Grundsätze für die Zuteilung
von Aktienemissionen an Privatanleger"), which were issued on 7 June 2000
by the Exchange Expert Commission (Börsensachverständigenkommission) of
the German Federal Ministry of Finance (Bundesministerium der Finanzen)
(the “Allocation Rules”).
Early Termination of the Offering
The underwriting agreement which will be concluded inter alia between the
Company, Mr. ZHU Xiaofang and the Underwriter within five bank working
days after the date of this Prospectus (“Underwriting Agreement”) provides
that the Underwriter may terminate the Underwriting Agreement under certain
circumstances up to the time of delivery of the Offered Shares to the investors.
Furthermore, the Company reserves the right to withdraw the Offering at any
time during and after the Offering Period without giving any reasons.
If the Underwriting Agreement is terminated or the Company withdraws from
the Offering, the Offering will not take place. In such case, allocations of shares
to investors will become invalid, and investors will have no claim for delivery.
Claims relating to any subscription fees paid and costs incurred by any investor
in connection with the subscription are governed solely by the legal relationship
between the investor and the institution to which the investor submitted its
purchase order.
Page 23
E.4
Interests and
conflicting
interests
In connection with the Offering and the Listing of the Company’s shares (the
“Transaction”), ACON is in a contractual relationship with the Company.
The commission of ACON as the Underwriter, the Global Coordinator and Lead
Manager is inter alia dependent on the amount of the offer proceeds in
accordance with the Underwriting Agreement which will be concluded within
five bank working days after the date of this Prospectus such that ACON has
an interest in the successful implementation of the Offering.
ACON or its affiliates may enter into business relations with the Company or
render services to the Company in the ordinary course of business.
Since the Company concluded a designated sponsor agreement with ACON,
ACON also has an interest in the Offering on account of this agreement.
E.5
E.6
E.7
Name of the
entity offering
to the
security
The Offered Shares will be offered by ACON as the Underwriter.
Lock-up
agreement
The Company, Mr. ZHU Xiaofang, All-Time-Wonderful Limited with the sole
shareholder Mr. QIAN Jiangang and Rongshang Limited with the sole
shareholder Mr. ZHU Yufang concluded with ACON a lock-up agreement with
a lock-up period of 36 months beginning on the day of the commencement of
trading (Notierungsaufnahme) of the shares of the Company on the regulated
market (General Standard) of the Frankfurt Stock Exchange.
Amount and
percentage of
immediate
dilution
resulting from
the offer /
amount and
percentage of
immediate
dilution if the
existing
equity
holders do
not subscribe
to the new
offer
As of the date of this Prospectus, the Company’s share capital amounts to
EUR 30,000,000 divided into 30,000,000 no par value ordinary bearer shares
(Inhaber-Stückaktien).
Estimated
expenses
charged to
the investor
by the issuer
Not applicable. Neither the Company nor ACON will charge expenses to
investors. Investors will have to bear customary transaction and handling fees
charged by their safe-custody account-keeping financial institutions.
The net book value of DECHENG HK (total assets less current liabilities),
which for the purpose of calculating the dilution is considered as the
Company’s net book value following the registration of the capital increase
against contribution in kind (Sachkapitalerhöhung) of the Company on 12 May
2016, amounted to EUR 30,960,743 as of 31 December 2015 based on the
consolidated financial statements of DECHENG HK for 2015 prepared in
accordance with IFRS. This corresponds to approximately EUR 1.03 per share
(calculated on the basis of 30,000,000 shares of the Company in issue as of
the date of this Prospectus).
Assuming that all 3,000,000 Offered Shares are placed and that the Offer Price
amounts to EUR 3.50, the Company would obtain net proceeds of
approximately EUR 8,634,000 considering costs of the Offering and of the
Listing (including fees of the Underwriter) totaling approximately EUR
1,866,000. Assuming that the Offering had been implemented on 31 December
2015, the net book value of the Company at that time would have amounted to
approximately EUR 39,594,743 (or approximately EUR 1.20 per share
calculated on the basis of 33,000,000 shares of the Company in issue following
full implementation of the capital increase against cash contributions). This
corresponds to an increase in the net book value of the Company of EUR 0.17
per share corresponding to an increase of approx. 16.5% for the Existing
Shareholders and a direct dilution of about EUR 2.30 per share for the
purchasers of the Offered Shares based on the Offer Price, thus, investors who
acquire shares at the Offer Price of EUR 3.50 per Offered Share are diluted by
about 65.7%.
Page 24
or the offeror
2.
GERMAN TRANSLATION OF THE SUMMARY (ZUSAMMENFASSUNG)
Zusammenfassungen bestehen aus geforderten Angaben, die als „Punkte“ bezeichnet sind. Diese
Punkte sind in den Abschnitten A – E (A.1 – E.7) fortlaufend nummeriert. Diese Zusammenfassung
enthält alle Punkte, die für die vorliegende Art von Wertpapieren und Emittenten in eine
Zusammenfassung aufzunehmen sind. Da einige Punkte nicht behandelt werden müssen, können in
der Nummerierungsreihenfolge Lücken auftreten. Selbst wenn ein Punkt wegen der Art der
Wertpapiere und des Emittenten in der Zusammenfassung aufgenommen werden muss, ist es
möglich, dass in Bezug auf diesen Punkt keine relevanten Informationen gegeben werden können. In
diesem Fall enthält die Zusammenfassung eine kurze Beschreibung des Punkts mit dem Hinweis
„Entfällt“.
Abschnitt A – Einleitung und Warnhinweise
A.1
Warnhinweise
Diese Zusammenfassung ist als Einführung zu diesem Prospekt zu verstehen.
Anleger sollten jede Entscheidung zur Anlage in Aktien der Gesellschaft auf die
Prüfung des gesamten Prospekts stützen.
Für den Fall, dass vor einem Gericht Ansprüche eines Anlegers aufgrund der
in diesem Prospekt enthaltenen Informationen geltend gemacht werden,
könnte der als Kläger auftretende Anleger in Anwendung einzelstaatlicher
Rechtsvorschriften von Staaten innerhalb des Europäischen Wirtschaftsraums
(„EWR“) die Kosten für die Übersetzung des Prospekts vor Prozessbeginn zu
tragen haben.
Die Decheng Technology AG, mit eingetragenem Sitz in Köln, Bundesrepublik
Deutschland („Deutschland“), (die „Gesellschaft” und zusammen mit ihren
direkten und indirekten Tochtergesellschaften „DECHENG” oder die „Gruppe”)
und ACON Actienbank AG, Heimeranstraße 37,80339 München, Deutschland
(„Global Coordinator“ oder „Underwriter” oder „ACON“) übernehmen im
Sinne von § 5 Abs. 2b Nr. 4 Wertpapierprospektgesetz (WpPG) die
Verantwortung für den Inhalt dieser Zusammenfassung, einschließlich der
deutschen Übersetzung hiervon. Diejenigen Personen, die die Verantwortung
für die Zusammenfassung einschließlich etwaiger Übersetzung hiervon
übernommen haben oder von denen der Erlass ausgeht, können haftbar
gemacht werden, jedoch nur für den Fall, dass die Zusammenfassung
irreführend, unrichtig oder widersprüchlich ist, wenn sie zusammen mit
anderen Teilen dieses Prospekts gelesen wird, oder sie, wenn sie zusammen
mit den anderen Teilen des Prospekts gelesen wird, nicht alle erforderlichen
Schlüsselinformationen vermittelt.
A.2
Zustimmung
zur
Verwendung
des
Prospekts,
Verwendung
des
Prospekts
während der
Angebotsfrist,
Bedingungen
für die
Verwendung
sowie
Hinweis für
Die Zustimmung der Gesellschaft zur Verwendung des Prospekts in
Deutschland und Luxemburg für die Veräußerung oder Platzierung von
Wertpapieren wurde an die ACON Actienbank AG, Heimeranstraße 37,80339
München, Deutschland ( auch der „Lead Manager“) erteilt.
Die Zustimmung zur Verwendung des Prospekts durch den Lead Manager
wurde für die Frist erteilt, die am 6. Juni 2016 beginnt und am 20. Juni 2016
endet („Angebotsfrist“).
Für den Fall, dass der Lead Manager ein Angebot macht, wird der Lead
Manager die Anleger zum Zeitpunkt der Angebotsvorlage über die
Angebotsbedingungen unterrichten.
Page 25
die Investoren
Abschnitt B – Emittent
B.1
Juristische
und
kommerzielle
Bezeichnung
Die juristische Bezeichnung der Gesellschaft ist Decheng Technology AG. Die
Gesellschaft handelt unter der kommerziellen Bezeichnung „Decheng
Technology AG“.
B.2
Sitz /
Rechtsform /
Rechtsvorschriften /
Gründungsstaat
Der Sitz (Satzungssitz) der Gesellschaft befindet sich in Köln, Deutschland,
und die Gesellschaft ist im Handelsregister des Amtsgerichts Köln unter der
Registernummer HRB 87176 eingetragen. Die Geschäftsadresse lautet: c/o
RSM Altavis GmbH, Martin-Luther-Platz 26, 40212 Düsseldorf, Deutschland.
Die Gesellschaft ist eine deutsche Aktiengesellschaft.
Die Rechtsvorschriften, unter denen die Gesellschaft handelt, sind die des
deutschen Rechts.
Das Land der Gründung ist Deutschland.
B.3
Art der
derzeitigen
Geschäftstätigkeit des
Emittenten
und seine
Haupttätigkeiten,
einschließlich
der Hauptkategorien
der
verkauften
Produkte
und/oder
erbrachten
Dienstleistungen
und Identifizierung der
Hauptmärkte,
auf denen der
Emittent
konkurriert
Die Gesellschaft
Unternehmensgegenstand und Geschäftstätigkeit der Gesellschaft sind das
Management anderer Unternehmen sowie die Verwaltung von Beteiligungen
an Unternehmen, insbesondere solcher Unternehmen, die in den folgenden
Bereichen tätig sind: Entwicklung, Produktion und Vertrieb von
Polyurethanprodukten.
Zu den Geschäftstätigkeiten der Gesellschaft zählen insbesondere der Erwerb,
das Halten und Verwalten sowie die Veräußerung von Beteiligungen an
Unternehmen, deren Zusammenfassung unter einheitlicher Leitung sowie
deren Unterstützung und Beratung, einschließlich der Erbringung von
Dienstleistungen für diese Unternehmen.
Die Gesellschaft darf selbst in den genannten Bereichen tätig werden.
Die Gruppe
Die Gesellschaft ist die oberste Holdinggesellschaft von DECHENG.
DECHENG ist ein chinesischer Polyurethanhersteller. Polyurethane von
DECHENG werden genutzt, um den Textilien und Lederwaren der Kunden
besondere Eigenschaften hinzuzufügen, wie etwa Wasserfestigkeit und
Flammbeständigkeit sowie eine Reihe weiterer aufwertender Funktionen.
Ölbasierte Polyurethane, die von DECHENG produziert werden, sind (i) Einzelsowie Zweifach-Flüssigstoff Polyurethane für trockene Stoffe, (ii) Polyurethan,
welches mit der Nass-Wickel-Technologie produziert wird und (iii)
Polyurethane für Faserbeschichtungen. DECHENG stellt seine Polyurethane
her aus Methylen-Diphenyl-Diisocyanat (MDI) und Toluylen-Diisocyanat (TDI)
zusammen mit Polyester-Polypol-Mischungen. DECHENG stellt auch
Lösungen und Zusatzstoffe her, welche von den Leder- und Textilkunden mit
DECHENGs Polyurethanen verbunden werden, und die die Anhaftung
verstärken und beschleunigen.
DECHENGs Polyurethanprodukte dienen der Aufwertung von Produkten,
hauptsächlich in der Textil- und Lederindustrie. Anwendungsbereiche in der
Textilindustrie sind insbesondere Outdoor-Zubehör, wasserdichte Jacken und
Windjacken, schnell trocknende Kleidung, Zelte, Rucksäcke, Schlafsäcke und
Matten. Anwendungsbereiche in der Lederindustrie sind insbesondere
Lederprodukte wie Ledersofas, Lederkleidung, Schuhe und Fußbälle. Die
Lösungen und Zusatzstoffe, welche produziert werden, haben den Zweck die
Funktionen der Produkte zu verstärken, z.B. die Klebrigkeit an Stoffen zu
Page 26
erhöhen oder das Trocknen der Produkte zu erleichtern.
DECHENG verkauft seine Produkte nur im chinesischen Markt, hauptsächlich
direkt an Textil- und Lederhersteller in Fujian, Guangdong, Zhejiang, Jiangsu,
Guangxi und Shanghai.
Der Umsatz, welcher durch Polyurethan- und Zusatzprodukte generiert wurde,
steigerte sich von Euro („EUR“) 38,79 Millionen im Geschäftsjahr („GJ“) 2013
auf EUR 49,44 Millionen im GJ 2014, sowie auf EUR 69,76 Millionen im
GJ 2015, was eine durchschnittliche jährliche Wachstumsrate von 34,11%
darstellt. DECHENGs Gewinn nach Steuern für die GJ 2013, GJ 2014 und
GJ 2015 war EUR 8,46 Millionen, EUR 12,32 Millionen bzw. EUR 17,85
Millionen, was eine durchschnittliche jährliche Wachstumsrate von 45,27%
darstellt.
DECHENGs Betriebsstätten befinden sich im Pu’an Leather Center, Quangang
District, Quanzhou City, Fujian Province, Postleitzahl 362801, Volksrepublik
China („VR China“). DECHENGs Produktionsstätten haben ein absolutes
Produktionsergebnis von ungefähr 25,47 Millionen Kg Polyurethan und 0,64
Millionen Kg Zusatzstoffe im GJ 2015 erreicht.
Zum 31. Dezember 2015 hatte DECHENG 123 Arbeitnehmer angestellt. Bis
zum Tag dieses Prospekts ist keine wesentliche Änderung in der Anzahl der
Arbeitnehmer eingetreten.
Stärken
Die Gesellschaft glaubt, dass die folgenden Stärken die Haupttreiber ihres
zukünftigen Wachstums sind:

Moderne Produktionstechnik

Starke Forschungs- und Entwicklungsexpertise

Gute Kundenbeziehungen

Starkes Vermarktungs- und Verkaufsteam

Engagiertes und erfahrenes Managementteam
Strategien
DECHENG strebt die folgende strategische Ausrichtung an:
B.4a Wichtigste
jüngste
Trends, die
sich auf den
Emittenten
und die
Branchen, in
denen er tätig
ist,

Geographische Expansion und Streben nach größeren Marktanteilen

Funktionale Expansion und Entwicklung von neuen Produkten

Vergrößerung der Markenbekanntheit

Weitere Verstärkung der Forschungs- und Entwicklungsexpertise

Expansion der Produktionsanlagen
Wachsende Industrie in China
Die jährliche Nachfrage nach Polyurethane in China wuchs beständig von 6,7
Millionen Tonnen im Jahr 2011 auf 9,4 Millionen Tonnen im Jahr 2015, mit
einer durchschnittlichen jährlichen Wachstumsrate von 8,8% (Quelle:
Marktforschungsbericht “Polyurethane Resin Industry”, aus März 2016,
angefertigt
von
Frost
&
Sullivan
GIC
Malaysia
Sdn
Bhd
(„Marktforschungsbericht“)). Allerdings verlangsamte sich die jährliche
Wachstumsrate der Nachfrage im Jahr 2013.
Page 27
auswirken
Wachsende Nachfrage nach Textilien im internationalen und inländischen
Markt
Im Jahr 2014 war China der größte Textilexporteur der Welt, mit 35,6% der
globalen Textilexporte. Der Textilexport wuchs mit einer durchschnittlichen
jährlichen Wachstumsrate von 9,8% von USD 76,87 Milliarden im Jahr 2010
auf USD 111,66 Milliarden im Jahr 2014. Der Umsatz in Chinas
Kleidungsindustrie, sowohl im Groß- als auch im Einzelhandel wuchs ebenfalls
stark mit einer durchschnittlichen jährlichen Wachstumsrate von 9,5% von
RMB 506,8 Milliarden (ca. EUR 73,6 Milliarden) im Jahr 2010 auf Renminbi
(„RMB“) 729,2 Milliarden (ca. EUR 105,5 Milliarden) im Jahr 2014 (Quelle:
Marktforschungsbericht).
Wachsende Nachfrage nach Kunstleder
Im Jahr 2014 waren Chinas Produktionskapazitäten für mehr als 80% der
globalen Kunstlederproduktion verantwortlich (Quelle: Marktforschungsbericht).
Der chinesische Konsum von Polyurethankunstlederprodukten erfuhr ein
starkes Wachstum mit einer durchschnittlichen jährlichen Wachstumsrate von
12,3% von 3,03 Milliarden Quadratmeter („m²“) im Jahr 2010 auf 4,29
Milliarden m² im Jahr 2013. Von den verschiedenen Kunstlederprodukten
stellten
Lederschuhe
im
Jahr
2013
den
größten
KunstlederEndanwendungsmarkt dar (mit 37,4%), gefolgt von Ledermöbeln (18,1%) und
Lederkleidung (16,3%). Lederkleidung war jedoch der am schnellsten
wachsende Endanwendungsmarkt mit einer durchschnittlichen jährlichen
Wachstumsrate von 28,0% von 2010 bis 2013, gefolgt von Autoinnenteilen
(11,3%) und Lederschuhen (10,9%) (Quelle: Marktforschungsbericht).
B.5
Beschreibung
des
Emittenten
und seiner
Stellung
innerhalb der
Gruppe
Die Gesellschaft ist die oberste Holdinggesellschaft der Gruppe und die
Alleingesellschafterin von Hong Kong De Cheng Holding Company Limited
(“DECHENG HK”), welche als eine Gesellschaft mit beschränkter Haftung
nach dem Recht Hong Kongs gegründet wurde. DECHENG HK ist eine
Zwischenholdinggesellschaft und die Alleingesellschafterin von Quanzhou De
Cheng Tech Resin Co., Ltd (“DECHENG PRC”), welche als eine Gesellschaft
mit beschränkter Haftung nach dem Recht der VR China gegründet wurde.
Das operative Geschäft von DECHENG erfolgt ausschließlich durch
DECHENG PRC mit der Geschäftsadresse in Pu’an Lederzentrum, Quangang
Distrikt, Quanzhou Stadt, Provinz Fujian, VR China. Die nachfolgende Grafik
verdeutlicht die derzeitige Konzernstruktur von DECHENG:
Page 28
(Deutschland)
100%
(Hong Kong)
- DECHENG HK -
100%
(VR China)
- DECHENG PRC -
B.6
Personen, die
eine direkte
oder
indirekte
Beteiligung
am
Eigenkapital
des
Emittenten
oder einen
Teil der
Stimmrechte
halten
Zum Datum dieses Prospektes beträgt das Grundkapital der Gesellschaft
EUR 30.000.000 eingeteilt in 30.000.000 neue, auf den Inhaber lautende
Stammaktien ohne Nennwert (Inhaber-Stückaktien) (die „Bestehenden
Aktien“) mit einer bestehenden Aktionärsstruktur („Bestehende Aktionäre“)
wie folgt:
Anzahl der
Bestehenden Aktien
%
20.430.000
68,10
1.470.000
4,90
Asia Small Capital V Limited S.à r.l. (3)
1.470.000
4,90
South China Fund II Limited S.à r.l. (4)
1.470.000
4,90
2.049.000
6,83
2.049.000
6,83
Mr. OOI Guan Hoe (7)
1.062.000
3,54
30.000.000
100,00
Bestehender Aktionär
Total
(1) Mr. ZHU Xiaofang ist Einwohner von Hongkong und wohnhaft in: Flat J 24/F BLK 4, Bauhinia
Garden, Tseung Kwan O NT, Hong Kong.
(2) Chen Capital Limited S.à r.l. ist eine Gesellschaft eingetragen nach dem Recht Luxemburgs mit
der Geschäftsadresse: 7 rue Robert Stümper, 2557 Luxemburg. Alleiniger Gesellschafter ist Herr
CHEN Huocan.
(3) Asia Small Capital V Limited S.à r.l. ist eine Gesellschaft eingetragen nach dem Recht
Luxemburgs mit der Geschäftsadresse: 7 rue Robert Stümper, 2557 Luxemburg. Alleiniger
Gesellschafter ist Herr WU Qingquan.
(4) South China Fund II Limited S.à r.l. ist eine Gesellschaft eingetragen nach dem Recht
Luxemburgs mit der Geschäftsadresse: 7 rue Robert Stümper, 2557 Luxembourg. Alleiniger
Gesellschafter ist Herr ZHU Jianyang.
(5) All-Time-Wonderful Limited ist eine Gesellschaft eingetragen nach dem Recht der Britischen
Jungferninseln unter der Registrierungsnummer 1903057 und mit der Geschäftsadresse: P.O. Box
Page 29
957, Offshore Incorporations Centre, Road Town, Tortola, Britische Jungferninseln. Alleiniger
Gesellschafter ist Herr QIAN Jiangang.
(6) Rongshang Limited ist eine Gesellschaft eingetragen nach dem Recht der Britischen
Jungferninseln unter der Registrierungsnummer 1901222 und mit der Geschäftsadresse: P.O. Box
957, Offshore Incorporations Centre, Road Town, Tortola, Britische Jungferninseln. Alleiniger
Gesellschafter ist Herr ZHU Yufang.
(7) Herr OOI Guan Hoe ist Einwohner von Malaysia und wohnhaft in: 89, Adora, 2A Persiaran
Residen, Desa Parkcity, 52200 Kepong, Kuala Lumpur, Malaysia.
Jede Aktie repräsentiert EUR 1,00 am Grundkapital und verfügt über eine volle
Gewinnanteilsberechtigung für das Geschäftsjahr 2016. Jede Aktie gewährt ein
Stimmrecht in der Hauptversammlung der Gesellschaft.
B.7
Unterschiedliche
Stimmrechte
der Hauptanteilseigner
des
Emittenten
Entfällt. Herr ZHU Xiaofang als direkter Hauptaktionär der Gesellschaft und die
anderen Bestehenden Aktionäre haben keine unterschiedlichen Stimmrechte.
Ob an dem
Emittenten
unmittelbare
oder
mittelbare
Beteiligungen
oder Beherrschungsverhältnisse
bestehen und
wer diese Beteiligungen
hält bzw.
diese Beherrschung
ausübt und
welcher Art
die Beherrschung
ist
Herr ZHU Xiaofang hält aktuell 68,10% der Aktien der Gesellschaft direkt und
der Stimmrechte an der Gesellschaft. Mit dieser Mehrheit kontrolliert Herr ZHU
Xiaofang die Gesellschaft und hat erheblichen Einfluss in der
Hauptversammlung und auf die dort vorgeschlagenen Beschlüsse.
Ausgewählte
historische
Finanzinformationen
Die Gesellschaft wurde als Vorratsgesellschaft am 31. Juli 2013 errichtet und
durch die Eintragung ins Handelsregister des Amtsgerichts München am 13.
Februar 2014 gegründet. Die Gesellschaft veröffentlichte die wirtschaftliche
Neugründung gegenüber dem Handelsregister des Amtsgerichts Köln nach
dem Erwerb aller Aktien der Gesellschaft durch Herrn ZHU Xiaofang. Durch
Restrukturierungsmaßnahmen wurde die Beteiligungsstruktur, wie in Kapitel
B.5 dargestellt, errichtet.
Das operative Geschäft von DECHENG wird ausschließlich von DECHENG
PRC ausgeübt, die eine indirekte hundertprozentige Tochtergesellschaft der
Gesellschaft ist. Alle Anteile der DECHENG PRC werden direkt von der
DECHENG HK gehalten, welche am 15. August 2014 gegründet worden ist.
Die Gesellschaft ist der alleinige Gesellschafter der DECHENG HK.
DECHENG PRC war während des Berichtszeitraums die einzige operative
Gesellschaft von DECHENG. Um die Geschäfte, die Finanzlage und die
Geschäftsergebnisse für die letzten drei Geschäftsjahre im Hinblick auf das
operative Geschäft von DECHENG darzustellen, hat die Gesellschaft daher
Einzeljahresabschlüsse der DECHENG PRC für die am 31. Dezember 2013
(„GJ 2013”), 31. Dezember 2014 („GJ 2014”) und 31. Dezember 2015
Page 30
(„GJ 2015”) endenden Geschäftsjahre nach den International Financial
Reporting Standards und International Accounting Standards and
Interpretations, soweit sie von der EU zugelassen sind („IFRS“), und einen
konsolidierten Jahresabschluss der DECHENG HK für das GJ 2015 nach den
IFRS erstellt (nachfolgend zusammen die „Jahresabschlüsse“).
Die
Jahresabschlüsse
wurden
von
MSW
GmbH
Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Straße des 17.
Juni 106 -108, 10623 Berlin, Deutschland („MSW GmbH”) geprüft.
Darüber hinaus hat die Gesellschaft Einzelabschlüsse für das am
31. Dezember
2015
endende
Geschäftsjahr
mit
entsprechenden
vergleichbaren Informationen nach den Vorschriften der IFRS und für die am
31. Dezember 2013, 31. Dezember 2014 und 31. Dezember 2015 endenden
Geschäftsjahre
in
Übereinstimmung
mit
den
Vorschriften
des
Handelsgesetzbuches erstellt. Diese Einzelabschlüsse wurden von MSW
GmbH geprüft.
Die ausgewählten Finanzangaben, die in diesem Abschnitt enthalten sind,
wurden den vorgenannten Jahresabschlüssen entnommen.
Mit Ausnahme des Einzelabschlusses der Gesellschaft nach den Vorschriften
des Handelsgesetzbuches für die am 31. Dezember 2013, 31. Dezember 2014
und 31. Dezember 2015 endenden Geschäftsjahre sind die vorgenannten
Jahresabschlüsse von DECHENG nicht die gesetzlich vorgeschriebenen
Abschlüsse der Gesellschaft, sondern wurden auf freiwilliger Basis für den
Zweck dieses Angebots erstellt. Der Zweck dieser Abschlüsse liegt darin,
Anlegern eine bessere Vergleichbarkeit der Entwicklung der Geschäfte, der
Finanzlage und der Geschäftsergebnisse von DECHENG in den letzten drei
Jahren zu ermöglichen.
Die folgenden Zahlenangaben wurden nach anerkannten Grundsätzen
gerundet. Additionen der Zahlenangaben in einer Tabelle können daher zu
anderen als den ebenfalls in der Tabelle dargestellten Summen führen:
Page 31
Ausgewählte Finanzangaben
DECHENG PRC
Alle nachfolgenden Zahlen entstammen den Abschlüssen der DECHENG PRC.
2013
Ausgewählte Angaben aus der Gesamtergebnisrechnung
Umsatzerlöse
Herstellungskosten
Bruttoergebnis
Sonstige Erträge
Aufwendungen für Vertrieb und Verkauf
Verwaltungskosten
Finanzresultat
Ergebnis vor Steuern
Steueraufwand
Ergebnis nach Steuern
2014
(in EUR)
(geprüft)
49.442.710
-31.769.960
17.672.750
177.079
-223.038
-1.120.619
-165.551
16.340.621
-4.024.735
12.315.886
38.785.440
-25.963.199
12.822.241
44.979
-194.440
-1.253.043
-151.665
11.268.072
-2.808.327
8.459.745
2015
69.759.801
-43.054.665
26.705.136
250.037
-285.342
-2.475.675
-178.697
24.015.459
-6.162.269
17.853.190
31. Dez
2013
2014
(geprüft)
2015
3.095.824
17.839.728
20.935.552
13.687.000
0
7.248.552
7.248.552
20.935.552
2.998.502
28.735.406
31.733.908
20.874.842
0
10.859.066
10.859.066
31.733.908
2.718.334
41.147.674
43.866.008
30.961.867
0
12.904.141
12.904.141
43.866.008
2013
2014
(geprüft)
2015
11.268.072
16.340.621
24.015.459
11.867.290
16.961.237
24.652.465
Netto Cash Flow aus der operativen Tätigkeit
Netto Cash Flow für Investitionen
Netto Cash Flow für Finanzierungstätigkeiten
7.656.731
-124.720
-4.118.887
12.672.052
40.920
-6.210.519
19.051.609
75.727
-8.068.011
Netto(abnahme)/Zunahme von Zahlungsmitteln
3.413.124
6.502.453
11.059.325
11.306.180
19.867.121
31.748.448
Ausgewählte Angaben aus der Bilanz
Anlagevermögen
Umlaufvermögen
Summe Vermögenswerte
Eigenkapital
Verbindlichkeiten
Kurzfristige Verbindlichkeiten
Summe der Verbindlichkeiten
Summe Verbindlichkeiten und Eigenkapital
Ausgewählte Angaben aus der Kapitalflussrechnung
Ergebnis vor Steuern
Netto Cash Flow aus der Geschäftstätigkeit vor Änderung des
Betriebskapitals
Zahlungsmittel zum Periodenende
31. Dezember
Weitere ausgewählte Finanzinformationen
EBIT(2)
EBIT Marge(3)
Nettoergebnis-Marge(4)
Anzahl der Arbeitnehmer zum Periodenende
2013
2014
(ungeprüft) (1)
2015
11.448.308
29,5%
21,8%
112
16.550.555
33,5%
24,9%
121
24.274.326
34,8%
25,6%
123
(1) Ungeprüfte Informationen durch die Gesellschaft vorbereitet.
(2) Ergebnis vor Steuern und Finanzaufw endungen.
(3) EBIT dividiert durch Umsatzerlös x 100.
(4) Ergebnis nach Steuern (Nettoertrag) für den entsprechenden Zeitraum, dividiert durch Umsatzerlös x 100.
Page 32
Alle nachfolgenden Zahlen entstammen den IFRS Abschlüssen der Decheng Technology AG:
AKTIVA
31. Dez. 2015
EUR
31. Dez. 2014
EUR
12.500
12.500
12.500
12.500
31. Dez. 2015
EUR
31. Dez. 2014
EUR
50.000
50.000
(37.500)
(37.500)
12.500
12.500
12.500
12.500
Umlaufvermögen
Kassenbestand und vergleichbare
Vermögenswerte
PASSIVA
Eigenkapital
Gezeichnetes Kapital
Ausstehende Einlagen
Wesentliche
Änderungen
der
Finanzlage
und des
Betriebsergebnisses
des
Emittenten in
oder nach
dem von den
wesentlichen
historischen
Finanzinformationen
abgedeckten
Zeitraum
Die Umsatzerlöse erhöhten sich um 27,48% und 41,09% in den GJ 2014 und
GJ 2015.
Die Herstellungskosten erhöhten sich um 22,37% und 35,52% in den GJ 2014
und GJ 2015, was im Einklang mit der Erhöhung der Verkaufszahlen steht.
Das Bruttoergebnis erhöhte sich um 37,83% und 51,11% in den GJ 2014 und
GJ 2015, was im Einklang mit der Erhöhung der Verkaufszahlen steht.
Der Hauptgrund für die Steigerung der Umsatzerlöse und des
Bruttoergebnisses in den letzten 3 Jahren ist eine erfolgreiche Forschung und
Entwicklung sowie ein bewährtes Geschäftsmodell gepaart mit gutem KundenFeedback für DECHENGs Produkte.
Das Verkaufsvolumen von DECHENGs Produkten hat sich für den am
31. März 2016 endenden dreimonatigen Finanzzeitraum (2016/Q1) um mehr
als 22,14% erhöht im Vergleich zu dem am 31. März 2015 endenden
dreimonatigen
Finanzzeitraum
(2015/Q1).
Da
die
ölbasierten
Rohmaterialpreise gesunken sind, ist aber der Verkaufspreis der meisten
DECHENGs Produkte gesunken, was zu einem Rückgang der Umsatzerlöse
um 6,84% in RMB (10,56% in EUR) im gleichen Zeitraum führte. Da jedoch
auch die Herstellungskosten für 2016/Q1 im Vergleich zu 2015/Q1 um 6,62%
in RMB (10,35% in EUR) gesunken sind, was im Einklang mit dem Rückgang
des Umsatzes und der Abnahme der Rohmaterialpreise steht, ist die
Bruttoergebnismarge für 2016/Q1 stabil bei 39,30% geblieben im Vergleich zu
39,44% für 2015/Q1. Die Rohölpreise haben wieder angefangen zu steigen,
Page 33
sodass dies wieder einen entsprechenden Effekt bei den kommenden
Umsätzen für das GJ 2016 haben wird. Die Zahlen bezüglich 2016/Q1 und
2015/Q1 sind nicht geprüft und wurden von der Buchhaltungsabteilung von
DECHENG zur Verfügung gestellt.
Die Gesellschaft wurde mit einem gezeichneten Kapital von EUR 50.000 durch
Bareinlage gegründet. Kein operativer Ertrag wurde in dem Berichtszeitraum
bis zum 31. Dezember 2015 in der Gesellschaft erwirtschaftet. Am 2. März
2016 wurde das ausstehende Grundkapital der Gesellschaft in Höhe von
EUR 37.500 vollständig erbracht.
Am 25. April 2016 haben die Bestehenden Aktionäre einen
Einbringungsvertrag mit der Gesellschaft abgeschlossen, nach dem sie sich
verpflichtet haben, 100% der Anteile an der DECHENG HK, d.h. 10.000 Anteile
auf die Gesellschaft zu übertragen gegen Ausgabe von 29.950.000 neuen, auf
den Inhaber lautenden Stammaktien ohne Nennbetrag an die Bestehenden
Aktionäre gemäß ihres Beteiligungsverhältnisses. Der Einbringungsvertrag und
die
Sachkapitalerhöhung
wurden
in
einer
außerordentlichen
Hauptversammlung am 26. April 2016 beschlossen und genehmigt und wurden
am 12. Mai 2016 im Handelsregister des Amtsgerichts Köln eingetragen.
Es haben sich mit Ausnahme der oben beschriebenen Kapitalerhöhung sowie
der erfolgten Auszahlung einer Dividende in Höhe von RMB 76.500.000
(ca. EUR 11.063.000) von DECHENG HK an Mr. ZHU Xiaofang, keine
erheblichen
Änderungen
hinsichtlich
der
Finanzlage
oder
des
Betriebsergebnisses von DECHENG seit dem 31. Dezember 2015 bis zum
Datum des Prospektes ergeben.
B.8
Pro-forma
Finanzinformationen
Entfällt. Es wurden keine Pro-forma Finanzinformationen erstellt.
B.9
Gewinnprognosen oder
Gewinnschätzungen
Entfällt. Es wurden keine Gewinnprognosen oder -schätzungen erstellt.
B.10 Beschränkungen im
Bestätigungsvermerk
Entfällt. Bestätigungsvermerke zu den in diesem Prospekt enthaltenen
historischen Finanzinformationen wurden ohne Einschränkungen erteilt.
B.11 Nichtausreichen
des
Geschäftskapitals des
Emittenten
zur Erfüllung
bestehender
Anforderungen
Entfällt. Die Gesellschaft ist der Ansicht, dass das Geschäftskapital von
DECHENG für seine bestehenden Anforderungen ausreichend ist. Dies
bedeutet,
dass
das
Geschäftskapital
ausreicht,
um
die
Zahlungsverpflichtungen zumindest innerhalb der nächsten zwölf Monate nach
dem Datum dieses Prospektes zu erfüllen.
Abschnitt C – Wertpapiere
C.1
Art und
Gattung der
angebotenen
und/oder zum
Handel zu-
Das Angebot besteht aus 3.000.000 auf den Inhaber lautenden Stammaktien
ohne Nennbetrag (Inhaber-Stückaktien) mit einem anteiligen Betrag am
Grundkapital der Gesellschaft von je EUR 1,00 und mit voller
Gewinnanteilsberechtigung
für
das
Geschäftsjahr
2016
(die
„Angebotsaktien“), davon 3.000.000 neue auf den Inhaber lautende
Stammaktien ohne Nennbetrag aus einer Barkapitalerhöhung gemäß einem
Page 34
zulassenden
Wertpapiere /
Wertpapierkennung
Beschluss der außerordentlichen Hauptversammlung, die voraussichtlich am
20. Juni 2016 abgehalten wird (“Neuen Aktien”). Um die zeitnahe Lieferung
der Aktien vor Ablauf der Angebotsfrist sicherzustellen, wird Herr ZHU
Xiaofang, falls erforderlich, dem Underwriter ein unentgeltliches
Wertpapierdarlehen für die gleiche Anzahl an Aktien gewähren. Nach
Eintragung der Durchführung der Kapitalerhöhung in das Handelsregister der
Gesellschaft werden die Neuen Aktien durch den Underwriter an Herrn ZHU
Xiaofang übertragen, um die Pflicht des Underwriters zur Rückführung der
Wertpapierleihe gegenüber Herrn ZHU Xiaofang zu erfüllen.
Für Zwecke der Zulassung zum Handel im regulierten Markt an der Frankfurter
Wertpapierbörse (General Standard) („Listing“), bezieht sich dieser Prospekt
auf bis zu 33.000.000 Aktien an der Gesellschaft, bestehend aus:

30.000.000 bestehende auf den Inhaber lautende Stammaktien
(“Bestehende Aktien”), und

bis zu 3.000.000 neue auf den Inhaber lautende Stammaktien aus
einer Barkapitalerhöhung in einer bestimmten Höhe gemäß einem
Beschluss der außerordentlichen Hauptversammlung (“Neuen
Aktien”),
jeweils Aktien ohne Nennwert mit einem anteiligen Betrag am Grundkapital von
je EUR 1,00, die über volle Gewinnanteilsberechtigung für das Geschäftsjahr
2016 verfügen.
Internationale Wertpapier-Kenn-Nummer (ISIN): DE000A1YDDM9
Wertpapier-Kenn-Nummer (WKN): A1YDDM
Ticker Symbol: 333
C.2
Währung des
Wertpapier
EUR
C.3
Zahl der ausgegebenen
und voll
eingezahlten
Aktien
30.000.000 nennwertlose, auf den Inhaber lautende Stammaktien (lnhaberStückaktien) der Gesellschaft, jede Aktie repräsentiert EUR 1,00 am
Grundkapital, wurden ausgegeben und voll eingezahlt.
C.4
Rechte
welche mit
dem
Wertpapier
verbunden
sind
Dividendenrechte
Die Aktien der Gesellschaft
gewinnbezugsberechtigt.
sind
für
das
Geschäftsjahr
2016
voll
Rechte am Liquidationserlös
Sollte die Gesellschaft aufgelöst werden, wird der gesamte Liquidationserlös,
nach Erfüllung der Verbindlichkeiten der Gesellschaft, den Aktionären nach
dem Aktiengesetz im Verhältnis zu den jeweils von ihnen gehaltenen Aktien
der Gesellschaft am Grundkapital ausgeschüttet.
Bezugsrechte
Aktionäre haben grundsätzlich das Recht, neue Aktien im Falle einer
zukünftigen Kapitalerhöhung in einem Verhältnis zu den bereits von ihnen
gehaltenen Aktien am Grundkapital der Gesellschaft (Bezugsrecht) gegen eine
Bareinlage zu zeichnen. Ausnahmen sind in Bezug auf bedingte
Kapitalerhöhungen oder die Ausgabe von Wechselschuldverschreibungen,
Gewinnschuldverschreibungen,
Genussrechte
oder
Optionsschuldverschreibungen sowie in Bezug auf den Verkauf von eigenen
Aktien zu machen. Darüber hinaus kann die Hauptversammlung dieses
Bezugsecht in bestimmten Fällen teilweise oder komplett ausschließen.
Page 35
Stimmrechte
In Übereinstimmung mit der Satzung der Gesellschaft gewährt jede Aktie eine
Stimme in der Hauptversammlung. Alle Aktien haben dasselbe Stimmrecht. Es
bestehen keine Beschränkungen der Stimmrechte mit Ausnahme der
gesetzlich geregelten Fälle. Die Teilnahme an der Hauptversammlung und die
Ausübung des Stimmrechts sind in der Satzung der Gesellschaft geregelt und
richten sich nach allgemeinem Gesellschaftsrecht.
C.5
Einschränkung
der Übertragbarkeit
Entfällt. Die Aktien der Gesellschaft sind in Übereinstimmung mit den
gesetzlichen Bestimmungen für nennwertlose, auf den Inhaber lautende
Stammaktien frei übertragbar.
C.6
Zulassung
zum Handel
an einem
regulierten
Markt
Die Gesellschaft beabsichtigt ihre Aktien zum regulierten Markt (General
Standard) an der Frankfurter Wertpapierbörse ungeachtet des Ergebnisses
des Angebots zuzulassen.
Dividendenpolitik
DECHENG hat in der jüngeren Vergangenheit Dividenden ausgeschüttet. Die
Gesellschaft beabsichtigt, Gewinnausschüttungen in 2017 vorzunehmen und
auch danach regelmäßig Gewinnausschüttungen zu tätigen, allerdings
abhängig von der Ertragslage der Gesellschaft, ihrer Geschäftsstrategie, ihrer
Vermögenslage, ihrem Bedarf an liquiden Mitteln und den rechtlichen,
steuerlichen und regulatorischen Rahmenbedingungen sowie anderen
Faktoren.
C.7
Ein Antrag auf Zulassung von 30.000.000 Bestehende Aktien und bis zu
3.000.000 Neue Aktien zum regulierten Markt an der Frankfurter
Wertpapierbörse (General Standard) soll am oder um den 3. Juni 2016 gestellt
werden. Die Handelszulassung durch die Frankfurter Wertpapierbörse zum
regulierten Markt (General Standard) wird am 24. Juni 2016 für die Aktien der
Gesellschaft erwartet. Es wird erwartet, dass der Handel mit den Aktien der
Gesellschaft am 28. Juni 2016 aufgenommen wird.
Die bestehenden Aktionäre haben ihre Absicht erklärt, auf ihre
Dividendenrechte für die Dividendenausschüttungen in den nächsten drei
Jahren 2017 – 2019 zu verzichten.
Abschnitt D – Risiken
Bevor Anleger die Entscheidung zum Kauf von Aktien der Gesellschaft treffen, sollten sie neben
den übrigen in diesem Prospekt enthaltenen Informationen gewisse Risiken sorgfältig abwägen.
Diese Risiken schließen die unten angeführten wesentlichen Risiken ein. Das Eintreten von
einem oder mehreren der mit diesen Risiken verbundenen Ereignisse kann sich wesentlich
nachteilig auf die Geschäftstätigkeit von DECHENG auswirken und die Vermögens-, Finanz- und
Ertragslage von DECHENG erheblich beeinträchtigen. Es ist möglich, dass infolge eines mit dem
Eintreten dieser Risiken verbundenen Ereignisses der Börsenkurs der Aktien sinkt und Anleger
ihr investiertes Kapital ganz oder teilweise verlieren.
Es könnte sein, dass die nachstehend genannten Risiken sich im Nachhinein als nicht
vollständig herausstellen und daher möglicherweise nicht die einzigen Risiken darstellen, denen
DECHENG ausgesetzt ist. Zusätzliche Risiken und Unsicherheiten, von denen die Gesellschaft
derzeit keine Kenntnis hat, könnten erhebliche nachteilige Auswirkungen auf die
Geschäftstätigkeit, die Vermögens-, Finanz- und Ertragslage von DECHENG haben. Anleger
sollten insbesondere den Umstand beachten, dass alle operativen Gesellschaften von
DECHENG in der VR China ansässig sind und sich damit in einem rechtlichen und
regulatorischen Umfeld befinden, welches sich in verschiedenen Aspekten von dem anderer
Länder unterscheidet.
Die Reihenfolge der nachfolgend dargestellten Risikofaktoren gibt nicht Aufschluss über die
Wahrscheinlichkeit des Eintretens oder des Umfangs oder der Erheblichkeit des einzelnen
Risikos. Die unten genannten Risiken können einzeln oder kumulativ eintreten.
Page 36
D.1
Zentrale
Risiken des
Emittenten
und seiner
Branche
Risiken bezüglich der Geschäftstätigkeit von DECHENG
 DECHENG könnte möglicherweise zukünftig nicht mehr in der Lage sein,
sich gegen derzeitige und zukünftige Wettbewerber erfolgreich
durchzusetzen.
 DECHENGs Geschäfts- und Finanzergebnisse hängen stark von der
Nachfrage
nach
und
dem
Preisniveau
von
DECHENGs
Polyurethanprodukten ab.
 Schwankungen
bei
den
Konsumausgaben,
ausgelöst
durch
Veränderungen der marktökonomischen Bedingungen in der VR China,
könnten DECHENGs Geschäftsaussichten erheblich beeinflussen.
 DECHENG könnte nicht dazu fähig sein, Produkte anzubieten, welche die
Kundenwünsche und -anforderungen erfüllen.
 DECHENG operiert in einer umweltgefährdenden Industrie und könnte
möglicherweise nicht in der Lage sein, die Umweltschutzgesetze und
Vorschriften in der VR China einzuhalten.
 Die derzeitigen Umweltschutzgesetze und -verordnungen der VR China
könnten sich zum Nachteil von DECHENG verändern.
 DECHENGs Tätigkeiten könnten gesundheitliche Schäden hervorrufen und
sind Gegenstand von innewohnenden Gefahren und anderen Risiken bei
der chemischer Verarbeitung, Produktion, Lagerung und dem Transport.
 DECHENGs Reputation könnte durch Beschwerden von seinen Kunden
und negative Publicity beeinträchtigt werden.
 DECHENG ist potenziellen Belastungen durch Produkthaftungsansprüchen ausgesetzt.
 DECHENG könnte daran scheitern, seine Expansionspläne erfolgreich
auszuführen und sein Wachstum effizient zu steuern.
 Die Umsetzung von DECHENGs Wachstumsstrategie ist kapitalintensiv
und DECHENGs Wachstum könnte sich verlangsamen, falls eine
zusätzliche Finanzierung nicht sichergestellt ist.
 DECHENG kann langfristigen Geschäftsbeziehungen mit dem
bestehenden Kundenstamm nicht sicherstellen,
 DECHENG ist dem Kreditrisiko seiner Kunden ausgesetzt.
 DECHENG könnte Schwankungen der Rohmaterialpreise ausgesetzt sein
und ist abhängig von der fortdauernden und zeitgerechten Lieferung von
hochwertigen Rohmaterialien.
 DECHENGs Geschäft hängt erheblich von dem fortdauernden Einsatz
seines Managements und sonstigem Schlüsselpersonal ab.
 Lohnkosten in der VR China sind in den letzten Jahren erheblich gestiegen
und könnten weiterhin erheblich steigen, was DECHENGs Betriebskosten
erhöhen würde.
 DECHENGs Kunden, welche hauptsächlich Leder- und Textilhersteller
sind, könnten sich aufgrund der steigenden Lohnkosten außerhalb der VR
China niederlassen.
 DECHENG ist den Wechselkursschwankungen zwischen ausländischen
Währungen und dem RMB ausgesetzt.
 DECHENG ist auf den effektiven Schutz seiner Patente und seines
vertraulichen technischen Know-hows angewiesen.
 DECHENG könnte unbeabsichtigt Rechte Dritter am geistigen Eigentum
verletzen.
 DECHENG könnte in der Vergangenheit das geistige Eigentum aus
früheren Kooperationen mit Forschungsinstituten und Universitäten
möglicherweise nicht wirksam erworben haben.
 Unerwartete Stillstände aufgrund technischer oder IT-Fehlfunktionen
könnten den Verkauf und Umsatz von DECHENG beeinflussen.
 Es kann nicht ausgeschlossen werden, dass DECHENG von
Unterbrechungen in der Strom- und Wasserversorgung betroffen wird, was
zu einer Unterbrechung der Produktion und zu einer Beeinträchtigung der
Page 37
betrieblichen Abläufe führen könnte.
 Eine wesentliche Störung des Betriebs von DECHENG oder der Betriebe
seiner Zulieferer durch höhere Gewalt könnte eintreten.
 Die
betriebswirtschaftlichen,
kaufmännischen
und
finanziellen
Planungssysteme, das Schlüsselsystem zur internen Kontrolle und die
Management Berichtssysteme könnten unzureichend sein und die
Kapazitäten des Managements von DECHENG könnten nicht ausreichen,
um das zukünftige Wachstum erfolgreich zu steuern und zu unterstützen
sowie ein zuverlässiges Finanzmanagement sicherzustellen.
 Der Vorstand der Gesellschaft verfügt über keine Erfahrung im Hinblick auf
die gesetzlichen Anforderungen für börsennotierte Unternehmen in
Deutschland und DECHENG verfügt derzeit über kein umfassendes
Risikomanagement.
 Die angemessene Überwachung des Vorstands durch den Aufsichtsrat von
DECHENG könnte sich als schwierig gestalten, da der Vorstand in der VR
China und der Aufsichtsratsvorsitzende in Deutschland ansässig ist.
 Herr ZHU Xiaofang ist direkter Hauptaktionär der Gesellschaft und übt
Funktionen im Management von DECHENG PRC aus. Diese Positionen
ermöglichen ihm, erhebliche Kontrolle über die Gesellschaft und die
operativen Gesellschaften in der VR China auszuüben, was zu
Interessenkonflikten führen könnte.
 Der Versicherungsschutz von DECHENG entspricht nicht dem Umfang, wie
er üblicherweise in wirtschaftlich weiter entwickelten Ländern für
Unternehmen von seiner Art und Größe besteht, und die Versicherung
könnte für die Geschäftstätigkeiten von DECHENG nicht angemessen sein.
 DECHENG ist möglicherweise nicht in der Lage, Genehmigungen und
Lizenzen von Behörden der VR China, die für die Ausübung oder die
Erweiterung seiner Geschäftstätigkeit notwendig sind, aufrecht zu erhalten
und/oder zu erlangen.
 DECHENG ist möglicherweise nicht in der Lage, Eigentumszertifikate für
fünf Gebäude, welche derzeit, unter anderem, als Lagerhalle und
Schlafsaal genutzt werden, zu erhalten.
 DECHENG könnte dazu verpflichtet werden, Beiträge zu Wohnraumfonds
für die Vergangenheit zu zahlen.
 Die Gesellschaft ist eine Holdinggesellschaft, deren Liquidität vom Zugang
zu den liquiden Mitteln von DECHENG PRC abhängt.
 Die steuerliche Belastung von DECHENG könnte durch das Ergebnis einer
Steuerprüfung erhöht werden.
Risiken bezüglich der Geschäftstätigkeit in der VR China
 Die Geschäftstätigkeit, Finanz- und Ertragslage und Geschäftsaussichten
von DECHENG könnten in einem erheblichen Maße durch Veränderungen
des wirtschaftlichen, politischen und rechtlichen Umfelds sowie durch
zukünftige Entwicklungen in der VR China wesentlich und nachteilig
beeinflusst werden.
 Fluktuationen in der globalen Wirtschaft könnten die Wirtschaft der VR
China erheblich und nachteilig beeinträchtigen.
 Veränderungen der politischen und wirtschaftlichen Lage der VR China
könnten die Geschäftsaktivitäten von DECHENG in einem erheblichen
Maße negativ beeinflussen.
 Die Gesetzgebung in der VR China zu Zweckgesellschaften („SPV“) mit
Sitz im Ausland, die von chinesischen Gesellschaften und/oder
Einzelpersonen zum Zweck einer indirekten Börsennotierung gegründet
werden und Unternehmen in der VR China direkt oder indirekt kontrollieren,
kann sich in erheblichem Maße negativ auf die Geschäfte von DECHENG
auswirken.
 Die Rechtsvorschriften der State Administration of Foreign Exchange, der
staatlichen Devisenverwaltung in China, in Bezug auf OffshoreInvestitionen, die von in der VR China ansässigen Personen oder Inhabern
Page 38











D.3
Risiken
bezüglich des
Angebotes
eines chinesischen Passes getätigt werden, könnten die geschäftlichen
Aktivitäten und Finanzierungsalternativen von DECHENG negativ
beeinflussen.
Gesetzliche Vorgaben der VR China zu der Vergabe von Darlehen und zu
direkten Investitionen durch ausländische Muttergesellschaften an
chinesische Gesellschaften könnten dazu führen, dass DECHENG die
Erlöse aus diesem Angebot erst zu einem späteren Zeitpunkt oder gar nicht
nutzen kann.
Das Rechtssystem der VR China beinhaltet inhärente Unsicherheiten und
Inkonsistenzen, welche die Durchsetzung von Ansprüchen erschweren
könnten.
Der steuerrechtliche Status von DECHENG PRC oder die
Steuergesetzgebung oder deren Auslegung könnten sich ändern.
Die Gesellschaft und DECHENG HK könnten als steuerlich ansässiges
Unternehmen für steuerliche Zwecke in der VR China nach dem
chinesischen Körperschaftsteuergesetz angesehen werden und daher der
chinesischen Besteuerung unterliegen.
Eine größere Kontrolle von Übernahme- und Verkaufstransaktionen durch
die Steuerbehörden der VR China könnten einen negativen Einfluss auf
DECHENG oder den Verkauf von Aktien der Gesellschaft durch Investoren
haben.
Rechnungslegungsstandards in der VR China könnten sich negativ auf die
Möglichkeit zur Ausschüttung von Dividenden auswirken.
Eine Destabilisierung des politischen Systems könnte die wirtschaftliche
Liberalisierung der VR China gefährden.
Die mangelnde Unabhängigkeit und geringe Erfahrung der Richter in der
VR China und die Schwierigkeiten bei der Vollstreckung von richterlichen
Entscheidungen sowie der Ermessensspielraum der staatlichen Behörden
bei der Durchsetzung von Gerichtsentscheidungen könnten DECHENG
daran hindern, effektiven Rechtsschutz in einem Gerichtsverfahren zu
erlangen.
Die Anerkennung und Vollstreckung von ausländischen Gerichtsurteilen in
der VR China gegen die Gesellschaft, ihr Management oder in die
Vermögenswerte der Gesellschaft könnte für Anleger schwierig oder nicht
möglich sein.
Bestimmte Fakten, Prognosen und andere Statistiken in Bezug auf die VR
China, die Wirtschaft der VR China und die Polyurethanindustrie in diesem
Prospekt sind teilweise aus offiziellen Behördenpublikationen entnommen
und könnten nicht verlässlich sein.
Ausländischen Beteiligungen an chinesischen Unternehmen könnten
Beschränkungen auferlegt werden.
 Ein öffentlicher Handel mit Aktien der Gesellschaft könnte sich
möglicherweise nicht entwickeln. Es gibt keinen aktuellen Markt für die
Aktien und das Angebot könnte keinen aktiven und liquiden Markt für die
Aktien finden.
 Eine Abwertung des RMB könnte einen negativen Währungseffekt auf den
Jahresabschluss der Gesellschaft haben.
 Der Aktienkurs der Aktien könnte sich volatil entwickeln und Anleger einen
Teil oder ihre gesamten Investitionen verlieren.
 Zukünftige Verkäufe oder Ausgabe einer größeren Anzahl von Aktien der
Gesellschaft könnten den Börsenpreis der Aktien der Gesellschaft negativ
beeinflussen. Zukünftige Kapitalmaßnahmen könnten zu einer erheblichen
Verwässerung der Beteiligung der Investoren an der Gesellschaft führen.
 Das Angebot kann möglicherweise nicht stattfinden, wenn der
Übernahmevertrag gekündigt wird.
 In die Zukunft gerichtete Informationen in diesem Prospekt könnten sich als
unzutreffend erweisen.
 Informationen aus Presseartikeln oder sonstigen Medien über DECHENG
Page 39
oder das Angebot könnten sich als unzutreffend erweisen, so dass nicht
auszuschließen ist, dass Investoren ihre Investitionsentscheidung auf Basis
unzutreffender Information treffen.
 Der Marktpreis der Aktien der Gesellschaft könnte zu einem späteren
Zeitpunkt unter den Angebotspreis fallen.
 Das Angebot könnte möglicherweise nicht in vollem Umfang umgesetzt
werden, was sich negativ auf die Wachstumsaussichten von DECHENG
und/oder der Liquidität der Aktien auf dem Markt auswirken könnte.
 Die Zulassung könnte entfallen, wenn die Voraussetzungen für die
Zulassung nicht erfüllt werden.
Abschnitt E – Angebot
E.1
Gesamtnettoerlöse /
Gesamtkosten
Auf Basis der festgesetzten Angebotspreises von EUR 3,50 und unter
Annahme der vollständigen Platzierung aller Angebotsaktien geht die
Gesellschaft davon aus, dass ein Nettoemissionserlös von EUR 8.634.000
erreichbar ist.
Auf Basis des festgesetzten Angebotspreises von EUR 3,50 und unter
Annahme der vollständigen Platzierung aller Angebotsaktien schätzt die
Gesellschaft die Gesamtkosten für das Angebot (einschließlich der Provision
für den Underwriter) auf einen Betrag von ca. EUR 1.866.000.
E.2a Gründe für
das Angebot /
Zweckbestimmung
Die Gesellschaft beabsichtigt, den Nettoemissionserlös zur Stärkung der
Kapitalbasis und der Vermögenslage der Gesellschaft zu nutzen und um die
beabsichtigten Expansionspläne und die Umsetzung der strategischen Ziele zu
unterstützen, insbesondere durch Entwicklung und Verkauf neuer
fortschrittlicher
Produkte
wie
lösemittelfreiem
Flammschutzmittel,
wasserfestem / luftdurchlässigem Polyurethane. Das Listing soll es der
Gesellschaft auch ermöglichen, ihr öffentliches Profil als auch ihr Profil auf dem
Finanzmarkt zu schärfen.
Die Gesellschaft plant den Nettoerlös wie folgt zu verwenden:
Zweck
EUR
Ca. %
Forschung & Entwicklung
4.317.000
50%
Marketing
1.726.800
20%
Betriebsmittel
2.590.200
30%
In Bezug auf die Forschung & Entwicklung plant die Gesellschaft neue
Ausrüstung für die Forschung und Entwicklung zu erwerben, weitere lokale und
ausländische Experten und Angestellte einzustellen, das Personal aus der
Forschung & Entwicklung zu Ausbildungszwecken an lokale und internationale
Universitäten / Forschungszentren zu senden, eine Forschungs- und
Entwicklungsdatenbank aufzubauen sowie neue Kooperationen mit
Forschungszentren aufzunehmen.
In Bezug auf die Betriebsmittel plant die Gesellschaft, mit diesen die
Rohmaterialen mit weniger Kredit zu erwerben, um so in den Genuss von
Rabatten zu kommen und damit zur Erhöhung der Bruttoergebnismarge von
DECHENG beizutragen.
Sollte der von der Gesellschaft geplante Nettoemissionserlös nicht erzielt
werden, sind die Betriebsmittel von DECHENG immer noch ausreichend, um
solchen Zahlungsverpflichtungen nachkommen zu können, die mindestens in
den nächsten 12 Monaten fällig werden. Bezüglich der Finanzierung des
weiteren Wachstums wird die Gesellschaft in diesem Fall ggf. bestehende
Page 40
kurzfristige Bankdarlehen in Höhe von RMB 29,8 Millionen (ca. EUR 4,3
Millionen) verlängern oder interne Mittel aus dem operativen Cashflow nutzen
müssen. DECHENG plant den Nettoerlös so zu verwenden wie zuvor
beschrieben. Gleichwohl kann nicht ausgeschlossen werden, dass auf
Grundlage der weiteren Geschäftsentwicklung eine andere Verwendung des
Nettoerlöses in Betracht gezogen wird.
E.3
Angebotskonditionen
Angebotsgegenstand
Das Angebot besteht aus einem öffentlichen Angebot in der Bundesrepublik
Deutschland und Luxemburg sowie Privatplatzierungen außerhalb
Deutschlands, Luxemburgs und den Vereinigten Staaten von Amerika. Das
Angebot besteht aus 3.000.000 auf den Inhaber lautenden Stammaktien ohne
Nennbetrag (Inhaber-Stückaktien) mit einem anteiligen Betrag am Grundkapital
der Gesellschaft von je EUR 1,00 und mit voller Gewinnanteilsberechtigung für
das Geschäftsjahr 2016 (die „Angebotsaktien“), davon 3.000.000 neue auf
den Inhaber lautende Stammaktien ohne Nennbetrag aus einer
Barkapitalerhöhung gemäß einem Beschluss der außerordentlichen
Hauptversammlung, die voraussichtlich am 20. Juni 2016 abgehalten wird
(“Neuen Aktien”). Um die zeitnahe Lieferung der Aktien vor Ablauf der
Angebotsfrist sicherzustellen, wird Herr ZHU Xiaofang, falls erforderlich, dem
Underwriter ein unentgeltliches Wertpapierdarlehen für die gleiche Anzahl an
Aktien gewähren. Nach Eintragung der Durchführung der Kapitalerhöhung in
das Handelsregister der Gesellschaft werden die Neuen Aktien durch den
Underwriter an Herrn ZHU Xiaofang übertragen, um die Pflicht des
Underwriters zur Rückführung der Wertpapierleihe gegenüber Herrn ZHU
Xiaofang zu erfüllen.
Die angebotenen Neuen Aktien stammen aus einer Barkapitalerhöhung gemäß
einem
Beschluss
der
außerordentlichen
Hauptversammlung,
die
voraussichtlich am 20. Juni 2016 abgehalten wird. Die Bestehenden Aktionäre
verzichten auf ihr Bezugsrecht für die Neuen Aktien.
Angebotsfrist
Das Angebot beginnt voraussichtlich am 6. Juni 2016 und endet am 20. Juni
2016 („Angebotsfrist“). Kaufangebote können bis zum Ablauf der
Angebotsfrist frei widerrufen werden. Am letzten Tag der Angebotsfrist können
Privatanleger und institutionelle Anleger bis um 10:00 Uhr (Mitteleuropäische
Zeit) ihre Kaufangebote abgeben.
Angebotspreis
Der Angebotspreis, für den Kaufangebote abgegeben werden können, beträgt
EUR 3,50 je Angebotsaktie. Der Angebotspreis wurde von der Gesellschaft
nach ihrer eigenen Bewertung unter Anwendung von typischen
Bewertungsmethoden wie Discounted Cash Flow festgelegt.
Mindestvolumen einer Zeichnung
Es werden lediglich Kaufangebote über
Mindestvolumen von einer Aktie akzeptiert.
Zeichnungen
mit
einem
Mehrfachzeichnungen
Mehrfache Kaufangebote eines Aktienzeichners werden nicht akzeptiert.
Änderung der Angebotsbedingungen
Die Gesellschaft behält sich das Recht vor, in Abstimmung mit ACON
(„Bookrunner“), die Anzahl der Angebotsaktien zu verringern, den
Angebotspreis zu reduzieren oder zu erhöhen, und/oder die Angebotsfrist zu
verlängern oder zu verkürzen (zusammen als die „Angebotsbedingungen“
bezeichnet). Im Falle einer Änderung der Angebotsbedingungen wird ein
Nachtrag bei der Bundesanstalt für Finanzdienstleistungsaufsicht (“BaFin”)
eingereicht und nach der Billigung auf der Internetseite der Gesellschaft
Page 41
(www.dechengtechnology.com) veröffentlicht. Soweit dies gesetzlich
erforderlich ist, wird jede Änderung als ad-hoc Mitteilung veröffentlicht. Eine
individuelle Unterrichtung der Anleger erfolgt nicht.
Lieferung der Angebotsaktien
Die Angebotsaktien werden vorrausichtlich am 24. Juni 2016 gegen Zahlung
des Angebotspreises geliefert.
Wertpapierdarlehen
Um die zeitnahe Lieferung von bis zu 3.000.000 Neuen Aktien der Gesellschaft
an die Anleger zu ermöglichen, wird Herr ZHU Xiaofang, falls erforderlich,
einen Wertpapierdarlehensvertrag mit dem Underwriter abschließen und dabei
dem Underwriter 3.000.000 auf den Inhaber lautende Stammaktien ohne
Nennbetrag (Inhaber-Stückaktien) als unentgeltliches Wertpapierdarlehen zur
Verfügung stellen.
Allgemeine Zuteilungskriterien
Die Gesellschaft behält sich das Recht vor, den Anlegern weniger als die
maximal mögliche Anzahl von angebotenen Neuen Aktien zuzuteilen. Die
Gesellschaft, Herr ZHU Xiaofang und der Bookrunner beabsichtigen, die
„Grundsätze für die Zuteilung von Aktienemissionen an Privatanleger“, die am
7.
Juni
2000
von
der
Börsensachverständigenkommission
des
Bundesministeriums
der
Finanzen
herausgegeben
wurden
(die
„Zuteilungsgrundsätze“), zu beachten.
Vorzeitige Beendigung des Angebots
Der Übernahmevertrag, der u.a. zwischen der Gesellschaft, Herr ZHU
Xiaofang und dem Underwriter innerhalb von fünf Bankarbeitstagen nach dem
Datum dieses Prospekts abgeschlossen wird (der „Übernahmevertrag“), sieht
vor, dass der Underwriter den Übernahmevertrag bei Vorliegen von
bestimmten Umständen bis zum Tag der Lieferung der Aktien kündigen kann.
Darüber hinaus behält sich die Gesellschaft vor, jederzeit während und nach
dem Angebot ohne weitere Angaben von Gründen vom Angebot
zurückzutreten.
Im Falle einer Kündigung des Übernahmevertrags oder eines Rücktritts seitens
der Gesellschaft findet das Angebot nicht statt. In einem solchen Fall werden
Aktienzuteilungen an die Anleger für ungültig erklärt und die Anleger haben
keinen Lieferanspruch. Ansprüche aus gezahlten Zeichnungsgebühren und
den Anlegern im Zusammenhang mit der Zeichnung entstandene Kosten
werden ausschließlich nach Maßgabe der rechtlichen Verhältnisse zwischen
dem jeweiligen Anleger und der Institution, bei der dieser ein Kaufangebot
abgegeben hat, geregelt.
E.4
Interessen /
Interessenkonflikte
bezüglich der
Emission/ des
Angebots
Im Zusammenhang mit dem Angebot und dem Listing der Gesellschaftsaktien
(die „Transaktion“), steht ACON in einer vertraglichen Beziehung mit der
Gesellschaft.
Die Vergütung von ACON als Underwriter, Global Coordinator und Lead
Manager hängt unter anderem von der Höhe des Angebots in
Übereinstimmung mit dem Übernahmevertrag ab, der innerhalb von fünf
Bankarbeitstagen nach dem Datum dieses Prospekts abgeschlossen wird.
Insoweit hat ACON ein Interesse an der erfolgreichen Umsetzung des
Angebots.
ACON oder ihre Tochtergesellschaften könnten in Geschäftsbeziehungen mit
der Gesellschaft treten bzw. im Geschäftsalltag Dienstleistungen an die
Gesellschaft erbringen.
Da die Gesellschaft mit ACON eine Designated-Sponsor-Vereinbarung
getroffen hat, hat ACON darüber hinaus ein Interesse an dem Angebot auf
Page 42
Grund dieser Vereinbarung.
E.5
E.6
Name des
Unternehmens, das
das
Wertpapier
zum Verkauf
anbietet
Die Angebotsaktien werden von der ACON als Underwriter angeboten.
Lock-Up
Vereinbarung
Die Gesellschaft, Herr ZHU Xiaofang, All-Time-Wonderful Limited mit dem
alleinigen Gesellschafter Herrn QIAN Jiangang und Rongshang Limited mit
dem alleinigen Gesellschafter Herrn ZHU Yufang haben mit ACON eine Lockup Vereinbarung mit einer Lock-Up-Frist von 36 Monaten, beginnend am Tag
der Notierungsaufnahme der Aktien der Gesellschaft im regulierten Markt
(General Standard) der Frankfurter Wertpapierbörse, abgeschlossen.
Verwässerung
Zum Datum dieses Prospektes beträgt das Grundkapital der Gesellschaft
EUR 30.000.000 eingeteilt in 30.000.000 auf den Inhaber lautende
Stammaktien ohne Nennbetrag (Inhaber-Stückaktien).
Der Nettobuchwert von DECHENG HK (Summe der Vermögenswerte
abzüglich kurzfristiger Verbindlichkeiten), welcher für den Zweck der
Berechnung der Verwässerung als Nettobuchwert der Gesellschaft im
Anschluss an die Eintragung der Sachkapitalerhöhung der Gesellschaft am 12.
Mai 2016 betrachtet wird, beträgt zum 31. Dezember 2015 EUR 30.960.743
basierend auf dem konsolidierten Jahresabschluss von DECHENG HK nach
IFRS für das GJ 2015. Dies entspricht etwa EUR 1,03 pro Aktie (kalkuliert auf
der Basis von 30.000.000 Aktien der Gesellschaft zum Datum dieses
Prospektes).
Unter der Annahme, dass alle 3.000.000 Angebotsaktien platziert werden und
dass der Angebotspreis EUR 3,50 beträgt, würde die Gesellschaft NettoEmissionserlöse von ca. EUR 8.634.000 erhalten, unter Berücksichtigung der
Gesamtkosten für das Angebot (einschließlich der Provision für den
Underwriter) mit ca. EUR 1.866.000. Unter der Annahme, dass das Angebot
am 31. Dezember 2015 umgesetzt worden wäre, würde der Nettobuchwert der
Gesellschaft zu diesem Zeitpunkt ca. EUR 39.594.743 betragen (oder ca. EUR
1,20 pro Aktie auf der Grundlage von 33.000.000 Aktien der Gesellschaft in der
Ausgabe nach vollständiger Durchführung der Kapitalerhöhung gegen
Bareinlagen). Dies entspricht einer Zunahme des Nettobuchwertes der
Gesellschaft von ca. EUR 0,17 pro Aktie entsprechend einer Zunahme von ca.
16,5% für die bestehenden Aktionäre. Dies stellt eine direkte Verwässerung
von EUR 2,30 pro Aktie für die Käufer der angebotenen Aktien dar, basierend
auf dem Angebotspreis. Investoren, welche Aktien zum Angebotspreis von
EUR 3,50 pro angebotene Aktie kauften, haben somit eine Verwässerung von
ca. 65,7%.
E.7
Schätzung
der
Ausgaben,
die dem
Anleger vom
Emittenten
oder Anbieter
in Rechnung
gestellt
werden
Entfällt. Weder die Gesellschaft noch ACON werden den Anlegern Gebühren
in Rechnung stellen. Die Investoren werden von ihren depotführenden
Finanzinstituten mit den üblichen Transaktions- und Bearbeitungsgebühren
belastet werden.
Page 43
3.
RISK FACTORS
In addition to the other information included in this Prospectus, potential investors should
peruse and carefully consider the specific risk factors described below before coming to a
decision about purchasing shares of Decheng Technology AG (the “Company”). The
business operations and net assets, financial condition and results of operations of the
Company and its direct and indirect subsidiaries (together “DECHENG” or the “Group”)
could be materially and adversely affected due to the materialization of any one or
several of these risks. The risks described below are not the only risks to which
DECHENG is exposed. Other uncertainties and risks which are currently unknown to the
Company may also impair the operations of DECHENG and materially and adversely
affect its business and its net assets, financial position and results of operations.
Investors should pay particular attention to the fact that the operating entity of DECHENG
is incorporated in the People’s Republic of China (“PRC” or “China”) and subject to a
legal and regulatory environment which in various respects may differ from that of other
countries. The sequence in which the following risks are presented does not contain any
statement about the probability that they will occur or the extent of the financial impact if
the risks mentioned below materialize. The market price of the Company’s shares might
decline considerably and/or the Company may become insolvent and wound-up if any
one of these risks occurs and investors might lose all or part of their investment.
3.1
Risks related to DECHENG’s Operations
3.1.1
DECHENG may not be able to continue competing successfully against
present and future competitors.
The Company believes that the polyurethane (“PU”) resin industry is quite
competitive. DECHENG and its competitors compete with each other based on,
amongst other things, brand image, product variety, product functionality,
quality and price. Competitors may have significantly greater financial, technical
and marketing resources, stronger brand name recognition and a larger existing
customer base than DECHENG. In addition, competitors may have the ability to
respond more quickly to new or emerging technologies, may adapt more quickly
to changes in customer requirements and may devote greater resources to the
development, promotion and sales of their products than DECHENG.
DECHENG’s current competitors are mainly domestic and, to a lesser extent,
international polyurethane resin manufacturers. There are entry barriers for new
competitors in China as new licenses for production companies in the
polyurethane industry and in particular environmental certificates are in practice
given out restrictively by the PRC authorities, in particular taking into account
the discharge of waste gas such as sulphur dioxide (SO2) and mono-nitrogen
oxide (NOx) in the process of the production. Nevertheless, there is no
assurance that DECHENG will be able to continue competing successfully
against present and future competitors. The Company believes that important
factors to achieving success in the polyurethane resin industry include
maintaining customer loyalty by cultivating long-term customer relationships,
achieving consistent product renewal and maintaining the quality of products
and services. If DECHENG is unable to attain these factors, it may lose its
customers to its competitors, which would in turn result in DECHENG not being
able to maintain or increase its market share. Increased competition may also
force DECHENG to lower its prices. Further, matured technology requires longterm accumulation of experience and R&D investment, which sets high barriers
for ordinary manufacturers to entry and also challenges for existing
manufacturers to maintain their competitiveness. The success of DECHENG
has relied substantially on its R&D capacity. The expenses thereof without
personnel costs accounted to approx. Euro (“EUR”) 0.34 million on average in
the last three financial years (“FY”) and DECHENG is planning to further
increase its R&D investment. There is however no assurance that these R&D
expenses will bear fruit, i.e. technologies which can be used to manufacture
Page 44
competitive products. Also, local competitors might instead of developing own
technology obtain licenses for technology and formulae from international
manufactures, which would speed up the time to market new polyurethane resin
products and would increase competition for DECHENG.
If DECHENG is unable to compete effectively with existing or new competitors
in the future, in particular in light of the changing and competitive market
environment, DECHENG’s business and its net assets, financial condition and
results of operations may be materially and adversely affected.
3.1.2
DECHENG’s business and financial results are highly dependent on
demand and price levels for DECHENG’s polyurethane resin products.
The selling prices and operating costs associated with producing DECHENG’s
products are volatile and are determined by market conditions. Due to the
slower growth of demands and excess production capacity, the average price
for polyurethane resin per ton in China has slumped from Renminbi
(“RMB”) 18,932 (approx. EUR 2,735) in 2013 to RMB 16,840 (approx.
EUR 2,435) in 2014 and further decreased to RMB 13,989 (approx. EUR 2,025)
in 2015. It is expected the prices remain low and fluctuate at RMB 14,000
(approx. EUR 2,025) per ton from 2016 to 2020. For DECHENG’s products, the
selling price has not slumped to the same extent. Prices for polyurethane resin
products are the main determinants of DECHENG’s income and its decisions
regarding total output volumes. Prices for polyurethane resin products may
have an adverse impact on DECHENG’s operating activity in case of their
decrease. Selling prices for polyurethane resin products and operating costs
associated therewith are volatile and are determined by unpredictable factors,
which are beyond DECHENG’s control. Demand for DECHENG’s products
might also decline in case new and innovative substitute products, such as new
synthetic materials, solvent-free or waterborne PU resin, are developed by other
players in the market. Such decline in demand might result in a decrease of the
selling price and output volume. If any or all of these factors depress prices or
increase DECHENG’s operating costs, its business, results of operations and
financial condition may be adversely affected.
3.1.3
Fluctuations in consumer spending caused by changes in
macroeconomic conditions in the PRC may significantly affect
DECHENG’s prospects.
DECHENG only sells its products on the Chinese market mainly to domestic
textile and leather production-oriented enterprises which use them to
manufacture their own end-products. Therefore, the success of the business of
DECHENG indirectly depends on the condition and growth of the PRC
consumer market, which, in turn, depends on worldwide economic conditions
and individual income levels and their impact on levels of consumer spending.
The slowdown of gross domestic product (“GDP”) growth rates in the PRC in
2013, 2014 and 2015 which is, amongst others, due to the development of the
global economy, could lead to a toughened competition and increased pressure
on prices. There are many factors affecting the level of consumer spending,
including but not limited to interest rates, currency exchange rates, recession,
inflation, deflation, political uncertainty, taxation, stock market performance,
unemployment level and general consumer confidence. The growth rate of
PRC’s economy has slowed down since 2014 in comparison to the previous
years and may continue to decline. Further, there can be no assurance that
projected growth rates of the PRC economy and the PRC consumer market will
be realized. Any further slowdowns or declines in the PRC economy or
consumer spending may materially and adversely affect DECHENG’s business
and its net assets, financial condition and results of operations.
Page 45
3.1.4
DECHENG may not be able to provide products meeting customers’
demand and requirements.
DECHENG’s customer may demand products with certain new/improved
functionality or environmentally friendly materials, such as solvent-free and
waterborne PU resin, which DECHENG currently cannot produce. As a result,
customer may order products from competitors, if the Research & Development
(“R&D”) department of DECHENG is not able to maintain and meet the demand
of the customers. DECHENG’s quality control may also fail to discover
deficiencies and DECHENG may deliver products that do not meet the quality
requirements of its customers. In such event, DECHENG may be required to
deliver replacement products at its own expense or pay damages. Such failures
could also result in reputational harm and confidence loss of its customers
which might lead to lower volumes of orders of customers or even losing of
important customers. Not fulfilling the expectations of the customers and the
failure to gain market acceptance of products introduced in the future may have
an adverse impact on DECHENG’s net assets, financial conditions and results
of operations.
3.1.5
DECHENG operates in an environmental hazardous industry and may fail
to comply with environmental protection laws and regulations in the PRC.
Businesses in China like DECHENG that generate pollutants in the production
process, such as waste gas in the form of sulphur dioxide (SO2) and mononitrogen oxide (NOx) by burning coal for heating, are subject to environmental
laws and regulations. These laws and regulations require enterprises engaged
in the manufacturing that may cause environmental pollution to limit or adopt
effective measures to control and properly dispose of industrial waste.
Under PRC laws, any enterprise which discharges pollutants is required to
register with the relevant PRC governmental authorities and to obtain the
necessary approvals, such as pollutant discharge permit. DECHENG has
obtained the required pollutant discharge permit, which has been issued by the
Quanzhou Environment Protection Bureau on 14 July 2015 and has a duration
term of 5 years. Under the pollutant discharge permit, DECHENG is authorized
to discharge waste gas up to 8,958,000 standard cubic meters per year, SO2 up
to 2.51 tons per year, NOx up to 2.45 tons per year and flue dust up to 2.34 tons
per year. However, against the background of heavy environmental pollution in
China and the efforts of the PRC government to reduce such, the allowed
volume of discharge may be reduced upon the next extending of the pollutant
discharge permit. It also cannot be excluded that factories like DECHENG have
to halt their production for a certain time due to environmental pollution reasons
or that the allowed volume of discharge will even be reduced before the
expiration of the pollutant discharge permit. Lower limits could impact
DECHENG’s ability to produce polyurethane resins or require additional
environmental protection investments or the use of more expensive higher
energy less polluting coal.
Compliance with the environmental laws and the conditions of the pollutant
discharge permit is subject to periodical inspection from relevant government
authorities. According to the latest assessment by the Fujian Kerui
Environmental Testing Ltd. Co. issued on 30 December 2015, the current
discharge of waste gas in the form of SO2, NOx and flue dust by DECHENG
amounted to 0.503 kilogram/hour (“kg/h”), 0.414 kg/h and 0.133 kg/h,
respectively. Subject to the actual usage of the production capacity, the amount
of authorized discharge under the permit could be exceeded. DECHENG is
therefore currently planning to replace coal with natural gas for heating, which is
planned to be put into use in the first quarter of 2017.
Fines may be imposed for pollution discharges, which fail to meet the relevant
environmental standards. Relevant governmental authorities may also refuse to
issue or renew a pollutant discharge permit, if an enterprise fails to pass
Page 46
environmental inspections, and are also empowered to close down any
enterprise in cases of severe violations of the relevant environmental standards.
DECHENG’s compliance with environmental laws and regulations in the past
has been confirmed by the competent authority Quanzhou Quangang District
Environment Protection Bureau, which issued on 18 January 2016 a letter
certifying that DECHENG PRC was in compliance with the laws and regulations
in relation to environment protection since its incorporation, that no
environmental pollution accident or any discharge pollutant beyond pollution
limits had occurred during the operation of DECHENG PRC, and there was no
administrative investigation or penalty had been imposed on DECHENG PRC
for violation of environment protection regulations since its incorporation.
However, there is no assurance that DECHENG PRC would continue to comply
with the applicable environmental protection laws and regulations in the future
and fines, penalties or other sanction measures would be imposed on
DECHENG PRC. If DECHENG should fail to comply with the applicable
environmental protection laws and regulations or if the above mentioned risks
occur, this may result in penalties and other sanctions like a shut down. As a
result, DECHENG’s business and its net assets, financial condition and results
of operation may be materially and adversely affected.
3.1.6
The current PRC environmental protection laws and regulations may
change to the detriment of DECHENG.
There can be no assurance that the PRC government will not change the
existing environmental laws and regulations or impose additional or stricter laws
and regulations in the chemical manufacturing industry, especially after some
recent massive chemical explosions on production sites in China. Compliance
with any of these additional or stricter laws or regulations may cause
DECHENG to incur additional capital expenditure, which DECHENG may be
unable to pass over to the customer through higher prices for DECHENG’s
products. This could have a material adverse effect on DECHENG’s business
and its net assets, financial condition and results of operations.
Furthermore, if DECHENG should be unable to comply with more stringent
environmental protection standards, penalties may be imposed on it and/or its
operations and business may be shut down or adversely impaired, which would
also have a material adverse effect on DECHENG’s net assets, financial
condition and results of operations.
3.1.7
DECHENG’s operations may cause damage to human health and are
subject to the inherent hazards and other risks associated with chemical
processing, production, storage, and transportation.
For the production of polyurethane and additives, DECHENG operates several
reaction kettles processing chemicals at its production facilities. The employees
can suffer chemical burns from spilling chemicals in the production process or
from inhaling hazardous fumes. Other potential hazards associated with
chemical production and operations include accidents, explosions, fires,
inclement weather, transport risks, terrorist attacks, natural disasters,
mechanical failure, transportation interruptions, remediation, pipeline leaks and
ruptures, storage tank leaks, chemical spills, discharges or releases of toxic or
hazardous substances or gases and other risks. These hazards could expose
workers, suppliers, the community and others to toxic chemicals and other
hazards, contaminate property and the environment, damage property, result in
personal injury or death, lead to an interruption, relocation or suspension of
operations and materially adversely affect the productivity of DECHENG, and
result in governmental enforcement, regulatory shutdowns, the imposition of
government fines and penalties and claims brought by governmental entities or
third parties. Although DECHENG has implemented precautionary measures
and safety procedures in its operations and has not violated any safe production
laws and regulations and there was no production accident occurred during the
operation since its incorporation as certified by Quanzhou Quangang Safe
Page 47
Production Supervision and Administration Bureau dated 18 January 2016, it
cannot be assured that the process does not endanger the human health of the
employees involved, neighboring population or the environment. Any major
industrial accident can result in a permanent damage whether due to
DECHENG’s fault or not, and may give rise to potential claims against
DECHENG. Also, the government might introduce tighter controls as to
chemical plant safety standards resulting in higher costs for compliance.
The social security for DECHENG covers health damage of its employees and a
liability insurance of safe production for 28 front-line workers in the production.
However, it cannot be assured that the social security and the liability insurance
of safe production are sufficient to cover all potential claims of employees
against DECHENG.
In the event any claims are not covered by the insurance, DECHENG may be
liable to cover the amounts claimed, which would also have a material adverse
effect on DECHENG’s, business, net assets, financial condition and results of
operations.
3.1.8
DECHENG’s reputation may be affected by complaints from its customers
and negative publicity.
DECHENG’s business also relies on its brand reputation. The Company
believes that maintaining and enhancing DECHENG’s brand, which will depend
on the success of DECHENG’s marketing efforts and ability to provide its
customers with high quality products, is important to retaining its market share
and market penetration and growing the business in the future. DECHENG’s
ability to maintain and enhance its brand will depend largely on its ability to
continue to provide high quality products. In the event that DECHENG’s brand
or reputation is damaged, for example as a result of complaints from its
customers, whether valid or invalid, product liability claims, negative press
coverage or general negative perceptions about DECHENG’s polyurethane
products, this could adversely impact DECHENG’s reputation. In the event that
DECHENG’s brand or reputation is adversely affected, this could have a
material adverse effect on DECHENG’s business, net assets, financial condition
and results of operations.
3.1.9
DECHENG has potential exposure to product liability claims
Many of DECHENG’s products provide critical performance attributes to
customers’ products, which are in turn sold to consumers. If a product fails to
perform in a manner consistent with quality specifications, a customer could
seek replacement of the product or damages for costs incurred as a result of
the product failing to perform as designed and marketed. The sale of these
products may also give rise to product liability claims or other claims based on
damage caused by DECHENG’s products. If a consumer were to bring a
product liability claim with respect to a product that contains DECHENG’s
products, DECHENG could be named as a defendant in that claim or could
become subject to separate litigation brought by one of its customers. A
successful claim or series of claims against DECHENG could cause
reputational harm and could result in a loss of customers.
In addition, DECHENG’s product portfolio contains some substances that are as
such harmful to human health. Other products of DECHENG that are not
currently considered harmful to human health may be discovered to be harmful
to human health in the future, which could lead to liability claims. In addition,
DECHENG’s products, once integrated into consumer end products, may also
be found to be harmful as medical knowledge about health risks related to
exposure evolves. Any allegation of harm caused by a product of DECHENG
may significantly negatively affect DECHENG’s reputation. Any threatened or
actual future claims for damages based on product liability could significantly
harm DECHENG’s reputation and, in turn, could materially adversely affect
DECHENG’s business, financial condition, results of operations and prospects.
Page 48
3.1.10
DECHENG might fail to execute its expansion plans successfully and
manage its growth efficiently.
DECHENG has expanded its business significantly in recent years. For
FY 2013, FY 2014 and FY 2015, DECHENG recorded revenues of
EUR 38,785,440, EUR 49,442,710 and EUR 69,759,801 respectively.
DECHENG intends to further advance such growth. In particular, such growth
shall be achieved by geographical expansion into other provinces, but also by
expanding DECHENG’s current production facilities. The expansion of the
current production facilities shall in particular also serve the purpose of
producing newly developed polyurethane resin products.
There can however be no assurance that DECHENG may, in part or at all, be
successful in these activities.
DECHENG’s anticipated future growth, combined with the requirements the
Company will face as a public listed company, will place a significant strain on
DECHENG’s management, systems and resources. There is a risk that
DECHENG will have difficulty or will fail to integrate satisfactorily new
personnel, operations, products and services into its operations.
To accommodate its growth, DECHENG will need to implement new and
upgraded financial systems, procedures and controls, including the ongoing
improvement of its accounting and other internal management systems, all of
which require substantial management efforts. DECHENG will also need to
continue to expand, train, manage and motivate its workforce and manage its
customer relationships. Moreover, as DECHENG introduces new products or
extends its presence to other PRC provinces, DECHENG may face new
operational risks and challenges, with which DECHENG is unfamiliar.
All of these endeavors will involve risks and require substantial management
effort and skill. DECHENG may be unable to manage its growth effectively and
any failure to do thus may have a material and adverse effect on DECHENG’s
business and its net assets, financial condition and results of operations.
3.1.11
The implementation of DECHENG’s growth strategy is capital intensive
and DECHENG’s growth could slow down if it could not secure additional
financing.
In order to finance its growth strategy, DECHENG may have to raise additional
capital in the future through debt or equity offerings, if DECHENG cannot
maintain sufficient working capital for its expansion plans. DECHENG cannot be
certain that suitable financing will be available in the required amounts or on
acceptable terms. DECHENG’s growth could slow down, if it could not secure
additional financing.
If additional equity or equity-linked securities are issued, this may result in the
dilution of existing shareholders' holdings. If additional debt is incurred, this
would result in debt service obligations, which could have a negative impact on
profitability and could expose DECHENG to general adverse economic
conditions. In addition, the terms of any financing agreement could limit
DECHENG’s ability to pay dividends or restrict DECHENG’s flexibility in
planning for, or reacting to, changes in its business or its industry.
DECHENG is also subject to foreign exchange registration and approval, if it
intends to borrow funds from entities outside of the PRC. In addition,
DECHENG needs to obtain approval or registration from Chinese government
agencies, if it intends to secure financing through equity contributions from nonPRC residents. In the event that DECHENG cannot obtain necessary financing
on reasonable terms, or at all, it may be forced to scale back its plans for future
business expansion and DECHENG’s growth could slow down.
The occurrence of any of the aforementioned risks, restrictions or exposure
could have material and adverse effects on DECHENG’s business and its net
assets, financial condition and results of operations.
Page 49
3.1.12
DECHENG cannot ensure long-term business relationships with its
existing customer base.
DECHENG currently sells its products to approx. 72 textile and leather
manufacturers who themselves use the product to manufacture its own end
products such as outdoor supplies, waterproof jackets, tents and mats in the
textile industry and leather sofas, leather and sport shoes as well as footballs in
the leather industry. DECHENG does not control nor participate in the
operations of these manufacturers. Out of the 72 customers in 2015, in total
about 63 customers are repeated customers, while the other customers have
been newly acquired by DECHENG. Since DECHENG does not have long-term
contracts with its customers, DECHENG’s customers may, at any point in time,
cease or alter to DECHENG’s disadvantage the present arrangements with
DECHENG.
Further, due to the increase of new capacity in synthetic leather industry in
recent years, competition among synthetic leather manufacturers is expected to
be intensified. Further decrease in end product prices coupled with rising labour
costs will prohibit vast majority of synthetic leather manufacturers to remain
profitable. Hence synthetic leather manufacturers might opt to move towards
upstream. This is also expected to intensify competition within the leather PU
resin industry and customers of DECHENG might become its competitors. This
may have a material and adverse effect on DECHENG’s business and its net
3.1.13
DECHENG is exposed to the credit risks of its customers.
DECHENG’s business and DECHENG’s financial results are dependent on the
credit worthiness of its major customers. DECHENG’s contracts with its
customers generally provide a credit term of one month for 20% and two
months for 40% of the total order price after final delivery.
Any deterioration in the financial position of DECHENG’s customers, particularly
its major customers, may affect DECHENG’s profits and cash flow, as these
customers may default on their payments to DECHENG. Although DECHENG
reviews the credit risk of its customers on a yearly basis, DECHENG cannot
assure that such defaults will not take place in the future or that it will not
experience cash flow problems as a result of such defaults.
The occurrence of any default in payment may materially and adversely affect
DECHENG’s business and its net assets, financial condition and results of
operations.
3.1.14
DECHENG may be subject to fluctuations in the prices of raw materials
and is dependent on the continuous and timely supply of quality raw
materials.
The costs of raw materials accounted for approximately 93.0%, 93.1% and
92.6% of DECHENG’s total costs of goods sold for the FY 2013, FY 2014 and
FY 2015 respectively, which included in particular dimethylformamide (“DMF”)
and methylene diphenyl diisocyanate (“MDI”) as well as pure adipic acid (“AA”).
As DECHENG does not have long-term arrangements with its suppliers for such
key raw materials, in particular the annual supply contract does not contain any
pricing for the period due to the volatility of crude oil price, there is no assurance
that DECHENG will be able to obtain, or continue to obtain, quality raw
materials at competitive prices. Although DECHENG’s raw materials turnover
days are maintained at 10 days, the continuous and timely supply of quality raw
materials is, however, the basis for quality products. Market prices of such raw
materials may fluctuate due to crude oil price fluctuation or due to changes in
the level of global demand and supply. Any substantial increase in the prices of
these raw materials is likely to have a material adverse impact on DECHENG’s
production costs. In the event of any significant increase in the costs of such
materials and should DECHENG be unable to hedge the risk or to pass on such
costs to DECHENG’s customers or do so on a timely basis, DECHENG’s
Page 50
business and its net assets, financial condition and results of operations may be
materially and adversely affected.
3.1.15
DECHENG’s business depends substantially on the continuing efforts of
its management and other key personnel.
DECHENG’s future success substantially depends upon the continued services
of its management and other key employees. DECHENG’s success to date has
been largely attributable to the efforts of its management team, in particular Mr.
ZHU Xiaofang as chairman of the management board (Vorstandsvorsitzender)
of the Company, who has more than 10 years of experience in the
polyurethanes industry.
DECHENG PRC is headed by the Company’s chairman Mr. ZHU Xiaofang, who
is closely supported by DECHENG PRC’s general manager Mr. ZHU Xiaohua,
also having more than 10 years of experience in the polyurethane resin
industry, and by the vice-general manager Mr. CHEN Shuo, who is heading the
sales and marketing team. The Company’s CFO Mr. OOI Guan Hoe and the
key R&D staff also substantially contribute to DECHENG’s success.
If one or more of its management or key personnel are unable or unwilling to
continue in their present positions, DECHENG might not be able to replace
them easily or at all. Furthermore, if any of its management or key personnel,
e.g. key R&D staff, would join a competitor or form a competing company,
DECHENG may lose customers, suppliers, expertise and key professionals and
staff members.
There can be no assurance that DECHENG will be successful in retaining its
management or key employees or will be able to hire qualified management
personnel to replace them, should such a need arise. The demand for such
experienced personnel is intense and the search for personnel with the relevant
skills set can be time consuming.
In any of the abovementioned events, DECHENG’s business may be severely
disrupted and its net assets, financial condition and results of operations may
be materially and adversely affected.
3.1.16
Labor costs in the PRC have risen significantly in recent years and could
continue to rise significantly, which increases DECHENG’s operational
costs.
The workforce of DECHENG is located in the PRC. As of 31 December 2015,
DECHENG employed 123 employees. Labor costs comprise wages, social
security contributions and other welfare benefits. The average annual wage per
capita of employees of private companies in the PRC increased in 2013 from
RMB 32,706 (approx. EUR 4,730) by 11.3% to RMB 36,390 (approx. EUR
5,265) in 2014 (Source: National Bureau of Statistics of China). The legal
minimum monthly salary in Pu’an Leather Center, Quangang District, Quanzhou
City, Fujian Province, PRC, where DECHENG’s facilities are located, amounts
to RMB 1,350 (approx. EUR 195) since 2015, whereas the legal minimum
hourly salary amounts to RMB 14.30 (approx. EUR 2.07) (Source: Circular of
the People’s Government of the Fujian Province regarding the Standards of the
Minimum Wages in Fujian Province, Min Zheng (2015) No. 38). The average
salary for workers of DECHENG PRC has increased from RMB 3,363 (approx.
EUR 486) per month in 2013 by 4% to RMB 3,510 (approx. EUR 508) per
month in 2014 and by 7% to RMB 3,814 (approx. EUR 552) per month in 2015.
Although the salary of DECHENG’s employees complies with the minimum
salary requirements and is above average, it cannot be excluded that increases
in minimum wages affect the wages, which DECHENG must pay in order to
remain an attractive employer. This may also result in increased prices for its
products and services, making DECHENG potentially less competitive, even
though DECHENG’s labor costs account only for approx. 2% of the total costs
of goods sold. In addition, new obligations imposed on employers and
Page 51
enhanced employee protection measures, such as restrictions on the dismissal
of employees, and the requirement to pay a severance payment in case of prior
termination of an employment agreement may also lead to an increase in
DECHENG’s labor costs.
In the future, labor costs could continue to increase significantly and additional
legislation could be enacted that further increases an employer’s obligation to
pay employee benefits.
In case any of the above mentioned risks materialize, this could have a material
and adverse effect on its business and its net assets, financial condition and
results of operations.
3.1.17
DECHENG’s customers, being mainly leather and textile manufactures,
may relocate outside the PRC due to rising labor costs.
DECHENG mainly distributes its products to leather and textile manufactures in
the PRC. The production of leather and textile goods is quite labor intensive and
the labor costs constitute a substantial part of the operational costs of those
manufactures. Rising labor costs in the PRC, as seen in the past and expected
to potentially rise in the future, could force the manufactures to relocate their
production facilities outside the PRC into other Asian countries. As a result, the
manufacturers might more likely procure polyurethane resin products locally
and thus DECHENG might lose customers. In such case, this could have a
material and adverse effect on DECHENG’s business and its net assets,
financial condition and results of operations.
3.1.18
DECHENG is exposed to fluctuation in foreign exchange rates against the
Renminbi (“RMB”).
Fluctuations in foreign exchange rates against the Renminbi (“RMB”), in
particular a strengthening RMB, may cause the price of goods produced in the
PRC to be relatively high as compared to products from other countries. Such
fluctuations might harm the competitiveness of DECHENG’s exporting
customers compared to international manufacturers and hence reduce the
demand for DECHENG’s products. Also, rising RMB could make import
substitution of Chinese resin production more attractive. Thus, fluctuations in
the RMB exchange rate could have a material and adverse effect on
DECHENG’s business and its net assets, financial condition and results of
operations.
3.1.19
DECHENG relies on the effective protection of its patents and its
confidential technical know-how.
DECHENG believes that the continuous development of new resin formulae by
its R&D department and the know-how in the manufacturing of its products
materially contributes to its business success. Typically, DECHENG develops
more than 10 new resin formulae per year. DECHENG has registered 12 utility
model patents in China, which are used in the manufacturing process. The
patents mainly referred to the formulas of the polyurethane resin products. Due
to delayed payment, all of these patents have been deregistered. However,
DECHENG has already applied for re-registration, which has been denied by
the patent office in the first instance. DECHENG has though filed an appeal
against this decision. The formulaes which had been protected by the deregistered patents have however anyway already changed over the time and
new patents have been applied for. Therefore, even in the case of a rejection of
failure of the appeal, the Company does not believe it will have an adverse
impact on its business, operation or competitiveness.
Nevertheless, effective protection of the know-how in its production process is
critical to DECHENG’s business. DECHENG has therefore applied for 13 new
patents in China, out of which 8 utility model patents have been granted and
five patent applications have been accepted by the Chinese patent office.
However, there is no assurance that as to the five applications patents will be
Page 52
granted to DECHENG. Further, even if know-how is patented, this may however
not be sufficient to protect the respective rights. Competitors might therefore try
to copy DECHENG’s products.
Also, since other technical know-how is not patented, DECHENG relies on
confidentiality restrictions to protect such intellectual property rights. DECHENG
is thus exposed to unauthorized disclosure of such proprietary information to its
competitors. There is no assurance that DECHENG’s controls to maintain
confidentiality will be effectively implemented.
In the event that any of its competitors infringes the patent rights of DECHENG
or its other know-how should be leaked to its competitors, DECHENG’s
business and its net assets, financial condition and results of operations may be
materially and adversely affected.
3.1.20
DECHENG may inadvertently infringe third-party intellectual property
rights.
DECHENG is not aware of, nor has DECHENG received any claims from third
parties for any violations or infringements of intellectual property rights of third
parties by DECHENG as of the date of this Prospectus. Nevertheless, there can
be no assurance that new products developed by DECHENG would not
inadvertently infringe the intellectual property rights of others, or others would
not assert infringement claims against DECHENG or claim that DECHENG has
infringed their intellectual property rights. Such claims against DECHENG, even
if untrue or baseless, could result in significant costs, legal or otherwise, cause
product shipment delays, require DECHENG to develop non-infringing products,
enter into licensing agreements or seriously harm the reputation of DECHENG
and its brand image. Licensing agreements, if required, may not be available on
terms acceptable to DECHENG or at all. In the event of a successful claim of
intellectual property rights infringement against DECHENG and its failure or
inability to develop non-infringing products or to license the infringed intellectual
property rights in a timely or cost-effective basis, DECHENG’s business and its
net assets, financial condition and results of operations may be materially and
adversely affected.
3.1.21
DECHENG may not have validly acquired intellectual property rights from
its former cooperation with research institutions and universities in the
past.
DECHENG’s research and development activities rely to a significant extent on
the cooperation with external partners, such as research institution and
universities, e.g. DECHENG PRC has entered into research arrangements with
Haixi Institute of Chinese Academy of Sciences (Fujian Material Structure
Institute) (“Fujian Material Structure Institute”) and Quangang Petrochemical
Research Institute of Fujian Normal University (“Quangang Petrochemical
Research Institute”).
It is possible that DECHENG may not have validly acquired intellectual property
rights from its former cooperation and its cooperation partners may demand the
registration of the intellectual property rights solely in their name and/or claim
damages from DECHENG, prohibiting DECHENG from using the relevant
technologies. It can also not be excluded that cooperation partners may have
claims regarding inventions made within the scope of cooperation which have
not been fully fulfilled by DECHENG.
However, according to the current cooperation agreements with Fujian Material
Structure Institute and Quangang Petrochemical Research Institute, it has been
explicitly agreed that (i) DECHENG shall have a sole right to apply for patent for
all technological developments arising from the cooperation; (ii) DECHENG has
the exclusive right to use all of the technology developments arising from the
cooperation; (iii) Fujian Material Structure Institute and Quangang
Petrochemical Research Institute shall not authorize any third party to use any
Page 53
of the technology developments or patents, or transfer any of the technology
developments or patents to a third party.
Nevertheless, it cannot be excluded that cooperation partners may register
patents solely in their own name, in spite of the contractual agreements.
Further, cooperation partners may still continue to independently develop
research to an end product after recognizing the potential during cooperation
with DECHENG. In such cases, DECHENG’s business, financial condition, net
assets and results of operations may be materially and adversely affected.
3.1.22
Unexpected stoppages due to technological and IT malfunctions may
impact DECHENG’s sales and revenues.
Polyurethane resin production is a complex process which is subject to strict
technical and technological requirements. During such operations, various kinds
of stoppages can occur due to planned and unplanned technical interruptions
(e.g., malfunctions). Unplanned stoppages, e.g. in the processing of the kettles,
caused by serious malfunctions may have a material impact on the volume of
production and sales and the punctuality of deliveries DECHENG’s customers.
DECHENG’s production is also highly automated and hence materially
dependent on controlling software, computer and data processing systems.
Disruptions or malfunctions may lead to adverse impact on DECHENG’s
production and business.
Any of these events can have a material adverse effect on DECHENG’s
business, financial condition, net assets and results of operations.
3.1.23
There can be no assurance that DECHENG will not encounter disruptions
in the supply of electricity and water which could cause a disruption to its
production and affect its overall operation efficiencies.
DECHENG’s production facilities consume substantial amount of electricity and
water which are supplied from state owned enterprises.
There can be no assurance that DECHENG will not encounter disruptions in the
supply of electricity and water caused by problems in the respective
hydroelectricity power plants, problems with electricity supply lines,
contamination of its source of water, natural calamities such as droughts or
earthquakes, governmental acts such as prohibition from or withdrawal of the
approval on the use of the water resources or any other factors which could
cause a disruption to its production and affect its overall operation efficiencies.
In any of these events, DECHENG may not be able to obtain alternative supply
in time or at all, DECHENG’s business and its net assets, financial condition
and results might be materially adversely affected.
3.1.24
A material disruption of the operations of DECHENG or the operations of
its suppliers from force majeure events could occur.
The operations of DECHENG are subject to uncertainties and contingencies
beyond its control that could result in material disruptions and adversely affect
its results of operations. These include war, riot, public disorder, civil
commotion, fire, earthquake, flood, volcano eruption and other natural calamity,
epidemic, outbreak of infectious disease, terrorism, whether locally or
nationwide, or incidents such as industrial accidents or other operational
problems, strikes or other labor difficulties and disruptions of public
infrastructure such as roads, ports or utilities. Any such disruption of the
operations of DECHENG could cause it to disrupt, limit or delay its production,
prevent it from meeting customer orders, increase its costs of production or
require it to spend additional capital expenditures, each of which could
materially and adversely affect its results of operations. Force majeure events
may also materially and adversely affect the operations, performance of its
suppliers or the sales and demand of its products in the relevant markets. In
Page 54
such event, DECHENG’s business and its net assets, financial condition and
3.1.25
DECHENG’s operational, trading and financial planning, internal key
control and management reporting systems may be inadequate and its
management resources may be insufficient to successfully manage and
support its future growth and to ensure accurate financial management.
DECHENG’s operational, trading and financial planning, internal key control and
management reporting systems may not be fully adequate and thus not provide
DECHENG’s management with as much or accurate information as required, or
not provide the required information in time. Also, the bookkeeping and
accounting department may not be able to fully comply with all accounting or
trading standards and procedures, such as proper documentation for all
transactions, as the basis for reporting and accounting, in particular the
bookkeeping and accounting department might fail to fully comply with IFRS
standards since these differ from those standards in the PRC. Moreover, the
shortage of qualified management and accounting personnel in the PRC in
general and in the Fujian region in particular may hinder DECHENG from
building sufficient personnel resources to ensure accurate financial
management.
Any inability to maintain operational, trading and financial planning and
management reporting systems, as well as any inability to hire further qualified
personnel, may hinder DECHENG’s future successful growth. This may have a
material and adverse effect on DECHENG’s business and net assets, financial
condition and results of operations.
3.1.26
The Company’s management board (Vorstand) is not experienced in
complying with German legal requirements for listed companies and
DECHENG currently does not have a comprehensive risk management
system in place.
DECHENG has until recently operated as a private Chinese group and
maintains a small finance and accounting department. DECHENG is therefore
not experienced in dealing with increased legal, accounting transparency, in
particular with respect to the International Financial Reporting Standards and
International Accounting Standards and Interpretations as endorsed for
application in the EU (“IFRS”), and administrative requirements imposed on a
publicly listed company in Germany. The obligation to comply with certain
reporting, notification, documentation and publication obligations resulting from
the admission of the Company’s shares to trading in the regulated market
(General Standard) of the Frankfurt Stock Exchange will put increased demand
on its finance and accounting departments. In addition, the preparation of
interim financial reports and annual consolidated financial statements in
accordance with IFRS, which the Company will be required to produce after the
listing of its shares on the Frankfurt Stock Exchange and the additional
reporting requirements it will face as a publicly listed company may pose
problems for DECHENG’s current financial reporting system. DECHENG may
not have an adequate number of management and accounting personnel
sufficiently qualified to assist with the preparation of the IFRS financial
statements, to install and operate adequate management reporting systems and
to meet reporting requirements as a publicly listed company. If the Company
should fail to timely issue complete and correct financial statements and
reports, it will potentially be exposed to fines and penalties and a decrease in
investor confidence thus resulting in a decrease of its share price.
In addition, DECHENG has not yet established a formalized risk reporting
system and risk management system as may be customary in European or US
listed companies, as such risk management systems are not standard in the
PRC. The lack of such formalized systems increases DECHENG’s susceptibility
to the aforementioned risks. In addition, any gaps or shortcomings of the
existing compliance system, especially against the background that compliance
Page 55
standards in the PRC differ from such in the European Union, or the Company’s
policies and procedures could lead to a restriction of DECHENG’s ability to
timely recognize and respond to risks and future developments.
If DECHENG fails to comply with its obligations as a publicly listed company or
if any risks materialize which could have been prevented by a formalized risk
management system, this could have a material adverse effect on DECHENG’s
3.1.27
The Company’s supervisory board (Aufsichtsrat) may have difficulties in
adequately supervising the management board (Vorstand) since the
management is located in the PRC and the chairman of the supervisory
board (Aufsichtsratsvorsitzender) resides in Germany.
DECHENG’s business is located in the PRC and all of its senior management
members and directors reside there. The Company is currently a holding
company without any significant operational business of its own. The chairman
of the supervisory board (Aufsichtsratsvorsitzender) resides in Germany and he
is, together with the other members of the supervisory board (Aufsichtsrat),
responsible for the supervision of the Company’s management board
(Vorstand).
However, it may be more difficult for them to fulfill their supervisory duties
arising from the German Stock Corporation Act (AktG) vis-à-vis the
management residing in the PRC, e.g. according to section 111 AktG, and/or to
receive the reports required from the management board (Vorstand), e.g.
according to section 90 AktG. It may in particular be difficult for the chairman of
the supervisory board (Aufsichtsratsvorsitzender) to organize the supervision
and to communicate with the management board (Vorstand) and to receive at
any time all documents that are required to inspect and examine the books and
the records of the Company.
These circumstances could have a material and adverse effect on DECHENG’s
3.1.28
Mr. ZHU Xiaofang is majority direct shareholder of the Company as well as
holds management positions in DECHENG PRC. These positions will
enable him to exercise significant control over the Company and
DECHENG PRC and could subject him to conflicts of interest.
Immediately upon closing of the Offering, Mr. ZHU Xiaofang will still have more
than 50% of the voting rights. Through this shareholding, he will be in a position,
irrespective of the voting behavior of other shareholders, to exercise
considerable influence over all major decisions and developments of the
Company. In particular, he will be able to exercise considerable influence at
general shareholders’ meetings (Hauptversammlungen), and consequently,
over decisions regarding measures which are presented for a vote at the
general shareholders’ meeting (Hauptversammlung) (including the election of
the supervisory board (Aufsichtsrat) and the approval for important capital
measures). Mr. ZHU Xiaofang is also chairman of the management board
(Vorstand) of the Company and legal representative of DECHENG PRC. His
interest as majority shareholder could conflict with his duties as member of the
management in DECHENG PRC to act in the best interests of DECHENG
and/or the interests of other investors.
Also, as legal representative of DECHENG PRC, Mr. ZHU Xiaofang has full
control over all business affairs of DECHENG PRC. The position of legal
representative is crucial for the ongoing operations of DECHENG PRC. Under
the laws of the PRC and given that Mr. ZHU Xiaofang as majority shareholder
of the Company has ultimate control over the business of DECHENG, any
changes in the position of the legal representative potentially required due to
any conflicts of interests between Mr. ZHU Xiaofang personally and the
business operations of DECHENG PRC are very difficult to implement.
Page 56
Any conflicts of interest described above could have a material and adverse
effect on DECHENG’s business and its net assets, financial condition and
results of operations.
3.1.29
DECHENG does not have the insurance coverage that is customary in
more economically developed countries for a business of its type and size
and the insurance may not be adequate for DECHENG’s operations.
In the PRC, it is not customary to take out an extensive insurance protection for
businesses as in more developed economies. DECHENG has taken out three
property insurances covering basic risks for its real estate located at Pu’an,
Quangang District, Quanzhou City, Fujian Province, PRC such as fire and
explosions as well as certain natural disasters, and one corporate insurance
covering risks such as the loss related to the assets, the equipment damage,
the loss of cash, the close of business, public liability, and the employer's
liability.
However, DECHENG may become subject to liabilities for events that cannot be
insured against, e.g. riots, general strikes, acts of terrorism or against which it
may elect not to be so insured because of high premium costs or other reasons.
A lack of insurance coverage may expose DECHENG to substantial financial
risks, for which it may not be adequately compensated. DECHENG does not
maintain separate funds or otherwise set aside reserves for these types of
events. Any uninsured occurrence of loss or damage, litigation or business
disruption may result in DECHENG incurring substantial costs and the diversion
of resources, which could have a material and adverse effect on DECHENG’s
3.1.30
DECHENG may not be able to maintain and/or obtain approvals and
licenses from PRC authorities necessary to carry out or expand its
business.
DECHENG requires certain licenses (in particular business license, production
permits and environmental certificates) to conduct its current business. Also in
case of the expansion of its business, e.g. by way of establishing additional
production facilities, new permits, such as construction permits, are required.
The respective authorizations are subject to periodic renewal by the competent
PRC authorities, and the standards of compliance required may change.
DECHENG is subject to the supervision of the authorities, each of which may
be able to revoke or refuse to grant and/or to extend the licenses. DECHENG
has obtained all required certificates. However, there can be no assurance that
DECHENG will obtain and keep all necessary licenses or permits in the future.
In particular, the business license could be canceled due to the following matter:
According to Article 5 of the Non-Resident Enterprise Income Tax Withholding
Regulation Tentative Provisions of the PRC ("Withholding Regulation"), if the
involving both parties in an overseas share transfer transaction are non-resident
enterprises, the domestic target company shall file a copy of the share transfer
contract with the tax authority when the domestic target company change its tax
registration. The Withholding Regulation is silent on the legal consequence in
case of failure to file the share transfer agreement, but it provides in Article 22
Withholding Regulation that in case of failure to duly change the tax registration,
the tax authority shall follow the Article 42 of the Administrative Measures for
Tax Registration of the PRC to handle the case. According to this Article 42 and
Article 60 of the Tax Collection and Administration Law, the tax authority may
impose a penalty of up to RMB10, 000 and ask the company to remedy the tax
registration within a deadline. In case that a company refuses to make tax
registration within the deadline imposed by the tax authority, the tax authority
may apply to the Administration for Industry and Commerce (“AIC”) to cancel its
business license.
Golden Times Trading Co. transferred 100% of its shares in DECHENG PRC to
Page 57
Hong Kong De Cheng Holding Company Limited which was registered with the
competent PRC authority on 26 February 2015. However, DECHENG PRC has
not yet filed a copy of the share transfer agreement nor changed its tax
registration for the share transfer with the competent tax authority. Although
Mr. ZHU Xiaofang, also as sole owner of Golden Times Trading Co., has given
his written undertaking that he will pay income tax (if any) regarding the above
mentioned share transfer as well as any penalty imposed by the tax authority on
DECHENG PRC for failure to file the share transfer agreement and change the
tax registration, there can be no assurance that DECHENG PRC would not be
imposed with non-monetary penalties or DECHENG PRC’s business license or
other licenses would not be canceled or imposed with constraints in the future.
If any of the activities carried out by DECHENG fails to meet the requirements
of current and future rules or regulations and DECHENG is held liable or
responsible, or if DECHENG fails to obtain the grant or renewal of the required
licenses, such failure and any potential penalties could have a material and
adverse effect on DECHENG’s business and its net assets, financial condition
and results of operations.
3.1.31
DECHENG may not be able to obtain the ownership certificate for five
buildings which are currently used as, inter alia, warehouses and
dormitory.
DECHENG has constructed on its location in Pu’an, Quangang City, Quangang
District, Quanzhou City, Fujian Province, PRC, five buildings, out of which two
are used as warehouses, one as dormitory, one as boiler room and one as
transformer room. However, DECHENG has not yet obtained the ownership
certificate for these buildings. DECHENG has submitted the application to the
competent authority with all documents required and the certificate is expected
to be granted in the second half of the year 2016. However, there is no
assurance that the ownership certificate will be granted.
According to the PRC law, in the absence of the ownership certificate, the
competent authority may impose fines on DECHENG and could as a last
measure even request the demolition of the buildings. In such a case,
DECHENG may not be able to find substitute rooms for storage and dormitory
as well as boiler and transformer timely.
In case the competent authority rejects to issue the ownership certificate to
DECHENG or even imposes fines, DECHENG’s business and its net assets,
financial condition and results of operations would be materially adversely
affected.
3.1.32
DECHENG may have to pay housing fund contributions for the past.
DECHENG PRC has been obliged to pay housing funds contributions for its
employees in the past. However, DECHENG PRC only paid housing funds for
part of its employees before 1 January 2016 and started to pay the housing
funds for all its employees since 1 January 2016. According to the confirmation
letter issued by Quanzhou Housing Funds Management Center on 21 January
2016, the authority would though not require DECHENG PRC to pay any
outstanding housing contributions for the previous years before 1 January 2016
and would not impose any penalty and surcharge on DECHENG PRC.
However, in spite of the confirmation letter there can be no assurance that
DECHENG PRC will not be required by the authority to pay the default amount
of the housing funds for its employees or even administrative fines may be
imposed on DECHENG. In such a case, DECHENG’s business and its net
assets, financial condition and results of operations could be negatively
affected.
Page 58
3.1.33
The Company is a holding company the liquidity of which depends upon
having access to the liquid funds of DECHENG PRC.
The Company is a holding company without any operating business of its own.
DECHENG’s assets and operations are located in the PRC. The Company’s
liquidity therefore depends upon having access to dividend distributions from its
indirect PRC subsidiary through the Company’s direct subsidiary, which is a
holding company based in Hong Kong. Given that the Company has no direct
access and control over the funds in the PRC, the Company is dependent on
the compliance of the local management in the PRC.
Current PRC regulations also permit the payment of dividends only out of
accumulated profits determined in accordance with PRC accounting standards
and regulations. In addition, a PRC company is required to set aside at least
10% of its after-tax profits each year to fund a statutory capital reserve fund until
such reserves in aggregate reach 50% of its registered capital and may be
required to further set aside a portion of its after-tax profits to fund the employee
welfare fund. These reserves are not distributable as cash dividends.
Due to the three tier holding structure (Germany, Hong Kong, PRC) and
regulatory and accounting constraints, it may take some time for the profits of
DECHENG PRC to be distributed to the Company. For example, distributable
profits generated by DECHENG PRC in 2016 may in principle only be
distributed to DECHENG HK in 2017 and passed on by DECHENG HK to the
Company in 2018, which means that it may happen that the shareholders of the
Company receive any distributable profits generated by DECHENG PRC in
2016, if distributed, not until 2019.
Further, under PRC foreign exchange rules and regulations, payments of
recurring account items, including profit distributions and operating-related
expenditures, may generally be made in foreign currencies without prior
approval but are subject to procedural requirements. Strict foreign exchange
controls generally apply to certain capital account transactions. These
transactions must be approved by and/or registered with the State
Administration of Foreign Exchange (“SAFE”) or its local counterparts.
There can be no assurance that the entity of DECHENG will be able to meet all
of their foreign currency obligations under PRC laws or to remit profits out of
PRC. Should DECHENG PRC be, or become, restricted and/or legally
prohibited from and/or unable to pay dividends or to make other distributions
outside the PRC, this could have a material and adverse effect on the net
assets, financial condition and results of operations of the Company.
3.1.34
The tax burden of DECHENG may increase as a result of tax audits.
In the past, none of the entities of DECHENG has undergone a special tax
investigation from the relevant tax authorities. A future tax investigation or tax
review may reveal that the tax authorities have views on tax regulations and
circumstances that are different from those of DECHENG. In particular, the
possibility cannot be excluded that DECHENG PRC will be required to make
additional tax payments.
Under China’s tax collection laws, any entity is subject to a late payment fee for
any delay in tax payment at 0.05% of the unpaid tax for each delayed day.
Taxpayers with underpaid tax may also be subject to penalties ranging from
50% to 500% of the underpaid tax. Taxpayers who fail to withhold and pay tax
may be subject to penalties ranging from 50% to 300% of the tax not withheld.
Given the above, DECHENG PRC is liable for any outstanding tax payments
and any late payment fees related thereto.
In connection with the burden of any additional tax payments, there is also an
interest risk as, typically after a grace period, interest must be paid on additional
tax payments. Furthermore, there is a risk that tax penalties could be triggered.
Page 59
In any of the abovementioned events, DECHENG’s business and its net assets,
financial condition and results of operations could be materially and adversely
affected.
3.2
Risks related to Conducting Business in the PRC
3.2.1
DECHENG’s business, financial condition, results of operations and
prospects could be materially and adversely affected by changes in the
economic, political and legal environment and developments in China.
All of DECHENG's business operations are conducted and all revenue is
generated by DECHENG PRC. Investors should thus be aware that
DECHENG's operations are subject to greater risks than operations in more
developed markets, including significant legal, economic and political risks.
Moreover, emerging economies like China are subject to rapid change and the
information set out herein may therefore become outdated quickly. Investments
in emerging markets or in companies that operate in emerging markets are
generally exposed to additional risks and are generally only suitable for
sophisticated investors who fully appreciate the significance of the risks
involved. Investors are urged to consult with their own legal and financial
advisors before making an investment.
3.2.2
Fluctuations in the global economy could materially and adversely affect
the economy of the PRC.
The economy of the PRC is vulnerable to market downturns and to economic
slowdowns elsewhere in the world. As has happened in the past, financial
problems or an increase in the perceived risks associated with investing in the
PRC or in emerging economies in general could dampen foreign investment in
the PRC and businesses could face severe liquidity constraints, further
materially adversely affecting these economies. As a result, disruptions in the
development of the global economy could have material and adverse effects on
the business, financial condition and results of operations of DECHENG.
3.2.3
Changes in the PRC’s political and economic policies could have a
material and adverse effect on the business operations of DECHENG.
The PRC economy differs from the economies of most developed countries in
many respects, including structure, level of government involvement, level of
development, growth rate, control of foreign exchange and allocation of
resources.
The PRC economy has been transitioning from a planned economy to a more
market oriented economy. The PRC government has implemented economic
reform measures emphasizing utilization of market forces in the development of
the PRC economy for the past three decades, and is continuing to play a
significant role in regulating industries by imposing industrial policies.
While the Chinese economy has grown significantly in the past 30 years, the
growth has been uneven geographically among various sectors of the economy,
and during different periods. There can be no assurance that the Chinese
economy will continue to grow, or that if there is growth, such growth will be
steady and uniform, or that if there is a slowdown, such slowdown will not have
a negative effect on DECHENG’s business.
Although the Company believes that the continuing economic reforms will have
a positive effect on the PRC’s overall and long-term development, the Company
cannot exclude any changes in the political, economic and social conditions in
the PRC which will have a material and adverse effect on its current or future
business, results of operations or financial condition.
3.2.4
PRC legislation on offshore special purpose vehicles (“SPV”) which are
formed by PRC legal entities and/or individuals for the purpose of indirect
Page 60
listings and that control PRC companies directly or indirectly may have a
material and adverse effect on DECHENG’s business.
On 8 August 2006, six PRC regulatory agencies, including the Ministry of
Commerce (“MOFCOM”) and the China Securities Regulatory Commission
(“CSRC”), promulgated the Provisions for the Mergers and Acquisitions of
Domestic Enterprises by Foreign Investors (“M&A Provisions”) which came
into effect on 8 September 2006 and were further amended by MOFCOM on 22
June 2009. The M&A Provisions provide, among others, that an offshore SPV
which is formed by PRC legal entities and/or individuals for listings and that
directly or indirectly controls PRC companies through merger and acquisition of
domestic companies must obtain the approval of CSRC prior to the listing and
trading of its shares on an overseas stock exchange. On 21 September 2006,
CSRC published on its official website a notice specifying the documents and
materials required to be submitted to it by SPVs seeking CSRC approval of an
overseas listing, the violation of which may lead to regulatory actions or other
sanctions from CSRC or other Chinese regulatory agencies. In addition to the
provisions relating to foreign indirect listings, the M&A Provisions also stipulate
that a domestic natural person or legal person must obtain approval from
MOFCOM before acquiring an affiliated domestic company via a foreign
company established or controlled by such domestic natural or legal person.
This requirement may not be circumvented by using a foreign-invested
enterprise as an acquisition vehicle or otherwise.
Various transactions were concluded during the corporate restructuring of
DECHENG prior to listing of the Company. The structure adopted by
DECHENG, is commonly used by some Chinese entities undergoing an
overseas listing and has not yet been challenged by the Chinese authorities.
The Company believes that the M&A Provisions do not apply to the
incorporation and restructuring procedures of the PRC entity and to the listing of
the shares of the Company because, among others, since its establishment
Quanzhou De Cheng Tech Resin Co., Ltd (“DECHENG PRC”) had been held
by Hong Kong entities which have been actually controlled and held by Mr. ZHU
Xiaofang, who is a Hong Kong citizen.
The Company believes further that the M&A Provisions do not apply to the
transfer of the shares of DECHENG HK to the Company, because the M&A
Provisions only apply to merger and acquisition of domestic companies
(meaning share swaps involving shares in PRC domestic entities and not
extending to share swaps involving foreign entities as in the case on hand, i.e.
shares in DECHENG HK being swapped against shares in the Company).
However, there has been no official interpretation or clarification of the M&A
Provisions since their adoption. There is uncertainty as to how these provisions
will be interpreted or implemented. There can be no assurance that CSRC
and/or MOFCOM will agree with these views, and recent corporate
restructuring, including but not limited to the transfer of the shares of
DECHENG HK to the Company, or in connection with the listing of the
Company's shares.
If the M&A Provisions are applicable, it cannot be ruled out that CSRC and/or
MOFCOM will ultimately refuse to grant an approval. If an approval is required
and as long as such approval has not been granted, DECHENG may face
sanctions by the PRC regulatory agencies for failure to seek the approval for
this offering. These sanctions may include fines and penalties on DECHENG’s
operations in the PRC, limitations on its operating privileges in the PRC, delays
or restrictions on the repatriation of the proceeds from this offering into the
PRC, restrictions on or prohibition of the payments or remittance of dividends by
DECHENG PRC, or other actions that could have a material adverse effect on
DECHENG’s business, financial condition, results of operations, reputation and
prospects, as well as the trading price of the Company’s shares.
Page 61
The PRC regulatory agencies may also take actions requiring DECHENG, or
making it advisable, to halt this offering before the settlement and delivery of the
shares that the Company is offering. Consequently, if investors engage in
market trading or other activities in anticipation of and prior to the settlement
and delivery of the shares the Company is offering, they would be doing so at
the risk that the settlement and delivery may not occur.
The application of the M&A Provisions could have a material and adverse effect
on DECHENG’s business and its net assets, financial condition and results of
operations.
3.2.5
Regulations by the State Administration of Foreign Exchange relating to
offshore investments by PRC residents or passport holders, may
materially and adversely affect DECHENG’s business operations and
financing alternatives.
DECHENG is subject to the PRC rules and regulations on currency conversion.
In the PRC, the State Administration of Foreign Exchange (“SAFE”) regulates
the conversion of RMB into foreign currencies. Before 1 June 2015, foreign
invested enterprises (“FIE”) were required to apply to SAFE or its local
counterpart for “Foreign Exchange Registration Certificates for FIEs” and
DECHENG has obtained such registration certificates. With such registration
certificates (which need to be examined annually), FIEs are allowed to open
foreign currency accounts including the “recurring items account” and “capital
items account”. Since 1 June 2015, the FIEs may apply to the local competent
bank for the Foreign Exchange Registration. Currently, conversion within the
scope of the “recurring items account” (e.g. remittance of foreign currencies for
payment of dividends, etc.) can be effected without requiring the approval of
SAFE. However, conversion of currency in the “capital items account” (e.g. for
capital items such as direct investments, loans, securities, etc.) still requires the
approval of SAFE.
The applicable law in respect of conversion of RMB into other currencies is the
Regulation for Foreign Exchange Controls of the PRC (“Regulation”) which
came into effect on 1 April 1996 and was amended as of 14 January 1997 and
1 August 2008. Under the Regulation conversion of RMB into foreign currencies
for the use of recurring items, including the distribution of dividends and profits
to foreign investors of FIEs is permissible and the approval of SAFE is not
required, and FIEs are permitted to remit foreign currencies from their foreign
currency bank accounts in the PRC upon presentation of relevant resolutions to
the banks which authorize the distribution of profits or dividends and subject to
other requirements being satisfied. However, conversion of RMB into foreign
currencies for capital items, such as repatriation of capital, repayment of loans
and for securities investment, is still under control and needs the approval of
SAFE.
In addition, the Notice on Issues concerning Foreign Exchange Management in
Financing and investment by PRC Residents by Overseas Special Purpose
Vehicle (“SPV”) and Roundtrip Investments (“SAFE Notice 37”) promulgated by
SAFE which came into force on 4 July 2014 would also apply to the repatriation
of revenues by DECHENG PRC to the Company through DECHENG HK in the
form of dividend income or otherwise. Pursuant to SAFE Notice 37, SPVs are
foreign companies that are established by or controlled by PRC residents for
raising financing or investment outside of PRC. Such PRC residents (“Relevant
PRC Residents”) are required to file an “overseas investment foreign exchange
registration” before making capital contribution to such SPV and subsequently,
to update such registration on the occurrence of specified events such as (i) the
change on the basic information such as individual shareholders, name,
business term, etc. of the PRC entity; (ii) material event such as capital increase,
capital decrease, share transfer or swap, merger, division, etc.. Subject to
completion of the aforesaid registration, payment of dividends, profits and other
payments to such SPV will be permitted.
Page 62
DECHENG has requested its current shareholders and beneficial owners to
disclose whether they or their shareholders or beneficial owners fall within the
scope of SAFE Notice 37 and its relevant guidance. SAFE Notice 37 does not
apply to Mr. ZHU Xiaofang and Mr. WU Qingquan with regard to their ownership
of the Company, as well as changes in their ownership of the Company in
connection with the restructuring exercise for the Listing, because Mr. ZHU
Xiaofang is a Hong Kong passport holder and Mr. WU Qingquan is a Macau
passport holder who are not regarded as Relevant PRC Resident under SAFE
Notice 37. Mr. CHEN Huocan, Mr. QIAN Jiangang, Mr. ZHU Yufang and Mr.
ZHU Jianyang as shareholders of the Company are deemed to be Relevant
PRC Residents under SAFE Notice 37. They are therefore required to obtain
the aforesaid registration with the local SAFE with regard to their ownership of
the Company, as well as changes in their ownership of the Company in
connection with the restructuring exercise for the Listing in compliance with the
requirements of SAFE Notice 37. DECHENG has informed them of their
registration obligation and requested them to file the necessary registrations
with relevant local authority of SAFE.
DECHENG may not at all times be fully aware or informed of the identities of all
shareholders or beneficial owners who are PRC residents and DECHENG may
not always be able to compel shareholders or beneficial owners to comply with
SAFE Notice 37. Also, the relevant authorities may take a different view as to
whether or not the current shareholders or beneficial owners shall register
under SAFE Notice 37. As a result, DECHENG cannot assure that all
shareholders or beneficial owners who are PRC residents will at all times
comply with SAFE Notice 37 and the related rules.
However, there can be no assurance that SAFE will not continue to issue new
rules and regulations and/or further interpretations of SAFE Notice 37 that will
further tighten the foreign exchange control. If new rules are promulgated, there
is no assurance that DECHENG will be able to make or obtain any applicable
registrations or approvals required by such rules. As DECHENG PRC
generates all of DECHENG’s sales and these sales are denominated mainly in
RMB, the ability of DECHENG to pay dividends or make other distributions to
the Company may be restricted by PRC foreign exchange control restrictions in
the future. There can be no assurance that the relevant regulations will not be
amended to the detriment and that the ability of DECHENG to distribute
dividends to shareholders will not be adversely affected.
3.2.6
PRC regulations pertaining to loans and direct capital investments by
offshore parent companies to PRC entities may delay or prevent
DECHENG from using the proceeds of this Offering.
In utilizing the proceeds of this Offering to finance DECHENG’s business, the
Company, as a holding company, may make loans or additional capital
contributions through DECHENG HK to DECHENG PRC. Any loan by an
offshore parent company to a PRC subsidiary is subject to approval and/or
registration requirements and must be within the margin between each of their
total investment amount and registered capital. Further, loans to any of its PRC
subsidiaries have to be registered with SAFE or its local counterpart. In
addition, if the Company finances DECHENG PRC through additional capital
contributions, the amount of these capital contributions must first be approved
by the competent government authority. There can be no assurance that
DECHENG will be able to obtain these government registrations or approvals
on a timely basis, if at all, with respect to future loans or capital contributions by
the Company to DECHENG PRC. If DECHENG fails to obtain such registrations
or approvals, the ability to use the proceeds of this Offering and its ability to
fund and expand the operational business in China could be adversely affected,
which could have material adverse effects on the business, financial condition
and results of operations of DECHENG.
On 8 April 2015, SAFE promulgated the Circular of the State Administration of
Foreign Exchange Concerning the Reform of the Administrative Approaches to
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Settlement of Foreign Exchange Capital of Foreign-invested Enterprises
(“Circular 19”). According to the Circular 19, the use of Renminbi converted
from foreign capital to purchase equity interests in Chinese companies or to
establish Chinese companies is subject to the existing PRC regulations on
domestic reinvestments and the domestic reinvestment registration with SAFE
or the authorized bank, unless the equity investment is within the approved
business scope of a foreign-invested enterprise (“FIE”).
In addition, the utilization of FIEs’ capital shall be subject to the principles of
authenticity and self-use within the business scope. FIEs' capital and RMB
funds from their settlement shall not be used for the following purposes: (I)
directly or indirectly used for payment beyond the business scope or prohibited
activities under the laws and regulations of the PRC; (II) directly or indirectly
used for securities investments, unless otherwise prescribed under the laws and
regulations; (III) directly or indirectly used for the extension of RMB entrusted
loans (unless permitted by the business scope), repayments of inter-enterprise
borrowings (including third-party advances), and repayments of RMB bank
loans already refinanced to any third party; (IV) used for the payment of
expenses related to the purchase of real estate not for self-use, except for
foreign-invested real estate enterprises. Violation of this Circular 19 will result in
severe penalties, such as significant fines.
If DECHENG fails to receive the necessary registrations or approvals, the ability
to use the proceeds of this Offering and its ability to fund and expand the
operating business in China could be adversely affected, which could have
material and adverse effects on DECHENG’s business and its net assets,
3.2.7
The PRC legal system contains inherent uncertainties and inconsistencies
which may make the enforcement of claims more difficult.
The PRC’s legal system is based on written statutes. Prior legal decisions and
judgments have limited precedential value. The PRC is still in the process of
developing a comprehensive statutory framework and its legal system is still
considered to be underdeveloped in comparison with the legal systems in some
western countries. Since 1979, the PRC legislative bodies have promulgated
laws and regulations dealing with such economic matters as foreign investment,
corporate organization and governance, commerce, taxation and trade. Since
then, there has been a tendency in legislation towards giving increasing
protection to foreign investors and significant progress has been made in the
legal system of the PRC.
Despite significant improvement in its developing legal system, however, the
PRC does not have a comprehensive system of laws. The enforcement of
existing laws and regulations may be uncertain or inconsistent, and the
interpretation of these laws and regulations may change from time to time. Any
such change could have an adverse impact on DECHENG’s business and its
net assets, financial condition and results of operations.
Furthermore, many laws, regulations and legal requirements have only recently
been adopted by the central or local governments, and their implementation,
interpretation and enforcement may involve uncertainty due to the lack of
established practice available for reference. Depending on the government
agency or how an application or a case is presented to such agency,
DECHENG may receive less favorable interpretations of law than its
competitors. In addition, any litigation in the PRC may be protracted and result
in substantial legal costs and diversion of resources and management attention.
Similarly, legal uncertainty in the PRC may limit the legal protection available to
potential litigants. The occurrence of one or several of these risks could have
material and adverse effects on DECHENG’s business and its net assets,
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3.2.8
The tax status of DECHENG PRC or tax legislation or its interpretation
might change.
The current tax rules and their interpretation relating to DECHENG PRC may be
subject to adverse changes in the future. The applicable tax rates may change
in the future. Any change in the DECHENG PRC’s tax status or in taxation
legislation or its interpretation could affect the value of the investments held by
the Company, its ability to provide returns to shareholders and/or alter the posttax returns to shareholders. Statements in this Prospectus concerning the
taxation of DECHENG and the Company’s investors are based on current tax
laws and practices which are subject to change. In addition, the taxation regime
applicable in China may change again and could have an adverse impact on
the after-tax profits of DECHENG.
As all operational profits are generated by DECHENG PRC, which is subject to
the tax legislation of the PRC, the materialization of the above risks could have
a material and adverse effect on DECHENG’s business and its net assets,
3.2.9
The Company and Hong Kong De Cheng Holding Company Limited
(“DECHENG HK”) may be treated as tax resident enterprises for PRC tax
purposes under the PRC enterprise income tax laws and therefore be
subject to PRC taxation.
The Enterprise Income Tax Law (“EIT-Law”) introduced the concept of tax
resident enterprise (“TRE”) defined as an enterprise which is established in the
PRC under the PRC laws and regulations, or which has its de facto
management body in the PRC. TREs are subject to the PRC enterprise income
tax (“EIT”) for their worldwide income, including income received from their
subsidiaries. According to Article 4 of the Implementing Rules of the EIT Law
(the “Implementing Rules”), “de facto management body” refers to the
management body that exercises essential management and control over the
enterprise. As a result, if a holding company located outside the PRC is actually
managed by a management body in China, the overseas company may be
regarded as a TRE and subject to enterprise income tax for its worldwide
income. According to the interpretation of Article 4 of the Implementing Rules
given by the Chinese State Administration of Taxation (“SAT”) on its website,
the location of the de facto management body shall be determined by a
substance-over-form method. In particular, mere off-shore board meetings shall
not be sufficient for the de facto management body being located outside of
China. Dividends received by one TRE from another TRE (not listed in the
Chinese stock market or in case of being listed whose stocks are held for
continuous 12 months by the former) are exempted from enterprise income tax.
Most of DECHENG’s management is currently located in China and DECHENG
expects its management to continue to be located in China. However, due to a
lack of clear guidance on the criteria pursuant to which the PRC tax authorities
will determine DECHENG’s tax residency under the EIT Law, it remains unclear
whether the PRC tax authorities will treat the Company and DECHENGHK as
PRC tax resident enterprises.
Currently, neither the Company nor DECHENG HK has been notified by the
PRC tax authorities that they are to be treated as a PRC tax resident enterprise.
However, if the Company and DECHENG HK are deemed to be PRC tax
resident enterprises, the following PRC tax implications will apply:

The Company and DECHENG HK might both be subject to an
enterprise income tax at the rate of 25 % on their worldwide income,
which could have an impact on DECHENG’s effective tax rate and an
adverse effect on DECHENG’s net income and result of operations.
However, the EIT Law provides that dividend income between qualified
tax resident enterprises is exempted income, which the Implementing
Rules have clarified to mean a dividend derived by a tax resident
enterprise on equity interest it directly owns in another resident
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enterprise. It is possible, therefore, that dividends the Company
receives through DECHENG HK from DECHENG PRC would be
exempted income under the EIT Law and its Implementation Rules.

If the Company is deemed to be a PRC tax resident enterprise, the
Company would then be obliged under the EIT Law to withhold PRC
withholding tax on the gross amount of dividends the Company pays to
shareholders who are non-PRC tax residents. The withholding tax rate
is 10% for enterprise investors and 20% for individual investors, unless
otherwise provided under the applicable double taxation treaties
between China and other countries. Under the double taxation treaty
between China and Germany, the withholding tax rate of 10% for
enterprise investors and individual investors on dividends applies.
Under the EIT Law, such withholding tax on dividends is to be deducted
by the tax resident enterprise from the gross dividends and paid to the
competent PRC tax authorities on behalf of the non-PRC tax resident
shareholders. As the Company has issued bearer shares, and no
practical guidance has been issued by the SAT about the treatment of
dividends paid by foreign entities considered TREs, the Company may
not be able to ascertain whether or not its shareholders are non-PRC
tax residents, and may not be able to fully comply with the withholding
requirement in case it is considered a TRE, which subjects it to
additional uncertainty.

Further, if the Company is deemed to be a PRC tax resident enterprise,
any gains realized on the transfer of shares in the Company by nonPRC resident investors will also be subject to a 10% (if the investor is a
company) or 20% (if the investors is a natural person) PRC withholding
tax, under the EIT Law or PRC Individual Income Tax Law, if such
gains are then regarded as income derived from sources within China,
unless the applicable double taxation treaty provides otherwise. In case
the 10% or 20% PRC withholding tax respectively is payable for the
gains, under PRC tax law, the non-PRC resident investors are obliged
to declare such tax by themselves with the competent PRC tax
authorities.
If any of the aforementioned risks materializes, the value of an investment in the
shares of the Company may be materially adversely affected and the non-PRC
resident investors may be subject to tax compliance obligations, including tax
filings and charges, in the PRC.
3.2.10
Greater scrutiny over acquisition and disposition transactions by the PRC
tax authorities may have a negative impact on DECHENG or the investors’
disposition of the Company’s shares.
The operations and transactions of DECHENG are subject to review by the
PRC tax authorities pursuant to relevant PRC laws, rules and regulations.
However, these laws, regulations and legal requirements change frequently,
and their interpretation and enforcement involve uncertainties. For example, on
10 December 2009, the SAT issued the ‘‘Notice on Strengthening the
Administration of Enterprise Income Tax on Income from the Transfer of Shares
by Non-PRC Resident Enterprises’’ (the “Notice 698”), which became effective
retroactively as of 1 January 2008, and on 3 February 2015, the SAT issued
the Announcement of the State Administration of Taxation of the PRC on Issues
Relating to Enterprise Income Tax on Gains from Indirect Transfer of Assets by
Non-Tax Resident Enterprises (“Circular 7”) which became effective
retroactively as of 3 February 2015. Under Notice 698 and Circular 7, where a
non-PRC resident enterprise transfers the equity interests of a PRC resident
enterprise indirectly by disposition of the equity interests of an overseas holding
company (excluding buying and selling shares of a PRC resident enterprise on
a public stock exchange), or Indirect Transfer, the transferor, the transferee and
the PRC resident enterprise whose equity interests is indirectly transferred may
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report this Indirect Transfer to the competent tax authorities for the PRC
resident enterprise. Using a “substance over form” principle, the PRC tax
regulatory authorities may disregard the existence of the overseas holding
company if it lacks a reasonable commercial purpose and was established for
the purpose of reducing, avoiding or deferring any PRC tax. As a result, gains
derived from such Indirect Transfer may be subject to the PRC withholding tax
at a rate of up to 10%. In addition, Notice 698 provides that, where a non-PRC
resident enterprise transfers its equity interests in a PRC resident enterprise to
its related parties at a price lower than the fair market value, the relevant PRC
tax authorities can, at their discretion, make a reasonable adjustment to the
taxable income of the transaction.
There is uncertainty as to the application of Notice 698 and Circular 7. For
example, while the term “Indirect Transfer” is not clearly defined, it is
understood that the relevant PRC tax authorities have jurisdiction regarding
requests for information over a wide range of foreign entities having no direct
contact with the PRC. It is not clear to what extent the shareholders of the
Company may be subject to these requirements. Moreover, although several
issues related to Notice 698 were clarified through the Notice Regarding
Several Issues on the Administration of Non-resident Enterprise Income Tax
dated 28 March 2011 by the SAT, or Circular 24, which became effective on 1
April 2011, there is little guidance or precedent regarding the application of
Circular 24, and the process and format for reporting the Indirect Transfer to the
competent PRC tax authorities remain unclear. DECHENG has conducted
offshore acquisitions and dispositions involving complex corporate structures,
and it may not be able to make timely filings with the PRC tax authorities as
required. The PRC tax authorities may, at their discretion, impose or adjust the
capital gains of those acquisitions and dispositions or request DECHENG to
submit additional documentation for their review in connection with any relevant
acquisition or disposition, and thus cause DECHENG to incur additional costs.
Besides, the investors that are non-PRC resident enterprises may be required
by the PRC tax authorities to make a filing upon the transfer of the shares of the
Company, and may be required to pay PRC tax on gains realized from such
transfer at a rate of 10% even if the Company is not treated as a PRC “resident
enterprise”.
3.2.11
PRC accounting requirements may materially and adversely affect the
ability to pay dividends.
The ability of DECHENG PRC to make dividends and other payments to the
Company is restricted by PRC laws and regulations, which permit payment of
dividends only out of accumulated profits, after making up prior year losses and
allocations to various non-distributable reserve funds, as determined in
accordance with generally accepted accounting principles in the PRC (the
‘‘PRC GAAP’’) and applicable regulations, such as statutory capital reserve.
These regulations may restrict the amount of profit available for distribution from
DECHENG PRC, which could affect the Company’s liquidity and its ability to
pay dividends. Moreover, the determination of profit available for distribution
under PRC GAAP may differ from profit determined in accordance with IFRS.
As a result, it is possible that the Company might not receive distributions from
DECHENG PRC through DECHENG PRC, even if its IFRS financial statements
indicate that its operations have been profitable.
3.2.12
A destabilization of the political system could threaten China's economic
liberalization.
While the PRC economy has changed fundamentally from a centrally planned
system to a more market-oriented economy over the last three decades, the
political system in China still operates under communist control. Although
political conditions in China seem to be generally stable, changes may occur in
its political system which might affect the ownership or operation of
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DECHENG's interests, including, among others, changes in government as well
as in legislative and regulatory regimes.
A material change in China's economic liberalization triggered by political
disruptions or by other means could impact the country's economic growth in
general and DECHENG's business in particular. Social instability could increase
public support for renewed centralized authority, and nationalism or violence
could lead to a tougher stance by the Chinese government on foreign investors
operating in China or on foreign investment in general. Any such developments
could have material and adverse effects on DECHENG’s business and its net
3.2.13
The PRC judiciary's lack of independence and limited experience and the
difficulty of enforcing court decisions and governmental discretion in
enforcing court orders could prevent DECHENG from obtaining effective
remedies in a court proceeding.
PRC's judicial system may not be as independent or immune to economic,
political and nationalistic influences as judicial systems in European
jurisdictions. The court system in China is largely understaffed and underfunded. Since courts in the PRC are financially dependent on the respective
local governments, judges tend to favor the economic interests of the
municipalities or provinces and the enterprises located there. The
independence of judges is further undermined by the fact that Chinese judges
are only appointed for a limited period of time and may be dismissed during
their term of office. Many older judges have not had any prior legal education.
Courts in China are often inexperienced in the area of business law. Not all
PRC legislation and court decisions are readily available to the public or
organized in a manner that facilitates understanding. Enforcement of court
orders can, in practice, be very difficult in the PRC. Additionally, court decisions
are often used in furtherance of political and commercial aims. DECHENG
might be subjected to such claims by competitors or other parties and may not
be able to receive a fair hearing in the course of the respective trial or legal
procedure. Judicial decisions in China can also be unpredictable and may not
provide effective remedies. These uncertainties also extend to property rights.
Expropriation or nationalization of any of the Company's PRC subsidiaries, their
assets or portions thereof, potentially without adequate compensation, could
have material and adverse effects on Group’s business and its net assets,
3.2.14
Seeking recognition and enforcement in China of foreign judgments
against the Company, its assets, management personnel or directors
might be difficult or impossible for investors.
The main operational assets of the Group are with DECHENG PRC located in
China and most of its management personnel and directors reside there. The
Company is a holding company without any significant operational business of
its own. China has not entered into treaties or arrangements providing for the
recognition and enforcement of judgments made by the courts of Germany or
most other jurisdictions, including judgments obtained in relation to claims
investors may make with regard to this Offering. As a result, it will be difficult or
impossible for investors to affect service of process or enforce judgments from
courts of other jurisdictions against the Company or its assets, management
personnel or directors in China.
3.2.15
Certain facts, forecasts and other statistics with respect to China, China’s
economy and the polyurethane industry in this Prospectus are extracted
from official government publications and may not be reliable.
Certain facts, forecasts and other statistics in this Prospectus relating to the
PRC, PRC’s economy and the polyurethane industry have been extracted from
official government publications generally believed to be reliable. However, the
quality or reliability of such source materials is uncertain. They have not been
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prepared or independently verified and, therefore, no representation as to the
accuracy or completeness of such facts, forecasts and statistics, which may not
be consistent with other information, compiled within or outside the PRC is
made. Due to possibly flawed or ineffective collection methods or discrepancies
between published information and market practice and other problems, such
statistics may be inaccurate or may not be comparable to statistics produced for
other economies and should not be unduly relied upon. Further, there is no
assurance that they are stated or compiled on the same basis or with the same
degree of accuracy or completeness as may be the case elsewhere.
In all cases, investors should give consideration as to how much weight or
importance they should attach to or place on such facts, forecasts or statistics
extracted from the official government publications and should not place undue
reliance on any of such information and statistics.
3.2.16
Restrictions might be imposed upon foreign control of PRC companies.
As part of PRC’s accession to the World Trade Organization (“WTO”) in 2001,
the PRC undertook to eliminate certain trade-related investment measures and
to open up specified industry sectors that had previously been closed to foreign
investment. Even though the PRC has lived up to most of its WTO
commitments, foreign investors still encounter barriers in practice as some of
the newly enacted or modified laws and regulations are enforced in an
inconsistent manner by different authorities. Additionally, there can be no
assurance that the PRC government will not toughen its stance on foreign
investors in other areas not covered by the WTO commitments. MOFCOM and
the National Development and Reform Commission (the “NDRC”) have issued
the Foreign Investment Industry Guidance Catalogue that divides certain
investment projects into three categories: encouraged, restricted and prohibited,
with industries and sectors that are not mentioned or listed deemed to be
permitted. The Foreign Investment Industry Guidance Catalogue is regularly
revised. It has last been amended in 10 March 2015 and became effective on
10 April 2015. Should the polyurethane industry in particular be subjected to
restrictions or prohibitions in the course of this revision or any further revision,
this could have material adverse effects on the business, financial condition and
results of operations of DECHENG.
3.3
Risks Related to the Offering
3.3.1
Public trading in the Company’s shares might not develop. There is no
prior market for its shares and this Offering may not result in an active or
liquid market for its shares.
Prior to the Offering, there was no public trading in the Company’s shares. As a
result, no assurance can be given that liquid trading in the shares of the
Company will develop after the Offering and that the stock exchange price will
not fall below the final selling price for the Offered Shares (the “Offer Price”).
The Offer Price for the shares will not necessarily provide any indication of the
stock exchange price at which the shares will subsequently be traded at the
Frankfurt Stock Exchange. The Company cannot forecast to what extent
investors’ interest in its shares will foster trading, nor whether a liquid trading
market will develop, in particular if the number of shares allotted to investors in
the course of the Offering will be substantially less than envisaged. The stock
exchange price of the Company’s shares could become subject to greater
volatility and consequently buy and sell orders might be executed less
efficiently. Under certain circumstances, investors might not be able to sell their
shares at the purchase price fixed for the Offering or at a higher stock exchange
price, or might not be able to sell them at all.
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3.3.2
A devaluation of the RMB could have an adverse currency translation
effect on the Company’s financial statements.
The financial statements contained in this Prospectus were prepared in EUR
and the Company’s future consolidated financial statements will be prepared in
EUR, while DECHENG's operating currency is RMB, which is currently not a
freely convertible currency.
The value of RMB is controlled by PRC authorities. During the years 2013, 2014
and 2015, the RMB fluctuated against the EUR. Devaluations of the RMB
against the EUR would have an adverse currency translation effect on the
Company's consolidated financial statements and the value of the potential
dividend payments by the Company to its shareholders. Besides, DECHENG
has in the past not bought and will not in the future buy any hedging instruments
against a devaluation of the RMB.
Furthermore, DECHENG’s proceeds from this Offering may decrease in value if
the Company chooses not to or is unable to convert the proceeds into RMB and
the EUR devalues against the RMB during such period.
3.3.3
A volatile stock exchange price for the shares might develop and
investors could lose all or part of their investment.
After this Offering, the stock exchange price of the Company’s shares could
fluctuate considerably, especially because of fluctuating actual or forecasted
results, revised earnings outlooks, the failure to meet analysts’ expectations,
changed economic conditions in general, limited liquidity in the shares or other
factors. The general volatility of stock exchange prices could also exert
pressure on the stock exchange price of the Company’s shares without there
being any direct connection with DECHENG’s business, financial condition,
results of operations or its business prospects. Because the shares are growth
stocks, the Company’s shares are particularly susceptible to fluctuations.
3.3.4
Future sales or issuances of a substantial number of the Company’s
shares may depress the market price of the Company’s shares. Future
capitalization measures could lead to substantial dilution of existing
shareholders’ interests in the Company.
Sales of substantial amounts of the Company’s shares in the public market
following this Offering or the perception that these sales could occur, could
cause the market value of its shares to decline. These sales could also make it
more difficult for the Company to sell equity or equity-related securities in the
future at a time and price that it considers appropriate. In addition, the
Company’s issuance of additional equity securities or securities with rights to
convert into equity could potentially reduce the market price of its shares and
would dilute the economic and voting rights of existing shareholders if made
without granting subscription rights to these shareholders.
As at the date of this Prospectus, Mr. ZHU Xiaofang as the majority
shareholder, as well as All-Time-Wonderful Limited and Rongshang Limited
hold 68.10% and 6.83% and 6.83% stake respectively in the Company. All of
these shares are bound by lock-up agreements with the Underwriter for a period
of 36 months after admission of the Company’s shares to trading in the
regulated market segment of the Frankfurt Stock Exchange. However, the
shares of the other existing minority shareholders are not locked. Also, it cannot
be excluded that the existing shareholders with a contractual lock-up sell their
shares in the Company during the lock-up period despite the contractual
arrangements. Furthermore, it cannot be predicted whether substantial numbers
of the Company’s shares will be sold by the shareholders following the expiry of
the respective lock-up periods.
A sale of a substantial number of these shares or the perception that these
sales could occur could cause the market value of the Company’s shares to
decline.
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3.3.5
The Offering may not take place if the Underwriting Agreement is
terminated.
The underwriting agreement, which will be concluded, inter alia, between the
Company, Mr. ZHU as the majority shareholder of the Company and the
Underwriter within five bank working days after the date of this Prospectus (the
“Underwriting Agreement”), provides that the Underwriter may, under certain
conditions, terminate the Underwriting Agreement. If the Underwriting
Agreement is terminated, the Offering will not take place. Claims relating to any
securities commissions already paid and costs incurred by any investor in
connection with the subscription shall be controlled solely by the legal
relationship between the investor and the institution to which the investor
submitted its order. Any allotments already made to investors will be
invalidated. In such cases, investors will have no claim for delivery of shares in
the Company. Any investors who have engaged in so-called “short sales” will
bear the risk of being unable to cover such short sales through the delivery of
shares.
3.3.6
Forward-looking information contained in this Prospectus may prove
inaccurate.
This Prospectus contains certain statements that are ‘‘forward-looking’’. These
statements include, among other things, future earnings, projections and
expectations as to the operations and management of DECHENG, growth,
profits, economic and regulatory conditions and other factors to which
DECHENG is exposed. Investors are cautioned that reliance on any forward
looking statement involves risk and uncertainties and that any or all of those
assumptions could prove to be inaccurate and as a result, the forward-looking
statements based on those assumptions could also be incorrect. The
uncertainties in this regard include those identified in the risk factors discussed
above. In the light of these and other uncertainties, the inclusion of forwardlooking statements in this Prospectus should not be regarded as
representations or warranties by the Company that its plans and objectives will
be achieved and these forward-looking statements should be considered in the
light of various important factors, including those set forth in this section. These
forward-looking statements will not be up-dated. Investors should not place
undue reliance on such forward looking information.
3.3.7
Information in press articles or other media regarding DECHENG or the
Offering could turn out to be incorrect and therefore it cannot be excluded
that investors base their investment decision on incorrect information.
Prior to the date of this Prospectus, there might have been press and media
coverage regarding DECHENG or the Offering which included certain
information about DECHENG that does not appear in this Prospectus. The
Company has not authorized the disclosure of any such information in the press
or media and does not accept any responsibility for any such press or media
coverage or the accuracy or completeness of any such information. The
Company makes no representation as to the appropriateness, accuracy,
completeness or reliability of any such information or publication. The Company
disclaims all responsibilities and liabilities for any information appearing in
publications other than this Prospectus which is inconsistent or conflicts with the
information in this Prospectus. Investors should not rely on any such information
and should only rely on information included in this Prospectus in making any
decision as to whether to purchase the shares in the Company in the Offering.
The information in the press and media could be incorrect and therefore it
cannot be excluded that investors base their investment decision on incorrect
information.
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3.3.8
The market price of the Company’s shares could fall below the Offer Price
at a later stage.
The Offer Price to be paid by an investor who purchased shares of the
Company in the Offering exceeds the pro rata book value of the equity capital
which is attributed to such share.
Therefore, the Offer Price implicates a high company value. There is no
guarantee that such a company value can be realized in future. Accordingly,
investors will purchase the Company's shares by way of this Offering pay an
Offer Price which exceeds the value of the Company's tangible assets after
deduction of liabilities.
Should the investors' expectations concerning the company value not be
realizable, the investors could suffer losses due to a decrease in the share price
after the Offering.
3.3.9
The Offering may not be implemented in full which may negatively affect
the growth prospects of DECHENG and/or the liquidity of the shares in the
market.
The Offering relates to 3,000,000 no par value ordinary bearer shares
consisting of 3,000,000 New Shares („Offered Shares“) and the Offering is
expected to commence on 6 June 2016 and to end on 20 June 2016 (“Offering
Period”). Thus, in case, all of the Offered Shares are allotted to investors, the
Company’s new free float will amount to 25.7% of its total share capital.
However, the actual number of Offered Shares that will be allotted to investors,
i.e. the placement volume and in consequence the amount of the capital
increase to be resolved after the end of the Offering Period, will be jointly
determined by the Company and the Lead Manager based on the orders
received and will also depend on certain allotment criteria. There is no
guarantee that all of the Offered Shares will eventually be placed with investors.
If the amount of Offered Shares placed with investors is significantly lower,
resulting in lower net proceeds than envisaged, the Company may not be able
to fund certain of the investments for which it intends to use the proceeds from
this Offering in full or at all which may affect the Company‘s growth strategy. In
addition, if the overall placement volume is significantly lower than the number
of Offered Shares which form the subject matter of the Offering, the free float
will be significantly lower than the percentage stated above, which may have a
material adverse effect on the tradability of the shares and on the shareholder
structure of the Company. The materialization of any of the above risks could
have a material adverse effect on the value of the shares of the Company.
3.3.10
The Listing may not take place if the listing requirements are not fulfilled.
The Company intends to list its shares on the Frankfurt Exchange. If the
Company fails to fulfill the respective listing requirements such as free float
requirements, a listing on the Frankfurt Stock Exchange will not take place. In
such case, investors who have purchased shares in the Company are not able
to trade these shares on the Frankfurt Stock Exchange.
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4.
GENERAL INFORMATION
4.1
Responsibility Statement
Decheng Technology AG, Cologne, Germany (the “Company” and together with its direct
and indirect subsidiaries “DECHENG” or the “Group”), as well as ACON Actienbank AG,
Heimeranstraße 37, 80399 Munich, Germany (the “Global Coordinator” or “Underwriter”
or “ACON”) assume responsibility for the content of this securities prospectus (the
“Prospectus”) pursuant to section 5 subsection 4 of the German Securities Prospectus
Act (Wertpapierprospektgesetz - WpPG) and declare that to their knowledge the
information contained in this Prospectus is correct and that no material facts are omitted.
Notwithstanding section 16 WpPG, neither the Company nor the Underwriter is required
by law to update this Prospectus.
If an investor files claims in court on the basis of the information contained in this
Prospectus, the plaintiff investor may be required by the laws of the individual member
state of the EEA to bear the costs of translating the Prospectus before the legal
proceedings may be commenced.
4.2
Subject Matter of this Prospectus
For the purposes of the public offering in Germany and Luxembourg and private
placement in certain other jurisdictions this Prospectus covers 3,000,000 ordinary bearer
shares, each such share with no par value and a notional value of EUR 1.00 each in the
share capital and full dividend rights for the financial year 2016 (the “Offering”),
consisting of 3,000,000 newly issued no par value ordinary bearer shares from a capital
increase against contribution in cash expected to be resolved by the extraordinary
general shareholders’ meeting of the Company with a fixed amount depending on the
placement volume on 20 June 2016 (the “New Shares”). In order to be able to timely
deliver the shares to investors after the Offering Period, Mr. ZHU Xiaofang will, if required,
provide to the Underwriter a securities loan free of charge for an equivalent number of
shares. Upon registration of the capital increase with the commercial register of the
Company, the New Shares will be transferred back to Mr. ZHU Xiaofang by the
Underwriter in order to fulfil its retransfer obligation under the securities loan.
For the purposes of admission to trading to the regulated market segment (Regulierter
Markt) of the Frankfurt Stock Exchange (General Standard) (the “Listing”), this
Prospectus covers a total of up to 33,000,000 ordinary bearer shares of the Company,
consisting of:

30,000,000 existing ordinary bearer shares (“Existing Shares”); and

up to 3,000,000 New Shares,
each such share with no par value and a notional value of EUR 1.00 in the share capital
and carrying full dividend rights for the financial year 2016.
4.3
Statutory Auditors
The Company’s general shareholders’ meeting (Hauptversammlung) appointed MSW
GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Straße des 17. Juni
106 -108, 10623 Berlin, Germany (“MSW GmbH”) as statutory auditor for the financial
year ending on 31 December 2016. MSW GmbH is a member of the German Chamber of
Public Accountants (Wirtschaftsprüferkammer).
The following financial statements contained in this Prospectus have been audited by
MSW GmbH (Please also refer to Section 25 “Financial Information”) and each is
accompanied by an unqualified auditors’ report, copies of which are included in this
Prospectus:

the single entity financial statements in accordance with International
Financial Reporting Standards and International Accounting Standards
and Interpretations as endorsed for application in the EU (“IFRS”) of
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DECHENG PRC as at and for the financial years ended on 31 December
2013, 31 December 2014 and 31 December 2015;
4.4

the consolidated financial statements in accordance with IFRS of
DECHENG HK as at and for the financial year ended on 31 December
2015;

single entity financial statements in accordance with IFRS of the
Company for the financial year ended on 31 December 2015 with
respective comparative information;

single entity financial statements in accordance with the German
Commercial Code (Handelsgesetzbuch) of the Company for the financial
years ended on 31 December 2013, 31 December 2014 and
31 December 2015.
Documents Available for Inspection
For the duration of the validity of this Prospectus, hard copies of the following documents
may be inspected during regular business hours at the Company’s office at c/o RSM
Altavis GmbH, Martin-Luther-Platz 26, 40212 Düsseldorf, Germany:

the Company’s articles of association (Satzung) and the rules of
procedure (Geschäftsordnung) for the management board and the
supervisory board;

an excerpt from the
(Handelsregisterauszug);

the audited single entity financial statements in accordance with
International Financial Reporting Standards and International Accounting
Standards and Interpretations as endorsed for application in the EU
(“IFRS”) of DECHENG PRC as at and for the financial years ended on
31 December 2013, 31 December 2014 and 31 December 2015;

the audited consolidated financial statements in accordance with IFRS of
DECHENG HK as at and for the financial year ended on 31 December
2015;

single entity financial statements in accordance with IFRS of the
Company for the financial year ended on 31 December 2015 with
respective comparative information;

single entity financial statements of the Company in accordance with the
German Commercial Code (Handelsgesetzbuch) for the financial years
ended on 31 December 2013, 31 December 2014 and 31 December
2015;

prepared by Frost & Sullivan GIC Malaysia Sdn Bhd (“Frost & Sullivan”),
with its business address at Suite C-11-02, Block C, Plaza Mont’ Kiara, 2,
Jalan Kiara, Mont’ Kiara, 50480 Kuala Lumpur, Malaysia (“Market
Research Report”).
commercial
register
of
the
Company
All future annual and interim reports of the Company will be available at the Company’s
offices and on the Company’s website: www.dechengtechnology.com.
4.5
Statements Relating to Future Events, Statistical Data, Market Data and Estimates
This Prospectus contains certain forward-looking statements. A forward-looking
statement is any statement that does not relate to present or historical facts and events.
This applies in particular to statements in this Prospectus containing information on future
earning capacity, plans and expectations regarding DECHENG’s business and
management, growth and profitability and general economic and regulatory conditions
and other factors to which DECHENG is exposed.
Page 74
Forward-looking statements in this Prospectus are based on estimates and assessments
made to the best of the Company’s present knowledge. These forward-looking
statements are subject to risks, uncertainties and other factors which could cause actual
results, including the financial condition and results of operations of DECHENG, to differ
materially from and be worse than the results the Company has expressly or implicitly
assumed or described in these forward-looking statements. Statements made using
wording such as “expects”, “intends”, “plans” or “anticipates” are forward-looking
statements. The forward-looking statements are based on assumptions, uncertainties and
other factors, the occurrence or non-occurrence of which could cause DECHENG’s actual
results, including the financial position and profitability of DECHENG, to differ materially
from or fail to meet the expectations expressed or implied in the forward-looking
statements. In light of the uncertainties and assumptions, it is also possible that the future
events mentioned in this Prospectus might not occur. In addition, the forward-looking
estimates and forecasts included in this Prospectus from third-party reports could prove
to be inaccurate (also see Section 4.6 of this Prospectus ‘‘Note Regarding Financial Data
and Currency’’ and Section 4.7 of this Prospectus ‘‘Third Party Data’’ below). Actual
results, performance or events may differ materially from those in such statements.
DECHENG’s business is also subject to a number of risks and uncertainties that could
cause a forward-looking statement, estimate or prediction in this Prospectus to become
inaccurate. Accordingly, investors are strongly advised to consider the Prospectus as a
whole and particularly ensure that they have read the following sections of this
Prospectus: ‘‘Risk Factors’’, ‘‘Management’s Discussion and Analysis of Financial
Condition and Results of Operations’’, “Business Activities of DECHENG”, “Market
Environment and Competitive Situation”, “Regulatory Environment”, and “Recent
Developments and Outlook”. These sections contain a detailed description of the factors
having an impact on the development or the current situation of DECHENG’s business
and the market in which DECHENG operates.
Neither the Company, its management board (Vorstand), its supervisory board
(Aufsichtsrat) nor the Underwriter can guarantee that expectations represented in this
Prospectus will prove accurate or that the developments predicted will actually occur. It
should also be noted that neither the Company nor the Underwriter assume any
obligation to update such statements relating to future events or to adapt them to future
events or developments, except as required by law (esp. the duty to publish supplements
pursuant to section 16 subsection 1 WpPG).
4.6
Note Regarding Financial Data and Currency
Some figures cited in this Prospectus (including percentages) have been subjected to
commercial rounding. Such commercially rounded figures and the associated
percentages cited in the tables may not necessarily add up precisely to the totals given in
the tables. However, the percentages used in the text were computed based not on
commercially rounded values, but on actual values. Therefore, the percentages in the text
may differ in some cases from percentages calculated based on rounded values. All
currency data in this Prospectus refers to EUR. If numerical data in other currencies are
cited, this is expressly noted by specification of the appropriate currency or currency
symbol.
The functional currency of DECHENG PRC is RMB, whereas the financial statements are
made in the presentation currency EUR. The RMB financial data has been translated to
EUR using the following exchange rates:
Financial Year / Period
Ended
Period End Rates
RMB per EUR 1.00
Average Rates RMB
per EUR 1.00
31 December 2013
8.4221
8.2262
31 December 2014
7.4656
8.1659
31 December 2015
7.0805
6.9150
Page 75
DECHENG HK has its legal and business seat in Hong Kong. The currency of Hong Kong
is Hong Kong Dollar (“HKD”). The HKD financial data has been translated to RMB prior to
its consolidation using the following exchange rates:
Financial Year / Period
Ended
Period End Rates HKD
per RMB 1.00
Average Rates HKD
per RMB 1.00
31 December 2015
8.4513
8.6067
The presentations of the financial statements in EUR for the periods under review are not
fully comparable to each other because different RMB/EUR and RMB/HKD exchange
rates were used for each period under review.
The exchange rates have been extracted from www.oanda.com for the relevant time
period. If not explicitly stated otherwise in this Prospectus, average rates for the year
2015 have been used for the conversion. Please refer to Section 25 “Financial
Information” whether period end rates or average rates have been used in the financial
statements.
Amounts used in industries reports may have been based on different exchange rates.
4.7
Third Party Data
This Prospectus contains a number of references to third party data, statistical
information and studies, especially regarding the market environment and similar matters.
Information in this prospectus that is sourced from third parties has been accurately
reproduced and, as far as the Company is aware and is able to ascertain from information
published by that third party, no facts have been omitted which would render the
reproduced information inaccurate or misleading.
Market studies are often based on information and assumptions which may be neither
precise nor accurate, and their methodology is inherently predictive and speculative. This
Prospectus also contains estimates made by the Company relating to market data of third
parties that are based on published market data of figures from publicly available sources.
Neither the Company nor the Underwriter has independently verified the figures, market
data and other information used by third parties in their studies. Accordingly, the
Company and the Underwriter assume no responsibility and make no representation or
warranty as to the accuracy of any information derived from information and studies of
third parties included in this Prospectus.
In compiling this Prospectus, the Company relied on the sources mentioned below:

prepared by Frost & Sullivan, with its business address at: Suite C-11-02,
Block C, Plaza Mont’ Kiara, 2, Jalan Kiara, Mont’ Kiara, 50480 Kuala
Lumpur, Malaysia;

International Monetary Fund (“IMF”) World Economic Outlook Database,
April 2016;

PRC National Bureau of Statistics, 2016;

Circular of the People’s Government of the Fujian Province regarding the
Standards of the Minimum Wages in Fujian Province (Min Zheng (2015)
No. 38).
The Market Research Report has been prepared at the request of the Company. Frost &
Sullivan with its business address at Suite C-11-02, Block C, Plaza Mont’ Kiara, 2, Jalan
Kiara, Mont’ Kiara, 50480 Kuala Lumpur, Malaysia are business consultants and do not
have any material interest in the Company. Frost & Sullivan has consented to the
inclusion of the Market Research Report in the form and context in which it is included
into this Prospectus.
Page 76
5.
THE OFFERING
5.1
Subject Matter of the Offering
The Offering will be made and trading in the Offered Shares will take place in Euro
(“EUR”). The Offered Shares are denominated in EUR.
The Offering consists of a public offering in Germany and Luxembourg as well as private
placements in other jurisdictions outside Germany, Luxembourg and the United States.
No fixed tranches have been reserved for any particular group of investors or for the
intended private placement.
The Offering comprises of 3,000,000 ordinary bearer shares of the Company with no par
value (Inhaber-Stückaktien), each such share with a notional value of EUR 1.00 and with
full dividend rights for the financial year 2016, thereof 3,000,000 New Shares.
To facilitate a timely delivery of up to 3,000,000 New Shares of the Company allocated to
the investors during the Offering, Mr. ZHU Xiaofang will, if required, enter into a securities
loan agreement with the Underwriter to provide to the Underwriter a total number of
3,000,000 no-par value ordinary bearer shares by way of securities loan free of charge
(see section 23.1 of this Prospectus “Underwriting Agreement”). In order to fulfil its
retransfer obligation vis-à-vis Mr. ZHU Xiaofang from the securities loan, the Underwriter
will, after the end of the Offering Period, subscribe for an equivalent number of New
Shares from a capital increase for a contribution in cash to be approved by an
extraordinary general shareholders’ meeting of the Company as described below and
transfer these shares back to Mr. ZHU Xiaofang.
Any New Shares placed to investors will originate from a capital increase against
contribution in cash expected to be resolved by an extraordinary general shareholders’
meeting of the Company on 20 June 2016 in accordance with Sections 182 eq. German
Stock Corporation Act (Aktiengesetz). The existing shareholders will waive their
subscription rights to the New Shares. The application for registration of the resolution on
the capital increase is expected to be made with the commercial register of the local court
(Amtsgericht) of Cologne on or around 21 June 2016. It is expected that registration and
effectiveness of the capital increase will take place on or around 22 June 2016 and that
the Company will issue a respective global share certificate that will be lodged with
Clearstream Banking AG, Mergenthalerallee 61, 65760 Eschborn, on the same day.
Assuming that the maximum number of New Shares is issued, the share capital of the
Company after the capital increase will amount to EUR 33,000,000 consisting of
33,000,000 no par value ordinary bearer shares with a notional value of EUR 1.00 per
share.
Depending on the extent to which the Offered Shares are placed with investors, the
Offered Shares will represent a calculated total of up to EUR 3,000,000 of the Company’s
share capital (after registration of the respective capital increase in the commercial
register). Thus, taking into account the maximum placement volume of the Offered
Shares, up to 10% of the Company’s shares will be offered under the Offering (calculated
on the basis of 33,000,000 shares of the Company in issue following full implementation
of the capital increases against cash contributions). The Offered Shares which constitute
the subject-matter of the Offering carry the same rights as all other shares of the
Company and confer no additional rights or benefits.
The net proceeds from the sale of the New Shares under the Offering will accrue to the
Company.
ACON is acting as the bookrunner of the Offering (the “Bookrunner”).
5.2
Offering Period, Subscription, Offer Price and Number of Allotted Shares
The Offer Price for which purchase orders may be submitted amounts to EUR 3.50 per
Offered Share. The Offer Price was set by the Company based upon its own valuation
using typical valuation methods such as discounting cash flow. The Offering will be
denominated in EUR.
Page 77
The Offering Period, during which investors will be given the opportunity to submit orders
for the Offered Shares, is expected to begin on 6 June 2016 and is expected to end on 20
June 2016. On the final day of the Offering Period, retail investors and institutional
investors will be able to submit offers to purchase shares until 10:00 a.m. (Central
European Time). Orders are freely revocable until the respective Offering Period expires.
During the Offering Period, retail investors may submit orders for the public offering in the
Federal Republic of Germany via the Xetra–subscription functionality of the Frankfurt
Stock Exchange in the XETRA trading system for the collection and settlement of
purchase orders. Institutional investors may submit their orders directly to the Bookrunner
only.
Retail investors who want to submit purchase orders for the Offer Shares via the Xetra
Subscription Functionality must submit them to their respective depositary bank during
the Offer Period. This requires that the depositary bank (i) has been admitted as a trading
participant to the Frankfurt Stock Exchange or has access to trading on the Frankfurt
Stock Exchange via an accredited trading participant; (ii) is connected to Xetra, and (iii) is
authorized and able to use the Xetra–Subscription Functionality according to the terms
and conditions for use of the Frankfurt Stock Exchange (the "Trading Participant").
Upon the investor's request, the Trading Participant submits a purchase order on behalf
of the investor via the Xetra–Subscription Functionality. ACON in its capacity as the
bookrunner collects the purchase orders of the Trading Participants in the order book until
the end of the Offer Period. Investors in Luxembourg whose depositary bank is not a
Trading Participant may instruct a Trading Participant via their depositary bank to submit
a purchase order and execute it after acceptance by ACON together with the depositary
bank of the investor.
Orders must be submitted for a minimum of one share. Multiple orders of one subscriber
will not be accepted.
The Company, in agreement with the Bookrunner, reserves the right to reduce the
number of Offered Shares, to lower or raise the Offer Price and/or to extend or shorten
the Offering Period (collectively referred to as the “Offer Terms”). In case of an
amendment to the Offer Terms, a supplement to this Prospectus will be filed with BaFin
and
published
following
approval
thereof
on
the
Company’s
website
(www.dechengtechnology.com). To the extent legally required, any changes will be
published in an ad hoc disclosure. Printed copies of the supplement will also be available
free of charge during regular business hours at the Company’s offices at c/o RSM Altavis
GmbH, Martin-Luther-Platz 26, 40212 Düsseldorf, Germany and at the office of the
Bookrunner. Investors will not be notified individually.
Changes to the Offer Terms will not invalidate orders that have already been submitted. If
any change requires the publication of a supplement, investors who have already
submitted orders prior to such publication are entitled under the German Securities
Prospectus Law to revoke their orders within two business days of such publication. The
revocation must be declared in text form to the party specified in the supplement as the
recipient of such revocation; revocations are to be deemed timely if dispatched before the
notice period expires. Instead of revoking their orders, investors may within two days of
the publication of the supplement opt to modify orders submitted prior thereto or to submit
new limit or market orders. For information on cases involving a termination of the
Offering in connection with the termination of the Underwriting Agreement by the
Underwriter, please refer to Section 23.4 of this Prospectus “Underwriting -Conditions
Precedent, Termination”.
After the Offering Period expires, the Company and the Bookrunner will use the order
book to determine the number of shares to be allocated to investors (“Placement
Volume”). This determination is expected to be made on 20 June 2016. The Placement
Volume will be set based on the orders submitted by investors during the Offering Period
and collected in the order book. Allotments will be based, among other factors, on the
perceived quality and geographical spread of investors as well as on a reasonable
expectation that the share price will demonstrate relatively steady performance in the
aftermarket given the demand for the Company’s shares reflected in the order book.
Accordingly the final allocation of shares will be based on the composition of the group of
shareholders in the Company (so-called “investor mix”). For further information regarding
Page 78
allotment criteria see Section 5.6 of this Prospectus ‘‘The Offering -Allotment Criteria”.
The Placement Volume is expected to be published on 20 June 2016 in an ad hoc
disclosure, by means of electronic media such as Reuters or Bloomberg, on the websites
of the Company (www.dechengtechnology.com).
Investors who have submitted their orders directly to the Bookrunner should be able to
obtain the information from the Bookrunner as to the number of shares they have been
allotted starting, at the earliest, on the banking day immediately following determination of
the Placement Volume, presumably on 21 June 2016. Trading in the Company’s shares
may commence before investors are notified of the number of shares they have been
allotted.
The delivery of the allotted shares in book-entry form against payment of the Offer Price
is expected to take place presumably on 24 June 2016. Particularly in the event that the
Placement Volume proves insufficient to satisfy all the orders submitted, the Bookrunner
reserve the right not to accept orders or to accept only parts thereof.
The Company reserves the right to withdraw the Offering at any time during the Offering
Period without giving any reasons and even thereafter until the final allotment of the
Offered Shares to the investors, even if the trading with the shares of the Company has
already commenced. In case of the withdrawal of the Offering, any subscription monies
already paid by the investors will be refunded in full. No interest is payable.
5.3
Rights Attached to the Offered Shares
The New Shares will rank pari passu with the Existing Shares and thus have subscription
rights to future capital increases on the same terms and to the same extent as the
Existing Shares. For information in relation to the rights attached to the shares, see
Section 5.5 of this Prospectus “The Offering - Information Concerning the Shares in the
Company” below and Section 18 of this Prospectus “Information on the Share Capital of
the Company and General Rules”.
Page 79
5.4
Projected Timetable for the Offering
The projected timetable for the Offering is as follows:
30 May 2016
Approval of the Prospectus by the German Financial
Supervisory
Authority
(Bundesanstalt
für
Finanzdienstleistungsaufsicht - “BaFin”)
Notification of approval of the Prospectus to the Luxembourg
Financial Supervisory Authority (Commission de Surveillance
du Secteur Financier)
Publication of the Prospectus on the website of the Company
(www.dechengtechnology.com/investors/ipo)
6 June 2016
Commencement of the Offering Period, the period in which
investors can submit their buying orders
20 June 2016
End of the Offering Period at 10:00 a.m. (Central European
Time) for retail investors and institutional investors.
Determination of the Placement Volume
Allotment of the Offered Shares to investors
Publication of the Placement Volume as well as the allotment
criteria in an ad-hoc disclosure, on an electronic information
system and on the websites of the Company
(www.dechengtechnology.com)
22 June 2016
Registration of the implementation of the capital increase for
creating the New Shares with the commercial register
24 June 2016
Listing approval issued by the Frankfurt Stock Exchange
Book-entry delivery of the allotted Offered Shares to investors
against payment of the Offer Price (expected value date)
28 June 2016
Commencement of trading of the Company’s Shares on the
Frankfurt Stock Exchange
This Prospectus and any supplements thereto will be published on the Company’s
website (www.dechengtechnology.com/investors/ipo). Print copies of the Prospectus and
any supplements thereto will also be available upon request and free of charge during
regular business hours at the Company’s offices at c/o RSM Altavis GmbH, MartinLuther-Platz 26, 40212 Düsseldorf, Germany and at the office of the Bookrunner from the
day of publication.
5.5
Information Concerning the Shares in the Company
5.5.1
Rights on Liquidation Proceeds
Should the Company be dissolved, any liquidation proceeds remaining after
discharging the Company’s liabilities will accrue to the shareholders pursuant to
the German Stock Corporation Act in proportion to the respective shares they
hold in the Company’s share capital.
5.5.2
Subscription Rights
Shareholders generally have the right to subscribe for new shares issued
pursuant to any future capital increases in a ratio proportionate to the respective
shares they hold in the Company’s share capital (subscription right) in
connection with share capital increases against cash contributions. Exemptions
are made in regard to conditional capital increase or the issuance of convertible
Page 80
bonds, income bonds, profit participation rights or bonds with warrants as well
as in respect of the sale of treasury shares. Furthermore, the general
shareholders’ meeting may partially or completely exclude the subscription
rights in specific cases. Any exclusion of the subscription rights needs to be
permissible by law with regard to the German Stock Corporation Act (for further
details, see Section 18.5 of this Prospectus “Information on the Share Capital of
the Company and General Rules - General Rules on Subscription Rights”).
5.5.3
Voting Rights
In accordance with the Company’s articles of association, each share carries
one vote at the general shareholders’ meeting. All shares carry the same voting
rights. No restrictions on voting rights exist with the exception of those
stipulated by law in specific cases. Attendance of the general shareholders’
meeting and exercise of voting rights are governed by the articles of association
and general company law (for further details, see Section 19.6 of this
Prospectus “Corporate Bodies and Management - General Shareholders’
Meeting (Hauptversammlung)”).
5.5.4
Form and Representation of the Shares
All of the Company’s shares are or will be issued as no-par value ordinary
bearer shares (Inhaber-Stückaktien). The shares will be represented by several
global certificates without dividend coupons. The shares are deposited with
Clearstream Banking AG, Mergenthalerallee 61, 65760 Eschborn, as securities
clearing and depository bank. The same applies to the New Shares from the
capital increase, which will be represented by an additional global certificate
and also be deposited with Clearstream Banking AG, Mergenthalerallee 61,
65760 Eschborn. The articles of association of the Company exclude the
shareholders’ claim to be issued with share certificates, unless such certificates
are required under the regulations of a stock exchange on which the shares are
listed.
5.5.5
Dividend Rights
The Existing Shares of the Company as well as the New Shares from the
capital increase against cash contribution carry full dividend rights for the
financial year 2016.
Dividends are paid in Euro to each shareholder’s account through the systems
of the central depository (Clearstream Banking AG, Mergenthalerallee 61,
65760 Eschborn) to the custodian bank which will pay them to the shareholders
accounts. The distribution of dividends on the Company’s shares for the past
financial year is subject to the general shareholders’ meeting (for further details,
see Section 18.6 of this Prospectus “Information on the Share Capital of the
Company and General Rules - General Rules Relating to Use of Profits and
Dividend Payments”).
No restrictions on dividends or special procedures apply to holders of the
shares who are not residents of Germany. Reference is made to the Section 21
of this Prospectus “Taxation in Germany” and Section 22 of this Prospectus
“Taxation in Luxembourg” for a description of the tax treatment of dividends
under the laws of Germany and Luxembourg, respectively. Shareholders whose
shares are entered into custodial accounts via foreign institutions should inform
themselves about the procedure applicable at such institutions.
5.5.6
Transferability and Lock-Up
The shares are freely transferable. With the exception of the restrictions set out
in Section 5.11 of this Prospectus “Market Protection Agreements (Lock up)”,
there are no lock-up requirements or restrictions on the transferability of the
Company’s shares.
Page 81
5.5.7
WKN/ISIN/Ticker Symbol
The German Securities Identification Number (WKN) of the shares is A1YDDM,
the International Securities Identification Number (ISIN) is DE000A1YDDM9
and the Ticker Symbol is 333.
5.6
Allotment Criteria
5.6.1
General Allotment
The Company reserves the right to allot to investors less than the maximum
possible amount of New Shares that are being offered. No agreements exist
between the Company, Mr. ZHU Xiaofang and the Bookrunner with respect to
the allotment procedure prior to the commencement of the Offering Period. The
Company, Mr. ZHU Xiaofang and the Bookrunner intend to comply with the
“Principles for the Allotment of Shares Issues to Private Investors” (“Grundsätze
für die Zuteilung von Aktienemissionen an Privatanleger”). These principles
were issued on 7 June 2000 by the Exchange Expert Commission
(Börsensachverständigenkommission) of the German Federal Ministry of
Finance (Bundesministerium für Finanzen). “Qualified investors” under the
WpPG, as well as “professional clients” and “suitable counterparties” under the
German Securities Trading Act (Wertpapierhandelsgesetz - WpHG) are not
viewed as “private investors” within the meaning of the Allocation Rules. The
Company, Mr. ZHU Xiaofang and the Bookrunner will determine and publish the
specific details of the allotment procedure in accordance with the “Principles for
the Allotment of Shares Issues to Private Investors” once the Offering Period
has expired.
5.6.2
Minimum Allotment
Any minimum allotment will be determined once the order book has been
closed and will be published in accordance with the allotment principles. No
right to allotment exists.
5.7
Stock Exchange Admission and Commencement of Trading
The Company intends to list its shares at Frankfurt Stock Exchange irrespective of the
result of the Offering. An application for admission of 30,000,000 Existing Shares and up
to 3,000,000 New Shares to trading on the regulated market (Regulierter Markt) of the
Frankfurt Stock Exchange (General Standard) shall be filed on or around 3 June 2016.
The Company expects that admission to trading will be resolved by Frankfurt Stock
Exchange on 24 June 2016. It is expected that trading of the Company’s shares will
commence on 28 June 2016.
5.8
Delivery and Settlement
The allocated shares will be delivered through Clearstream Banking AG,
Mergenthalerallee 61, 65760 Eschborn, Germany, to the investors’ securities deposit
account maintained by a bank or broker through a depository chain with Clearstream
Banking AG, Mergenthalerallee 61, 65760 Eschborn.
Delivery of the allocated shares to investors against payment of the Offer Price is
expected to take place on 24 June 2016. Exceeding payments made by investors will be
refunded accordingly. The shares will be made available to shareholders as co-ownership
interests in the respective global certificate.
5.9
Designated Sponsor
ACON will assume the function of a designated sponsor (the “Designated Sponsor”) for
the Company’s shares trading on the Frankfurt Stock Exchange. According to the
designated sponsor agreement which the Company concluded with ACON, ACON will
submit binding buying and selling orders (limit orders) into the electronic trading system
(Xetra) of the Frankfurt Stock Exchange during regular trading hours. This is designed, in
particular, to achieve higher liquidity in the trading of the shares. The Designated Sponsor
Page 82
will receive an annual remuneration for those services in accordance with market
standards.
5.10 Consent to the use of the Prospectus
The consent of the Company regarding the use of the Prospectus in Germany and
Luxembourg for a sale and placement of securities has been granted to ACON
Actienbank AG, Germany (“Lead Manager”). The consent to the use of the Prospectus
by the Lead Manager is given for the Offer Period. Any new information with respect to
the Lead Manager unknown at the date of the Prospectus will be published at least on the
Company’s website (www.dechengtechnology.com).
The Company accepts responsibility for the content of the Prospectus also with respect to
a subsequent resale or final placement of securities by the Lead Manager which was
given consent to use the Prospectus.
In the event of an offer being made by the Lead Manager, the Lead Manager will
provide information to investors on the terms and conditions of the offer at the
time the offer is made.
5.11 Market Protection Agreements (Lock up)
The Company undertakes vis-à-vis ACON that for a period of 36 months following the
commencement of trading (Notierungsaufnahme) of the shares of the Company on the
regulated market (General Standard) of the Frankfurt Stock Exchange, that it will not,
without the prior written approval of ACON, (i) implement any capital increase from
authorized capital, (ii) propose any capital increase to the Company’s general
shareholders’ meeting, (iii) announce, implement or propose to the Company’s general
shareholders’ meeting any issue of any financial instruments carrying conversion or
option rights with respect to the shares in the Company or any transaction having an
equivalent economic effect, (iv) directly or indirectly sell, offer, market, distribute, transfer,
encumber or in any other way dispose of shares in the Company and (v) enter into
transactions (including derivative transactions) that result in the economic equivalent of
any of the above (the “Company’s Lock-Up”).
The Existing Shareholders, with the exception of Chen Capital Limited S.à r.l., Asia Small
Capital V Limited S.à r.l. and South China Fund II Limited S.à r.l. as well as Mr. OOi Guan
Hoe, undertake vis-à-vis ACON for a period of 36 months following the commencement of
trading (Notierungsaufnahme) of the shares of the Company on the regulated market
(General Standard) of the Frankfurt Stock Exchange, that they will not, without the prior
written consent of ACON, (i) initiate or consent to any of the measures set out above for
the Company’s Lock-Up, (ii) directly or indirectly initiate or consent that the shares in the
Company or other financial instruments, which may be converted into shares or which
give a right to acquire shares in the Company, are issued, sold, offered, marketed or
otherwise disposed of or that an offer to any of such transactions is announced, or (iii)
directly or indirectly sell, offer, market distribute, transfer or in any other way dispose of
shares not being part of the Offering or other financial instruments in the Company
referring to a participation of 50% plus one share; the same applies to any transactions
constituting the economic equivalent of a sale, such as the issue of option or conversion
rights to shares of the Company and other comparable transactions (including derivative
transactions) (the “Lock-Up Existing Shareholders”). The Lock-Up Existing
Shareholders does not apply to the Offered Shares to be offered to investors in
connection with the Offering, but to the New Shares which will be transferred back to Mr.
ZHU Xiaofang by the Underwriter in order to fulfill its retransfer obligation under the
securities loan.
The above mentioned lock-up restrictions do not apply for (i) the issuance of shares in the
Company for the purpose of making acquisitions and for a capital increase from own
funds (Kapitalerhöhung aus Gesellschaftsmitteln). Further, the above stated restrictions
shall not apply either to the issuance of shares in the Company or options to purchase
such shares to management personnel or employees of the Company or its affiliates in
connection with a future profit-sharing plan for management personnel or employees; or
(ii) the encumbrance or pledge of Existing Shares of the Lock-Up Existing Shareholder
connection with future financing measures (e.g. loan agreements).
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6.
REASONS FOR THE OFFERING, USE OF ISSUE PROCEEDS, ISSUE COSTS
AND INTERESTED THIRD PARTIES
6.1
Issue Proceeds and Costs
The gross issue proceeds from the sale of the New Shares less the issue costs to be
borne by the Company (the net issue proceeds) accrue to the Company under the
Offering. The amount of the gross issue proceeds depends on the number of the New
Shares actually placed and the Offer Price.
Assuming that all of the New Shares are placed, the gross issue proceeds from the
Offering attainable by the Company will be EUR 10,500,000.
Due to the fact that the costs are contingent on the total number of Offered Shares placed,
which determine the amount of commissions, it is not possible at present to reliably
predict the amount of the costs. The commission to be paid to the Underwriter is owed by
the Company.
Based on the Offer Price of EUR 3.50 and on the assumption that all Offered Shares will
be placed, the Company estimates that it will incur costs of the Offering (including fees of
the Underwriter) totaling approximately EUR 1,866,000.
The Company estimates that the costs excluding the commission of the Underwriter will
amount to approximately EUR 1,341,000. These include professional fees for auditors,
lawyers, bank institutions and other consultants which for the FY 2015 were already
charged in the amount of EUR 435,000.
Subject to the aforementioned uncertainties, the Company believes that based on the
Offer Price of EUR 3.50 and on the assumption that all Offered Shares will be placed, it is
possible to generate approximately EUR 8,634,000 in net issue proceeds.
6.2
Reasons for the Offering
The net issue proceeds accruing to the Company are intended to strengthen
DECHENG’s capitalization and financial position and support the intended expansion of
its activities and the implementation of its strategy, in particular by developing and selling
new advanced products such as solvent-free flame retardant, waterproof / breathable PU
resins. The Listing is also intended to enable the Company to sharpen its public profile,
especially in the relevant industry in China and on the international capital market, and to
have access to Europe’s top chemical companies, preferably in terms of technology and
business cooperation.
6.3
Use of the Issue Proceeds
The Company plans to use the net issue proceeds accruing to it from the sale of the New
Shares to finance DECHENG’s further growth and to implement and finance its strategic
objectives and for general business purposes as follows:
Purpose
EUR
Approx. %
R&D
4,317,000
50%
Marketing
1,726,800
20%
Working capital
2,590,200
30%
As to the R&D part, the Company plans to purchase R&D equipment, hire new local and
also foreign experts and staff, send its R&D staff to local and international
universities/research centers for training, set up a R&D database related to PU resin as
well as enter into new cooperation with new research institutions.
As to the working capital part, the Company intends to use it to purchase raw materials
without much credit terms in order to enjoy discounts and thus helping to increase the
gross profit margin of DECHENG.
If the net issue proceeds envisaged are not raised, DECHENG’s working capital is still
Page 84
sufficient to cover those payment obligations which will become at least due within the
next twelve months. Regarding the financing of its further growth, in such case, the
Company might have to prolong existing short term bank loans in the amount of RMB
29.8 million (approx. EUR 4.3 million) or use internal funds generated from operational
cash flow. DECHENG plans to use the proceeds as set out above, However, it cannot be
excluded that based on the further development of the business, other uses of the
proceeds will be considered.
6.4
Interested Parties Involved in the Offering
In connection with the Offering and the Listing of the Company’s shares (the
“Transaction”), ACON is in a contractual relationship with the Company.
The commission of ACON as the Underwriter, the Global Coordinator, Bookrunner and
Lead Manager is inter alia dependent on the amount of the offer proceeds in accordance
with the Underwriting Agreement expected to be concluded within five bank working days
after the date of this Prospectus. Such that ACON has an interest in the successful
implementation of the Offering.
ACON or its affiliates may enter into business relations with the Company or render
services to the Company in the ordinary course of business.
ACON also has an interest in the Offering on account of its Designated Sponsor
agreement (see Section 5.9 of this Prospectus “The Offering -Designated Sponsor”).
Besides the ones mentioned above there are no other interested parties involved in the
Offering.
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7.
DIVIDEND POLICY; EARNINGS PER SHARE
7.1
Dividend Rights and Dividend Policy
The shares in the Company carry full dividend rights for the financial year 2016.
The shares of individual shareholders in the profit of the Company are determined in
accordance with the number of shares they hold in the registered capital (section 60
subsection 1 of the German Stock Corporation Act (“AktG”)).
The adoption of resolutions regarding the distribution of dividends on the Company’s
shares for a given financial year is the responsibility of the general shareholders’ meeting
(Hauptversammlung) held during the following financial year, which resolves on the
utilization of the Company’s distributable profits on the basis of the non-binding proposal
of the management board (Vorstand) and the supervisory board (Aufsichtsrat). If the
majority shareholder Mr. ZHU Xiaofang holds an effective or, depending on its presence
at the general shareholders’ meeting (Hauptversammlung) of the Company, a factual
majority of the voting rights present or represented at the general shareholders’ meeting
(Hauptversammlung), it may exercise further influence on the utilization of the Company’s
profits and/or the dividend policy (see Section 3.1 of this Prospectus “Risk Factors –
Risks Related to DECHENG’s Operations”). Under German law a resolution concerning
dividends and the utilization of distributable profits may be adopted only on the basis of a
balance sheet profit (Bilanzgewinn) shown in the Company’s adopted annual separate
financial statements(festgestellter Jahresabschluss) to be prepared in accordance with
generally accepted German accounting principles, i.e. the accounting provisions of the
German Commercial Code (Handelsgesetzbuch). In determining the balance sheet profit
available for distribution, the annual net income (Jahresüberschuss) or annual net loss
(Jahresfehlbetrag) of the respective year must be adjusted for profits and losses carried
forward from the previous year and for deposits into or withdrawals from reserves. Certain
reserves are to be created by law and must be deducted, where applicable, when
calculating the balance sheet profits available for distribution. In a resolution regarding
the utilization of balance sheet profits, the general shareholders’ meeting
(Hauptversammlung) can include further amounts in retained earnings or carry them
forward as profit. Dividends resolved by the general shareholders’ meeting
(Hauptversammlung) are paid annually, shortly after the general shareholders’ meeting
(Hauptversammlung), in compliance with the rules of the respective clearing system.
Dividend claims are subject to a three-year limitation period. Dividends which were not
exercised by shareholders within this period shall be retained by the Company.
The shares carry full dividend rights for the financial year 2016.
The Company intends to distribute dividends in 2017 and to also pay dividends on a
regular basis thereafter, however depending on the results of operations of the Company,
its business strategy, its financial situation, its need for cash and the legal, tax and
regulatory environment as well as other factors. The Existing Shareholders have declared
their intention to waive their dividend rights for the dividend to be distributed in the next
three years 2017-2019.
To report net profits available for distribution, the Company as a holding company
depends on profit distributions from its subsidiary. The expenditures and costs of this
Offering will have a one-time impact that will adversely affect its results of operations in
2016.
Dividend income is subject to German dividend withholding tax (Abgeltungsteuer) (see
Section 21 of this Prospectus “Taxation in Germany”).
7.2
Dividends and Earnings per Share
The Company was incorporated in 2013 and did so far not generate any profits. No
dividends were therefore paid by the Company in the past.
DECHENG PRC as the operating company of DECHENG did however generate profits
and has in the recent past paid dividends.
On the basis of the single financial statements of DECHENG PRC in accordance with
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IFRS as at and for the financial years ended on 31 December 2013, 31 December 2014
and 31 December 2015, the following summary shows the profit for the respective
financial year of DECHENG PRC, and earnings per share (rounded to two decimal
points), each in accordance with IFRS and its distributed dividends as of and for the years
ended on 31 December 2013, 31 December 2014 and 31 December 2015.
For comparability with the share capital structure of the Company, it has been assumed
that the number of shares used to calculate earnings per share and dividends per share
is the number of shares in the Company following the effectiveness of the capital increase
against contribution in kind of shares in DECHENG HK to the Company in the amount of
EUR 29,950,000.
FY 2013
FY 2014
FY 2015
unaudited (1)
unaudited (1)
unaudited (1)
Profit for the year (in EUR’000)
8,460
12,316
17,853
Dividends (in EUR’000)
4,863
7,348
8,677
Assumed number of shares
30,000,000
30,000,000
30,000,000
Earnings per share in EUR
0.28
0.41
0.60
Dividends per share in EUR
0.16
0.24
0.29
(1) Unaudited Information provided by the accounting department of the Company with the exception of “Profit
for the year” which was audited.
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8.
GENERAL DESCRIPTION OF THE SHARES
8.1
Class of Shares, Voting Rights
All shares in the Company are ordinary bearer shares (auf den Inhaber lautende
Stammaktien) with no par value (no-par value bearer shares) representing EUR 1.00 of
the share capital each. In accordance with the Company’s articles of association
(Satzung), each share carries one vote at the Company’s General Shareholder’s meeting
(Hauptversammlung). All shares carry the same voting right. No restrictions on voting
rights exist with the exception of those stipulated by law in specific cases. Attendance of
the general shareholder’s meeting and exercise of voting rights are governed by the
articles of association (Satzung) and General Company law (for further details, see
Section 19 of this Prospectus “Corporate Bodies and Management”).
8.2
Certification of Shares
The shares will be represented by one or more global share certificates without dividend
coupons which will be deposited with Clearstream Banking AG, Mergenthalerallee 61,
65760 Eschborn, Germany as securities clearing and depository bank.
The Company’s articles of association (Satzung) constitute that shareholders are not
entitled to be issued with share certificates, unless requested by the regulations of the
stock exchange on which the shares are listed.
The determination of the form and substance of the shares, e.g. the form of the global
certificate, as well as dividend and renewal coupons is carried out by the management
board (Vorstand) and is subject to approval of the supervisory board.
8.3
Dividend Rights
The shares carry full dividend rights for the financial year 2016.
The share of individual shareholders in the profit of the Company is determined in
accordance with the number of shares they hold in the registered capital (section 60
subsection 1 of the German Stock Corporation Act (AktG)).
Distributions of dividends on shares for a given financial year are generally determined by
a process in which the management board (Vorstand) and supervisory board
(Aufsichtsrat) submit a proposal to the annual general shareholders’ meeting
(Hauptversammlung) held in the subsequent financial year and such annual general
shareholders’ meeting (Hauptversammlung)adopts a resolution. German law provides
that a resolution concerning dividends and distribution thereof may be adopted only on
the basis of a balance sheet profit (Bilanzgewinn) shown in the Company’s adopted
annual single entity financial statements (festgestellter Jahresabschluss). In determining
the profit available for distribution, the result for the relevant year must be adjusted for
profits and losses brought forward from the previous year and for withdrawals from or
transfers to reserves. Certain reserves are required by law and must be deducted when
calculating the profit available for distribution.
Dividends on shares resolved by the general shareholders’ meeting (Hauptversammlung)
are paid annually, shortly after the annual shareholders’ meeting (Hauptversammlung), in
compliance with the rules of the respective clearing system. Dividend payment claims by
shareholders are subject to a three-year statute of limitations. Details concerning any
dividends resolved by the annual shareholders’ meeting (Hauptversammlung) and the
respective paying agents specified by the Company will be published in the electronic
version of the Federal Gazette (elektronischer Bundesanzeiger) and in at least one official
national publication for statutory stock market notices approved by the Frankfurt Stock
Exchange.
Dividend income is in general subject to withholding tax (Kapitalerstragssteuer) (see
Section 21 of this Prospectus “Taxation in Germany” and 22.1 of the Prospectus
“Taxation in Luxembourg”).
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8.4
Takeover Offers, Exclusion of Minority
Shareholding Notification Requirements
8.4.1
Shareholders
(Squeeze-Out)
and
Mandatory Takeover Offers
The Company as a stock corporation (Aktiengesellschaft) which will be listed on
a regulated market within the meaning of art.4, para. 1 no. 14 of the EUDirective 2004/39/EC will – in accordance with the provisions of the German
Securities Acquisition and Takeover Act (Wertpapiererwerbs- und
Übernahmegesetz – WpÜG) – be considered as a so-called target company
(Zielgesellschaft) if a public offer is launched (öffentliches Erwerbs- oder
Übernahmeangebot) to acquire part or all of the Company’s shares. In such
cases the management board (Vorstand) has to work in cooperation with the
supervisory board (Aufsichtsrat) to prepare and announce a detailed statement
(Stellungnahme) concerning the public takeover bid.
Under the German Securities Acquisition and Takeover Act any party whose
voting rights reach or exceed the threshold of 30% of the voting rights of the
Company after admission to listing has to publish this fact, including the
percentage of the voting rights held, within seven calendar days via Internet and
over an electronic financial news service. Unless an exemption is granted, the
party subsequently has to submit a mandatory public tender offer to all
shareholders of the Company.
8.4.2
Squeeze-out of Minority Shareholders and Integrations
The general shareholders' meeting (Hauptversammlung) can, pursuant to the
provisions of German Stock Corporation Act, at the request of a shareholder
holding 95% of the share capital (“Principal Shareholder”), pass a resolution
concerning the transfer of the shares of the remaining minority shareholders to
the Principal Shareholder. The minority shareholders will in return receive a
payment of an appropriate cash settlement. Decisive for the actual amount
which is paid to the minority shareholders is “the Company's situation” at the
time the resolution was passed. The amount of the cash settlement must reflect
“the Company's situation” and is based on the full value of the Company, which
is determined using the capitalized earnings value calculation
(Ertragswertberechnung). The registration of the resolution of the general
shareholders' meeting (Hauptversammlung) on the squeeze out in the
commercial register automatically leads to the transfer of the minority's shares
to the Principal Shareholder.
Furthermore, a bidder that holds 95% of the voting share capital of a target
company within the meaning of the German Securities Acquisition and
Takeover Act (Wertpapiererwerbs- und Übernahmegesetz — WpÜG) after a
public takeover or mandatory bid may file an application with the regional court
in Frankfurt/Main to issue a court order that transfers the remaining voting
shares in return for an adequate compensation. This application has to be filed
within a period of three months following the expiration of the acceptance
period. A resolution by the general shareholders' meeting (Hauptversammlung)
is not a precondition for this. The compensation offered has to correspond to
the compensation offered in connection with the takeover or mandatory bid and
is deemed an appropriate settlement if the bidder has acquired shares from
90% of the share capital addressed by the bid. The provisions relating to the
stock corporation law squeeze-out do not apply during the takeover law
squeeze-out procedure which is initiated by the bidder. These rules may only
apply again after a binding court ruling with respect to the squeeze-out
proceedings has been issued.
The integration (Eingliederung) of a corporation is subject to a resolution of the
general shareholders' meeting (Hauptversammlung). Precondition to such
integration is that at least 95% of the shares of the Company to be integrated
are held by the future principal company. The former shareholders of the
integrated Company can claim a suitable settlement. This compensation must
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generally be granted in the form of shares of the principal company. The
amount of the settlement is calculated using a "merger value ratio"
(Verschmelzungswertrelation) between the two companies, i.e. the exchange
ratio that would be deemed to be appropriate in the event of a merger of the two
companies.
8.4.3
Disclosure of Shareholdings in Listed Companies, Reporting and
Notification Requirements in Relation to Share Ownerships
The German Securities Trading Act (Wertpapierhandelsgesetz - WpHG)
requires that anyone who acquires, sells or in some other way reaches,
exceeds or falls below 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% or 75% of the
voting rights in an issuer whose country of origin is Germany must immediately
but no later than within four trading days after the individual or company is
aware or should have been aware of the respective changes in voting rights
notify the issuer and at the same time the BaFin. The notice can be drafted in
either German or English and either sent in writing or via telefax. The notice
must include, among other things, the individual or entity's address, the share of
voting rights held and the date of reaching, exceeding or falling below the
respective threshold. As a domestic issuer, the Company must publish such
notices immediately but no later than within three trading days after receiving
them via media outlets, including those which one can assume will disseminate
the information throughout the EU and in the non-EU contracting parties to the
Agreement and the EEA. The Company must also transmit the notice to BaFin
and to the electronic Company Register (elektronisches Unternehmensregister)
for storage. There are exceptions to the notice requirement: trading activities of
investment services enterprises involving up to 5% of voting rights, shares held
solely for clearing and settlement purposes or held in safekeeping for short
periods of time and acquisitions and sales made for market making purposes.
In connection with the disclosure requirements, the German Securities Trading
Act (Wertpapierhandelsgesetz - WpHG) contains various provisions to ensure
that shareholdings are allocated to the person who actually controls the voting
rights attached to the shares. For example, shares belonging to a third party are
allocated to a party required to report if the reporting party controls the third
party. Similarly, shares held by a third party on behalf of a party required to
report, or held by an entity controlled by the party required to report, are
allocated to the party that is required to report. If a shareholder willfully fails to
file a notice or provides false information, the shareholder is excluded from
exercising the rights attached to its shares (including voting and dividend rights)
for the duration of the delay. If the failure relates specifically to the share of
voting rights held and the shareholder acted willfully or was grossly negligent,
the shareholder is generally not permitted to exercise the administrative (voting)
rights attaching to its shares for a period of six months after it files the
necessary notification. In addition, a fine may be imposed for failure to comply
with the notification obligation.
Moreover, under the German Securities Trading Act (Wertpapierhandelsgesetz
- WpHG), any person who directly or indirectly holds financial instruments that
grant the holder the unilateral right under a legally binding agreement to acquire
previously issued voting shares of an issuer whose country of origin is the
Federal Republic of Germany is subject to a notification obligation if the sum of
the shares they can so acquire, together with any voting right stakes they may
already hold in the issuer or which are attributable to them, reaches, exceeds or
falls below any of the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% or
75%.
Furthermore, the German Securities Trading Act (Wertpapierhandelsgesetz WpHG) requires any shareholder whose holdings reach or exceed the 10%
threshold or a higher threshold to notify the issuer of the aims being pursued
with the acquisition of the voting rights and the origin of the funds used for the
acquisition within 20 trading days of the date on which the respective threshold
is met or exceeded. Once this information is received, and even if no
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information is received, the issuer has to publish it in the form discussed above,
or give notice that the disclosure requirement was not met, within no more than
three trading days. The issuer's articles of association (Satzung) may stipulate
that the shareholders are not subject to a notification obligation, but this is not
the case for the Company's articles of association (Satzung). In addition, under
the German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und
Übernahmegesetz - WpÜG), anyone whose voting rights reach or exceed 30%
of the voting shares of the Company is obligated to disclose this fact and the
percentage of voting rights held within seven calendar days over the internet
and over an electronic financial news service and thereupon, unless granted an
exemption, to launch a public mandatory offer to all holders of shares in the
Company.
The German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und
Übernahmegesetz — WpÜG) contains a number of provisions intended to
ensure that share ownership is correctly attributed to the person who actually
controls the voting rights conferred by the shares. Shareholders who fail to
disclose that their holdings meet or exceed the 30% threshold or fail to make a
public mandatory offer are prohibited from exercising the rights conferred by
these shares (including voting rights and the right to receive dividends) until the
failure has been remedied. Breaches of the duty of disclosure are also
punishable by a fine.
8.4.4
Disclosure of Transactions by
Responsibilities at a Listed Company
Persons
Exercising
Executive
According to the provision of the German Securities Trading Act
(Wertpapierhandelsgesetz — WpHG) any person discharging managerial
responsibilities (“Executives”) within a company, whose shares are admitted to
trading or for whose shares admission to trading or a domestic organized
market has been requested, is obliged to disclose the purchase and sale of the
Company's shares and related financial instruments whenever the value of such
transactions amounts to EUR 5,000.00 or more within a calendar year.
Executives are, among others, members of the management board (Vorstand)
or of the supervisory board (Aufsichtsrat) or any other executives who are
authorized to make decisions on material corporate matters on behalf of the
company and who have regular access to insider information. The notification
obligation also applies to natural persons who are closely related to the
Executives of the Company such as spouses, registered civil partners, children
for whom the Executive is liable for maintenance or relatives who, at the time of
the purchase or sale of the Company's shares, have shared the household for
at least a year. Furthermore, legal entities and other organizations are also
subject to the notification obligation regarding the purchase or sale of the
company’s shares (i) if the Executives or persons who are closely related to the
Executives discharge managerial responsibilities in such legal entities and
organizations, (ii) or the Executives or persons who are closely related to the
Executives directly or indirectly control the legal entity or the other
organizations, (iii) or if the legal entities or other organizations were set up for
the benefit of the Executives or persons who are closely related to the
Executives or the economic interests of the legal entity, (iv) or the other
organizations are substantially equivalent to those of the Executives or persons
who are closely related to the Executives.
Notification of the purchase or sale must be made within five business days of
the trade date to the Company and the German Federal Financial Supervisory
Authority (Bundesanstalt für Finanzdienstleistungsaufsicht - BaFin). This means
that the notification must be received by both, the Company and BaFin no later
than at the fifth business day following the trade date (excluding the trade date).
When the Company receives the notification, the Company is required to
publish the notification without undue delay and the proof of publication must be
forwarded to BaFin without undue delay. The Company also has to submit the
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notification to the business register without undue delay, following the
publication of the notification.
The provisions of the German Securities Trading Act (Wertpapierhandelsgesetz
– WpHG) regarding the disclosure of transactions by persons exercising
executive responsibilities at a listed company will be replaced by provisions of
the Market Abuse Regulation (Marktmissbrauchsverordnung - MAR) with effect
of July 3, 2016. According to the provisions of the Market Abuse Regulation
(Marktmissbrauchsverordnung - MAR) persons discharging managerial
responsibilities, as well as persons closely associated with them shall notify the
issuer of every transaction conducted on their own account relating to the
shares or debt instruments of the issuer or to derivatives or financial
instruments linked thereto. This shall apply to any subsequent transaction once
a total amount of EUR 5,000 has been reached within a calendar year. This
threshold can be increased up to EUR 20,000 within a calendar year by the
European Securities and Markets Authority (ESMA). Issuers shall notify the
person discharging managerial responsibilities of their obligations under the
respective
regulation
of
the
Market
Abuse
Regulation
(Marktmissbrauchsverordnung - MAR) in writing and they shall draw up a list of
all persons discharging managerial responsibilities and persons closely
associated with them. Persons discharging managerial responsibilities shall
notify the persons closely associated with them of their obligations under the
Market Abuse Regulation (Marktmissbrauchsverordnung - MAR) in writing and
shall keep a copy of this notification. Without prejudice to the aforementioned
disclosure obligation, a person discharging managerial responsibilities within an
issuer shall not conduct any transactions on its own account or for the account
of a third party, directly or indirectly, relating to the shares or debt instruments of
the issuer or to derivatives or other financial instruments linked to them during a
closed period of 30 calendar days before the announcement of an interim
financial report or a year-end report which the issuer is obliged to make public
according to the rules of the trading venue where the issuer’s shares are
admitted to trading or national law.
8.5
Transferability of the Shares
The shares are freely transferrable. With the exception of the restrictions set out in
Section 5.11 of this Prospectus “Market Protection Agreements (Lock up)”, there are no
lock-up requirements or restrictions on the transferability of the Company’s shares.
8.6
Notices
In accordance with its articles of association (Satzung), notices of the Company will be
made in the electronic version of the German Federal Gazette (elektronischer
Bundesanzeiger). Publications required by stock exchange laws will be made in a
national journal designated for such purposes by the Frankfurt Stock Exchange.
Notices in connection with the approval of the Prospectus and the approval of any
supplements to the Prospectus will be made in accordance with section 14 subsection 1
of the German Securities Prospectus Act (Wertpapierprospektgesetz) and will be
published in the form intended for prospectuses, i.e., on the internet website of the
Company with a printed version available at the office of the Company.
8.7
Securities Identification Number, Stock Symbol, Ticker Symbol
Ticker Symbol: 333
8.8
Paying Agent
The paying agent (Zahlstelle) for the shares in the Company is Bankhaus Neelmeyer
Aktiengesellschaft with business address at Am Markt 14-16, 28195 Bremen, Germany.
Page 92
9.
DILUTION
The net book value of DECHENG HK (total assets less current liabilities), which for the
purpose of calculating the dilution is considered as the Company’s equity attributable to
the Company’s shareholders following the registration of the capital increase against
contribution in kind (Sachkapitalerhöhung) of the Company on 12 May 2016, amounted to
EUR 30,960,743 as of 31 December 2015 based on the consolidated financial
statements of DECHENG HK for 2015 prepared in accordance with IFRS. This
corresponds to approximately EUR 1.03 per share (calculated on the basis of 30,000,000
shares of the Company in issue as of the date of this Prospectus).
Assuming that all 3,000,000 Offered Shares are placed and that the Offer Price amounts
to EUR 3,50, the Company would obtain net proceeds of approximately EUR 8,634,000
considering costs of the Offering (including fees of the Underwriter) totaling approximately
EUR 1,866,000. Assuming that the Offering had been implemented on 31 December
2015, the net book value of the Company at that time would have amounted to
approximately EUR 39,594,743 (or approximately EUR 1.20 per share calculated on the
basis of 33,000,000 shares of the Company in issue following full implementation of the
capital increase against cash contributions). This corresponds to an increase in the net
book value of the Company of approximately EUR 0.17 per share corresponding to an
increase of approx. 16.5% for the Existing Shareholders and a direct dilution of about
EUR 2.30 per share for the purchasers of the Offered Shares based on the Offer Price
and, thus, investors who acquire shares at the Offer Price of EUR 3.50 per Offered Share
are diluted by about 65.7%.
The table below illustrates the amount by which the mid-point of the price range per share
would exceed the total share capital per share (immediate dilution per share):
Offer Price per share
EUR 3.50
Net book value of the Company per share as of 31 December
2015 calculated on the basis of 30,000,000 Existing Shares
EUR 30,960,743
Amended net book value of the Company per share as of 31
December 2015, adjusted under the assumption of full
implementation of the capital increases
EUR 39,594,743
Percentage by which the amended net book value of the
Company per share for the Existing Shareholders exceeds the
net book value of the Company per share
approx. 16.5%
Amount by which the Offer Price per share exceeds the
amended net book value of the Company per share for the
investors
EUR 2.30
Percentage by which the Offer Price per share exceeds the
amended net book value of the Company per share for the
investors
approx. 191.7%
Page 93
10.
CAPITAL STRUCTURE AND NET FINANCIAL LIABILITIES
10.1 Capitalization and Indebtedness
The data presented in the following table provides an overview of the capital structure
and net financial liabilities of the Company as at 31 March 2016 on a consolidated basis
as if all shares in DECHENG HK had already been held by the Company as at 31 March
2016. The data is unaudited and has been prepared by the accounting department of
DECHENG in accordance with IFRS. As a result of the net proceeds obtained in the
Offering the capitalization of DECHENG will change following the Offering.
(1) Interest bearing bank borrowings have been secured by the company's buildings and prepaid land lease
payments, personal guarantees by the company’s major shareholder and CEO, Mr. ZHU Xiaofang, and his wife
Ms. ZHU Yuling as well as by corporate guarantee provided by a third party. All short term bank borrowings fall
due within twelve months.
Page 94
10.2 Contingent and Indirect Liabilities
DECHENG has no contingent and indirect liabilities.
10.3 Borrowing Requirements
In order to finance the intended growth of DECHENG, further borrowing (in particular
bank loans) may be required by renewing the existing short term bank loans in the
amount of RMB 29.8 million (approx. EUR 4.3 million). The financing through bank loans
shall be obtained mainly from the banks by way of mortgaging DECHENG’s fixed assets
or providing for guarantees in principle the same as the current financing arrangements.
10.4 Working Capital Statement
The Company believes that, based on DECHENG’s current needs, DECHENG’s current
working capital is sufficient for its present requirements that means sufficient to cover
those payment obligations which will become at least due within the next twelve months
from the date of this Prospectus.
10.5 Significant Changes
The sales volume of DECHENG's products has increased by over 22.14% for the 3
months financial period ended 31 March 2016 (2016/Q1) compared to the 3 months
financial period ended 31 March 2015 (2015/Q1). Due to the drop in oil based raw
material prices, the selling price for most of DECHENG`s products though decreased
resulting in a decrease of revenue by 6.84% in RMB (10.56% in EUR) for the same
period. However, since the cost of sales for this period has also decreased by 6.62% in
RMB (10.35% in EUR) compared to 2015/Q1, in line with the decrease in revenue and
drop in raw material prices, the gross profit margin remained stable for 2016/Q1 at 39.30%
compared to 39.44% for 2015/Q1. Crude oil prices have started to increase again so that
this will have again a corresponding effect on the up-coming revenues for the FY 2016.
The figures regarding 2016/Q1 and 2015/Q1 are unaudited and have been provided by
the accounting department of DECHENG.
On 25 April 2016, the Existing Shareholders entered into a contribution agreement with
the Company whereby they undertook to transfer 100% of the shares in DECHENG HK,
i.e. 10,000 shares, to the Company against the issue of 29,950,000 new no par value
ordinary bearer shares in the Company to the Existing Shareholders according to their
shareholder ratio (Einbringungsvertrag). The contribution agreement and the capital
increase by way of contribution in kind (Sachkapitalerhöhung) were approved by an
extraordinary shareholders’ meeting of the Company on 26 April 2016 and have been
registered with the commercial register (Handelsregister) of the local court (Amtsgericht)
of Cologne on 12 May 2016.
On 25 January 2016, DECHENG PRC declared the dividend in the amount of
RMB 85,000,000 (approx. EUR 12,292,000) to its shareholder DECHENG HK. On 5
February 2016, DECHENG HK received RMB 76,500,000 (approx. EUR 11,063,000) net
of 10% withholding tax and paid the same amount directly to its sole shareholder Mr. ZHU
Xiaofang.
Apart from the abovementioned, there have been no significant changes in DECHENG’s
financial or trading position between 31 December 2015 and the date of this Prospectus.
Page 95
11.
SELECTED FINANCIAL INFORMATION
The Company was founded as a shelf company (Vorratsgesellschaft) on 31 July 2013
and incorporated by registration in the commercial register (Handelsregister) of the local
court (Amtsgericht) of Munich on 13 February 2014. The Company disclosed the
economic refoundation (wirtschaftliche Neugründung) to the commercial register
(Handelsregister) of the local court (Amtsgericht) of Cologne following the acquisition of
all shares in the Company by Mr. ZHU Xiaofang.
The business of DECHENG is mainly carried out by DECHENG PRC, which is an indirect
wholly owned subsidiary of the Company. All shares in DECHENG PRC are directly held
by DECHENG HK, which has been incorporated on 15 August 2014. The Company is the
sole shareholder of DECHENG HK.
DECHENG PRC was during the reporting period actually the only operating subsidiary of
DECHENG. Hence in order to present the business, financial condition and result of
operations for the last three financial years in relation to the business of DECHENG, the
Company has prepared single entity financial statements of DECHENG PRC as at and
for the financial years ended on 31 December 2013 (“FY 2013”), 31 December 2014 (“FY
2014”) and 31 December 2015 (“FY 2015”) in accordance with International Financial
Reporting Standards and International Accounting Standards and Interpretations as
endorsed for application in the EU (“IFRS”) and consolidated financial statements of
DECHENG HK as at and for the financial year ended on 31 December 2015 in
accordance with IFRS (together the “Annual Financial Statements”).
The Annual Financial Statements were audited by MSW GmbH.
Furthermore, the Company has prepared its single entity financial statements in
accordance with IFRS for the financial year ended on 31 December 2015 with respective
comparative information. For the financial years ended on 31 December 2013,
31 December 2014 and 31 December 2015 the Company has also prepared its single
entity financial statement in accordance with the German Commercial Code
(Handelsgesetzbuch). These financial statements were audited by MSW GmbH.
The selected financial information, which is reflected in this section, was derived from the
aforementioned financial statements for the FY 2013, FY 2014 and FY 2015.
The aforementioned financial statements of DECHENG are, apart from the separate
financial statement of the Company for the financial years ended on 31 December 2013,
31 December 2014 and 31 December 2015 in accordance with the German Commercial
Code (Handelsgesetzbuch), not the legally required financial statements of the Company,
but have been prepared on a voluntary basis for the purpose of this Offering. The
purpose of these financial statements is to put the investor in the position to better
compare the development of the business, financial condition and the results of
operations of DECHENG over the last three years.
The following figures were subject to rounding adjustments that were carried out
according to established commercial standards. As a result, the figures stated in a table
may not exactly add up to the total values that may also be stated in the table.
Page 96
Selected Financial Statement Data
DECHENG PRC
All figures below are taken from the financial statements of DECHENG PRC.
2013
Selected Statement of Comprehensive Income
Revenue
Cost of sales
Gross profit
Other income
Finance result
Profit before tax
Tax expense
Profit after tax
38,785,440
-25,963,199
12,822,241
44,979
-194,440
-1,253,043
-151,665
11,268,072
-2,808,327
8,459,745
2014
(in EUR)
(audited)
49,442,710
-31,769,960
17,672,750
177,079
-223,038
-1,120,619
-165,551
16,340,621
-4,024,735
12,315,886
2015
69,759,801
-43,054,665
26,705,136
250,037
-285,342
-2,475,675
-178,697
24,015,459
-6,162,269
17,853,190
31 December
2013
2014
(audited)
2015
3,095,824
17,839,728
20,935,552
13,687,000
0
7,248,552
7,248,552
20,935,552
2,998,502
28,735,406
31,733,908
20,874,842
0
10,859,066
10,859,066
31,733,908
2,718,334
41,147,674
43,866,008
30,961,867
0
12,904,141
12,904,141
43,866,008
2013
2014
(audited)
2015
Selected Statement of Cash Flow
11,268,072
16,340,621
24,015,459
11,867,290
16,961,237
24,652,465
Net cash for investing activities
Net cash for financing activities
7,656,731
-124,720
-4,118,887
12,672,052
40,920
-6,210,519
19,051,609
75,727
-8,068,011
Net (decrease)/increase in cash and cash equivalents
3,413,124
6,502,453
11,059,325
11,306,180
19,867,121
31,748,448
Selected Statement of Financial Position
Non-current assets
Current assets
Total assets
Total equity
Non-current liabilities
Current liabilities
Total liabilities
Total Equity and liabilities
Cash and cash equivalents at end of the financial year/period
31. Dezember
Other selected Financial Data
EBIT(2)
EBIT margin(3)
Net profit margin(4)
Number of employees at end of the financial year/period
2013
2014
(unaudited) (1)
2015
11,448,308
29.5%
21.8%
112
16,550,555
33.5%
24.9%
121
24,274,326
34.8%
25.6%
123
(1) Unaudited information provided by the Company.
(2) EBIT = Profit before taxation plus finance cost.
(3) EBIT divided by revenue multiplied by 100.
(4) Profit after Tax (Net Profit) for the period divided by revenue multiplied by 100.
Page 97
All figures below are taken from the IFRS financial statements of Decheng Technology
AG.
ASSETS
31 Dec. 2015
EUR
31 Dec. 2014
EUR
12,500
12,500
12,500
12,500
31 Dec. 2015
EUR
31 Dec. 2014
EUR
50,000
50,000
(37,500)
(37,500)
12,500
12,500
12,500
12,500
Current assets
Equity
Issued capital
On 2 March 2016, the outstanding share capital in the amount of EUR 37,500 was fully
paid in.
Page 98
12.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of the financial condition and results
of operations of DECHENG should be read in conjunction with the other information in
this Prospectus, including the financial statements and the related notes which are
reproduced in this Prospectus starting on page F-1 and Section 11 „Selected Financial
Information“. The discussion and analysis regarding the key factors affecting results of
operations contains some forward-looking statements that are subject to known and
unknown risks and uncertainties. The actual results and the timing of events could differ
materially from those expressed or implied by such forward-looking statements as a result
of various factors, including those discussed below and elsewhere in this Prospectus,
particularly in Section 3 “Risk Factors”.
The financial and other data is presented in the text below primarily in millions of Euro
and in the tables below in thousands of Euro and is commercially rounded to one decimal
point. The percentages stated in the text and tables below have also been commercially
rounded to one decimal point. As a result, the figures shown in the text and tables below
may not add up exactly to the totals given, and the percentages may not add up to 100%.
12.1 Overview of Business
DECHENG is a Chinese polyurethane resin producer. Polyurethane resins of DECHENG
are used to add properties to customers’ textiles and leathers such as waterproofness
and flame resistance as well as a range of other enhancing features.
Polyurethane resin oil based products as produced by DECHENG are (i) single as well as
two liquid type polyurethane resins for dry fabrics, (ii) polyurethane produced by wet
winding technology and (iii) polyurethane resin for fiber coating. DECHENG produces its
polyurethane resins from methylene diphenyl diisocyanate (MDI), and toluene
diisocyanate (TDI), with polyester polypol mixes. DECHENG also produces bridging
agents and accelerator additives which are combined with DECHENG’s polyurethane
resins by leather and textile customers.
DECHENG’s resin products are used as product enhancement mainly in the textile and
leather industry. Applications for the textile industry are in particular outdoor supplies,
waterproof jackets and windbreakers, fast dry clothing, tents, backpacks, sleeping bags
and mats. Applications for the leather industry are in particular leather products such as
leather sofas, leather clothing, shoes and footballs. The bridging agents and accelerator
additives, which are produced, serve the purpose of strengthening the functions of the
resin products, e.g. increasing the stickiness to textiles or facilitating the dryness of the
resin.
DECHENG sells its products only in the Chinese market, mainly directly to textile and
leather manufacturers in Fujian, Guangdong, Zhejiang, Jiangsu, Guangxi and Shanghai.
The revenue generated from polyurethane resin and additives products increased from
EUR 38.79 million in FY 2013, to EUR 49.44 million in FY 2014 as well as to EUR 69.76
million in FY 2015, representing a compounded annual growth rate (“CAGR”) of 34.11%.
DECHENG’s profit after tax for FY 2013, FY 2014 and FY 2015 was EUR 8.46 million,
EUR 12.32 million as well as EUR 17.85 million respectively, representing a CAGR of
45.27%.
DECHENG’s operating facilities are located at Pu’an Leather Center, Quangang District,
Quanzhou City, Fujian Province, Postal Code 362801. DECHENG’s production facilities
have generated a total output of approx. 25.47 million kilogram (“kg”) of polyurethane
resin and 0.64 million kg of additives in FY 2015.
As at 31 December 2015, DECHENG employed 123 employees. Until the date of this
Prospectus, no material change in the number of employees has occurred.
Please refer to Section 13 of this Prospectus on “Business Activities of DECHENG” for
further details.
Page 99
12.2 Key Factors affecting Results of Operations
The Company believes that the following factors had and/or will continue to have a
material effect on its results of operation and financial condition:
12.2.1
Growth of the PRC economy
DECHENG mainly sells its products to domestic textile and leather productionoriented enterprises which use DECHENG’s products for the manufacturer of
their own products. Therefore the success of the business of DECHENG
indirectly depends on the condition and growth of the PRC consumer market,
which, in turn, depends on worldwide economic conditions and individual
income levels and their impact on levels of consumer spending. The slowdown
of GDP growth rates in the PRC in FY 2013, FY 2014 and FY 2015 which is,
amongst others, due to the development of the global economy, could lead to a
toughened competition and increased pressure on prices. There are many
factors affecting the level of consumer spending, including but not limited to
interest rates, currency exchange rates, recession, inflation, deflation, political
uncertainty, taxation, stock market performance, unemployment level and
general consumer confidence. There can be no assurance that historical growth
rates of the PRC economy will continue or that projected growth rates of the
PRC economy and the PRC consumer market will be realized. Any future
slowdowns or declines in the PRC economy or consumer spending may
materially and adversely affect DECHENG’s business and its net assets,
12.2.2
Competition in the PRC market
The Company believes that the polyurethane resin industry is highly
competitive. Its major competitors include international and domestic producers
and/or processors. They compete with each other based on, amongst other
things, product quality, specification, price and brand image. Competitors may
have significantly greater financial, technical and marketing resources, stronger
brand name recognition and a larger existing customer base than DECHENG.
In addition, competitors may have the ability to respond more quickly to new or
emerging technologies, may adapt more quickly to changes in customer
requirements and may devote greater resources to the development, promotion
and sales of their products than DECHENG.
There is no assurance that DECHENG will be able to continue competing
successfully against present and future competitors. The Company believes
that important factors to achieving success in the polyurethane industry include
achieving consistent product renewal and maintaining the quality of products
and services and maintaining customer loyalty by cultivating long-term customer
relationships. If DECHENG is unable to attain these factors, it may lose its
customers to its competitors. Increased competition may also force DECHENG
to lower its prices.
If DECHENG is unable to compete effectively with existing or new competitors
in the future, in particular in light of the changing and competitive market
environment, DECHENG’s business and its net assets, financial condition and
12.2.3
Changes in raw material prices
The costs of raw materials accounted for approximately 92.99%, 93.13% and
92.61% of DECHENG’s total costs of goods sold for FY 2013, FY 2014 and
FY 2015 respectively, which included in particular dimethylformamide (“DMF”)
and methylene diphenyl diisocyanate (“MDI”) as well as pure adipic acid (“AA”).
As DECHENG does not have long-term arrangements with its suppliers for such
key raw materials, in particular the annual supply contract does not contain any
pricing for the period due to the volatility of crude oil price, there is no assurance
that DECHENG will be able to obtain, or continue to obtain, quality raw
materials at competitive prices. Although DECHENG’s raw materials turnover
Page 100
days are maintained at 15.4 days, the continuous and timely supply of quality
raw materials is, however, the basis for quality products. Market prices of such
raw materials may fluctuate due to changes in the level of global demand and
supply. Any substantial increase in the prices of these raw materials is likely to
have a material adverse impact on DECHENG’s production costs. In the event
of any significant increase in the costs of such materials and should DECHENG
be unable to hedge the risk or to pass on such costs to DECHENG’s customers
or do so on a timely basis, DECHENG’s business and its net assets, financial
condition and results of operations may be materially and adversely affected.
12.2.4
Effect of currency fluctuations
The Annual Financial Statements of DECHENG for the period under audit were
prepared in EUR and the Company's future consolidated financial statements
will be prepared in EUR, while DECHENG’s operating currency is RMB, which
is currently not a freely convertible currency. A devaluation of RMB versus EUR
would therefore have an adverse foreign currency translation effect on
DECHENG’s consolidated financial statements. As the value of RMB is
controlled by PRC authorities, it is possible that foreign exchange policies of the
PRC government could have a significant impact on foreign currency exchange
rates. An increase in the value of RMB against EUR would therefore increase
DECHENG’s profitability measured in EUR while alternatively a decrease in the
value of RMB against EUR would decrease DECHENG’s profitability measured
in EUR. DECHENG has in the past not bought and will not in the future buy any
hedging instruments against a devaluation of the RMB.
12.2.5
Ability to keep up with the latest research and development and provide
products meeting customers’ demand and requirements
DECHENG’s customer may demand products with certain new/improved
functionality or environmentally friendly materials, such as solvent-free and
waterborne PU resin, which DECHENG currently cannot produce. As a result,
customer may order products from competitors, if the R&D department of
DECHENG is not able to maintain and meet the demand of the customers.
Such failures could lead to lower volumes of orders of customers or even losing
important customers. Not fulfilling the expectations of the customers and the
failure to gain market acceptance of products introduced in the future may have
an adverse impact on DECHENG’s net assets, financial conditions and results
of operations.
12.3 Results of Operations
The following table presents the income statement data of DECHENG PRC for the years
ended 31 December 2013, 31 December 2014 and 31 December 2015, which was taken
from the audited Annual Financial Statements.
Statement of Comprehensive Income:
Revenue
Cost of sales
Gross profit
Other income
Finance cost
Profit before tax
2013
2014
2015
EUR'000
EUR'000
EUR'000
38,785
49,443
69,760
(25,963)
(31,770)
(43,055)
12,822
17,673
26,705
45
177
250
(194)
(223)
(285)
(1,253)
(1,121)
(2,475)
(152)
(166)
(179)
11,268
16,341
24,015
Page 101
Tax expenses
Net profit for the financial year
12.3.1
(2,808)
(4,025)
(6,162)
8,460
12,316
17,853
Revenues
DECHENG’s core products can be classified into 5 categories, namely two
liquid type polyurethane resin for dry fabrics, Polyurethane produced by the wet
winding technology, Polyurethane resin for fiberic coating, Single liquid type
polyurethane resin for dry fabrics and coating additives.
Sales analysis by product
Revenue
2013
2014
2015
EUR '000
% EUR '000
% EUR '000
%
Sales analysis by products
Two liquid type polyurethane resin for dry fabrics
5,008
12.91%
7,273
14.71%
11,156
15.99%
Polyurethane produced by the wet winding technology
9,866
25.44%
7,544
15.26%
7,021
10.06%
13,782
35.53%
19,733
39.91%
29,543
42.35%
8,960
23.10%
12,389
25.06%
18,660
26.75%
Polyurethane resin for fiberic coating
Single liquid type polyurethane resin for dry fabrics
Coating additives
1,170
3.02%
2,505
5.07%
3,381
4.85%
38,785
100.00%
49,443
100.00%
69,760
100.00%
Comparison of FY 2013, FY 2014and FY 2015
Revenue increased by 27.48% and 41.09% in FY 2014 and FY 2015
respectively. All of DECHENG's products have recorded significant increase in
revenue over the last three years except for the polyurethane produced by the
wet winding technology.
Polyurethane resin for fiberic coating is DECHENG’s top sales contributor,
accounted for 35.53%, 39.91% and 42.35% of the total sales in FY 2013,
FY 2014 and FY 2015 respectively. It has recorded an increase of 43.19% in
sales in FY2014 and then a further increase of 49.71% in sales in FY2015. The
increase in sales in FY 2014 compare to FY 2013 is mainly due to the increase
in sales volume by 39.52% and sales price by 2.63% while the increase in sales
in FY 2015 compare to FY 2014 is mainly due to the increase in sales volume
by 40.85% and sales price by 6.29%.
Single liquid type polyurethane resin for dry fabrics accounted for 23.10%,
25.06% and 26.75% of total sales in FY 2013, FY 2014 and FY 2015
respectively. It has recorded an increase of 38.27% in sales in FY 2014 and
then a further increase of 50.62% in sales in FY 2015. The increase in sales in
FY 2014 compared to FY 2013 is mainly due to the increase in sales volume by
35.98% and sales price by 1.68% while the increase in sales in FY 2015
compared to FY 2014 is mainly due to the increase in sales volume by 32.53%
and sales price by 13.65%.
Two liquid type polyurethane resin for dry fabrics accounted for 12.91%, 14.71%
and 15.99% of total sales in FY 2013, FY 2014 and FY 2015 respectively. It has
recorded an increase of 45.23% in sales in FY 2014 and then a further increase
of 53.40% in sales in FY 2015. The increase in sales in FY 2014 compared to
FY 2013 is mainly due to the increase in sales volume by 37.11% and sales
price by 5.92% while the increase in sales in FY 2015 compared to FY 2014 is
mainly due to the increase in sales volume by 45.59% and sales price by 5.36%.
Coating additives accounted for 3.02%, 5.07% and 4.85% of total sales in
FY 2013, FY 2014 and FY 2015 respectively. It has recorded an increase of
114.04% in sales in FY 2014 and then a further increase of 34.99% in sales in
FY 2015. The increase in sales in FY 2014 compared to FY 2013 is mainly due
to the increase in sales volume by 115.07% and slight decrease of sales price
by 0.48% while the increase in sales in FY 2015 compared to FY 2014 is mainly
due to the increase in sales volume by 8.31% and sales price by 24.63%.
Page 102
The main reason for the increase in sales for the past 3 years for the 4 products
above is a successful research and development, proven business model
coupled with good customer feedback on DECHENG's products.
Polyurethane produced by the wet winding technology accounted for 25.44%,
15.26% and 10.06% of total sales in FY 2013, FY 2014 and FY 2015
respectively. It has recorded a decrease of 23.54% in sales in FY 2014 and
then a further decrease of 6.93% in sales in FY 2015. The main reason for the
decrease in sales for the past 3 years is due to the management strategy to
reduce emphasis on this product as more competitors are producing this
product and the selling price is getting lower in the market.
Sales analysis by province
2013
2014
2015
EUR '000
% EUR '000
% EUR '000
%
Fujian
17,634
45.47%
23,010
46.54%
33,190
47.58%
Guangdong
10,840
27.95%
13,395
27.09%
15,876
22.76%
9,895
25.51%
12,411
25.10%
18,968
27.19%
Shanghai
417
1.07%
464
0.94%
607
0.87%
Zhejiang
-
0.00%
163
0.33%
590
0.85%
Guangxi
-
0.00%
-
0.00%
529
0.76%
100.00%
69,760
100.00%
Jiangsu
38,785
100.00%
49,443
Comparison of FY 2013, FY 2014 and FY 2015
Currently, DECHENG sells its products to textile and leather manufacturers in 6
provinces in China, namely Fujian, Guangdong, Jiangsu, Shanghai, Zhejiang
and Guangxi. DECHENG's top 3 provinces by sales value are Fujian,
Guangdong and Jiangsu. When combined, they accounted for 98.93%, 98.73%
and 97.53% of the total sales for FY 2013, FY 2014 and FY 2015 respectively.
12.3.2
Cost of Sales
The main components of DECHENG’s cost of sales are raw materials, staff
costs, manufacturing overhead and taxes.
The costs of sales for the period under review are as follows:
Raw material
Staff cost
Manufacturing overhead
Taxes
2013
2014
2015
EUR '000
% EUR '000
% EUR '000
%
24,143
92.99%
29,586
93.13%
39,871
92.61%
510
1.96%
610
1.92%
852
1.98%
1,020
3.93%
1,197
3.77%
1,724
4.00%
290
1.12%
376
1.18%
607
1.41%
25,963
100.00%
31,770
100.00%
43,055
100.00%
Cost of sales increased by 22.37% and 35.52% in FY 2014 and FY 2015
respectively which is in line with the increase in sales of 27.48% and 41.09% in
FY 2014 and FY 2015 respectively.
Raw material cost, the single largest cost component, accounted for 92.99%,
93.13% and 92.61% of the cost of sales in FY 2013, FY 2014 and FY 2015
respectively. It has increased by 22.54% and 34.76% in FY 2014 and FY 2015
in line with the increase in sales.
Page 103
Manufacturing overhead, the second largest cost component, accounted for
3.93%, 3.77% and 4.00% of the cost of sales in FY 2013, FY 2014 and FY 2015
respectively. It has increased by 17.37% and 43.95% in FY 2014 and FY 2015
in line with the increase in sales.
Staff cost, the third largest cost component, accounted for 1.96%, 1.92% and
1.98% of the cost of sales in FY 2013, FY 2014 and FY 2015 respectively. It
has increased by 19.60% and 39.72% in FY 2014 and FY 2015 in line with the
increase in sales.
Raw material purchases
2013
2014
2015
Raw material analysis
(*)
EUR
%
EUR
%
EUR
%
DMF (S-100)
5,634,168
23.23%
5,934,465
20.00%
8,123,555
20.86%
MDI (I-250)
3,772,424
15.55%
4,484,667
15.11%
5,196,124
13.34%
AA (A-1000)
2,915,010
12.02%
2,971,294
10.01%
3,993,193
10.25%
PE-20(PO-3020)
1,214,394
5.01%
1,853,467
6.24%
2,282,614
5.86%
TOL (S-300)
981,421
4.05%
1,807,083
6.09%
2,098,277
5.39%
Methyl Formate (S1000)
883,048
3.64%
1,141,618
3.85%
1,393,407
3.58%
1.4BG
1,006,785
4.15%
923,769
3.11%
1,271,055
3.26%
1,294,063
5.33%
1,608,334
5.42%
1,230,751
3.16%
OK-412 (MA-900)
336,705
1.39%
621,414
2.09%
846,306
2.17%
MEG (DO-2062)
554,682
2.29%
511,353
1.72%
784,126
2.01%
Others
5,665,007
23.35%
7,821,880
26.35%
11,730,859
30.12%
24,257,706
100.00%
29,679,344
100.00%
38,950,269
100.00%
PTMEG-2000
3010)
(PO-
(*) DMF = Dimethylformamide, AA = Pure Adipic Acid, MDI = Methylene Diphenyl Diisocyanate, PE20 = Polyethylene Glycol, PTMEG= Polytetramethylene Ether Glycol, TOL = Toluene, 1.4BG =
1.4 Butanediol, PTMEG-2000 = Polytetramethylene Ether Glycol, OK-412 = Acematt, MEG =
Ethylene Glycol.
Purchase of DMF, the single largest raw material component, accounted for
23.23%, 20.00% and 20.86% of the total raw material purchases for FY 2013,
FY 2014 and FY 2015 respectively. It has increased by 5.33% and 36.89% in
FY 2014 and FY 2015 respectively. DMF are used as raw material for the
production of all of DECHENG's products. The increase of 36.89% in FY 2015 is
mainly due to the increase in usage for the production of two liquid type
polyurethane resin for dry fabrics, polyurethane resin for fiberic coating and
single liquid type polyurethane resin for dry fabrics.
Purchase of MDI, the second largest raw material component, accounted for
FY 2014 and FY 2015 respectively. MDI are used as raw material for the
production of all of DECHENG's products.
Page 104
Purchase of AA, the third largest raw material component, accounted for
FY 2014 and FY 2015 respectively. AA is used as raw material for the
production of all of DECHENG's products. The increase of 34.39% in FY 2015
is mainly due to the increase in usage for the production of two liquid type
polyurethane resin for dry fabrics, polyurethane resin for fiberic coating and
single liquid type polyurethane resin for dry fabrics.
12.3.3
Gross profit and gross profit margin
The following tables show a breakdown of gross profit and gross profit margin
generated from different business segments for the past three years ended 31
December 2013, 2014 and 2015.
Gross Profit
2013
2014
EUR '000
%
EUR '000
2015
%
EUR '000
%
1,631
12.72%
2,573
14.56%
4,176
3,043
23.73%
2,478
14.02%
2,490
9.33%
4,749
37.04%
7,221
40.86%
11,728
43.92%
3,043
23.73%
4,527
25.61%
7,156
26.79%
356
2.78%
873
4.94%
1,155
4.32%
12,822
100.00%
17,673
100.00%
26,705
100.00%
Coating additives
15.64%
Gross profit has increased by 37.83% and 51.11% in FY 2014 and FY 2015
respectively in line with the increase in revenue of 27.48% and 41.09% in
Polyurethane resin for fiberic coating is the top contributor to DECHENG's gross
profit. It accounted for 37.04%, 40.86% and 43.92% in FY 2013, FY 2014 and
FY 2015 respectively. Its gross profit has increased by 52.05% and 62.40% in
FY 2014 and FY 2015 in line with the increase of sales of polyurethane for
fiberic coating by 43.19% and 49.71% in FY 2014 and FY 2015 respectively.
Single liquid type polyurethane resin for dry fabrics is the second contributor to
DECHENG's gross profit. It accounted for 23.73%, 25.61% and 26.79% in
FY 2013, FY 2014 and FY 2015 respectively. Its gross profit has increased by
48.75% and 58.08% in FY 2014 and FY 2015 in line with the increase of sales
of single liquid type polyurethane for dry fabrics by 38.27% and 50.62% in
Two liquid type polyurethane resin for dry fabrics is the third contributor to
DECHENG's gross profit. It accounted for 12.72%, 14.56% and 15.64% in
FY 2013, FY 2014 and FY 2015 respectively. Its gross profit has increased by
57.78% and 62.32% in FY 2014 and FY 2015 in line with the increase of sales
of two liquid type polyurethane resin for dry fabrics by 45.23% and 53.40% in
Gross Profit Margin:
GP Margins
2013
2014
2015
32.56%
35.38%
37.44%
30.85%
32.85%
35.47%
34.46%
36.60%
39.70%
33.96%
36.54%
38.35%
Coating additives
30.42%
34.86%
34.15%
Total Gross Profit Margin
33.06%
35.74%
38.28%
Page 105
DECHENG has recorded a gross profit margin of 33.06%, 35.74% and 38.28%
in FY 2013, FY 2014 and FY 2015 respectively. All of DECHENG's products
enjoyed a steady increase in GP margin in FY 2014 and FY 2015 except for
coating additives which has stabilized at around 34.15% in FY 2015. The
increase in GP margin in most of DECHENG's products in FY 2014 and
FY 2015 is mainly due to the successful research and development, proven
business model coupled with good customer feedback on DECHENG's
products.
12.3.4
Other income
Other income consists of government grants and rental income.
2013
EUR '000
Other income
12.3.5
2014
EUR '000
45
2015
EUR '000
177
250
Selling and Distribution
Staff salaries and bonuses
Advertisement
Others
2013
EUR '000
148
12
34
%
2014
EUR '000
75.98%
6.32%
17.71%
172
11
40
194 100.00%
2015
EUR '000
%
77.10%
5.10%
17.79%
221
18
46
223 100.00%
%
77.54%
6.21%
16.26%
285 100.00%
Staff salaries and bonuses being the largest selling and distribution expenses
accounted for 75.98%, 77.10% and 77.54% in FY 2013, FY 2014 and FY 2015
respectively. The increase of 16.46% and 28.65% in FY 2014 and FY 2015 is
due to the increase in salaries and higher bonuses.
Advertisement expenses relate to billboard advertisement.
12.3.6
General and Administrative expenses
General and administrative expenses
Staff salaries and related cost
Depreciation
Amortisation of land use rights
Research and Development
Office related expenses
Property tax and quit rent
Others
2013
EUR '000
%
2014
EUR '000
%
2015
EUR '000
%
575
49
8
287
57
53
224
45.89%
3.90%
0.62%
22.90%
4.57%
4.22%
17.90%
650
53
8
74
61
53
222
57.99%
4.75%
0.70%
6.57%
5.44%
4.75%
19.79%
904
54
9
666
78
63
701
36.53%
2.19%
0.37%
26.91%
3.14%
2.54%
28.32%
1,253 100.00%
1,121 100.00%
2,476 100.00%
General and administrative expenses decreased by 10.57% in FY 2014 and
increased by 120.92% in FY 2015. The decrease of general and administrative
expenses in FY 2014 is mainly due to the lower research and development
expenses incurred while the increase in general and administrative expenses in
FY 2015 is mainly due to higher staff salaries and related costs, research and
development expenses and professional fees.
Staff salaries and related costs consist mainly of salaries, bonuses and social
insurance. It accounted for 45.89%, 57.99% and 36.51% of the general and
Page 106
administrative expenses in FY 2013, FY 2014 and FY 2015 respectively. The
increase of 13.02% in FY 2014 and 39.16% in FY 2015 is due to an increase in
salaries, higher bonuses and social security insurance.
Research and development expenses relate to the research and development
fee incurred with our research partners such as Quangang Petrochemical
Research Institute and Fujian Material Structure Institute. It accounted for
22.90%, 6.57% and 26.90% of the general and administrative expenses in
FY 2013, FY 2014 and FY 2015 respectively. The decrease of 74.53% in
FY 2014 is mainly due to the fact that no new agreements were concluded with
the university/research centers while the increase in research and development
expenses in FY 2015 is mainly due to a new agreement being entered with
Fujian Material Structure Institute.
Professional fees for auditors, lawyers, bank institutions and other consultants
in relation to this Offering and the admission of the Company’s shares to the
Frankfurt Stock Exchange amounting to EUR 0,435 million were charged to
FY 2015.
12.3.7
Finance result
Finance result relates to interest expenses less interest income. The weighted
average interest rates are 6.45%, 6.28% and 6.01% in FY 2013, FY 2014 and
FY 2015 respectively.
Interest expenses
Interest income
Finance result
2013
2014
2015
EUR '000
EUR '000
EUR '000
-180
-210
-259
29
44
80
-152*
-166
-179
*due to rounding-up
12.3.8
Profit before taxation has increased by 45.02% and 46.97% in FY 2014 and
FY 2015 respectively in line with the increase in sales and gross profit.
12.3.9
2013
EUR '000
2014
EUR '000
2015
EUR '000
11,268
16,341
24,015
Profit
taxation
has increased by 45.02% and 49.63% in FY2014 and FY2015 respectively in line with the
Income
taxbefore
and tax
rates
DECHENG’s profit before taxation was solely derived from China and subject to
a tax rate of 25% under the tax law of China. However, due to certain
calculations as required under the tax law, the actual income tax incurred may
be slightly different from the standard rate of 25%. The average tax rate is
24.92%, 24.63% and 25.66% in FY 2013, FY 2014 and FY 2015 respectively.
Taxation
Tax rate
2013
EUR '000
2014
EUR '000
2015
EUR '000
11,268
2,808
24.92%
16,341
4,025
24.63%
24,015
6,162
25.66%
Page 107
12.4 Balance Sheet Data
2013
EUR'000
2014
EUR'000
2015
EUR'000
2,782
314
3,096
2,653
346
2,999
2,363
355
2,718
Current assets
Inventories
Trade receivables
Other receivables
Cash and bank balances
Total current assets
1,965
4,493
76
11,306
17,840
2,251
6,618
19,867
28,735
1,377
7,786
236
31,748
41,148
Total assets
20,936
31,734
43,866
Equity and Liabilities
Equity
Equity attributable to owner of the Company
Share capital
Retained earnings
Foreign exchange reserve
Statutory reserve
Total equity
5,763
6,879
(328)
1,373
13,687
5,763
10,527
1,892
2,694
20,875
5,763
19,331
2,802
3,065
30,962
Liabilities
Current liabilities
Trade payables
Other payables
Tax payable
Borrowings
Amount due to director
Total current liabilities
2,542
1,050
712
2,945
7,249
3,664
1,984
1,220
3,992
10,859
2,601
4,201
1,539
4,209
355
12,904
Total liabilities
7,249
10,859
12,904
20,936
31,734
43,866
Assets
Non-current assets
Property, plant and equipment
Prepaid land lease payment
Total non-current assets
Total Equity and Liabilities
Page 108
12.4.1
Non-current assets
Non-current assets comprise of property, plant and equipment as well as
prepaid land lease payment.
Net carrying amount
Plant and
Buildings Machineries
EUR'000
EUR'000
31 December 2013
31 December 2014
31 December 2015
1,566
1,638
1,592
770
588
392
Motor
Pipe-line
Office
Vehicles equipment Equipment Renovation
EUR'000
EUR'000
EUR'000
EUR'000
99
76
44
7
4
1
73
61
50
267
286
284
Total
EUR'000
2,782
2,653
2,363
As 31 December FY 2013, FY 2014 and FY 2015, net carrying amount of the
property, plant and equipment amounted to EUR 2.782 million, EUR 2.653
million and EUR 2.363 million respectively. At 31 December FY 2015, property,
plant and equipment comprises mainly of buildings of EUR 1.592 million, plant
and machineries of EUR 0.392 million, motor vehicles of EUR 0.044 million,
office equipment of EUR 0.050 million, renovation of EUR 0.284 million and
pipe-line equipment of EUR 0.001 million.
Prepaid land lease payments
Prepaid land lease payment relates to 2 parcels of lands acquired in FY 2004.
The decrease over the years is due to the amortization charge.
12.4.2
Current assets
Inventories
Consumables
Raw materials
Finished goods
Work in progress
Inventories turnover days *
2013
EUR '000
2014
EUR '000
2015
EUR '000
11.51
1,306.32
608.92
37.81
26.04
1,327.06
897.59
-
60.51
1,000.13
316.82
-
1,965
2,251
1,377
27.4
24.2
15.4
(*) For FY 2013, FY 2014 and FY 2015, inventory turnover days are calculated using the formula:
(average inventories/cost of sales) × 365 days.
Inventories amounted to EUR 1.965 million, EUR 2.251 million and EUR 1.377
million at end of FY 2013, FY 2014 and FY 2015 respectively. The increase in
inventories by 14.56% in FY 2014 is mainly due to the increase in cost of sales
while the decrease in inventories by 38.80% in FY 2015 is mainly due to the
early deliveries of finished goods to the customers.
Inventories turnover days stood at 27.4 days, 24.2 days and 15.4 days in
FY 2013, FY 2014 and FY 2015 respectively. The decrease of 3.2 days in
FY 2014 as compared to FY 2013 is due to higher cost of sales while the
decrease of 8.8 days in FY 2015 as compared to FY 2014 is due to a lower
number of raw materials and finished goods in hand.
Page 109
Trade receivables
2013
EUR '000
Trade receivables
Trade receivables turnover days *
2014
EUR '000
4,493
37.5
2015
EUR '000
6,618
41.0
7,786
37.7
(*) For FY 2013, FY 2014 and FY 2015, trade receivables turnover days = (average trade
receivables/revenue) × 365 days.
Trade receivables amounted to EUR 4.493 million, EUR 6.618 million and
EUR 7.786 million at end of FY 2013, FY 2014 and FY 2015 respectively. The
increase in the financial years under review is in line with the increase in
revenue.
Trade receivables turnover days stood at 37.5 days, 41.0 days and 37.7 days in
FY 2013, FY 2014 and FY 2015 respectively. The increase of 3.5 days in
FY 2014 as compared to FY 2013 is mainly due to a slower collection from
customers while the decrease of 3.3 days in FY 2015 as compared to FY 2014
is mainly due to better credit management.
Other receivables
2013
EUR '000
Other receivables
Advance payment to suppliers
Prepayment of expenses
2014
EUR '000
76
-
76
2015
EUR '000
74
161
236
Other receivables in FY 2015 comprise of advance payments to suppliers
amounting to EUR 0.074 million and prepayment of expenses to advisers in
relation to the IPO amounting to EUR 0.161 million.
2013
EUR '000
2014
EUR '000
2015
EUR '000
11,306
19,867
31,748
Comparison of FY 2013, FY2014and FY 2015
Cash and bank balances comprise of cash in the bank and cash on hand, which
together amounted to EUR 11.306 million, EUR 19.867 million and EUR 31.748
million at the end of FY 2013, FY 2014 and FY 2015 respectively. The increase
in cash and bank balances in FY 2014 and FY 2015 is mainly attributable to the
increase in net profit.
12.4.3
Shareholders’ Equity
Shareholders' Equity
Share capital
Retained earnings
Foreign Exchange Reserve
Statutory Reserve
2013
EUR '000
2014
EUR '000
2015
EUR '000
5,763
6,879
(328)
1,373
13,687
5,763
10,527
1,892
2,694
20,875
5,763
19,331
2,802
3,065
30,962
Page 110
Shareholders' equity accounted for EUR 13.687 million, EUR 20.875 million and
EUR 30.962 million at the end of FY 2013, FY 2014 and FY 2015 respectively.
The increase over the financial years under review is attributable mainly to the
rising net profit of the Group.
12.4.4
Current Liabilities
Trade payables
Trade payables
Trade payables turnover days *
#
2013
EUR '000
2014
EUR '000
2015
EUR '000
2,542
40.1
3,664
38.3
2,601
28.7
For FY 2013, FY 2014 and FY 2015, trade payables turnover days =
(average trade payables/purchases of raw materials) × 365 days.
(*)
Trade payables amounted to EUR 2.542 million, EUR 3.664 million and
Trade payables turnover days stood at 40.1 days, 38.3 days and 28.7 days in
FY 2013, FY 2014 and FY 2015 respectively. The decrease of 1.8 days in
FY 2014 as compared to FY 2013 is mainly due to faster payment to suppliers
while the decrease of 9.6 days in FY 2015 as compared to FY 2014 is mainly
due to continuing effort in improving the payment to suppliers.
Dividend paid
Dividend paid
2013
EUR '000
2014
EUR '000
2015
EUR '000
4,863
7,348
8,677
Dividend paid amounted to EUR 4.863 million, EUR 7.348 million and
EUR 8.677 million at end of FY 2013, FY 2014 and FY 2015 respectively.
Other payables
Other payables
Witholding tax on dividend payable
Non-trade payables
VAT payables
Bonus provision
Fuel provision
Audit fee provision
Accruals
2013
EUR '000
2014
EUR '000
2015
EUR '000
475
261
161
130
23
-
1,339
192
268
147
37
-
1,050
1,984
2,260
944
506
209
40
1
242
4,201
Withholding tax on dividend payable amounted to EUR 0.475 million,
EUR 1.339 million and EUR 2.260 million at the end of FY 2013, FY 2014 and
FY 2015 respectively. This relates to the withholding tax on the dividend paid to
the shareholder which has subsequently been paid to the tax authorities.
Non-trade payables amounted to EUR 0.261 million, EUR 0.192 million and
Non-trade payables in FY 2015 relate mainly to research and development
expenses amounting to EUR 0.155 million and accessories for the plant
amounting to EUR 0.507 million.
Page 111
VAT payables amounted to EUR 0.161 million, EUR 0.268 million and
The increase is in line with the increase in sales.
Bonus provision amounted to EUR 0.130 million, EUR 0.147 million and
The increase is in line with the increase of the company's performance.
Borrowings
2013
EUR '000
Borrowings
2,945
2014
EUR '000
3,992
2015
EUR '000
4,209
Borrowings accounted for EUR 2.945 million, EUR 3.992 million and EUR 4.209
million at the end of FY 2013, FY 2014 and FY 2015 respectively. This
borrowings bear interest rates ranging from 6.00% to 8.53% in FY 2013, 6.00%
to 6.30% in FY 2014 and 5.89% to 6.30% in FY 2015 and are secured by the
company's buildings and prepaid land lease payments, personal guarantees by
the company’s mayor shareholder and CEO, Mr. ZHU Xiaofang, and his wife
Ms. ZHU Yuling as well as by corporate guarantee provided by a third party.
Income tax payable
2013
EUR '000
Income tax payable
712
2014
EUR '000
1,220
2015
EUR '000
1,539
Income tax payable accounted for EUR 0.712 million, EUR 1.220 million and
12.5 Liquidity and Capital Resources
Net cash from/(used in) investing activities
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the financial year
Net effect of foreign exchange differences
Cash and cash equivalents at end of the financial year
2013
EUR '000
2014
EUR '000
2015
EUR '000
7,657
(125)
(4,119)
3,413
8,060
(167)
11,306
12,672
41
(6,211)
6,502
11,306
2,058
19,867
19,052
76
(8,068)
11,059
19,867
822
31,748
DECHENG recorded positive net cash from operating activities for the financial years
under review at EUR 7.657 million, EUR 12.672 million and EUR 19.052 million in
FY 2013, FY 2014 and FY 2015 respectively.
DECHENG recorded negative net cash from investing activities for FY 2013 at
EUR 0.125 million mainly due to acquisition of property, plant and equipment while it
recorded positive net cash from investing activities at EUR 0.041 million and EUR 0.076
million in FY 2014 and FY 2015 respectively mainly due to interest received.
DECHENG recorded negative cash from financing activities for the financial years under
review at EUR 4.119 million, EUR 6.211 million and EUR 8.068 million in FY 2013,
FY 2014 and FY 2015 respectively mainly due to the dividend paid amounting to
EUR 4.376 million, EUR 6.613 million and EUR 7.809 million respectively.
Page 112
12.6 Off-Balance Sheet and other Arrangements
DECHENG does not have any off-balance sheet obligations or transactions. There are no
other obligations or risks which were not reflected in the financial statements of
DECHENG’s entities or disclosed in the notes of the financial statements.
12.7 Basis of Preparation
DECHENG has prepared single entity financial statements of DECHENG PRC for the
years ended 31 December 2013, 31 December 2014 and 31 December 2015, which were
prepared in accordance with the provisions of the International Financial Reporting
Standards (IFRS) along with the interpretations of the International Financial Reporting
Interpretations Committee (IFRIC) as adopted in the EU.
DECHENG has prepared single financial statements for the Company in accordance with
IFRS for the financial year ended 31 December 2015 with respective comparative
information and in accordance with the German Commercial Code (Handelsgesetzbuch)
for the financial years ended 31 December 2013, 31 December 2014 and 31 December
2015.
12.8 Critical Accounting Policies
DECHENG has identified the following critical accounting policies which require its
management to make assumptions about matters that were uncertain at the time those
policies were applied and with respect to which the management could reasonably have
made different assumptions in the relevant period or with respect to which changes in the
assumptions were reasonably likely to occur from period to period or would have a
material impact on the presentation of DECHENG’s financial condition, changes in
financial conditions or results of operations.
For a detailed description of DECHENG’s critical accounting policies, see notes 2 and 3
to the Audited Financial Statements DECHENG PRC for the financial year ended 31
December 2013, 2014 and 2015, included in the Section 25 “Financial Information”.
12.8.1
Critical accounting estimates and judgment
Estimates and judgments are continually evaluated and are based on historical
experiences and other factors, including expectations of future events that the
Company believes might reasonably occur under specific circumstances.
DECHENG makes estimates and assumptions concerning the future. The
resulting accounting estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.
12.8.2
Functional and Foreign Currencies
The Company conducts its business predominately in the PRC and hence its
functional currency is in RMB.
The financial statements of the Company are presented in EUR as DECHENG
HK will be brought-in to the Company.
12.8.3
Key sources of estimation uncertainty
Useful Lives and Residual Values of Depreciable Assets
Property, plant and equipment are depreciated on a straight-line basis over their
estimated useful lives after taking consideration of residual value, which the
Company assesses at 35% of the initial cost. The Company estimates the
useful lives of property, plant and equipment to be within 5 to 20 years.
Changes in the expected level of usage and technological developments could
impact the economic useful lives and the residual value of these assets,
therefore future residual value and depreciation charges could be revised.
Page 113
Lease Prepayment
Lease prepayments represent prepayments of land use rights paid to the
various PRC land bureaus. Lease prepayments are carried at cost less
amortization and accumulated impairment losses. Amortization is recognized in
profit or loss on a straight-line basis over the period of the land use rights, which
are 50 years from the respective dates that they are available for use.
Inventories
Inventories are measured at the lowest of cost and net realizable value. Cost is
determined by weighted average method. The cost of finished goods and workin- progress comprise of raw materials, labor and other overheads that incurred
in bringing the inventories to their present location and condition. Net realizable
value is the estimated cost of the selling price in the ordinary course of business,
less the estimated cost of completion and the estimated costs necessary to
make the sale.
Trade and other Receivables
Trade and other receivables are recognized initially at fair value and
subsequently at amortized cost using the effective interest method, less any
impairment losses. An allowance for impairment of receivables is established
when there is objective evidence that the Company will not be able to collect all
amounts due according to the original terms of the receivables.
Liabilities and Interest Bearing Liabilities
Trade and other payables and term loan are classified as financial liabilities
measured at amortized cost, and are recognized initially at fair value and
subsequently at amortized cost using the effective interest method. Interestbearing liabilities are recognized initially at costs less attributable transaction
costs. Subsequent to initial recognition, interest-bearing liabilities are stated at
amortized cost with any difference between cost and redemption value being
recognized in profit or loss over the period of the borrowings on effective
interest basis.
Financial Liabilities
Financial liabilities within the scope of IAS 39 are classified as either financial
liabilities measured at amortized costs such as interest-bearing liabilities and
trade and other payables, or financial liabilities designated at fair value through
profit or loss.
Financial liabilities are derecognized if the Company’s obligations specified in
the contract expire or are discharged or cancelled.
Revenue Recognition
Provided it is probable that the economic benefits will flow to the Company and
the revenue and costs, if applicable, can be measured reliably, revenue is
recognized in the profit or loss as follows:
Sale of Goods
Revenue is recognized when goods are delivered to the customers’ premises or
collected by the customers at the Company’s premises which is taken to be the
point in time when the customer has accepted the goods and the related risks
and rewards of ownership.
Interest Income
Interest income is recognized on a time proportion basis using the effective
interest method.
Page 114
Government grants
Grants that compensate the Company for expenses incurred are recognized in
profit or loss as other income on a systematic basis in the same periods in
which the expenses are recognized.
12.8.4
Critical judgment made in applying accounting policies
Impairment of Loans and Receivables
The Group assesses at each reporting date whether there is any objective
evidence that a financial asset is impaired. To determine whether there is
objective evidence of impairment, the Group considers factors such as the
probability of insolvency or significant financial difficulties of the receivables and
default or significant delay in payments.
Where there is objective evidence of impairment, the amount and timing of
future cash flows are estimated based on historical loss experience for assets
with similar credit risk characteristics.
Income Tax
DECHENG has exposure to income tax arising from their operations in the PRC.
Significant judgment is required in determining the provision for income taxes.
There are also claims for which the ultimate tax determination is uncertain
during the ordinary course of business. The Group recognizes liabilities for
expected tax issues based on estimates of whether additional taxes will be due.
When the final tax outcome of these matters is different from the amounts that
were initially recognized, such differences will impact the income tax expense
and deferred tax provisions in the period in which such determination is made.
12.9 Additional Information from the Financial Statements of the Company
The single entity financial statement of the Company (formerly 49 Profi-Start
Vermögensverwaltungs AG) for the financial year ended on 31 December 2015 was
prepared under the German Commercial Code (Handelsgesetzbuch) and under IFRS.
The single entity financial statements of the Company for the period ended on 31
December 2013 and 31 December 2014 were prepared under the German Commercial
Code (Handelsgesetzbuch).
The single entity financial statements of the Company abovementioned are reproduced in
Section 25 of this Prospectus “Financial Information”.
The Company has not commenced any operations as of the end of 2015.
As at 31 December 2015 and 31 December 2014, total equity stood at EUR 12,500 and
EUR 12,500 respectively. The outstanding share capital in the amount of EUR 37,500
was paid in on 2 March 2016.
12.10 Additional Information from the Financial Statements of DECHENG HK
The consolidated financial statements of DECHENG HK ended on 31 December 2015
were prepared under IFRS.
The consolidated financial statements of DECHENG HK abovementioned are reproduced
in Section 25 of this Prospectus “Financial Information”.
As at 31 December 2015, total equity of DECHENG HK stood at EUR 30,960,743 and
DECHENG HK generated a profit after tax in the amount of EUR 17,765,185.
Page 115
13.
BUSINESS ACTIVITIES OF DECHENG
13.1 Overview
The Company is the ultimate holding company of DECHENG.
DECHENG is a Chinese polyurethane resin producer. Polyurethane resins of DECHENG
are used to add properties to customers’ textiles and leathers such as waterproofness
and flame resistance as well as a range of other enhancing features.
Polyurethane resin oil based products as produced by DECHENG are (i) single as well as
two liquid type polyurethane resins for dry fabrics, (ii) polyurethane produced by wet
winding technology and (iii) polyurethane resin for fiber coating. DECHENG produces its
polyurethane resins from methylene diphenyl diisocyanate (MDI), and toluene
diisocyanate (TDI), with polyester polypol mixes. DECHENG also produces bridging
agents and accelerator additives which are combined with DECHENG’s polyurethane
resins by leather and textile customers.
DECHENG’s resin products are used as product enhancement mainly in the textile and
leather industry. Applications for the textile industry are in particular outdoor supplies,
waterproof jackets and windbreakers, fast dry clothing, tents, backpacks, sleeping bags
and mats. Applications for the leather industry are in particular leather products such as
leather sofas, leather clothing, shoes and footballs. The bridging agents and accelerator
additives, which are produced, serve the purpose of strengthening the functions of the
resin products, e.g. increasing the stickiness to textiles or facilitating the dryness of the
resin.
DECHENG sells its products only in the Chinese market, mainly directly to textile and
leather manufacturers in Fujian, Guangdong, Zhejiang, Jiangsu, Guangxi and Shanghai.
The revenue generated from polyurethane resin and additives products increased from
EUR 38.79 million in FY 2013, to EUR 49.44 million in FY 2014 as well as to EUR 69.76
million in FY 2015, representing a compounded annual growth rate (“CAGR”) of 34.11%.
DECHENG’s profit after tax for FY 2013, FY 2014 and FY 2015 was EUR 8.46 million,
EUR 12.32 million as well as EUR 17.85 million respectively, representing a CAGR of
45.27%.
DECHENG’s operating facilities are located at Pu’an Leather Center, Quangang District,
Quanzhou City, Fujian Province, Postal Code 362801, PRC. DECHENG’s production
facilities have generated a total output of approx. 25.47 million kg of polyurethane resin
and 0.64 million kg of additives in FY 2015.
As at 31 December 2015, DECHENG employed 123 employees. Until the date of this
Prospectus, no material change in the number of employees has occurred.
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13.2 History of DECHENG
The most important milestones in the history of DECHENG are set out below:
2005

DECHENG plant with a built-up area of 19,267 square meters (“sqm”)
and 11 reaction kettles commenced operations. Annual production
capacity of polyurethane resin was 27,600 tons.

DECHENG increased its plant and facilities to 13 reaction kettles. Annual
production capacity of polyurethane resin amounted to 36,600 tons.

DECHENG established a polymer research and development center with
Fujian Material Structure Institute and established a polyurethane resin
research center with Quangang Petrochemical Research Institute.

Decheng Technology AG was incorporated (formerly 49 Profi-Start
Vermögensverwaltungs AG).

DECHENG has been awarded with the award “National High-tech
enterprise” and “Fujian Engineering and Technology Research Center of
Polyurethane Material”.

DECHENG obtained ISO14001 environmental management system
certification for related environmental management activities of the
production of synthetic leather with polyurethane resin from Beijing NCY
Certification Centre Co., Ltd.

DECHENG obtained ISO9001 quality management system certification
for the production of synthetic leather with polyurethane resin from Beijing
NCY Certification Centre Co., Ltd.

DECHENG carried out a joint research on “high permeability
polyurethane coating” with Fujian Provincial Economic and Information
Technology Commission.
2012
2013
2014
2015
13.3 Competitive strength
DECHENG considers itself as an advanced player in the Chinese polyurethane resin
market and believes that it is well positioned to benefit from the new direction of the
Chinese government to promote environmentally-friendly PU resin in the 13th Five Year
Plan.
Overall, the Company believes that the following competitive strengths are the main
drivers of its future growth:

Modern production technology
DECHENG’s production facilities are modern and comparable with industry leading
players. Its production facilities with a capacity of up to 36,600 tons are capable of
producing various polyurethane resins.

Strong R&D expertise
One of DECHENG’s main competencies is derived from scientific and
technological innovation. DECHENG is able to develop new products and enhance
existing products. Typically, DECHENG develops more than 10 new or enhanced
resin formulae per year. DECHENG also works closely with research institutes and
universities, such as Fujian Material Structure Institute and Quangang
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Petrochemical Research Institute to carry out researches such as on waterborne
PU and heat resistance, hydrolysis resistance, yellowing resistance, waterproof
and moisture permeable or flame-retardant resin.

Good working relationship with customers
DECHENG has established good working relationship with its customers. This
enables DECHENG to have a good understanding of their production requirements,
demand and workflow and hence allow DECHENG to better meet customers’
expectations and demands. DECHENG’s working relationship has also enabled
DECHENG to maintain customer loyalty as customer generally would prefer to
engage and retain the services of suppliers who are able to meet their production
requirements.

Strong marketing and sales team
DECHENG’s products are sold to more than 72 customers in 6 provinces/cities in
the PRC, namely Fujian, Guangdong, Zhejiang, Jiangsu, Guanxi and Shanghai.
DECHENG’s marketing and sales team comprises of 11 staff members and is led
by the Marketing Director, Mr. CHEN Shuo, who has more than 31 years of
experience in marketing and sales activities.

Dedicated and experienced management team
DECHENG is led by the Company’s chairman, Mr. ZHU Xiaofang, who has more
than 10 years of experience in the polyurethane industry. He is supported by
DECHENG’s general manager Mr. ZHU Xiaohua also having more than 10 years
of experience in the same industry. Both have played a pivotal role in the growth
and development of DECHENG. They have conceptualized DECHENG’s strategies
in the past and successfully steered DECHENG. They are closely supported by the
senior management team with extensive experience in their respective fields of
research & development, sales and marketing, production and financial
management.
13.4 Strategies
DECHENG plans to become one of the Chinese market leaders for polyurethane resin
production. Thus, DECHENG is pursuing the following strategic objectives:

Geographic expansion and strive for a greater market share
Currently, DECHENG’s main market is in Fujian, Guangdong, Jiangsu, Zhejiang,
Guangxi Province and Shanghai City. DECHENG also plans to expand to other
geographical markets in China according to the location of the downstream
customers.

Functional expansion and development of new products
DECHENG plans for the next years to enhance and develop new types of
polyurethane to expand its customer base and thus enlarge its market shares.
Within the next two years DECHENG plans to develop, inter alia, polyester polypol
and polyurethane developed solvent-free flame retardant, waterproof / breathable
resins, synthesis of polyurethane hydrolysis, wear-resistant polyurethane synthesis,
anti-yellowing polyurethane synthesis, flame retardant polyol synthesis and fireretardant polyurethane tons materials.
Furthermore, DECHENG plans in the next three to five years to develop, inter alia,
environmentally friendly solvent-free polyurethane resin synthetic leather, solventfree polyurethane adhesive and flame retardant polyurethane foam resin.
In order to cater for its expansion into the development and commercialization of
new products, DECHENG intends to purchase high-end polyurethane polymer
research and development equipment in the future. Also, DECHENG intends to
intensify its collaborations with universities/research institute in China and overseas
to develop new products in the future. Thus, DECHENG plans to enter into a coPage 118
operation or a joint venture with a German or European chemical company,
university or other research institute to do a joint R&D program within the next 12 to
24 month since DECHENG intends to get a better awareness with German or
European customers in the future.

Increase of brand awareness
Besides the expansion of the product variety, DECHENG plans to participate in
trade associations and high technology forum (including those organized by
DECHENG 's upstream and downstream partners), which shall help improve
DECHENG 's influence in the industry and participate in the industry's leading
research journals which shall improve DECHENG’s brand awareness. This shall be
supported also by advertisement in television media, online media, journal and
magazines.

Further strengthening of R&D Expertise
Currently DECHENG’s R&D team comprises of 17 staffs and is led by its R&D
Director, Mr. HAN Chun Woo. DECHENG intends to hire more local and foreign
R&D expertise to work with DECHENG in the future.
DECHENG also intends to send its R&D staff to local and international
universities/research centers for training. This will expose its R&D staff to the latest
updates and developments in terms of research and development in the
polyurethane industry.
In addition, DECHENG intends to set up a R&D database in relation to
polyurethane resin on product information, research and development and market
information. This will keep DECHENG updated on the latest developments in the
polyurethane industry.

Expansion of production facilities
Currently, DECHENG has a maximum annual production capacity of 36,600,000 kg
calculated based on two shifts with 6-8 hours each per day and 300 days a year.
By adding further shifts or by outsourcing the production of polyester polypol, the
capacity of the production facilities can be increased. However, in line with the
strategy to develop new products, DECHENG considers to invest into new
production facilities on its current business premises as the need for it increases.
13.5 Products
DECHENG’s oil based products can be broadly categorized into (i) polyurethane resin
and (ii) additives.
Polyurethane products mainly include (i) single as well as two liquid type polyurethane
resins for dry fabrics, (ii) polyurethane produced by wet winding technology and (iii)
polyurethane resin for fiber coating.
The main functions and characteristics of (i) single as well as two liquid type polyurethane
resin for dry fabrics and (ii) polyurethane produced by wet winding technology are cold
and abrasion resistant, non-yellowing, flexible and comfortable. These polyurethane
products are mainly used for leather sofa, leather clothing, shoes and sneakers, footballs
and other leather applications.
The main functions and characteristics of (iii) polyurethane resin for fiber coating are
water-resistant, permeable to moisture, resistant to pressure and washable, mainly used
for outdoor products, jackets and wind breakers, fast drying clothes, tents, backpacks,
sleeping bags and moisture-proof pads or cushion as well as other textile applications.
Additives products mainly include melamine bridging agent, polyurethane bridging agent
and urethane accelerator, which serve the purpose of facilitating the combination of the
polyurethane resin and textile/leather e.g. increasing the stickiness to textiles or
facilitating the dryness of the polyurethane resin. Ancillary bridging additives, accounting
for just some 5% of DECHENG’s sales, are not key products but some clients require
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single sourcing for all their chemicals in order for the chemical to be compatible and to be
able to identify the company source if there are potential problems.
13.6 Production
DECHENG manufactures polyurethane resin and additives at its own facilities located in
Pu’an, Quangang District, Quanzhou City, Fujian Province, PRC.
13.6.1
Manufacturing process of polyurethane
The following illustrates the main phases of the manufacturing process of the
polyurethane resin products:
Raw material
Prepolymerization
Chain Growth
Polymeric thickening
Dilution
Chain ends
Reduce temperature and
filtration
Packaging and transfer
to warehouse
After receiving an order, the raw material chemicals (mainly dimethylformamide
(“DMF”), methylene diphenyl diisocyanate (“MDI”), pure adipic acid (“AA”),
polyethylene glycol (“PE 20”) and toluene (“TOL”)) are piped from storage tanks
into kettles in the processing plant, where they are mixed and heated for
typically six to eight hours.
DECHENG has a two-step production process to produce polyurethane resins.
First, polyester polyols (alcohols containing multiple hydroxyl groups) are
produced with raw material chemicals. Second, polyester polyols are mixed with
other raw material chemicals to produce polyurethane resins with specific or
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enhanced features depending on the exact processing and mix of ingredients.
Details of this second step is described below.
First of all, NCO-terminated polyurethane prepolymer (a process to reduce the
NCO (Nitrogen, Carbon and Oxygen)) with lower molecular weight and viscosity
is prepared (prepolymerization). This will then together with the chain extender
be used to produce polyurethane with higher molecular weight (chain growth).
To further increase the molecular weight, polymeric with its thickening function
will be added (polymeric thickening). After that, the polyurethane solution will be
diluted with organic solvents to lower the viscosity of the polyurethane solution
(dilution). Finally, unreacted isocyanate in the polyurethane solution will via
adding methanol into the polyurethane solution be consumed to avoid side
reactions (chain ends).
In the following, temperatures in the kettles will be reduced and the filtration
starts following the transfer of the produced polyurethane resin to the
warehouse where they are filled into steel drums.
The whole process will be monitored to check the temperatures and electrical
properties which indicate the stage of the process.
13.6.2
Processing Facilities
DECHENG currently operates one plant which is located in Pu’an, Quangang
District, Quanzhou City, Fujian Province, PRC, occupying in total an
approximate land area of 45,777 sqm and built-up area of 19,267 sqm, being
owned by DECHENG. DECHENG has constructed on its location in Pu’an,
Quangang City, Quangang District, Quanzhou City, Fujian Province, PRC,
another five buildings, out of which two are used as warehouses, one as
dormitory, one as boiler room and one as transformer room. However,
DECHENG has not yet obtained the ownership certificate for these buildings.
DECHENG has submitted the application to the competent authority with all
documents required and the certificate is expected to be granted in the second
half of the year 2016. Upon issuing of the ownership certificate of these five
buildings the built-up area of DECHENG will increase by 5,439.28 sqm.
Equipment for the polyurethane resin processing includes mainly the reaction
kettles.
The average utilization rates of DECHENG’s production facilities for
polyurethane and additives products for the past three financial years on the
basis of a two shift are shown as follows:
Production of polyurethane resin and additives
Year
Maximum
capacity
(kg)(1)
FY 2013
36,600,000
17,377,139
47%
FY 2014
36,600,000
21,202,460
58%
FY 2015
36,600,000
26,104,449
71%
(1)
Actual
Output (kg)
Utilization
Rate
The maximum annual production capacity for the production of polyurethane and additives is
calculated based on two shifts with 6-8 hours each per day and 300 days a year.
In FY 2015, DECHENG produced 25.47 million kg of polyurethane resin and
0.64 million kg of additives.
13.7
Quality Assurance
The Company believes that the quality of products is the key to its continued growth and
success. DECHENG places great emphasis on quality assurance and on consistent
quality of its products and services at all stages of the production and business process.
As of 31 December 2015, DECHENG’s quality assurance team comprised of 4
employees, which are full time responsible for quality assurance. The quality assurance
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team is headed by Mr. HAN Chun Woo.
DECHENG ensures the consistency of the quality of its products by having its quality
assurance staff undertake inspections at various stages of the production process starting
with the procurement of the raw materials, the manufacturing process itself and the
storage of the finished goods.
As requested by certain customers, the world leading inspection, verification, testing and
certification institute Société Générale de Surveillance (“SGS”), headquartered in
Switzerland, will also test samples of DECHENG’s products and provide written reports
which are presented to DECHENG’s customers. These SGS certificates will confirm
quality, content and features of DECHENG’s products, such as the level of waterproof.
DECHENG also has formulated a company standard regarding the high water vapor
transmission polyurethane resin for textile coating on 1 November 2014, and has
registered the standard with Fujian Province Quality and Technical Supervision Bureau
(Registration Number: Min QB/00001612-2014), the registration is valid from 28
November 2014 to 31 October 2017. This standard serves according to the Company as
the current benchmark for the production of this type of product.
The key quality assurance certifications received by DECHENG are as follows:
Certificate
Scope
Certifying Authority
Date of Expiry
Quality
Management
System (ISO
9001:2008)
Production of synthetic
leather with
polyurethane resin
Beijing NCY Certification
Centre Co., Ltd.
21 December
2017
DECHENG’s quality control program requires all its employees to undergo training
conducted internally in relation to its quality control policies, targets and procedures as
well as production and processing techniques. For that purpose, DECHENG has
prepared quality inspection guidelines which are part of the quality assurance training.
13.8 Environmental Protection
DECHENG’s production process generates waste to a certain extent. Waste is however
treated and reused. It is not discharged. Raw materials are used as cleaning agents and
then reused to produce resins. Waste resin batches are extremely rare and can usually
be recycled into new saleable end products. Pollutants in form of sulphur dioxide (SO2)
and mono-nitrogen oxide (NOx) result from the burning of the coal to heat up the kettles.
DECHENG is, inter alia, in possession of the required pollutant discharge permit, issued
by Quanzhou Environment Protection Bureau, which expires in 2020, but is renewable.
Under the pollutant discharge permit, DECHENG is authorized to dispose of up to
8,985,000 standard cubic meters waste gas, 2.51 ton SO2, 2.45 ton NOx and 2.34 ton flue
dust respectively per year. Subject to the actual usage of the production capacity, the
amount of authorized discharge under the permit could be exceeded. DECHENG is
therefore currently planning to replace coal with natural gas for heating, which is planned
to be put into use in the first quarter of 2017.
The local authorities pay regularly unannounced visits at the premises of DECHENG to
check the waste disposal and environmental protection. DECHENG’s compliance with
environmental laws and regulations in the past has been confirmed by the competent
authority Quanzhou Quangang District Environment Protection Bureau, which issued on
18 January 2016 a letter certifying that DECHENG PRC was in compliance with the laws
and regulations in relation to environment protection since its incorporation, that no
environmental pollution accident or any discharge pollutant beyond pollution limits had
occurred during the operation of DECHENG PRC, and there was no administrative
investigation or penalty had been imposed on DECHENG PRC for violation of
environment protection regulations since its incorporation.
Furthermore, to the Company’s knowledge, there is no soil contamination which already
existed on the land where DECHENG PRC’s operation facilities are located before
DECHENG PRC acquired the land use right. Moreover, according to PRC law the person
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who caused the contamination shall be held liable for environment pollution including soil
pollution.
Further, DECHENG’s environmental management activities have been certified by the
following certificate issued by International Organization for Standardization.
Certificate
Scope
Certifying Authority
Date of Expiry
Environmental
Management
System (ISO
14001:2004)
Production of synthetic
leather with
polyurethane resin
Beijing NCY Certification
Centre Co., Ltd.
21 December
2017
13.9 Research and Development (R&D)
DECHENG is very innovative and the Company believes to be one of the leaders in
polyurethane resin research for leather and textile coating in the PRC. DECHENG’s
research & development department has in-house facilities with currently 17 staff
members, divided into three sub-departments with 11 employees in the research, 2
employees in the technical and 4 employees in the quality control sub-department.
The research and development team is headed by Mr. HAN Chun Woo, senior expert
from Korea, graduated from the Department of Polymer Science and Engineering from
Seoul National University and having more than 27 years of experience.
Mr. HAN is supported by two research institutes under existing collaboration agreements
(cf. Sec. 13.22 Material Contracts), in particular assisted by the following two
representatives of the respective institutes:

Mr. CHEN Denglong, vice-director of Quangang Petrochemical Research Institute,
graduated with a PhD in Polymer Chemistry and Physics,

Mr. LI Wenmu, researcher of Fujian Material Structure Institute, graduated with
PhD in Organic Chemistry and working on the functional development of polymer
resin and the corresponding additives. Mr. LI has published more than 20 papers in
scientific journals.
The R&D activities of DECHENG are crucial to keep up with the ongoing change in
market trends and to meet the expectation of its customers. Product life cycles are
generally between 3-5 years because customers seek to continually enhance the
product’s features. By the end of 2015 DECHENG had cumulatively developed some 100
chemical formulae mixes of which half were being actively used. DECHENG typically
develops around more than ten new or enhanced resin formulae per year.
Research includes R&D for specific client needs and is currently focused on developing
continual improvements to product features through enhancement. Current projects for
example in sportswear seek to develop a balance between water repelling properties and
allowing garments to let sweat to escape. In synthetic leather, DECHENG continues to
improve the existing function such as cold resistance, flexibility, non-yellowing and better
grip. The main future focus of R&D for DECHENG shall be the production of
environmental friendly solvent-free and flame retardant insulation products for the
construction industry.
The expenses for R&D without personnel costs in FY 2013, FY 2014 and FY 2015 were
approx. EUR 0.29 million, EUR 0.07 million and EUR 0.67 million respectively.
13.10 Intellectual Property Rights
13.10.1 Patent Licensing/Patents
Licensing Agreement
On June 1, 2014, DECHENG PRC and Shanghai Jiaotong University entered
into an exclusive patent licensing agreement under which DECHENG PRC has
the exclusive right from 1 June 2014 to 30 May 2020 to use a method for
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preparing phase change thermal insulation polyurethane resin for a total
consideration of RMB 60,000.00 (approx. EUR 8,675).
Patents
In the past, DECHENG has registered 12 patents, which have been
deregistered in the meantime. Currently, DECHENG has been granted 8 new
utility model patents and filed five new applications for registration of invention
patents in the PRC as follows.
Granted patents:
Patent
No.
Name
Type
Term of Protection
Country
A
new
structure
of
polyurethane coating for fire
doors
2015209
18442.4
Utility
model
patents
18 May 2015 to 17
May 2025
PRC
A
kind
of
waterproof
breathable fabrics
2015209
18444.3
Utility
model
patents
18 May 2015 to 17
May 2025
PRC
A polyurethane
fabric structure
umbrella
2015209
18507.5
Utility
model
patents
18 May 2015 to 17
May 2025
PRC
A polyurethane reaction
kettle of cooling device
2015209
18460.2
Utility
model
patents
18 May 2015 to 17
May 2025
PRC
A new fabric structure
polyurethane material
jacket
for
life
2015209
18538.0
Utility
model
patents
18 May 2015 to 17
May 2025
PRC
A type of polyurethane fabric
structure
2015209
18573.2
Utility
model
patents
18 May 2015 to 17
May 2025
PRC
A new type of polyurethane
fabric structure
2015209
18508.X
Utility
model
patents
18 May 2015 to 17
May 2025
PRC
A new type of polyurethane
floor structure with moisture
proof function
2015209
18539.5
Utility
model
patents
18 May 2015 to 17
May 2025
PRC
Patent applications:
Name
Patent
applica
tion
No.
Status
Type
Date of
Application
Country
Synthesis of phosphorus
containing polyester polyol
and
application
of
phosphorus
containing
polyester
polyol
in
polyurethane
201510
032241.
9
Patents
pending
Invention
Patents
22
January
2015
PRC
Highly moisture permeable
modified polyurethane and
preparation method thereof
201510
032222.
6
Patents
pending
Invention
Patents
22
January
2015
PRC
A kind of none-sticky
waterborne
polyurethane
resin
and
preparation
method thereof
201610
006083.
4
Patents
pending
Invention
Patents
7
January
2016
PRC
Page 124
Name
Patent
applica
tion
No.
Status
Type
Date of
Application
Country
Preparation
method
of
polyurethane used for image
201610
006082.
X
Patents
pending
Invention
Patents
7
January
2016
PRC
A kind of high permeability
and
solvent-free,
twocomponent
polyurethane
and its synthetic process
thereof
201610
006084.
9
Patents
pending
Invention
Patents
7
January
2016
PRC
13.10.2 Trademarks
Even though DECHENG is only involved in the b2b-Business, the Company
believes that brand awareness is of major importance for the success of the
business operations of DECHENG in the PRC, and DECHENG depends in part
on the further increase of brand recognition. To protect its brand, DECHENG
has registered four trademarks in the PRC. The following trademark, which is
owned by DECHENG PRC, is the main trademark currently used in its business
operations:
Trademark
Reg. No.
Class
Goods
Term of
Protection
7980991
1
Polypropylene, polyvinyl
chloride resin, casein
resin, urea resin,
unprocessed acrylic
resins, unprocessed
artificial resins, silicone
resin, ion exchange
resins.
7 March 2011 to
6 March 2021
Ester, propylene glycol,
sizing and finishing
agent for textile, sizing
agent (chemicals),
unprocessed synthetic
resin, urea resin,
chemicals for leather
surface treatment,
Adhesives for industrial
purposes, polyurethane,
adhesive for leather.
13.10.3 Domains
DECHENG has registered the following domain names, which are currently
used in the business of DECHENG:

www.decheng.net.cn

www.dechengtechnology.com

www.dechengtechnology.de
13.11 Information Technology
DECHENG uses, inter alia, PLC main system and WINCC software developed by Wuxi
Mity Modern Machinery Manu-facture Co., Ltd. The main feature of PLC main system is
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to monitor the reaction kettles in terms of electric supply, spinning speed and temperature
which will determine the chemical reaction in the reaction kettles.
The IT available provides comprehensive information from sales, purchase, production
planning and execution to inventory management and enables the management to be
informed on the market and sales situation so as to enable purchasing department,
production department, warehouse and finance department to work closely and
effectively in order to maximise the utilisation of DECHENG’s resources.
13.12 Licenses and Permits
DECHENG has obtained the following government permits, approvals, consents,
authorizations and licenses required for the operations of DECHENG in the PRC.
Licenses
Issuing Authority
Certificate No.
Issuing Date
Validity Period
Business
License
Quanzhou AIC
350500400007529
26
February
2015
22 August 2001 to 22
August 2021
Foreign
Investment
Certificate
Fujian
province
people's
government
Shang Wai Zi Min
Quan Wai Zi Zi No.
(2001)0191
30
January
2015
29 June 2001 to 22
August 2021
Enterprise
Technical
Code
Certificate
Quanzhou Quality
&
Technology
Supervision
Bureau
Zu Dai Guan 350500106963
17
2012
17 August 2012 to 17
August 2016
Tax
Registration
Certificate
Quanzhou
Quangang
National
Tax
Bureau
and
Quanzhou
Quangang Local
Tax Bureau
Min Guo Shui Deng Zi
No. 35050572969385X
1
February
2010
N.A.
Foreign
Exchange
Registration
Certificate
Huian
Administration of
Foreign Exchange
00025085
N.A.
1 year upon annual
review
Approval of
Bank Account
Opening
People’s Bank of
China,
Huian
Branch
3910-00406700
4
February
2010
N.A.
Loan
Certificate
People’s Bank of
China,
Huian
Branch
3505300000446687
N.A.
N.A.
Credit Code
Certificate
People’s Bank of
China,
Credit
Reference Center
No.0017464726
18 September
2012
Until 17 September
2017
Custom
Registered
Certificate
Quanzhou EntryExit Inspection and
Quarantine Bureau
3501600175
3 June 2011
N.A.
Pollutant
Discharge
Permit
Quanzhou
Environment
Protection Bureau
350500-2015-000017
14 July 2015
5 years commencing
from 14 July 2015
August
Page 126
Licenses
Issuing Authority
Certificate No.
Issuing Date
Validity Period
Safety
Production
License
Fujian
Safe
Production
Supervision
and
Administration
Bureau
(Min) WH An Xu Zheng
Zi No. (2006)000181
(Huan)
22 July 2015
22 July 2015 to 5 July
2018
Hazardous
Chemicals
Registration
Certificate
The
Chemicals
Register of the
State
Safe
Production
Supervision
and
Administration
Bureau
350512036
27 May 2014
From 27 May 2014 to
26 May 2017
Social
Insurance
Registration
Certificate
Quanzhou
Quangang Social
Insurance Center
She Xian Min Zi No.
51120050067
21 May 2010
N.A.
13.13 Sales and Marketing
DECHENG’s polyurethane and additives products are sold to domestic textile and leather
manufactures only. None of DECHENG’s products were directly exported.
The following table shows the geographical split by provinces of DECHENG’s total
revenues in FY 2013, FY 2014 and FY 2015:
Revenue
FY 2013
EUR’000
FY 2014
%
EUR’000
FY 2015
%
EUR’000
%
PRC market
- Fujian
17,634
45.47%
23,010
46.54%
33,190
47.58%
- Guangdong
10,840
27.95%
13,395
27.09%
15,876
22.76%
9,895
25.51%
12,411
25.10%
18,968
27.19%
416
1.07%
463
0.94%
607
0.87%
- Zhejiang
-
-
163
0.33%
590
0.84%
- Guangxi
-
-
-
-
529
0.76%
- Jiangsu
- Shanghai
Total
38,785
100.0%
49,442
100.0%
68,760
100.0%
DECHENG had 64, 73 and 72 customers in FY 2013, FY 2014 and FY 2015 respectively.
Most customers have long established relationships with DECHENG. 63 out of the 72
customers in FY 2015 have working relationship of between 2 to 10 years with
DECHENG.
At present, DECHENG sells its products directly without any third party agents to textile
and leather manufactures mainly across six provinces and direct-controlled cities in China
which in turn sell their products to the end-consumer. DECHENG has no price lists which
each order and client individually negotiated. However, as commodity prices are uniform
there are only small prices differences of typically around 2% determined by the volume
of an order. DECHENG only manufactures to order, never to stock. Finished products
typically have a six months optimum use by date.
Page 127
DECHENG’s top three provinces by sales value are Fujian, Guangdong and Jiangsu.
When combined, they accounted for 98.93%, 98.73% and 97.53% of total domestic sales
in FY 2013, FY 2014 and FY 2015 respectively.
DECHENG’s sales and marketing department is spearheaded by the Head of Marketing,
Mr. CHEN Shuo. The sales and marketing team currently comprises 11 employees, each
of them being responsible for different regions in the PRC and being responsible for
cultivating new customers and businesses as well as market development by furthering
customer relationships through better service support and after-sales services to its
customers.
DECHENG intends to further diversify its customer base in China. For that purpose, the
sales personnel attends regularly the respective conferences, trade fairs and trade
association meetings in China and improves its products by conducting researches with
universities or research centers which help attract more customers to use DECHENG 's
products in view that DECHENG’s products are results of successful research with
reputable universities or research centers. In addition, DECHENG’s sales personnel keep
in touch with its main customers through regular visits and by inviting them for visits to
DECHENG’s production facilities. Visits by DECHENG’s sales and marketing personnel
are also undertaken for gaining new customers. These visits enable DECHENG to better
understand its customers’ needs and requirements and to obtain feedback on the
products and services. DECHENG also monitors the product target market and regularly
carries out market researches to allow DECHENG to keep pace with the latest market
trends.
13.14 Major Customers
In the FY 2015, DECHENG sold its products to 72 customers, who are mostly small to
medium size companies and are all located in the PRC. Customers typically use three to
four suppliers. About 63 are repeat customers who have placed orders in each of the past
two years. DECHENG has developed good relationships with its customers allowing it to
better plan their deliveries and to retain a high customer loyalty. Normally, the customers
do not change their suppliers once they have used their product as companies like
DECHENG need to go through the process of testing its products with their products to
ensure it works together to achieve their desirable result and this may take 1-3 months.
DECHENG is not dependent on any of its customers since no one contributes more than
4% and the five largest customers account for only 18.6% of the total sales respectively.
DECHENG’s top five customers for its products in each of the previous three financial
years are set out below:
Customers (1)
Percentage of Total Sales (%)
FY 2013
FY 2014
FY 2015
Customer A
4.04
4.11
3.78
Customer B
3.79
3.72
----
Customer C
3.58
----
----
Customer D
3.52
----
3.61
Customer E
3.49
3.89
3.81
Customer F
----
3.84
3.75
Customer G
----
3.63
----
Customer H
----
----
3.65
(1) Since the top five customers have changed in FY 2013 to FY 2014 and FY 2015, the table shows eight
customers which at least in one of the previous financial years has been in the top five customers.
Page 128
13.15 Raw Materials and Suppliers
DECHENG purchases a range of raw materials from suppliers, in particular the chemicals
dimethylformamide (“DMF”), methylene diphenyl diisocyanate (“MDI”), pure adipic acid
(“AA”), polyethylene glycol (“PE 20”) and toluene (“TOL”), which are the main raw
materials required for the production of polyurethane resin and additives. In FY 2015,
more than 55% of the raw materials were DMF, MDI, AA, PE 20 and TOL.
The purchasing department of DECHENG selects its suppliers carefully under
assessment criteria such as supplier’s technology, management, product quality, price,
guarantee of goods, payment conditions, industry reputation and the level of service
attitude. Moreover, all raw materials have to comply with any existing national industry
standards specified by the competent governmental authorities in China, including
Ministry of Industry and Information Technology, Standardization Administration, State
Administration of Quality Supervision, Inspection and Quarantine.
DECHENG has access to more than 70 raw material suppliers, most of which are located
in Fujian, Guangdong, Shandong and Zhejiang province as well as in Shanghai.
DECHENG normally has 3-5 suppliers for each of the main raw materials in order to
avoid dependence on a single supplier and to ensure timely supply of raw materials. The
suppliers normally need 3-10 days to deliver the raw materials to DECHENG.
DECHENG has maintained good relationships with its suppliers and has in the past not
encountered any significant production disruption due to shortage of supply of raw
materials from its suppliers to meet DECHENG’s production requirements. Nevertheless
to ensure promptly fulfilment of customer orders DECHENG keeps as full as possible its
ten raw material storage tanks with a total capacity of 1,150 tons. The raw material stocks
usually cover two weeks of current production schedule.
No supplier accounts for more than 4% of DECHENG’s total demand and the top ten
suppliers account for less than 35% of the total demand.
The following table provides an overview of DECHENG’s top five suppliers in each of the
last three financial years:
Suppliers (1)
Percentage of Total Purchases
(%)
FY 2013
FY 2014
FY 2015
Supplier A
4.41
4.36
-----
Supplier B
4.32
3.80
3.54
Supplier C
4.07
-----
-----
Supplier D
3.61
-----
3.29
Supplier E
3.59
3.88
-----
Supplier F
-----
4.40
-----
Supplier G
-----
3.93
3.58
Supplier H
-----
-----
3.31
Supplier I
-----
-----
3.30
(1) Since the top five suppliers have changed in FY 2013, FY 2014 and FY 2015, the table shows nine suppliers
which at least in one of the previous financial years has been in the top five suppliers.
High quality drums for the packaging of the finished goods are partly procured from
Quanzhou Hong De Package Co, which has its production facility on the business
premises of DECHENG and ensures a steady flow of the required drums.
Page 129
13.16 Inventory Management
DECHENG’s inventory comprises its raw materials and work-in progress and finished
products. DECHENG’s purchase of raw materials generally depends on DECHENG’s
customers’ orders.
DECHENG’s inventory turnover (days) for each of FY 2013, FY 2014 and FY2015 were
as follows:
Inventory turnover (days) (1)
FY 2013
DECHENG PRC
FY 2014
27.4
FY 2015
24.2
15.4
(1) For FY 2013, FY 2014 and FY 2015, inventory turnover days are calculated using the formula: (average
inventories/cost of sales) × 365 days.
13.17 Credit Management
Payment terms to its customers
According to the sale agreements entered into between DECHENG and its customers,
the customers have to pay 40% of the total purchase price during the period from the
date of signing the sale agreement to the date when the order is completed and
customers accept the products. Another 20% is payable within one month after the last
delivery. The remaining 40% needs to be paid within two months after the last delivery.
The actual payment terms vary depending on customer relationships.
To ensure timely payment by its customers, DECHENG has implemented standard
guidelines for its finance as well as sales and marketing departments in monitoring the
collection of payment. Should payment remain outstanding from a customer beyond the
credit term granted, reminders will be sent to the customers for payment. At the same
time, steps will be taken to discover the reason for the delay. There were no impairment
losses for trade receivables and DECHENG had not written off any trade-related bad
debts for each of FY 2013, FY 2014 and FY 2015.
DECHENG’s trade receivables turnover (days) for each of FY 2013, FY 2014 and
FY 2015 were as follows:
Trade receivables turnover (days) (1)
FY 2013
FY 2014
FY 2015
DECHENG PRC
37.5
41.0
37.7
(1) For FY2013, FY2014 and FY2015, trade receivables turnover days = (average trade receivables/revenue) ×
365 days.
Credit terms from its suppliers
According to procurement agreements entered into between DECHENG and its suppliers,
DECHENG has to pay 40% of the total purchase price during the period from the date of
signing the procurement agreement to the date when the order is completed and
DECHENG accepts the products. Another 30% is payable within one month after the last
delivery. The remaining 30% needs to be paid within two months after the last delivery.
The actual payment terms vary depending on customer relationships.
DECHENG’s trade payables turnover in FY 2013, FY 2014 and FY 2015 were as follows:
Trade payables turnover (days)
DECHENG PRC
(1)
FY 2013
FY 2014
FY 2015
40.1
38.3
28.7
(1) For FY2013, FY2014 and FY2015, trade payables turnover days = (average trade payables/purchases of
raw materials) × 365 days.
Page 130
13.18 Awards and Recognitions
DECHENG has received various business awards from PRC institutions, including the
following in the last three years:
Date
Award/Certificate
Awarding Body
March 2014
Enterprise with Excellent Credit
Standing in the year of 2012 and
2013
Fujian Administration of Industry and
Commerce
17 January
2014, valid
for 3 years
Technology-based Enterprises of
Fujian Province
Fujian Science and Technology
Department
10 October
2014, valid
for 3 years
High and New Technology
Enterprises
Department, Fujian Financial
Department, Fujian National Tax
Bureau, and Fujian Local Tax Bureau
December
2014 valid
for 3 years
Fujian Province Technology and
Research Center regarding the
Polyurethane Materials
Department
October
2014
Quanzhou Technology and
Research Center regarding the
Polyurethane
Quanzhou Science and Technology
Bureau
January
2016
Third Prize of Technology Progress
People's Government of Quanzhou
13.19 Employees
13.19.1 Number of employees
The table below provides a breakdown of employees of DECHENG by category
for the years/period ended on 31 December 2013, 31 December 2014 and 31
December 2015:
(a)
FY 2013
FY 2014
FY 2015
Management
17
17
18
Marketing Department
14
16
16
Research and Development
Department
15
16
17
Production Department
58
62
64
8
10
8
112
121
123
Administration and Finance
Department
Total
No material change has occurred in the number of employees in the period
since 31 December 2015 until the date of this Prospectus.
Page 131
DECHENG does not employ temporary contract workers.
DECHENG grants to its employees employment terms above statutory
minimum terms. In FY 2015, the average monthly salary for the employees
amounted to RMB 3,814 (approx. EUR 552). The average monthly
remuneration paid by DECHENG is approx. 182% higher than the minimum
statutory salary in 2015. The Company believes that the salary is within the
average in the relevant industry in Fujian and neighboring provinces. There has
been no labor or industrial dispute between the employees and management.
The number of full-time employees has not been subject to any significant
fluctuations.
DECHENG has not set aside nor accrued any additional amount of money to
provide for pension, retirement or similar benefits for the members of the
management board (Vorstand) or of the senior management of DECHENG
apart from the statutory amounts required.
13.19.2 Working conditions and occupational health
DECHENG has concluded written labor contracts with its employees by using
standard contracts containing the necessary clauses required by the applicable
PRC labor contract law.
DECHENG provides a pre-job training on corporate culture, the basic job skills
and safe practices by in-house personnel.
DECHENG has set up a Safety Production Committee spearheaded by a safety
officer comprising more than 10 employee representatives to ensure the
employee’s safety. In addition, it has a safety handbook and pays every
employee a RMB 300 (approx. EUR 43) reward each month if they comply with
the safety production rules in the previous month. Safety instructions are also
posted on warning signs throughout the whole business premises to ensure the
occupational health of the employees, every employee shall conduct an
occupational health inspection before commencing the work with DECHENG as
well, which shall be repeated annually.
13.19.3 Social Insurance and Housing Funds
DECHENG PRC has paid all social security contributions due. On January 21,
2016, Quanzhou Quangang District Human Resource and Social Security
Bureau issued a letter certifying that DECHENG PRC, since its incorporation,
has paid social insurance in accordance with the applicable laws and
regulations, no administrative penalty has been imposed on DECHENG PRC
for violation of labor and social security regulations.
DECHENG PRC has also been obliged to pay housing funds contributions for
its employees in the past. However, DECHENG PRC only paid housing funds
for part of its employees before 1 January 2016 and started to pay the housing
funds for all its employees since 1 January 2016. According to the confirmation
letter issued by Quanzhou Housing Funds Management Center on 21 January
2016, the authority would though not require DECHENG PRC to pay any
outstanding housing contributions for the previous years before 1 January 2016
and would not impose any penalty and surcharge on DECHENG PRC.
However, DECHENG is required to pay relevant social insurance contributions
and has in the past fully paid social insurance funds (defined contribution plans)
for all of its employees.
13.19.4 Further insurance for employees
As an additional employer-provided insurance, DECHENG has bought a group
life accident insurance for its 35 managers, R&D and executive employees
mainly covering the disability or death risk caused by any accidental injury. The
insurance period is from 0:00 of 26 November 2015 to 0:00 of 26 November
2016. The insurance premium is RMB 7,000 (approx. EUR 1,010). The insured
Page 132
coverage per person for disability or death amounts to RMB 100,000 (approx.
EUR 14,500), for outpatient and inpatient medical costs RMB 20,000 (approx.
EUR 2,890) and for hospitalization subsidies RMB 30 (approx. EUR 4.3) per
day.
13.20 Business Locations, Property, Plant and Equipment
DECHENG’s operation facilities are located in Pu’an, Quangang District, Quanzhou City,
Fujian Province, PRC. As at 31 December 2015, DECHENG’s business premises
covered a total area of 45,777 sqm with a built-up area of approx. 19,266 sqm.
13.20.1 Land Use Right
DECHENG holds one land use rights for the use of a total area of 45,777 sqm
of land located at Pu’an, Quangang District, Quanzhou City, Fujian Province,
PRC for its business premises, which were acquired by way of assignment from
the state as follows:
On December 31, 2004, DECHENG PRC entered into a granted land-use-right
contract with Quanzhou Quangang District Land Planning and Construction
Bureau, under which Quanzhou Quangang District Land Planning and
Construction Bureau shall grant DECHENG PRC a land of 51,880 sqm
(including a land of 6,103 sqm to be built as the public road) located at
Quangang Central Industrial for a consideration of RMB 3,112,800. (approx.
EUR 450,150) which has been paid in full.
The certificate number and information of this land use right is as follows:
Certificate
No:
Area
Quan Gang
Guo Yong
(2010) No.
0025
45,777m
2
Location
Expiry
Date
Issue Authority
Issue Date
Pu’an,
Quangang
District,
Quanzhou
City,
Fujian
Province
31
Decemb
er 2054
People's
Government of
Quanzhou
Quangang
District
2
April
2010
13.20.2 Buildings
DECHENG owns 2 factory buildings, 1 office building and 2 dormitories on the
land used under the land use right in Pu’an, Quangang District, Quanzhou City,
Fujian Province, PRC. The buildings owned by DECHENG cover a total built-up
area of 19,266.57 sqm.
All buildings are legally owned by DECHENG as evidenced by the respective
building property ownership certificates issued by the Quanzhou Quangang
District Planning and Construction Bureau, with the exceptions of five buildings
out of which two are used as warehouses, one as dormitory, one as boiler room
and one as transformer room. DECHENG has submitted the application to the
competent authority with all documents required and granting of the certificate is
expected for the second half of the year 2016. Upon issuing of the ownership
certificate of these five buildings the built-up area of DECHENG will increase by
5,439.28 sqm.
13.20.3 Lease
DECHENG PRC as lessor and Quanzhou Hong De Package Co., Ltd as lessee
concluded a lease contract for one factory building with an area of 2,400 sqm
located on the business premises of DECHENG at Pu’an, Quangang District,
Quanzhou City, Fujian Province, PRC. The term of lease is until 31 December
2016 and the annual lease amounts to RMB 360,000 (approx. EUR 52,100).
Page 133
13.20.4 Registered Offices in Hong Kong
DECHENG HK has its registered offices at Rooms C and D, 18/F Max Share
Centre, 367-373 King's Road, North Point, Hong Kong.
13.20.5 Equipment
DECHENG owns various fixed assets such as production equipment, office
equipment, buildings and motor vehicles. As of 31 December 2015, the net
book value of these fixed assets and equipment was approx. RMB 2,362,871
million (approx. EUR 321,700). None of these fixed assets or equipment items
have been leased to other parties or rented from other parties save as disclosed
under Sec. 13.20.3.
13.21 Insurances
13.21.1 Property insurances
DECHENG has taken out three property insurances covering basic risks for its
buildings as well machines and equipment located at Pu’an, Quangang District,
Quanzhou City, Fujian Province, PRC such as fire and explosions as well as
certain natural disasters.
One insurance policy has a duration term from 0:00 on 25 April 2016 to 24:00
on 24 April 2017. The insured coverage amounts to RMB 18,550,000.00
(approx. EUR 2,682,574.11) and the insurance premium amounts to
RMB 25,042.50 (approx. EUR 3,621.48).
The second insurance policy has a duration term from 0:00 on 10 July 2016 to
24:00 on 9 July 2017. The insured coverage amounts to RMB 7,830,000.00
(approx. EUR 1,132,321.04) and the insurance premium amounts to
RMB 10,648.80 (approx. EUR 1,539,96).
The third one has a duration term from 0:00 on 26 January 2016 to 24:00 on 25
January 2017. The insured coverage amounts to RMB 3,317,838.50 (approx.
EUR 480,000) and the insurance premium amounts to RMB 4,553.06 (approx.
EUR 658).
13.21.2 Corporate insurance
DECHENG has taken out one corporate insurance covering risks such as the
loss related to the assets, the equipment damage, the loss of cash, the close of
business, public liability, and the employer's liability. The insurance policy has a
duration term from 0:00 on 26 January 2016 to 24:00 on 25 January 2017. The
insured coverage amounts to RMB 21,629,949.91 (approx. EUR 3,128,000) and
the insurance premium amounts to RMB 29,416.73 (approx. EUR 4,250).
13.21.3 Liability insurance of safe production
Besides, DECHENG PRC has taken out one liability insurance of safe
production for those employees, which are exposed to the risks within the
production area. The insurance policy has a duration term from 0:00 of 12 June
2015 to 24:00 of 11 June 2016. The insured coverage amounts to RMB
6,440,000.00 (approx. EUR 931,000) and the annual insurance premium
amounts to RMB 14,840.00 (approx. EUR 2,145).
However, DECHENG currently does not have insurance coverage for business
interruption and product liability. The Company believes that the current insurances taken
out by DECHENG are in line with general practice in the relevant industry in the PRC.
13.22 Material Contracts
No material contracts outside the ordinary course of business have been entered into in
the last two years prior to the date of this Prospectus by DECHENG PRC, DECHENG HK
or the Company except as the contracts described in the following.
Page 134
On 1 August 2013, DECHENG PRC entered into a Commissioned Development
Agreement (as amended by Supplemental Agreement dated 1 March 2016) with Fujian
Material Structure Institute, under which Fujian Material Structure Institute agrees to
accept DECHENG’s commission to develop the “Phosphorus-containing flame retardant
polyester polyol” for a consideration of RMB 1,600,000 (approx. EUR 231,000). The
period of the agreement is from 1 August 2013 to 1 August 2016. The costs were
financed internally. According to the agreement, (1) DECHENG PRC shall have a sole
right to apply for a patent for all technological developments arising from the cooperation;
(2) DECHENG PRC shall have the exclusive right to use all of the technology
developments arising from the cooperation; (3) Fujian Material Structure Institute shall not
authorize any third party to use any of the technology developments or patents, or
transfer any of the technology developments or patents to a third party. The scope of this
agreement was later on extended to the joint establishment of a research and
development center regarding the development of the “Phosphorus-containing flame
retardant polyester polyol”.
On 12 January 2015, DECHENG PRC entered into a Collaborative Research and
Development Agreement (as amended by Supplemental Agreement dated 1 March 2016)
with the Quangang Petrochemical Research Institute of Fujian Normal University
(“Quangang Petrochemical Research Institute”), under which the parties agreed to
jointly develop polyurethane functional material and new carbon materials. The R&D
budgets amounts to RMB 3,566,000 (approx. EUR 516,000) and shall be provided by
DECHENG PRC. The period of the agreement is from 12 January 2015 to 12 January
2025. The costs are financed internally. According to the agreement, (1) DECHENG PRC
shall have a sole right to apply for a patent for all technological developments arising from
the cooperation; (2) DECHENG PRC shall have the exclusive right to use all of the
technology developments arising from the cooperation; (3) Quangang Petrochemical
Research Institute shall not authorize any third party to use any of the technology
developments or patents, or transfer any of the technology developments or patents to a
third party.
13.23 Loan Agreements / Credit Line Agreements
DECHENG has taken out several short term bank loans from the China Construction
Bank, Quanzhou Quangang Branch (“CCB”) to finance its working capital. As at 31
December 2015, a total amount of RMB 29.8 million (approx. EUR 4.3 million) was
outstanding under these loans. The weighted average interest rates of the short term
bank loans were 6.39% in FY 2013, 6.10% in FY 2014 and 5.97% in FY 2015.
13.24 Mortgage/Guarantee Agreements
The short term bank loans mentioned in Section 13.23 above have been secured with
mortgages by DECHENG PRC and guarantees by related third parties (please see
Section 20.2.2 (“Bank Guarantees”) of the Prospectus as well as by unrelated third
parties as follows:
13.24.1 Mortgage
DECHENG PRC has granted CCB two mortgages over its land use right and
five buildings on the business premises at Pu’an, Quangang District, Quanzhou
City, Fujian Province, PRC as well as equipment to secure its liabilities under
the bank loans, commencing on 26 February 2016 and 14 March 2016 and
ending on 26 February 2019 and 14 March 2019 in the amount of
RMB 40,286,900 (approx. EUR 5,826,000) and RMB 7,830,000 (approx. EUR
1,132,000 ) respectively.
13.24.2 Guarantees
On 30 April 30 2014 and 8 June 2015, Jinjiang Xinhuifu Shoes and Garment
Co., Ltd (“Xinhuifu”), an unrelated third party, entered into a maximum
guarantee agreement with CCB, under which Xinhuifu shall provide a guarantee
for securing a loan facility up to RMB 55,000,000 (approx. EUR 7,954,000) each
Page 135
granted by CCB to DECHENG PRC from 30 April 2014 to 30 April 2015 and
from 8 June 2015 to 8 June 2016 respectively.
DECHENG has not provided any guarantees to third parties.
13.25 Legal Proceedings
During the previous twelve months immediately preceding the date of this Prospectus,
neither the Company nor any of the Company’s subsidiaries had been engaged in any
governmental, legal or arbitration proceedings (including any such proceedings which are
pending or threatened of which the Company is aware of which may have, or have had in
the recent past significant effects on the Company’s and/or DECHENG PRC's financial
position or profitability. However, during that period DECHENG sued successfully three
companies for outstanding payments in the amount between RMB 334,000 (approx.
EUR 48,300) and RMB 962,000 (EUR 139,000).
13.26 Investments
DECHENG has made no major investments in FY 2013, FY 2014 and FY 2015 and there
are no investments pending.
DECHENG has no principal future investments on which its management bodies have
already made firm commitments. Also, no contractual arrangements have been entered
into with respect to any future investment. However, in line with the strategy to develop
new products, DECHENG considers to invest into new production facilities on its current
business premises as the need for it increases.
Page 136
14.
MARKET ENVIRONMENT AND COMPETITIVE SITUATION
Market and industry information and statistics set out in this section have been extracted
from various external sources set out in Section 4.7 of this Prospectus under “Third Party
Data”. These are in particular, but not solely, the publicly available IMF World Economic
Outlook Database as well as the market research report “Polyurethane Resin Industry”,
prepared by Frost & Sullivan in March 2016 (“Market Research Report”). Reasonable
care has been exercised in extracting and reproducing such information. However,
DECHENG and the Underwriter make no representations as to the accuracy of such
information and statistics, which may be inaccurate, incomplete, out-of-date or
inconsistent with each other, or with any other information.
14.1 Introduction
DECHENG operates its business in the PRC polyurethane industry market segment.
Products made with polyurethane can be thermosetting or thermoplastic in nature and are
used in a wide range of applications across the automotive, consumer goods and
construction industries. DECHENG believes that the performance of the overall PRC
polyurethane market is primarily driven by the growth of the PRC economy, in particular,
the increase in disposable income of the PRC population, the urbanization trend as well
as a shift in consumption patterns of increasingly affluent urban consumers in the PRC.
This development is supported by China’s 13th Five-Year Plan, released in March 2016,
which stipulates to restructure the Chinese economy by encouraging domestic
consumption, by developing the service sector, and shifting to higher value added
manufacturing, whilst improving on energy efficiency and environmental protection.
14.2 Economic Growth in the PRC
The rise of China as a global economic heavy weight has been unprecedented in the
world’s recent history. Even the latest global financial and economic crisis has made
much less of an impact on China’s economic growth than to other countries worldwide,
although China has also experienced an economic slowdown since 2014 in comparison
to the previous years, in part thanks to the country’s effective economic stimulus
measures. China has passed Germany as the largest global exporter in 2009 and passed
Japan, becoming the world’s second largest economy behind the United States of
America in 2010.
The table below shows the development of the real gross domestic product (“GDP”) in the
PRC, actual and projected, including its growth rates for the years 2010 to 2018:
2010
2011
2012
2013
2014
2015
2016e
2017e
2018e
GDP in trillion RMB
(current prices)
40.7
48.1
53.5
59.0
64.1
68.4
73.1
78.2
84.0
Real GDP in trillion RMB
(constant prices)
40.7
44.5
48.0
51.6
55.4
59.2
63.1
67.0
71.0
10.6%
9.5%
7.7%
7.7%
7.3%
6.9%
6.3%
6.0%
6.0%
Annual Real GDP growth
rate(based on constant prices)
(Source: IMF World Economic Outlook Database, April 2016.)
IMF predicts that China will show a 6.3% growth in 2016. Hence, China’s real gross
domestic product (“GDP”) is expected to grow from RMB 40.7 trillion (approx. EUR 5.9
trillion) in 2010 to estimated RMB 63.1 trillion (approx. EUR 9.1 trillion) in 2016 (Source:
IMF World Economic Outlook Database, April 2016). As a comparison, IMF expects a
global real GDP growth of 3.2% in 2016.
IMF expects further growth of China’s real GDP to RMB 67.0 trillion (approx. EUR 9.7
trillion) in 2017 (+6.0%) and to RMB 71.0 trillion (approx. EUR 10.3 trillion) in 2018 (+
6.0%) (Source: IMF World Economic Outlook Database, January 2016).
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14.3 Urbanization in the PRC
The table below shows the development of the total population and the urban population
in the PRC for the years 2010-2015, including the urbanization rate:
Population (in million)
Urban Population (in million)
Urbanization Rate
2010
2011
2012
2013
2014
2015
1,339.7
1,347.4
1,354.0
1,360.7
1,367.8
1,374.6
665.6
690.8
711.8
731.1
749.2
771.1
49.7%
51.3%
52.6%
53.7
54.8
56.1%
(Source: PRC National Bureau of Statistics, Feb. 2016.)
The urbanization trend continued in China, through the migration of the rural population to
urban areas and the transformation of villages into cities. According to the National
Bureau of Statistics, the urban population in the PRC increased from 665.6 million in
2010, which accounted for approximately 49.7% of the total population, to 771.1 million in
2015, which accounted for approximately 56.1% of the total population. In 2011, for the
first time the urban population exceeded the rural population.
14.4 Disposable Income of urban and rural households in the PRC
The table below shows the development of the per capita annual disposable income of
urban and rural households in the PRC for the years 2010-2015, including its annual
growth rates:
2010
2011
2012
2013
2014
2015
19,109
21,810
24,565
26,955
28,844
31,195
Real Growth Rate of the Per
Capita Disposable Income of
Urban Citizens
7.8%
8.4%
9.6%
7.0%
6.8%
8.2%
Per Capita Disposable Income of
Rural Citizens in RMB
5,919
6,977
7,917
8,896
10,489
11,422
10.9%
11.4%
10.7%
9.3%
9.2%
8.9%
Per Capita Disposable Income of
Urban Citizens in RMB
Real Growth Rate of the Per Capita
Disposable Income of Rural
Citizens
China’s sustainable growth was accompanied by rising disposable income levels, in
particular of urban residents. According to the National Bureau of Statistics, the per capita
annual disposable income of Chinese urban residents increased from RMB 19,109
(approx. EUR 2,765) to RMB 31,195 (approx. EUR 4,510), during the period from 2010 to
2015. The per capita annual disposable income of Chinese rural residents increased from
RMB 5,919 (approx. EUR 856) in 2010 to RMB 11,422 (approx. EUR 1,652) in 2015,
leading to increased living standards. Continuing growth in disposable income is likely to
lead to increased middle-income consumer spending, especially in urban areas.
14.5 Retail sales of consumer goods in the PRC
The table below shows the development of retail sales of consumer goods in the PRC,
including its growth rates for the years 2010 to 2015:
Retail Sales of Consumer Goods in
trillion RMB
Growth Rate of Retail Sales of
Consumer Goods
2010
2011
2012
2013
2014
2015
15.7
18.4
21.0
24.3
27.2
30.1
18.0%
17.2%
14.1%
15.7%
11.9%
10.7%
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The rise of urban population and the increase of the per capita disposable income led to
a rapid growth of retail sales of consumer goods between 2010 and 2015. According to
the National Bureau of Statistics, retail sales of consumer goods in the PRC grew from
RMB 15.5 trillion (approx. EUR 2.2 trillion) to RMB 30.1 trillion (approx. EUR 4.4 trillion) in
2015. In comparison to 2014, the retail sales of consumer goods rose by 10.7% without
deducting factors such as price increase, according to the National Bureau of Statistics.
Retail sales of consumer goods of urban households reached RMB 25.9 trillion (approx.
EUR 3.7 trillion), a rise of 10.5%, while rural households spent RMB 4.2 trillion (approx.
EUR 0.6 trillion) for consumer goods, a rise of 11.8% compared to 2014 according to the
National Bureau of Statistics.
The growth of retail sales of consumer goods matches with the growth of the per capita
disposable income, representing strengthened consumer purchasing power.
14.6 Overview of the global polyurethane industry
14.6.1
Introduction
Polyurethane (“PU”) is a product of the combination of an isocyanate,
containing two or more isocyanates groups per molecule, with a polyol,
containing an average of two or more hydroxyl groups, in the presence of a
catalyst or ultraviolet light. According to Market Research Report this product is
also known as PU resin in some instances and the terms PU and PU resin can
be used interchangeably. PU can in particular subsequently be processed into
PU products such as flexible foams and rigid foams as well as coatings,
adhesives and sealants, and is highly influenced by the type of isocyanates and
polyols used to manufacture them. PU products can be thermosetting or
thermoplastic in nature and are used in a wide range of applications across the
automotive, consumer goods, and construction industries.
Global PU Industry Value Chain and Applications in 2016:
Basic PU Materials
• Polyether Polyols
• Polyester Polyols
• Biopolyols
• MDI
PU/ PU
Resins
• TDI
• Aliphatic
Isocynates
Upstream
PU Value Chain
PU Products
End-Use Markets
• Flexible Foams
• Rigid Foams
• Coatings (including
synthetic leather
coating)
• Adhesives
• Sealants
• Elastomers
• Reaction Injection
Molding (RIM)
• Thermoplastic Polyurethane
(TPU)
• Binders
• Spandex
intermediaries
• Automotive
• Appliances
• Building &
Construction
• Electronics
• Footwear
• Furniture & Bedding
• Packaging
• Textiles & Apparel
(including Spandex
fabrics)
• Other End-Use
Markets
Downstream Products
Indicates current products and applications of DECHENG’s products
Note: There are various end-use markets for PU synthetic leather, such as automotive,
furniture, footwear and apparel, among others.
Source: Market Research Report
The share of consumption for PU in the production of key PU products by
volume is shown below:
Share of Global Consumption for PU in the production of PU Products by
Volume in 2015:
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Binders, 2,4%
Spandex, 5,2%
TPU, 3,3%
Flexible Foam,
21,9%
Elastomers, 12,5%
Sealants, 3,2%
Rigid Foam, 21,2%
Adhesives, 7,1%
Coatings, 23.2%
PU foams, in both flexible and rigid forms, accounted for approximately 43% of
the total PU consumption globally in 2015. Flexible foams are used in
applications such as mattresses, furniture, and construction insulation, amongst
other uses, while rigid foams are mainly used as insulating materials in
refrigerators. PU-based coatings consume a fairly large proportion of the PU by
volume globally as they are generally used as additives in paints, varnishes,
and finishing coats to protect and seal wood. Their strong resistance to water,
high humidity, extreme temperatures, and fungus make PU-based paints an
ideal coating material for many wooden products.
Elastomers belong to a large family of elastic polymers, such as rubber. Unlike
most other types of elastomers , the PU used to produce PU-based elastomers
are liquid, which permits them to be pumped, metered, mixed, and dispensed
by machines under the precise control of temperature and ingredient
proportions. Elastomers enter moulds at a low temperature and are cured at the
same elevated temperature at which they are mixed. This unique characteristic
enables PU-based elastomers to have thick cross-sections with uniform
distribution. They can be used for auto suspension components, medical
training models, pipeline pigs, aggregate separator screens, and many other
applications.
In recent years, PU has been gaining popularity in textile manufacturing, such
as spandex, a PU-based textile which is highly elasticity and is stronger and
more durable than rubber. Spandex is usually mixed with polyester or cotton
and forms a small percentage of the final fabric. In 2015, spandex accounted for
about 5% of the global consumption of PU. In North America, approximately
80% of women’s clothing is manufactured with spandex.
PU is also widely used in the automotive industry. For example, PU synthetic
leather is used as automotive upholstery while PU flexible foam is used to
produce car seats and other parts which require foam like properties. In line
with global market trends to reduce weights in automobiles, chemists and
researchers are looking at ways to lower the weight of PU foams while retaining
their strength and durability.
Applications such as synthetic leather made from PU have been a game
changer for the leather industry. In producing synthetic leather, PU is mixed with
additives to create synthetic leather coatings which are then applied to a textile
fabric such as cotton. Due to the shortage of natural leather, coupled with the
stringent protection of animal rights, researchers have discovered ways to
create aesthetics similar to leather by using PU as material. Synthetic or
artificial leather is experiencing robust growth in areas such as footwear,
handbags, jackets, automotive upholstery, and fashion accessories. The PUPage 140
based synthetic leather market for automotive upholstery is expected to grow at
a roughly 12.5% CAGR in Asia-Pacific (“APAC”) and at roughly 9% CAGR
globally over the next five to seven years starting 2015. Other segment, such as
synthetic leather for bags, is expected to show strong growth rates of over 25%
CAGR for the same forecast period.
14.6.2
Product substitutes
PU-based foams, both in flexible or rigid forms, are difficult to manufacture
using other chemical components. When foams are made from polystyrene, the
labour for shaping them is two to four times that of shaping PU foams.
Polyethylene is also used to make foams. However, due to the strong crosslinking nature of the molecules, they are much more rigid than PU-based rigid
foams. This causes the “fall energy” to be unevenly distributed.
PU is the main raw material for foams catering to the furniture, refrigeration,
and construction industries. However, this type of PU is a commodity product
and does not command a price premium in the market. Nonetheless, the PU
industry is expected to experience robust growth in the coming years driven by
strong demand for furniture and insulation applications from APAC, Latin
America, and the Middle East. North America currently accounts for 35% of the
market for PU-based insulation, followed by Europe with roughly 22% to 25%.
APAC as a whole accounts for 25% of the PU-based insulation market, with
China accounting for over 50% of the APAC market.
In the footwear industry, polyvinyl chloride (“PVC”) is currently the most widelyused material globally. However, a shift towards PU-based materials, including
synthetic leather, is occurring. Currently, the pricing of PU is generally double
that of PVC resin globally. In developing economies, such as China and India,
the adoption trend for PU-based footwear materials is slower as consumers are
apprehensive about spending high amounts on standard footwear. These
markets are more traditional, with consumers looking at cost factors rather than
the improved efficiency of the material being used. In APAC, South Korea is a
key country that is experiencing the gradual replacement of PVC-based to PUbased in footwear, where most of the materials used for manufacturing footwear
are predominantly made from PU products. Notably, growing disposable
incomes and consumer willingness to spend more for PU-based footwear are
some of the main reasons for the shift from PVC to PU.
In the construction industry, the substitutes for PU-based insulating materials
are expanded polystyrene (“EPS”) and extruded polystyrene (“XPS”). While the
EPS and XPS resins are cheaper than PU, the thermal conductivity, heating
resistance, aging resistance, and substrate bonding ability of these materials is
lower compared to PU-based insulating materials.
Bio-based PU is an emerging class of polymers that is rapidly gaining adoption
globally. Bio-based PU belongs to a class of polymers that are manufactured
from renewable biomass sources, such as vegetables fats and oils, corn starch,
and microbes. Increasing environmental concerns and the wide fluctuations in
raw material prices associated with conventional PU are two of the key drivers
for the growth of bio-based PU. Typically, bio-based PU has a “bio” content
ranging from 30% to 70% depending on the type of bio-based feedstock that is
being used for polyol production.
Globally, bio-based PU is nascent in terms of production quantities and
distribution. In 2014, the global production of bio-based PU was approximately
1,700 tons which represents a meagre share of the PU industry. However,
increasing demand for green materials in construction, automotive seating, and
footwear is expected to continue driving the market for bio-based PU in the
future. Strong support from government agencies, including structuring policies
towards bio-based materials, is also expected to have a positive impact on biobased PU. In line with this growing market trend, major chemical companies
such as BASF, DOW, Mitsui Chemicals, and Hitachi Chemical are gradually
entering the market to produce bio-based PU.
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14.6.3
Industry landscape
The PU industry is highly correlated to consumer and economic trends. In most
cases, PU products, and thereby PU are generally categorised as commodity
products and their growth are intricately linked to numerous factors such as
spending on construction, demand for housing, disposable incomes, growth in
automotive production, shifts from traditional materials such as coir for bedding
and furniture, as well as macroeconomic factors such as the price of oil and, inturn, the price of propylene oxide and isocyanates, which form bulk of the costs
of basic PU materials. Furthermore, the price of PU, and thereby PU products
relative to other materials also have strong influence on their adoption by enduser industries.
The global focus of PU is currently on APAC as well as the Middle East
countries. China, India, Thailand, and Vietnam are some of the key markets for
PU due to their large population base and low per capita consumption of PU
compared to developed countries, such as Germany or the United States. The
global per capita consumption of PU was 3 pounds per capita in 2005, which
grew to 4 pounds in 2015, and is expected to reach to 6 pounds of PU per
capita by 2025.
Regional Consumption Breakdown by Volume in 2015:
Rest of World, 10%
China, 27%
Rest of APAC,
18%
North America,
22%
European Union,
23%
China is the largest consumer of PU as it is the largest producer of footwear
and automobiles globally. Approximately 65% of the world’s footwear is
manufactured in China and approximately 15% is produced in India, Vietnam,
and Indonesia, combined. As a result, China and the APAC region (including
China) accounted for almost 45% of the global PU consumption by volume.
APAC is also the manufacturing and export hub for many products globally.
Apart from footwear, some sectors, like the automotive industry in China and
India, are among the largest in the world. In 2015, China manufactured roughly
25 million vehicles, not including two wheelers, and India produced around 4
million vehicles, not including two and three wheelers. Together, they
manufacture approximately 50% of the world’s cars and, in turn, consume
approximately 50% of the PU used for automobiles globally. The growing
property market has also spurred the growth of the furniture, mattress, and
insulation industries, all of which rely heavily on PU as a key raw material.
The European Union (“EU”) and North America accounted for similar shares
globally with 23% and 22% of the demand of PU by volume respectively.
However, the prices of PU in Europe and North America are much higher than
in APAC and other regions.
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14.6.4
Global market potential and forecasts
The broad application of PU, which spans commodity and specialty
applications, has made it a petrochemical which is expected to experience
robust growth from 2015 to 2020. In terms of market potential, the global PU
market was estimated to be 17.5 million tons in 2015. The PU industry is
expected to grow at a CAGR of roughly 6.5% over the next 5 years to
approximately 24 million tons by 2020.
Global PU Industry Size Forecast by Volume, 2015-2020:
Industry Size (Million Tonnes)
30
25
20
17,5
18,6
19,8
21,1
22,5
24,0
15
10
5
0
2015
2016F
2017F
2018F
2019F
2020F
In terms of revenue, the PU industry was estimated at USD 54 billion in 2015. It
is expected to grow at 6.7% CAGR over the next 5 years to reach USD 74.7
billion by 2020. The sales volumes and prices for PU are expected to grow in
tandem over the same time period.
Revenue (USD Billion)
Global PU Industry Size Forecast by Revenue, 2015-2020:
80
70
60
50
40
30
20
10
0
54,0
57,6
2015
2016F
61,5
2017F
65,6
2018F
70,0
2019F
14.7 Analysis of the PU industry in the PRC
14.7.1
Industry structure
Benefiting from the advantages of anti-abrasion, anti-aging, high strength and
toughness, PU has become a major intermediate material for various
application areas such as building materials, electronics, shoes, clothes and
automotive. China’s economic expansion has been driving domestic and
international demand across industries including construction, wholesale, retail,
and transportation. Thus, the need for a high-performance intermediate
material rose which in turn supports the rapid expansion of the PU industry.
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74,7
2020F
Segmentation of PU Industry in the PRC China in 2016:
Rigid Foam
Synthetic
Textiles
Flexible Foam
Synthetic Leather
MDI
PU Elastomer
Building
Materials
Coating
Electronics
Sealants
Transportation
PU/ PU
Resin
TDI
Polyether
Polyol
Others*
Adhesive
Basic PU
Material (from
upstream)
PU/ PU
Resin
PU
Products
End-user
Markets
* Others include medical equipment and adhesives
Basic PU materials such as polyether polyol, TDI, and MDI are produced by
upstream manufacturers in liquid form which are subsequently mixed and
blended until homogeneous. The homogeneous liquid, namely PU, is dispensed
for molding, which can be shaped into different PU products according to their
applications, such as rigid foams, flexible foams, PU elastomers, coatings,
sizing agents and adhesives. There are five major end-user industries for PU
comprising building materials, electronics, transportation-related products,
synthetic textiles and synthetic leathers.
China started to manufacture PU in the 1960s and mainly focused on the
building materials and textile industries during the first-20 years of the PU
industry’s development. In the course of the liberalization and economic reforms
since 1978, China’s annual production capacity of PU grew significantly from
2,500 tons in 1978 to 32,200 tons in 1989, which included wider application
areas such as the synthetic leather and sports equipment industries. Large
isocyanate production machines and polyurethane manufacturing devices were
introduced to China in 1990s, which further accelerated the growth of PU’s
annual production capacity to 141,200 tons in 1997. The application areas of
PU, along with the capacity increase, led to further industries using PU,
particularly within coating and healthcare, producing over 200 types of end
products by 2000. Benefiting from the widening application areas and the
growing domestic need, the annual production capacity of PU has increased
continuously, reaching 9.9 million tons in 2015.
Page 144
14.7.2
Market size and growth trends
Market Size (RMB Billion)
Market Size of PU Industry in the PRC, 2011-2015:
180
160
140
120
100
80
60
40
20
0
156,0
145,5
149,2
131,5
115,8
2011
2012
2013
2014
2015
The market size of the PU industry in China witnessed strong growth from
RMB 115.8 billion (approx. EUR 16.8 billion) in 2011 to RMB 156.0 billion (approx.
EUR 22.6 billion) in 2013 at a CAGR of 16.1%, as a result of the expanding
production capacity and the sizable demand for PU end-use products in China.
However, the lower growth in demand for end products in conjunction with slower
economic growth, coupled with falling average price of PU since 2012 resulted in
the market size of the PU industry by revenue to decline from the historical high
RMB 156.0 billion (approx. EUR 22.6 billion) in 2013 to RMB 131.5 billion (approx.
19.0 billion) in 2015 at a CAGR of negative 8.2%.
Demand (Million
Tonnes)
10,0
11,1%
8,0
11,5%
9,2%
7,5%
6,0
6,1%
4,0
2,0
6,7
7,4
8,2
8,9
9,4
2011
2012
2013
2014
2015
0,0
At a CAGR of 8.8%, the annual demand of the PU industry in China grew
continuously from 6.7 million tons in 2011 to 9.4 million tons in 2015. However,
the annual growth rate of demand slowed abruptly in 2013, corresponding to the
decline of the market size.
PU Industry: Average Price per Tonne* in the PRC, 2011-2015
Amount
(RMB/tonne)
2011
2012
2013
2014
2015
17,283.6
19,662.2
19,024.4
16,764.0
13,989.4
*The ‘Average Price per Tonne’ is calculated by dividing the ‘Market Size’ by ‘Annual
Demand’
The average price for PU per tonne in China declined to RMB 13,989.4
(approx. EUR 2,025) in 2015 compared to RMB 17,283.6 (approx. EUR 2,500)
in 2011. Peaking in 2012 at RMB 19,662.2 (approx. EUR 2,850) per tonne, the
price of PU was affected by factors such as slower growth in demand from end
Page 145
14,0%
12,0%
10,0%
8,0%
6,0%
4,0%
2,0%
0,0%
Annual Growth Rate
Demand of PU Industry in the PRC, 2011-2015:
markets, declining basic PU material costs and excess production capacity.
Nonetheless, according to Market Research Report it is noted that emerging PU
with new technologies, such as waterborne PU, solvent-free PU and flame
retardant PU command a 20% to 30% price premium compared to the
conventional PU (e.g. solvent-based PU) in China. This is mainly attributable to
growing demand for environmentally friendly PU both in the domestic and
export markets as well as limited production capacities of environmental friendly
PU in China.
14.7.3
Product substitution
Substitutions for PU vary according to the end products. Such substitutions are
mainly made with traditional products, namely rubbers, nylons, leathers, and so
on. Due to its relatively advantageous physical properties, such as mechanical
strength, elasticity, adhesive properties, and durability, PU is unlikely to face
severe challenges from these substitutions, especially in the garment and
furniture industries.
Main Types of Resin and Examples of End Products in China (Not Exhaustive):
Main Types of Resin
Examples of End Products
Epoxy
Coatings, Adhesives, Construction Materials, Electronics Devices
Polyester
Bakelite
PU
Synthetic Textiles, Synthetic Leathers, Building Materials, Electronics,
Transportation
PMMA
Instrument Parts, Automotive Lighting, Optics Lens, Transparent Pipes
PVC
Pipes, Cables, Signs, Garments and Furniture, Healthcare, Plasticisers,
Flooring
Switches, Automotive Lightings, Earphones, Phone Shells, Instrument
Shells
Meanwhile, epoxy resin, PVC resin, polymethyl methacrylate (“PMMA”) resin,
and bakelite resin are popular substitutes in China for PU. Compared to other
types of resin, PU and PVC resin are able to cover broader ranges end-user
segments, from textiles and synthetic leathers to industrial supplies including
building materials and transportation-related products. Other resins, however,
are mainly used for industrial purposes.
PVC, as a common substitute for traditional products, is one of the most
popular materials used in China that is similar to PU. However, despite the
popularity of PVC resin since the 1970s, its impermeability and nonhygroscopicity have led to the growing preferences for PU, which presents
outstanding traits for air permeability and hygroscopicity. As prices of PU have
declined, dropping from RMB 19,662.2 (approx. EUR 2,845) per tonne in 2012
to RMB 13,989.4 (approx. EUR 2,025) per tonne in 2015, more downstream
manufacturers chose PU-based materials over PVC-based materials due to its
superior chemical and physical properties despite the lower price of PVC resin,
which cost less than RMB 10,000 (approx. EUR 1,446) per tonne in China in
2014. All of these factors favour the expansion of the PU industry.
Page 146
Main Types of PU Products Substitutes in the PRC:
PU Products
Main Application Area
Flexible Foams
Furniture
(Bedding
mattress) industry
Rigid Foams
Refrigeration
Appliance
applications
Coatings
Substitutes
and
and
other
Insulation
Polystyrene, polyvinyl chloride foams
Across industries
Polyurethane
acrylates,
polyvinyl
acrylates,
polychloroprene, styrene butadiene resins, styrene
acylic coatings, ethyl vinyl acetate, polyisobutene
and polyurea
Across industries
polyacrylates, polyvinyl acrylates, chloroprene rubber
and epoxy
Rubber tyres, conveyor belts,
thin film and cable sheath
applications
Rubber, styrene butadiene rubber, ethylene
propylene diene monomer and polychloroprene
Adhesives
Sealants
Elastomers
Coir, polyimide
As PU products and application areas vary, the substitutes for PU products may
also vary accordingly. The usage of substitutes for PU flexible foam is highly
dependent on the end use product. In the furniture (bedding and mattress)
industry, PU based foams account for 80% to 90% of the foam used with the
remaining being accounted for by coir, which is a dated filler material for
furniture. Furthermore, foams which need to withstand extremely high
temperature swings and harsh environments are made from polyimide.
Rigid PU foams, used extensively for refrigeration and other appliance
insulation applications, have limited substitutes. This is primarily due to the fact
that rigid PU foams have superior thermal insulation properties. However, in the
transportation industry, rigid foams for Sandwich Panels can also be
manufactured using polystyrene. PVC foams are also used to manufacture rigid
foams which can be used in outdoor advertising, indoor signage and prototype
(downscale models) of buildings.
Coatings, Adhesives, Sealants & Elastomers are commonly known as CASE.
CASE applications which are predominantly used in automotive as integral
skins for steering wheels are manufactured using PU only. In the case of auto
bumpers and parts which need extensive moulding, the preferred resin is a
polyolefin, which refers to polypropylene resins, high-density polyethylene
resins, polyamide (nylon resins), and polybutadiene terephthalate resins.
14.7.4
Competitive Landscape
Competition pattern and enterprises
Out of 1,269 manufacturers in China in 2014 with total PU manufacturing
capacity of about 9.4 million tons per annum, the eight largest manufacturers in
the PU industry which collectively contributed 20.2% of the total market shares
by capacity in 2014 are illustrated in the table below. According to the evaluation
in Market Research Report the competitive landscape in the industry based on
total manufacturing capacity of PU of each major players as the breakdown of
capacity for each different end use application (in particular textile and leather
application) is not available.
Page 147
Key Players in PU Industry in the PRC:
Company
Huafon Group Co., Ltd. (“Huafon”)
Manufacturing Capacity
PU: 1.05 million tons/annum
Microfiber: 360 million m
2
Spandex: 87,000 tons
Yantai Huada Chemicals Industry Co.,
Ltd. (“Huada”)
Total 300,000 tons/annum
Shanghai Huide Chemical Industry Co.,
Ltd. (“Huide”)
PU: 150,000 tons/annum
Xuchuan Chemical (Suzhou) Co., Ltd.
(“Xuchuan”)
Zhejiang Hexin Industry Group Co.,
Ltd. (“Hexin”)
Anhui Anli Material Technology Co.,
Ltd. (“Anli”)
Polyester polyol: 80,000 tons/annum
Polyester polyol: 30,000 tons/annum
PU-based synthetic leather: 88.5
million meters
MDI: 2.04 million tons/annum
TDI: 250,000 tons/annum
Wanhua Chemical Group Co., Ltd.
(“Wanhua”)
Polyol: 290,000 tons/annum
TPU: 50,000 tons/annum
Waterborne PU: 60,000 tons/annum
DECHENG PRC
Huafon was established in 1991. Its key products include PU for synthetic
leather, shoe soles and textile application, spandex, microfiber, thermal
insulation materials, thermoplastic polyurethane (“TPU”), and polyester polyol,
etc. Huafon is the largest player in the Chinese PU industry, contributed around
11.1% of the market share in 2014 by capacity, with annual revenue of PU at
RMB 6.0 billion (approx. EUR 0.9 billion).
Huada was established in 1993 in Yantai City, PRC. Its key products include PU
and waterborne PU for synthetic leather and textile application, as well as
polyester polyol.
Huide was established in 1997 in Shanghai City, PRC. Its key products include
PU and waterborne PU for synthetic leather and textile application, as well as
polyester polyol.
Xuchuan was established in 2007 in Suzhou City, PRC. It has four production
sites located in Taicang, Kunshan, Lishui and Wenzhou City, as well as a PU
R&D center in its headquarter in Suzhou City. Its key products include PU for
synthetic leathers, shoe soles and textile application, waterborne PU for
synthetic leathers and polyester polyol.
Hexin started as chamois leather manufacturer in 1984 and was transformed
into PU manufacturer in the mid-1990s and went public in 2010. Its key
products include PU for synthetic leather and textile applications, PU-based
synthetic leather, super fibre leather, synthetic substrate, etc. Hexin holds over
50 patented technologies and achieved annual revenue of RMB 438.3 million
Page 148
(approx. EUR 63.4 million) in 2014 in PU.
Anli was established in 1994 in Anhui City, PRC. Its key products include PU for
synthetic leather and for synthetic textile for shoes, garments, electronics and
sofas. It produces environmental friendly waterborne PU and established
partnerships with 8 distinguished Chinese universities and institutes. Anli
achieved annual revenue of RMB 448.9 million (approx. EUR 64.9 million) in
2014 in PU.
Wanhua was established in 1998 and listed in 2001. Its key products include
isocyanate (e.g. MDI, TDI), polyol, waterborne PU for textile and leather
applications, and TPU. It achieved annual revenue of RMB 21.5 billion (approx.
EUR 3.1 billion) in 2014. Wanhua has set up research centres in Yantai, Beijing,
and Ningbo City, PRC and in Kazincbarcika, Hungary. It plans to establish other
research facilities in Shanghai, Zhuhai, Chengdu City, PRC and in Philadelphia,
U.S.
Market share analysis
Huafon contributed 11.1% of the market share by PU manufacturing capacity in
2014, marking its leading position in PU industry. Huada, Huide, Xuchuan,
Hexin, Anli, Wanhua and DECHENG PRC made up 3.2%, 1.6%, 1.3%, 1.2%,
0.7%, 0.6% and 0.4% respectively of the market share by PU manufacturing
capacity in 2014 while other players in the market shared the rest 79.8% of the
market share by capacity.
Market Share by Manufacturing Capacity of PU by Manufacturers in China
(‘000 Tons per Annum) in 2014:
Huafon, 1.050 ,
11,2%
Huada, 300 , 3,2%
Huide, 150 , 1,6%
Xuchuan, 120 , 1,3%
Hexin, 110 , 1,2%
Anli, 70 , 0,7%
Wanhua, 60 , 0,6%
Others, 7.503 ,
79,8%
DECHENG, 37 ,
0.4%
14.7.5
Industrial outlook and prospects
Domestic consumption in China is expected to remain robust with the
expectation of rising social expenditures and strong wage growth. The healthy
growth in consumption is likely to maintain demand for end products such as
garments, electronics, and automotive products and therefore, the PU industry.
Market Size Forecast of PU Industry in the PRC, 2016F-2020F:
Page 149
14,0%
12,3%
12,0%
10,0%
11,2%
7,1%
5,8%
8,0%
6,0%
2,1%
4,0%
134,3
150,8
167,7
179,6
190,0
2016F
2017F
2018F
2019F
2020F
2,0%
Annual Growth Rate
Market Size (RMB Billion)
200,0
180,0
160,0
140,0
120,0
100,0
80,0
60,0
40,0
20,0
0,0
0,0%
The PU industry in China is projected to regain its momentum in 2016,
supported by the domestic consumption of end products. At a CAGR of 7.6%,
the market size of PU is forecast to grow consistently from RMB 131.5 billion
(approx. EUR 19.0 billion) in 2015 to RMB 190.0 billion (approx. 27.5 billion) in
2020. Meanwhile, an improving demand outlook will also stimulate the annual
demand of the PU industry, expanding from 9.4 million tons in 2015 to 13.9
million tons in 2020.
The excess production capacity of PU and the basic PU materials caused a
drop in the average price of PU from RMB 17,283.6 (approx. EUR 2,500) in
2011 to RMB 13,989.4 (approx. EUR 2,025) in 2015. Given the low crude oil
and commodity prices and the excess production, the average price for PU is
likely to remain low and to fluctuate around RMB 14,000 (approx. EUR 2,025)
per tonne from 2016 to 2020, ending at RMB 13,669.1 (approx. EUR 1,975) per
tonne in 2020.
Demand (Million Tonnes)
16,0
14,0
7.9%
7.4%
8.3%
8.5%
12,0
8.6%
10,0
8,0
6,0
4,0
2,0
10,1
10,9
11,8
12,8
13,9
2016F
2017F
2018F
2019F
2020F
0,0
14.8 Overview of PU for textile applications in the PRC
14.8.1
Definition and segmentation
In the textile industry, PU coating is the most common form of PU products
used for textile production. Additives used for textile applications are generally
silica fillers to reduce gloss, ultraviolet (UV) absorbers, antioxidants, colourants,
and flow improvers. PU coatings on textiles offer a wide range of fabrics
including those for quick-dry clothing, waterproof jackets, windbreakers, and
outdoor supplies such as tents, backpacks, and rain gear. These textiles offer
various properties, including being easy to clean, waterproof, windproof,
lightweight, wear resistant, solvent resistant, and being low-temperature
resistant.
Page 150
10,0%
9,0%
8,0%
7,0%
6,0%
5,0%
4,0%
3,0%
2,0%
1,0%
0,0%
Annual Growth Rate
Demand Forecast of PU Industry in China, 2016F–2020F:
Spandex is a type of PU-based textile, of which the PU used to manufacture
spandex intermediary product is mainly derived from MDI and
polytetramethylene ether glycol (“PTMEG”) under the family of polyether polyol.
Spandex intermediary products are then blended with cotton or nylon to
produce spandex fabric. It is highly elastic and dries quickly, and is used in
various end products such as undergarments; leotards; swimsuits; ski suits;
sportswear; high-grade fabric; fabrics for health care supplies, such as
kneepads, wrist straps, and elastic bandages; gloves; hosieries; belts; and
many others.
The table below shows a few types of PU along with their characteristics and
end applications in the textile industry:
Characteristics
Applications
PU For DryProcess Surface
Layer
Soft, smooth, and resistance to low temperature,
abrasion, yellowing, hydrolysis, solvent, and heat, etc.
Garments
PU For WetProcess
Soft, smooth, high elasticity, good embossability,
fullness and film thickness, non-stick surface, high
peeling strength, etc.
Garments, gloves
PU For Fabric
Coatings
High water pressure resistance, high water vapour
permeability, strong adhesive strength, non-stick
surface, etc.
Garments, tents
Wet Process PU
For Micro Fibre
Soft; resistance to hydrolysis, acids, and alkalis; good
dyeing properties; good elasticity
Microfiber non-woven
fabric
PU Type
The PU industry for textile applications comprises basic PU materials for the
production of PU. These are then used to manufacture spandex or are applied
as PU coatings onto textiles by the original equipment manufacturers ("OEM”)
to enhance the functionalities of the end products. The textiles are then used to
manufacture end product such as tents, waterproof jackets, windbreakers, rain
gear, and backpacks. A typical value chain of the PU industry for textile
applications is shown below:
Value Chain of the PU Industry for Textile Applications:
PU Raw Material
Manufacturer
Textiles OEM
PU Manufacturer
• Manufactures raw
• Manufactures PU for
materials for PU
production of a)
such as isocyanate, spandex
polyether polyol,
intermediary
polyester polyol, etc. products and b)
coatings to enhance
the functionality of
textiles
• Manufactures
spandex fabrics or
applies PU coating
on textiles for enduse applications
End Product
Manufacturer
Distributor
• Manufactures PU- • Wholesalers and
based synthetic
retailers distribute
textiles end-use
the end-use PUapplications such as based synthetic
spandex-based
textile products
clothing, fast-dry
clothing, backpacks,
tents, etc.
14.8.2
Demand conditions
PU are widely used in the textile industry for waterproof jackets, windbreakers,
and in quick-dry clothing such as sports apparel, tents, backpacks, sleeping
bags, and mats. In 2014, China stood as the world’s largest exporter of textiles,
accounting for 35.6% of global textile exports. Textiles export grew at a CAGR
of 9.8% from USD 76.87 billion in 2010 to USD 111.66 billion in 2014. India, as
the second-largest textile exporter, only covered 5.8% of global textile exports in
Page 151
2014. This shows the significance of China in the global textile export industry.
Global spandex production is concentrated in China; its production capacity
accounted for 70% of the total global spandex output in 2014. Global
consumption of spandex is forecast to grow at a CAGR of 8.4% from 0.50
million tonnes in 2013 to reach 0.75 million tonnes in 2018. Meanwhile, China’s
consumption of spandex will grow at a CAGR of 9.2% from 0.40 million tonnes
in 2013 to reach 0.62 million tonnes in 201838.
China is also one of the biggest consumer markets with its large population of
1.37 billion people (as of 2014), which is projected to reach 1.41 billion in 2020.
The per capita annual expenditure on clothing in Chinese urban households
increased 7.0% from RMB 1,027 (approx. EUR 149) in 2013 to RMB 1,099
(approx. EUR 159) in 2014. Revenue in China’s garment industry, both
wholesale and retail, also grew strongly at a CAGR of 9.5% from RMB 506.8
billion (approx. 73.3 billion) in 2010 to RMB 729.2 billion (approx. EUR 105.5
billion) in 2014. In addition, the number of high net-worth individuals in China
was ranked fourth in the world in 2014 after the United States, Japan, and
Germany. Notably, the share of the middle and upper middle class is expected
to reach 76% of all Chinese urban households in 2022, up from 68% in 2012.
With the advantages of PU-coated synthetic textiles and the rising Chinese
population, demand for PU for coating on synthetic textiles in China is poised to
grow at CAGR of 7.7% from 0.40 million tons in 2015 to 0.58 million tons in
2020.
Demand Forecast for PU for Coating on Synthetic Textiles in China, 20112020F:
Demand for PU for Coating
on Synthetic Textiles
(Million Tons)
0,7
0,6
0,54
0,5
0,4
0,3
0,29
0,32
0,35
0,39
0,40
2014
2015
0,43
0,46
0,58
0,49
0,2
0,1
0,0
2011
2012
2013
2016F 2017F 2018F 2019F 2020F
For the production of garments for mass end users, textiles are coated with a
PU coating for a smooth finish. The PU coating offers various functionalities
including being waterproof, windproof, and breathable; possessing thermal,
abrasion, and decolouration resistance; and displaying UV protection. For
specialty garments – such as uniforms for special purposes or for military
forces, firemen, navies, and divers, amongst others – PU-coated textiles offer
properties that include being waterproof, windproof, resistant to low
temperatures, as well as thermal insulation. PU-coated textiles are also suitable
for tents, sleeping bags, leak-proof materials, dual-use backpacks, and water
bags.
The export of end products – which included tents; sleeping bags; sportswear,
such as track suits, ski suits, and swimwear; and overcoats, capes, and wind
jackets – grew at a CAGR of 4.6% from USD 17.77 billion in 2011 to USD 20.31
billion in 2014. The chart below shows the global export trends of selected
products from China.
Global Export Trend of Selected Textile Products from China, 2011-2014:
Page 152
25.000
China's Export of 20.000
Selected Textile 15.000
Products to World
(USD Million) 10.000
5.000
0
Sleeping bags
Synthetic fibre tents
Track suits, ski suits and
swimwear
Woven overcoats, capes and
windjackets
2011
351,5
877,1
2012
323,1
846,3
2013
328,6
948,3
2014
351,7
1.050,6
3.723,2
3.627,9
3.769,2
4.032,2
12.821,6
11.794,3
13.549,2
14.877,6
Domestically, the revenue of clothing, and knitwear and textiles in China also
grew at CAGR of 10.2% from RMB 1.12 trillion (approx. 0.16 trillion) in 2011 to
RMB 1.50 trillion (approx. 0.22 trillion) in 2014, as shown in the chart below.
Revenue of Clothing,
Knitwear and Textiles
(RMB Billion)
Revenue of Clothing and Knitwear and Textiles in China, 2011-2014:
2.000
1.500
1.000
609,0
687,1
729,2
543,3
581,1
634,9
693,0
769,7
2011
2012
2013
2014
500
0
Knitwear and textiles
Clothing
In addition, the global sports apparel market is expected to grow at a CAGR of
4.3% from USD 153 billion in 2015 to USD 189 billion in 2020.
With the increasing awareness of environmentally-friendly products and the
development of waterborne and solvent-free PU, PU coatings are focused on
reducing environmental pollution and the use of petroleum and natural gas in
the production of solvent-based PU.
14.9 Overview of PU for synthetic leather applications in the PRC
14.9.1
Definition and segmentation
The three major PU types which are most commonly used for synthetic leather
applications are:
▪
PU for a dry-process surface layer which includes low temperatureresistance types for bags and shoes, abrasion-resistance types, and nonyellowing types for bags, shoes, and sofas;
▪
PU for a dry-process adhesive layer type which includes a one component
type, one-and-a-half component type, and two component type for shoes
and bags; and
▪
PU for a wet-process type which includes a high peeling strength type for
shoes and bags, and a hydrolysis resistance and high peeling strength type
for shoes.
Page 153
The table below shows a few types of PU along with their characteristics and
end applications in the synthetic leather industry:
Characteristics
Applications
PU For DryProcess Surface
Layer
Soft or hard; smooth; resistance to low temperature,
abrasion, yellowing, hydrolysis, solvent, and heat.
Shoes, sofas, bags
PU For DryProcess Adhesive
Later Type
Soft; resistance to low temperature, yellowing,
hydrolysis, solvents; and good adhesive strength, etc.
Shoes, bags
PU For WetProcess
Soft to hard, smooth, high elasticity, good
embossability and film thickness, non-stick surface,
high peeling strength, high coagulation speed, etc.
Shoes, bags, sofas,
boots
PU Type
The PU industry for synthetic leather applications comprises basic PU materials
for the production of leather PU. These PU are then passed on to PU-based
synthetic leather OEMs to manufacture the PU-based synthetic leather, before
being manufactured into end products such as leather clothing, leather shoes,
leather sofas, leather bags, and others. A typical value chain of the PU industry
for leather application is shown below:
PU Raw Material
Manufacturer
PU Manufacturer
Synthetic
Leather OEM
End Product
Manufacturer
Distributor
• Manufactures PU- • Manufactures PU- • Wholesalers and
• Manufactures raw
• Manufactures PU
based synthetic
materials for PU
and additives to
based synthetic
retailers distribute
leathers for end-use leather end-use
such as isocyanate, enhance
the end-use PUpolyether polyol,
functionalities of PU applications
applications such as based synthetic
polyester polyol, etc. products.
leather sofas,
leather products
leather clothing,
shoes, bags, etc.
14.9.2
Demand conditions
PU synthetic leather has a wide range of applications that include leather sofas,
leather clothing, shoes, footballs, bags, and car leather upholstery, among
others. In 2000, China overtook Taiwan to become the largest producer of
synthetic leather. By 2014, China’s production capacity accounted for more than
80% of the total global synthetic leather output.
In addition, Chinese consumption for PU-based synthetic leather products
experienced strong growth at a CAGR of 12.3% from 3.03 billion sqm in 2010 to
4.29 billion sqm in 2013. Among the various synthetic leather products, in 2013,
leather shoes represented the largest synthetic leather end-application market
(at 37.4%), followed by leather furniture (18.1%), and leather clothing (16.3%).
However, leather clothing was the fastest-growing end-application market with a
CAGR of 28.0% from 2010 to 2013, followed by car interiors (11.3%) and
leather shoes (10.9%). Overall, the Chinese consumption of PU-based synthetic
leather products is expected to continue growing at a stable CAGR of 6.5% to
reach 6.67 billion m2 in 2020.
Consumption Forecast of PU-based Synthetic Leather Products in China, 20102020F:
Page 154
7.000
6.000
5.000
4.000
3.000
2.000
1.000
0
Others
2010
198,0
2011
238,0
2012
280,0
2013 2014E 2015F 2016F 2017F 2018F 2019F 2020F
325,0 346,1 368,6 392,6 418,1 445,3 474,2 505,0
Car interior
205,0
226,0
244,0
283,0
301,4
321,0
341,8
364,1
387,7
412,9
439,8
Balls
53,0
56,0
58,0
63,0
67,1
71,5
76,1
81,0
86,3
91,9
97,9
Leather shoes
1.177,0 1.325,0 1.458,0 1.607,0 1.711,5 1.822,7 1.941,2 2.067,4 2.201,7 2.344,8 2.497,3
Leather furniture 631,0
669,0
709,0
779,0
829,6
883,6
941,0 1.002,2 1.067,3 1.136,7 1.210,6
Leather bag
437,0
463,0
491,0
537,0
571,9
609,1
648,7
690,8
735,7
Leather clothing
333,0
578,0
647,0
699,0
744,4
792,8
844,4
899,2
957,7 1.019,9 1.086,2
783,6
834,5
Driven by a growing Chinese population and an increasing urbanization rate,
demand for PU for the production of synthetic leather, synthetic leather sofas,
and sports gear in China is poised to grow at a CAGR of 6.9% as a whole, from
1.93 million tonnes in 2015 to 2.70 million tonnes in 2020, as shown in the chart
below.
Demand Forecast for PU for Synthetic Leather Products in China, 2011-2020F
Demand for PU for Synthetic
Leather in China (Million
Tonnes)
Consumption of PU-based Synthetic Leather
Products in China (Million m2)
8.000
3,0
2,5
2,0
1,5
1,0
0,5
0,0
2011
2012
2013
2014
2015
Sports gear
0,19
0,21
0,23
0,25
0,27
2016F 2017F 2018F 2019F 2020F
0,29
0,31
0,34
0,37
0,40
Synthetic leather sofa
0,14
0,15
0,16
0,17
0,19
0,20
0,21
0,23
0,26
0,27
Synthetic leather
1,04
1,16
1,30
1,39
1,47
1,58
1,69
1,81
1,93
2,03
Page 155
15.
REGULATORY ENVIRONMENT
Set forth below are summaries of certain PRC laws and regulations applicable to
DECHENG’s operations and business.
15.1 PRC Legal System
The PRC is a unitary state and all power theoretically flows from the central congress and
government in Beijing which in turn grants certain powers, subject to a number of
limitations, to the provincial and local authorities. Formal legislative power is centered in
the National People’s Congress (“NPC”). The State Council under the Premier carries out
the daily work of government including enacting administrative regulations. The Supreme
People’s Court issues judicial interpretations which are equivalent to laws and applied by
all other local courts throughout the PRC. Below the Supreme People’s Court are the
Higher Level People’s Courts at the provincial level, the Intermediate Level and then the
Basic Level People’s Courts at the local level. A majority of lawsuits relating to foreign
affairs are heard in the Intermediate Level People’s Courts where its judges are more
familiar with disputes involving foreign investors.
The introduction of new commercial legislation can often be tied to the shift from public to
private ownership that has taken place in the PRC over the last 15 years. PRC citizens
have become shareholders and accumulated their own private wealth; they are enjoying
previously unimagined levels of autonomy and strong laws such as the Property Law that
was passed in early 2007 for the purpose of protecting property freedom.
15.2 The General Principles of the Civil Law
The General Principles of the Civil Law (the Principles of Civil Law) were adopted by the
NPC on 12 April 1986 and came into force on 1 January 1987. The Principles of Civil Law
is formulated for the purpose of protecting the lawful civil rights and interests of citizens
and legal persons as well as correctly adjusting civil relations. According to the Principles
of Civil Law, all parties in a civil law relationship shall enjoy equal legal positions and all
civil law activities shall abide by the principle of voluntariness, all persons shall act in
good faith without causing harm to others. In the following chapters, the Principles set out
general rules on the obligations of contractual and non-contractual parties and the
concept of damages.
15.3 PRC Company Law
The establishment and operation of corporate entities in China is governed by the
Company Law, which was promulgated by the Standing Committee of the NPC on 29
December 1993 and became effective on 1 July 1994. It was subsequently amended on
25 December 1999, 28 August 2004, 27 October 2005 and 28 December 2013,
respectively. The amendments to the Company Law published on 28 December 2013
and adopted on 1 March 2014 seek to lower the requirements for registered capital and
simplify the establishment of company.
The Company Law applies to all companies registered in the PRC, including foreigninvested companies to the extent not provided in FIE Regulations and generally governs
two types of companies. Companies under the Company Law have the status of legal
persons, and the liability of a company to its creditors is limited to the value of assets
owned by the company. Liabilities of shareholders of a limited liability company are
generally limited to the amount of registered capital they have subscribed to. All directors
and supervisors must act in a loyal and diligent way towards the company. A liability
arises for damages in case a director, supervisor or senior manager violates the laws, the
administrative regulations or the articles of association (Satzung) whilst performing
his/her duties. A shareholder may institute legal proceedings against the unlawful acts of
a director, supervisor, manager or third party that have harmed the interests of the
company or the shareholder.
The management structure of a limited liability company shall be constituted by the
shareholders, board of directors, board of supervisors and other members of the
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management such as senior managers and the general manager. The board of directors
(for companies with a smaller scope, only one executive director may be appointed) is the
indispensable organ of the limited liability company. It shall be responsible for exercising
the management functions and powers such as executing resolutions made at
shareholders' meetings, determining the company's operational plans and investment
plans, formulating the company's annual budgets and final account plans, formulating the
company's profit distribution plans and loss recovery plans, etc. Primary responsibilities of
the board of supervisors (for companies with a smaller scope, only one supervisor may
be appointed) include inspecting the financial affairs of the company, supervising
performance of the directors and senior managers, requiring any director or senior
manager to take corrective action where his/her actions damage the interests of the
company, etc. A limited liability company may have a manager appointed by the board of
directors, or the post of manager may be directly held by executive director. The manager
shall be responsible to report to the board of directors and shall assume the responsibility
covering a range of executing the daily operation of production and business, executing
the plan made by the board of directors, formulating the inner management of the
company, etc. Besides the aforesaid management structure of limited liability company,
the legal representative holds a very important function for the operation of the company.
The position of the legal representative shall be taken by the chairman of board of
directors, executive director or manager and registered with the Administration for
Industry and Commerce (“AIC”). The legal representative has full powers by law to
represent the company.
15.4 M&A Provisions
The Provisions on the Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors (the “M&A Provisions”) were promulgated by MOFCOM, CSRC, the Stateowned Assets Supervision and Administration Commission of the State Council, the State
Administration of Taxation, the State Administration for Industry and Commerce (SAIC)
and SAFE on 8 August 2006. The M&A Provisions became effective on 8 September
2006 and amended in 2009. The M&A Provisions provide rules which foreign investors
must comply with when purchasing a stake in a domestic non-foreign-funded enterprise
or subscribing to the increased capital of a domestic company, thus changing the
domestic company into a foreign-funded enterprise. The M&A Provisions are also
applicable if a foreign investor establishes a foreign-funded enterprise, through which it
purchases the assets of a domestic enterprise and operates its assets, or, if a foreign
investor purchases the assets of a domestic enterprise, and then invests such assets to
establish a foreign-funded enterprise and operates the assets.
The M&A Provisions among other things, require that an offshore special purpose vehicle
(“SPV”) formed for listing purpose controlled directly or indirectly by PRC enterprises or
individuals and has acquired domestic entities obtain CSRC approval before it lists
overseas. On 21 September 2006, CSRC published on its official website procedures
specifying documents and materials required to be submitted to it by SPVs seeking
CSRC approval of their overseas listings. However, significant uncertainty remains with
regard to the extent and applicability of the M&A Provisions to overseas listing of offshore
SPVs.
15.5 Foreign Investment Regulations
Investment activities in the PRC by foreign investors are mainly governed by the
Guidance Catalogue of Industries for Foreign Investment (“Catalogue”), which will be
promulgated and amended from time to time jointly by MOFCOM and the National
Development and Reform Commission (“NDRC”). The latest version of the Catalogue, as
amended, became effective on 10 April 2015 and divides, like the former versions,
industries into three categories for foreign investment: encouraged, restricted and
prohibited. Industries that are not covered by the Catalogue are permitted for foreign
investment.
Foreign-invested enterprises are subject to approval of the MOFCOM or its local
counterpart depending on the total amount of investment for the establishment in the
PRC. Following the establishment of such a foreign-invested enterprise, any material
corporate changes, including capital increase or reduction, change in business scope,
Page 157
transfer of shares, also require approval by MOFCOM or its local counterpart. For specific
industries, the approval of the ministry with responsibility for such industry is needed in
order to apply for the approval by MOFCOM or its local counterpart. The establishments
of foreign-invested enterprises as well as major corporate changes must be registered
with the responsible registration authority, i.e. the State Administration for Industry and
Commerce (“SAIC”) or its local counterpart.
15.6 Foreign Exchange Regulation
The Company’s subsidiary in the PRC is subject to PRC laws and regulations on
currency conversion. One of the key authorities with respect to foreign exchange is SAFE
which supervises and controls the foreign exchange market.
15.6.1
The Regulation on Foreign Exchange Administration
SAFE controls, inter alia, specific transactions involving the flow or conversion
of foreign exchange in the PRC. Transaction items are treated differently,
subject to whether they qualify as current account or capital account items.
Recurring account items refer to ordinary transactions including receipts and
payments. In contrast, capital account items refer to items of increase or
decrease in debt and equity due to inflow or outflow of capital. The State
Council adopted the Regulation on Foreign Exchange Administration which
came into force on 1 April 1996, and most recently amended on 5 August 2008.
According to this regulation, the RMB is convertible for recurring account items
including the trade and service-related foreign exchange transactions and other
current exchange transactions, but not for capital account items, such as direct
investments, loans, repatriation of investments in equity interests, which are still
subject to the approval of SAFE or its local counterparts.
15.6.2
The Regulations on the Sale and Purchase of and Payment in Foreign
Exchange
Pursuant to the Regulations on the Sale and Purchase of and Payment in
Foreign Exchange which became effective on 1 July 1996, domestic institutions
in China may only buy, sell and/or remit foreign currencies at those banks
authorized to conduct foreign exchange business after providing valid
commercial documents and, in the case of capital account item transactions,
obtaining approval from SAFE or its local counterparts. Capital investments
outside the PRC by domestic institutions in the PRC are also subject to
limitations, which include approvals by or registration with SAFE and other
relevant government authorities.
15.6.3
Circular 19
The Circular of the State Administration of Foreign Exchange Concerning the
Reform of the Administrative Approaches to Settlement of Foreign Exchange
Capital of Foreign-invested Enterprises (“Circular 19”) was issued on 8 April
2015 and became effective on 1 June 2015. Circular 19 is one of a number of
measures recently implemented in order to regulate the use of the registered
capital of foreign-invested enterprises settled in RMB and converted from
foreign currencies. Due to its potential impact on acquisitions and investments
in China carried out via foreign-invested enterprises it may have significant
consequences for foreign investors.
A significant number of foreign-invested enterprises in the PRC denominate
their registered capital in a foreign currency and then convert their registered
capital into RMB. This converted capital is then used to develop their enterprise
in the PRC. Circular 19 provides that the foreign exchange capital in the FIE's
capital account, recognized by the foreign exchange authority as the right and
interest of cash contribution (or registered by the bank for accounting entry of
cash contribution), can be settled in banks according to its actual business
requirements, that is the voluntary settlement of foreign exchange capital. The
provisional percentage for the voluntary settlement of foreign exchange capital
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of FIEs is 100 percent. According to the Circular 19, the utilization of FIEs’
capital shall be subject to the principles of authenticity and self-use within the
business scope. FIEs' capital and RMB funds from their settlement shall not be
used for the following purposes: (I) directly or indirectly used for payment
beyond the business scope or prohibited activities under the laws and
regulations of the PRC; (II) directly or indirectly used for securities investments,
unless otherwise prescribed under the laws and regulations; (III) directly or
indirectly used for the extension of RMB entrusted loans (unless permitted by
the business scope), repayments of inter-enterprise borrowings (including thirdparty advances), and repayments of RMB bank loans already refinanced to any
third party; (IV) used for the payment of expenses related to the purchase of
real estate not for self-use, except for foreign-invested real estate enterprises.
Furthermore, the use of Renminbi converted from foreign capital to acquire
equity interests in Chinese companies or to establish Chinese companies shall
be subject to the existing PRC regulations on domestic reinvestments.
15.6.4
SAFE Notice 37
On 4 July 2014, SAFE issued the Notice on Issues concerning Foreign
Exchange Management in Financing and investment by PRC Residents by
Overseas Special Purpose Vehicle and Roundtrip Investments (“SAFE Notice
37”), which became effective on 4 July 2014. Pursuant to SAFE Notice 37,
SPVs are foreign companies that are established by or controlled by PRC
residents (including domestic entities and domestic resident persons) for raising
financing or investment outside of PRC. Such PRC residents are required to file
an “overseas investment foreign exchange registration” before making capital
contribution to such SPV and subsequently, to update such registration on the
occurrence of specified events such as (i) the change on the basic information
such as individual shareholders, name, business term, etc. of the PRC entity;
(ii) material event such as capital increase, capital decrease, share transfer or
swap, merger, division, etc.. Subject to completion of the aforesaid registration,
payment of dividends, profits and other payments to such SPV will be permitted.
Under SAFE Notice 37, where a PRC resident or passport holder violates the
provisions in this Notice and constitutes evasion of foreign exchange or violation
of any other rule on foreign exchange administration, the foreign exchange
office shall give penalties in accordance with the Regulation of the PRC on
Foreign Exchange Administration and other relevant provisions. In addition,
non-compliance with the provisions of SAFE Notice 37 may result in restrictions
concerning the foreign exchange activities of the relevant onshore company,
including the payment of dividends and other distributions to its offshore parent
or affiliate and the capital inflow from the offshore entity.
15.7 Dividend Distribution by WFOE
The principle rules governing distribution of dividends by a wholly foreign-owned
enterprise (“WFOE”) are set out in the PRC Company Law (1993), as amended in 2005
and 2013, the Wholly Foreign-Owned Enterprise Law (1986), as amended in 2000 and
the Wholly Foreign Owned Enterprise Law Implementation Rules (1990) as amended in
2001 and 2014.
According to these rules, a WFOE may pay dividends only out of their accumulated
profits, if any, determined in accordance with PRC accounting standards and regulations.
Before any profits can be distributed, the WFOE must first set aside 10% of the profits
after tax as reported in its PRC statutory financial statements to its statutory common
reserve fund in each year, up until the aggregate balance of its statutory common reserve
fund has reached 50% of the company’s registered capital. In addition, a WFOE may set
aside certain amounts out of its accumulated profits each year for bonus and welfare
funds. The amounts set aside in these funds are not distributable as cash dividends to
the shareholders of the WFOE.
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15.8 Taxation of Dividends received from PRC in Hong Kong
Chargeability to profits tax is regulated under section 14 of the Inland Revenue Ordinance
of Hong Kong (“HK IRO”). Profits tax shall be charged on assessable profits arising in or
derived from Hong Kong from trade, profession or business carrying on in Hong Kong at
the standard tax rate which is currently 16.5%. Under section 26 of the HK IRO, dividend
income can be exempt from Hong Kong’s profits tax only if it is received from a
corporation which is chargeable to Hong Kong’s profits tax. Dividend income received
from a PRC subsidiary company cannot be exempt from Hong Kong’s profits tax under
section 26 since the PRC subsidiary is not subject to Hong Kong’s profits tax. However,
under section 14 of the HK IRO, only profit sourced in Hong Kong is subject to profits tax.
Since the dividend income is received from a PRC subsidiary which is based in the PRC
and source of income is outside Hong Kong, the dividend income of the Hong Kong
corporation received from its PRC subsidiary company is not taxable under section 14 of
the HK IRO. There is no rule of withholding tax on dividend in Hong Kong, payer of
dividend is not required by law to withhold any dividend payment for tax purpose.
15.9 PRC Tax Laws
15.9.1
The EIT Law
The new EIT Law and the new Implementation Rules were adopted by the NPC
on 16 March 2007 and came into force on 1 January 2008. Under the previous
tax regulations, the general enterprise income tax rate for foreign-invested
enterprises (“FIE”) was 33% which comprised of 30% national and 3% local
income tax. In some special zones, regions and industries, according to the
previous income tax regime, the applicable tax rate may be as low as 15% or
24%. Under the previous tax law, manufacturing FIEs with a term of operation
exceeding ten years were usually entitled to a tax holiday of two years full
exemption followed by a three years term of 50% tax exemption beginning the
first profitable year after previous losses have been made up. The new EIT Law
sets forth a unified tax rate for both foreign-invested and domestically owned
companies. The new EIT Law provides that the 15% tax rates in the special
zones and regions will gradually be increased to 25% in the next five years.
According to the new EIT Law, tax holidays for FIEs will be phased out.
However, the new EIT Law provides a grandfathering period for FIEs which was
approved prior to the promulgation of the EIT Law. If the tax holidays have not
started due to losses, they shall be deemed to commence from the beginning of
2008, i.e. tax holidays can only be utilized until 2012.
The concept of tax resident enterprise (“TRE”), however, which was introduced
by the EIT Law, states that any (offshore) enterprise whose de facto
management body is located in the PRC will be subject to income tax at a rate
of 25% on its worldwide income under the EIT Law. According to the
Implementing Rules of the EIT Law, the term “de facto management body” shall
refer to the body that is in charge of the management and exercises essential
control over the enterprise with respect to its operation, personnel, accounts
and assets. In case either DECHENG HK or the Company is considered a TRE,
it would be subject to enterprise income tax in China on their worldwide income,
including dividends received at a rate of 25%.
15.9.2
Withholding Tax on Dividends and Capital Gains
Prior to 1 January 2008, dividends derived by foreign enterprises from business
operations in the PRC were not subject to the PRC enterprise income tax.
However, such tax exemption ceased when the new EIT law became effective
on 1 January 2008 and a withholding tax rate of 10% now applies to such
dividends, subject to reductions by the relevant tax treaties, if applicable.
The EIT Implementing Rules provide that, (i) if the enterprise that distributes
dividends is domiciled in the PRC; or (ii) if gains are realized from transferring
equity interests of enterprises domiciled in the PRC, then such dividends or
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capital gains are treated as China-sourced income and subject to PRC
withholding tax.
Pursuant to a special tax arrangement between Hong Kong and the PRC, the
tax rate of 10% may be lowered to 5% if, among other things, the PRC
enterprise is at least 25% held by a Hong Kong enterprise and subject to the
approval of the competent PRC tax authorities.
15.9.3
The Interim Regulation on Value Added Tax (VAT)
The Interim Regulation on VAT was amended and adopted by the State Council
on 5 November 2008 and came into force on 1 January 2009 and its
implementation rules were effective from 25 December 1993 and amended on
15 December 2008 and 28 October 2011. Pursuant to The Interim Regulation
on VAT, enterprises and individuals engaged in the sale of goods, supply of
processing, repair and replacement services, and import of goods within the
territory of the PRC are taxpayers of VAT and shall pay VAT. VAT taxpayers
are divided into general taxpayers and small-scale taxpayers. A small-scale
VAT taxpayer is a manufacturer who has annual taxable sales of less than
RMB 500,000 (approx. EUR 72,300) or a distributor or retailer who has annual
taxable sales of less than RMB 800,000 (approx. EUR 116,000).
Different tax rates and calculation of tax amounts will be applied respectively.
The VAT payable by a general taxpayer equals the balance between the output
tax amount and the input tax amount incurred. The VAT rate is normally 17%
and a lower rate of 13% is applied to certain categories of goods. Goods and
services of a small-scale taxpayer are subject to lower VAT rate at 3%.
However, a small-scale taxpayer cannot deduct the paid input VAT charged on
imported or domestically purchased materials from the payable amount of
output VAT.
15.9.4
Tax Collection for Share Transfer by Non-PRC Resident Enterprises
Pursuant to the ‘‘Notice on Strengthening the Administration of Enterprise
Income Tax on Income from the Transfer of Shares by Non-PRC Resident
Enterprises’’ (the “Notice 698”) effective from 1 January 2008, gains derived
from any transfer of equity interests refer to gains derived from such transfer of
equity interests in a PRC resident enterprise (excluding shares of any PRC
resident enterprise publicly purchased and sold on a stock exchange) by a nontax resident enterprise.
According to ‘‘the Announcement of the State Administration of Taxation of the
PRC on Issues Relating to Enterprise Income Tax on Gains from Indirect
Transfer of Assets by Non-Tax Resident Enterprises’’ issued and implemented
on 3 February 2015 (the “Circular 7”), any indirect transfer of equity interests in
PRC resident enterprises, which is arranged by non-tax resident enterprises
without justifiable commercial purposes and for the purpose to circumvent the
relevant obligations of enterprise income tax, will be deemed as a direct transfer,
according to Article 47 under the ‘‘Enterprise Income Tax Law of the PRC’’. If
non-tax resident enterprises, through direct or indirect transfer of equity
interests or other similar interests (hereunder referred to as ‘‘Equity Interests’’)
in overseas enterprises that hold taxable assets in the PRC (excluding any PRC
resident enterprise registered outside the PRC, hereinafter referred to as
‘‘Overseas Enterprises’’), undertakes any transaction which generates the
same or substantially similar end results as if the transaction was a direct
transfer of taxable assets in the PRC (including change of shareholders of
Overseas Enterprises due to reorganization of non-tax resident enterprises), it
is considered as an indirect transfer of taxable assets in the PRC. The following
taxation treatment for any indirect transfer of taxable assets in the PRC shall be
complied with:
1. the amount derived from institutions set up inside the PRC and the properties
on the premise attributable to any Overseas Enterprise and any of its
subsidiaries that directly or indirectly holds taxable assets in the PRC shall be
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the gains actually related to such institutions and premises, thus becoming
taxable according to Article 3.2 under the ‘‘Enterprise Income Tax Law of the
PRC’’;
2. in addition to the previous scenario, the amount of real estate inside the PRC
shall be gains derived from any transfer of such real estate inside the PRC, thus
becoming taxable according to Article 3.3 under the ‘‘Enterprise Income Tax
Law of the PRC’’;
3. if not mentioned in the first two scenarios, the amount derived from equitybased investment assets attributable to any PRC resident enterprise shall be
gains derived from such transfer of equity-based investment assets inside the
PRC, thus becoming taxable according to Article 3.3 under the ‘‘Enterprise
Income Tax Law of the PRC’’.
15.10 Tort Liability Law
The Tort Liability Law of the PRC was adopted by the NPC’s Standing Committee on
26December 2009 and has come into force on 1 July 2010. The Tort Liability Law is
formulated for the purpose of protecting the legal rights and interests of civil subjects,
defining tort liability, preventing and sanctioning acts of tort. The “civil rights” are personal
and property rights including the right to life, right to health, right of name, right of
reputation, right of honor, portrait right, right to privacy, autonomy in marriage,
guardianship, ownership, usufruct, real rights granted by way of security, copyright,
patent, rights to exclusive use of trademarks, right of discovery, equity interest and right
of inheritance. According to the Tort Liability Law, the infringee is entitled to seek tort
liability on the part of the tortfeasor and in the event that the property of the tortfeasor is
insufficient to pay for his or her tort liability and administrative or criminal liability for the
same act, he or she shall first and foremost assume his or her tort liability.
According to the Tort Liability Law, the liability is mainly assumed through the cessation of
the infringing act, the removal of obstacle, the elimination of danger, the restitution of
property, the restitution of original state, the compensation for loss, formal apology and
the elimination of adverse effect and restoration of reputation. Under the Tort Liability Law,
employer shall be liable for the damages caused by its employees to others in the course
of performing work duties. A manufacturer shall be liable for any damages caused due to
its defective products. With regard to the environmental issues, the Tort Liability Law
highlighted the principle that polluters should assume liabilities for harm caused by
environmental pollution, unless the polluter can prove that there is no causation of liability.
The Tort Liability Law also establishes a separate chapter regarding product liability.
Compared to other laws and regulations in relation to product liability, the Tort Liability
Law expressly provides that, in the event a defective product causes death or serious
personal injury and the entity that manufactures and distributes such defective products
has knowledge of the existence of such defects, such entity may be sued for punitive
damage.
15.11 Product Liability Law
The principal law governing product liability is the Product Quality Law, which was
promulgated on 22 February 1993 and amended in 2000 and 2009 respectively.
The Product Quality Law is applicable to all activities of production and sale of any
product which within the PRC, and the producers and sellers shall be liable for product
quality in accordance with its provisions.
According to the Product Quality Law, products must satisfy the following requirements:

being free from unreasonable dangers to the personal or property safety,
and confirming to the national or industrial standards for safeguarding the
health and personal or property safety;

possessing the functions for the use that the product ought to possess;
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
confirming to the product standards marked on the product or on the
package thereof, and to the quality conditions indicated by way of product
directions and product sample.
Violations of the Product Quality Law may result in the imposition of administrative fines.
In addition, the business operator will be ordered to suspend its operations and its
business license may be revoked. Criminal liability may be incurred in serious cases.
According to the Product Quality Law, if damages are done to a person or the properties
of others due to the defective products, the victims may claim compensation either from
the producers or sellers. If the responsibility rests with the producers and the
compensation is paid by the sellers, the sellers have the right to recover their losses from
the producers. If the responsibility rests with the sellers and the compensation is paid by
the producers, the producers have the right to recover their losses.
15.12 Protection of Intellectual Property Rights
15.12.1 Trademark Law
The PRC Trademark Law was promulgated on 23 August 1982, and was
amended for the first time on 22 February 1993, for the second time on 27
October 2001 and for the third time on 30 August 2013 by the NPC Standing
Committee, followed by the Regulation for the Implementation of the PRC
Trademark Law in 2014. The PRC is a signatory to the Madrid Agreement and
the Madrid Protocol by which an international registration has the same effect
as an application for registration of the mark made in each of the countries
designated by the applicant.
The PRC Trademark Office is competent for the registration and administration
of trademarks for the whole of the PRC.
According to the PRC Trademark Law, the duration of trademark rights shall be
ten years, counted from the date of registration, and it is renewable. The
protection of the trademark rights starts from the registration date and is limited
to the registered trademark and the designated goods/services thereof.
In the event of any acts which infringe the right to the exclusive use of a
registered trademark, the registrant of that trademark or persons who have a
legal right which may be harmed by another person's act can choose to seeking
redress in a court of law or request the administrative department of industry
and commerce to launch an investigation
According to this law, a trademark registrant may, by concluding a trademark
licensing contract, authorize another person to use its registered trademark.
The licensor shall supervise the quality of the commodities on which the
licensee uses the licensor’s registered trademark, and the licensee shall
guarantee the quality of the commodities on which the registered trademark is
to be used. The licensee must indicate the name of the licensee and the origin
of the commodities on the commodities on which that registered trademark is
used. The trademark licensing contract shall be submitted to the Trademark
Office for the purpose of archive.
15.12.2 Patents
The PRC Patent Law was promulgated on March 12, 1984, and was latest
amended for the third time on 27 December 2008 by the Standing Committee of
NPC, followed by the amendment to the Regulation for the Implementation of
the PRC Patent Law in 2010.
According to the PRC Patent Law, there are three types of patent, namely
invention, utility model and design patent. An invention patent is valid for 20
years, whereas a utility model and a design patent is valid for 10 years, all from
the initial date on which the patent application was filed. The validity period is
not renewable. Patent applications must be filed with the State Intellectual
Property Office (“SIPO”) in Beijing.
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A patent holder who believes the patent is being infringed may either file a civil
legal suit or file an administrative complaint with a competent local office of
SIPO. A PRC court may issue a preliminary injunction upon the patent holder’s
or an interested party’s request before instituting any legal proceedings.
Damages for infringement are calculated as either the loss suffered by the
patent holder arising from the infringement or the benefit gained by the
infringing party from the infringement. If it is difficult to ascertain damages in this
manner, damages may be determined on the basis of the license fee under a
contractual license. If damages cannot be determined, statutory damages
ranging from RMB 10,000 (approx. EUR 1,446) to 1,000,000 (approx. EUR
144,600) may be requested.
Under the PRC Patent Law, where a person possesses the means to utilize a
patented technology, but such person cannot obtain a license from the patent
holder on reasonable terms and within a reasonable period of time, the SIPO is
authorized to grant a compulsory license. A compulsory license can also be
granted where a national emergency or any extraordinary state of affairs occurs
or where the public interest so requires.
Patents issued in the PRC are not enforceable in Hong Kong, Taiwan or Macau,
which each have independent patent systems. Although patent rights are
national rights, there is also a large degree of international co-operation under
the Patent Cooperation Treaty, or the “PCT”, to which China is a signatory.
Under the PCT, applicants in one country can seek patent protection for an
invention simultaneously in a number of other member countries by filing a
single international patent application. The fact that a patent application is
pending is no guarantee that a patent will be granted, and even if granted, the
scope of a patent may not be as same as the subject of the initial application.
15.12.3 Internet Domain Name
Internet domain names in the PRC are regulated by the Administrative
Measures on the PRC Internet Domain Name, which were promulgated by the
Ministry of Industry and Information Technology and came into effect on 20
December 2004, and the Implementation Rules of Registration of Domain
Name, which was promulgated by PRC’s domain name registrar, CNNIC, and
came into effect on 29 May 2012. Registration of domain names with CNNIC
follows the “first to file” principle and applicants are required to register through
domain name registration service organizations. Domain name service
organizations accept applications for network domain names and domain name
registration applicants become holders of the registered domain name after
registration. A holder needs to pay operation fees on time to keep its registered
domain name or otherwise the domain name registrar may revoke the domain
name. In case there is any change to the registration information of a domain
name, the holder shall file the changes with the domain name registrar within 30
days after such changes. The CNNIC is responsible for the administration of
“.cn” domain names and Chinese domain names. Disputes in respect of domain
names are regulated by the Measures on Resolution of Disputes regarding
Domain Names which was issued by CNNIC and revised on 28 May 2012 and
its implementing rules, according to which disputes shall be settled by
organizations approved by CNNIC.
15.13 Labor Law
Labor relations in the PRC are governed by various laws, regulations and local
government policies. The most important ones are the 1994 Labor Law of the PRC and
the new Labor Contract Law that came into effect on 1 January 2008. Both laws are
supplemented by local and subsidiary rules. An employee is regarded as an individual
who performs physical or mental work in enterprises, institutions and government
authorities and earns his living primarily from wages or salaries.
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15.13.1 The Labor Contract Law
The Labor Contract Law was adopted by the Standing Committee of the NPC
on 29 June 2007 and came into force on 1 January 2008 with further
amendments made on 28 December 2012. The Labor Contract Law has a
significant impact on all existing and future employment relationships under
PRC law. Pursuant to the Labor Contract Law, labor contracts shall be entered
into if employment relationships are to be established between employer and
the employee. There is no national standard employment contract but some
local labor authorities have prepared their own standard contract.
The Labor Contract Law has strengthened an employee’s position by stipulating
written contracts and minimum contents including the term of the contract, the
place of work and the working hours, the remuneration to be paid to the
employee and the work conditions. The Labor Contract Law imposes severe
consequences and sanctions on employers for non-compliance with the
conclusion of employment contracts in written form. Consequences can include
the doubling of the employee’s salary for the relevant period of time, should an
employer fail to conclude a written employment contract for a period of one
month to one year after the actual commencement of work. If no written contract
has been concluded after more than one year, an unfixed-term of contract is
deemed to have been concluded.
The PRC Labor Contract Law also provides that an employer who terminates
an employment contract in violation of laws shall continue to perform the
employment contract if the employee demands it. If the employee does not want
to continue the employment or if the performance of the employment contract
has become impossible, the employer shall pay the employee damages in the
amount of twice the severance payment.
An employer cannot require an employee to work in excess of statutory time
limits and shall pay wages which are no lower than the applicable local
standards on minimum wages. The employer shall establish a sound system for
employment protection, strictly abide by the rules and standards on work safety
and hygiene and educate employees in work safety and hygiene. The employer
shall provide employees with work safety and hygiene conditions meeting State
stipulations and all applicable provisions of employment protection.
The State Council issued the Implementing Rules on 18 September 2008 and
made further explanations on several important issues of the PRC Labor
Contract Law. The Implementing Rules state, for instance, that employer and
employee shall not agree on any additional termination reasons in the
employment contract apart from the circumstances as stipulated in the PRC
Labor Contract Law, that is automatic termination due to the expiration to the
employment term, reaching of the statutory retirement age or retirement using
the pension to which an entitlement under the law accrued. Further, the
Implementing Rules designate the calculation method of the monthly salary of
an employee for the calculation of statutory severance payments.
15.13.2 The Social Insurance Law
The Social Insurance Law of the PRC was adopted on 28 October 2010 and
came into force on 1 July 2011. The Social Insurance Law aims to prevent the
improper use of social security funds and also promises a new endowment
insurance system for rural residents. The new law specifies a common right for
all citizens to access and enjoy five forms of insurance: pension insurance,
medical insurance, employment injury insurance, unemployment insurance and
maternity insurance. It also allows employees to transfer their basic endowment
insurance accounts from one residence to another and promises a new
endowment insurance system for rural residents.
According to the Interim Regulations Concerning the Levy of Social Insurance
Fees effective from 22 January 1999 and the Interim Measures Concerning the
Administration of the Registration of Social Insurance effective from 19 March
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1999, an employer shall register with the local social insurance authority in
accordance with the provisions of the Social Insurance Law of the PRC and
make contributions in full and on time.
15.13.3 Regulations of Insurance for Employment Injury
In line with the ‘‘Regulations of Insurance for Occupational Injury’’ effective on 1
January 2004 and amended on 20 December 2010, PRC enterprises are
obligated to contribute to the occupational injury insurance for their employees.
15.13.4 Provisional Measures on Maternity Insurance for Employees
The ‘‘Provisional Measures on Maternity Insurance for Employees’’ effective on
1 January 1995 provide that PRC enterprises should contribute maternity
insurance for their employees. The contribution ratio of maternity insurance
shall be determined by the local government based on planned births, maternity
allowance, maternity medical expenses, and other expenses, and will be
adjusted in due course based on the expenses, but will not exceed 1% of the
total salary. Female employees are entitled to maternity leave in accordance
with the provisions of relevant laws and regulations.
15.13.5 Regulations on Management of Housing Fund
The ‘‘Regulations on Management of Housing Fund’’ effective from 3 April 1999
and amended on 24 March 2002, are applicable to enterprises with foreign
investment. Enterprises are required to pay housing fund for their employees.
Enterprises shall register with the relevant housing fund management center
within 30 days from the date of establishment, and open housing fund accounts
with designated banks on behalf of their employees within 20 days from the
date of the registration with the verified documents of the housing fund
management center, and contribute to the housing fund at a rate of not less
than 5% of the employee’s average monthly salary in the previous year.
15.14 The PRC Land System
Under the national constitution of the PRC, all land in the PRC is either state-owned or
collectively owned, depending on the location of the land. All land in urban areas of a city
or town is state-owned, and all land in rural and suburban areas, except stipulated by law
as being owned by the State, is collectively owned by rural residents.
According to the PRC Property Law and Land Administration Law, private individuals as
well as businesses and other organizations are permitted to acquire long-term (for
instance, up to 70 years for residential purpose or up to 50 years for industrial use) land
use rights either through transfer against payment of a grant premium or through
allocation from the local governments at or above county level. Renewal is possible upon
expiration.
A land grantee of the use right of land for construction purpose may, in compliance with
the provisions of the land grant contract regarding the period and conditions of
investment, development and use of the land, transfer, mortgage or lease its land use
rights to a third party for the remainder of the term of grant. For any change of land use
rights, an application for alteration registration shall be filed with the registration
authorities.
The state may reclaim granted land use rights prior to expiration of the term of grant due
to public interests. In that case, compensations shall be given to the houses and other
real properties on the land.
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15.15 Environmental Laws
15.15.1 The Environmental Protection Law
The Environmental Protection Law adopted on 26 December 1989 by the
Standing Committee of NPC provides the legal framework on environmental
protection, and amended on 24 April 2014. Units that cause environmental
pollution and other public hazards shall incorporate steps and measures of
environmental protection into their plans and establish a responsibility system
for environmental protection. These units shall adopt effective measures to
prevent and control the pollution and harms caused to the environment by
waste gas, waste water, waste residues, dust, malodorous gases, radioactive
substance, noise, vibration and electromagnetic radiation generated in the
course of production, construction or other activities. Installations for the
prevention and control of pollution at a construction project shall be designed,
built and commissioned together with the principal part of the project. No
permission shall be given for a construction project to be commissioned or
used, until its installations for the prevention and control of pollution have been
examined and considered compliant with the standard by the competent
department of the environmental protection administration having examined and
approved the environmental impact statement. The administration department
of environmental protection of the State Council implements unified supervision
and management of the national environmental protection work, and
establishes the national standards for pollutant discharge, while the
environmental protection bureaus at or above the county level are responsible
for the environmental protection work within their respective jurisdictions.
15.15.2 The Law on the Prevention and Control of Water Pollution
The Law on the Prevention and Control of Water Pollution was adopted on 11
May 1984 and most recently amended on 28 February2008 and became
effective on 1 June 2008.
According to this law, the environmental protection department of the State
Council is in charge of the national waste discharge standards. The local
provincial governments can work out and implement local waste discharge
standards where relevant national standards are absent or promulgate even
stricter local waste discharge standards. The discharge of waste under the
governance of certain local standards must comply with the local waste
discharge standards. Enterprises which directly discharge waste into water
must pay pollutant discharge fees. Payment of pollutant discharge fee will be
exempted if the waste is discharged into facilities for concentrated treatment of
urban water pollutant and the pollutant treatment fee has been paid. If the
pollutant discharged exceeds the national or local waste discharge standards,
the environmental protection department is entitled to order the relevant
enterprises to remedy their actions within a certain time limit and impose a fine
of no less than twice of the amount of pollutant discharge fees applicable, such
amount is, however, capped at five times of such fees that may become
applicable. During the stipulated time limit, the environmental protection
department may order the discharging enterprise to restrict its production or
discharge or stop production.
15.15.3 The Law on the Prevention and Control of Atmospheric Pollution
The Law on the Prevention and Control of Atmospheric Pollution, adopted on 29
April 2000 by the NPC’ Standing Committee, is effective as of 1 September
2000 and recently amended on 29 August 2015 and will become effective on 1
January 2016. Pursuant to this law, the environmental protection authorities
above county level can regulate the prevention of air pollution. The
environmental protection department of the State Council or the local provincial
governments shall formulate the air environmental quality standards and
atmospheric pollutant discharge standards. When building projects that have an
impact on atmospheric environment, enterprises, public institutions, and other
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business entities shall conduct environmental impact assessments and publish
the environmental impact assessment documents according to the law of the
PRC. Entities that discharge pollutants to the atmosphere shall conform to the
atmospheric pollutant discharge standards and abide by the total quantity
control requirements for the discharge of key atmospheric pollutants. And
entities that discharge industrial waste gas or the toxic or hazardous
atmospheric pollutants into the air shall obtain a pollutant discharge license.
15.15.4 The Law on the Prevention and Control of Pollution from Environmental
Noise
The Law on the Prevention and Control of Environmental Pollution by Noise,
adopted on 29 October 1996, came into effective on 1 March 1997. Pursuant to
this law, any new construction project, expansion, or reconstruction project that
discharges pollutants into the air shall be subject to the regulations of State on
environmental protection of construction projects. Industrial enterprises that
produce environmental noise pollution due to the use of permanent equipment
in the course of industrial production shall report to the competent
administrative department for environmental protection of the local government
at or above the county level the types and quantity of its equipment that
produces environmental noise pollution, the noise level produced under normal
operation and the facilities installed for prevention and control of such pollution,
and provide technical information relating to the prevention and control of noise
pollution. Any industrial enterprise that intends to make a substantial change in
the types or quantity of the equipment that produces environmental noise
pollution, in the noise level of facilities for prevention and control of such
pollution shall submit a report without delay and take prevention and control
measures as it should. Units that produce environmental noise pollution shall
take measures to control it and pay fees for excessive emission of such
pollution according to the regulations of the State.
15.15.5 The Law on the Prevention and Control of Environmental Pollution by
Solid Waste
According to the Law on the Prevention and Control of Environmental Pollution
by Solid Waste amended and effective as of 24 April 2015, producers,
distributors, importers and users of a product shall be responsible for the
prevention and control of the solid wastes it generates or discharges.
15.15.6 Law on Appraising of Environmental Impact
On 28 October 2002, the Standing Committee of NPC promulgated the Law of
the People’s Republic of China on Appraising of Environmental Impacts, which
became effective on 1 September 2003 and amended on 23 September 2012.
According to this law and its implementation rules, the PRC government has set
up a system to appraise the environmental impact by construction works, and to
classify and manage the environmental impact appraisals in accordance with
the degree of the environmental impact. For any project the construction of
which may result in a material impact on the environment, an environmental
impact report which thoroughly appraises the environmental impact is required;
for any project which may result in a slight impact on the environment, an
environmental impact record analyzing or appraising the specific environmental
impact is required; and for any project which may result in slight impact on the
environment, an environmental impact appraisal is not required but the owner or
constructor of construction project is required to file an environmental impact
form. Such appraisal reports must be submitted to the relevant administrative
departments of environmental protection for examination and approval. For any
enterprise which fails to submit the aforesaid environmental impact appraisal
documents according to PRC laws and regulations or if the documents are not
approved after examination by the relevant administrative departments, the
departments responsible for approving the relevant project shall not approve
such project and the enterprise shall not commence the construction of the
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project. Besides, an examination and approval by the department responsible
for environmental protection after completion of the construction is prescribed.
In case of failure of passing such examination and approval, the project owner
or operator must undertake remedy measures and may not launch the
operation unless the final approval is granted.
According to the Administration Measures for Examination and Approval of
Environmental Protection Facilities of Construction Projects effective from 1
February 2002, qualified and certified institutes shall be engaged to provide
environmental impact evaluations on construction projects and to prepare
environmental impact assessments. Construction of any new production
facilities or major expansion or renovation of an existing production facility may
only be launched after such an assessment is submitted to and approved by the
environmental protection administrative authority.
15.16 Laws and regulations on production safety
When engaging in production activities, an enterprise shall abide by relevant PRC laws
and regulations on production safety, including the ‘‘Production Safety Law of the PRC’’,
‘‘Fire Prevention Law of the PRC’’, ‘‘Regulations on Work Safety Licenses’’, “Regulations
on the Safety Administration of Hazardous Chemicals’’, and ‘‘Measures for
Implementation of Safety Production License of Hazardous Chemical Production
Enterprises’’.
15.16.1 Production Safety Law of the PRC
Pursuant to the ‘‘Production Safety Law of the PRC’’ effective from 1 November
2002 which was amended respectively on 27 August 2009 and 31 August 2014,
special equipment that is potentially dangerous, the containers of hazardous
substances, and transportation tools that any production or business operation
uses must, according to the relevant provisions of the state, be manufactured
by specialized production entities, and may only be utilized after they pass the
examination and tests of such institutions which have obtained the relevant
professional qualifications to issue a certificate for safe use or a mark of safety.
In addition, the production, business operation, transportation, storage, and use
of any dangerous substances or the disposal of or abandonment of dangerous
substances shall be subject to the examination and approval as well as the
supervision and administration of the relevant administrative departments
according to the provisions of the relevant laws and regulations, national
standards, or industrial standards. Enterprises shall organize education and
training on production safety for its staff. They shall also provide its staff with
protective articles which meet the national or industrial standards, and
supervise and guide their staff to wear and use such articles according to the
prescribed use.
15.16.2 Fire Prevention Law of the PRC
The ‘‘Fire Prevention Law of the PRC’’ amended on 28 October 2008 specifies
fire prevention safety responsibilities that should be enacted by enterprises,
including, without limitations, the following: practicing fire prevention safety
responsibility system, working out fire prevention safety rules and operating
procedures, formulating contingency plans for firefighting and emergency
evacuation, deploying firefighting facilities and equipment and putting up fire
prevention safety signs pursuant to relevant state provisions and industrial
specifications, and organizing inspection and maintenance at regular intervals.
Enterprises shall carry out a comprehensive inspection of firefighting facilities at
least once a year, to ensure their proper functioning. The inspection records
shall be intact, accurate and archived for supervision purposes.
Enterprises that produce or sell flammable or explosive hazardous goods must
enforce fire control technical standards and management regulations during the
production, storage, transportation, sales, use and destruction of the hazardous
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goods. Anyone who enters a site that produces or stores flammable or
explosive hazardous goods must comply with fire control safety regulations.
15.16.3 Regulations on Work Safety Licenses
The ‘‘Regulations on Work Safety Licenses’’ effective on 13 January 2004
which was amended respectively on 18 July 2013 and 29 July 2014 expressly
states that the state implements the work safety license system for production
enterprises of hazardous enterprises, with a view to strictly regulating work
safety conditions, further enhancing work safety supervision and management,
and hence preventing and reducing work accidents.
An enterprise that has not obtained a work safety license shall not conduct any
relevant manufacturing activities. The administrative department for work safety
supervision under the State Council shall be in charge of the issuance and
management of work safety licenses for enterprises engaged in non-coal mining
as well as those engaged in the production of hazardous chemicals, fireworks
and crackers that are managed by the central government. The administrative
department for work safety supervision of each province, autonomous region or
municipality directly under the central government shall be in charge of the
issuance and management of work safety licenses for enterprises engaged in
non-coal mining as well as those engaged in the production of hazardous
chemicals, fireworks and crackers managed by the central government that are
beyond the scope of the preceding paragraph, while accepting the guidance
and supervision of the administrative department for work safety supervision
under the State Council.
Before starting production, an enterprise shall apply for a work safety license to
the department in charge of the issuance and administration of work safety
licenses according to these regulations, and provide relevant documents and
materials specified in Article 6 of the ‘‘Regulations on Work Safety Licenses’’.
The department in charge shall complete its review process within 45 days from
the day of receipt of an application, and issue work safety licenses to those
found upon review to satisfy the work safety conditions specified in these
regulations. For those failing to satisfy the work safety conditions as specified in
these regulations, the abovementioned department shall deny their access to
work safety licenses, and send written notices to the applicants with reasons
explained for such denial.
15.16.4 Regulations on the Safety Administration of Hazardous Chemicals
The ‘‘Regulations on the Safety Administration of Hazardous Chemicals’’
revised on 16 February 2011 stipulate that before the commencement of
manufacturing, an enterprise engaged in the manufacture of hazardous
chemicals shall obtain the work safety license for hazardous chemicals
according to the ‘‘Regulations on Work Safety Licenses’’ and Production
License in accordance with the Regulations on Work Safety Licenses and the
Regulations of the PRC on the Administration of Production Licenses for
Industrial Products.
Enterprises that manufacture hazardous chemicals shall supply the technical
safety specifications relating to the hazardous chemicals produced, and affix or
attach safety signs on the packaging materials (including external packages)
that are in full accord with hazardous chemicals in the packaging according to
national standards. New hazard characteristics for hazardous chemicals
manufactured shall be publicly announced, and technical safety specifications
and the safety signs shall be modified promptly.
Enterprises that manufacture hazardous chemicals subject to critical
environmental management shall report what particles the hazardous chemicals
have released to the environment and other relevant information to the
competent administration for environmental protection. The packaging of
hazardous chemicals shall comply with provisions of relevant laws,
administrative regulations and rules as well as national and industrial standards.
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In addition, the texture of the packaging materials and containers as well as the
model, specifications, and method of packaging together with single item mass
(weight) shall suit the nature and usage of hazardous chemicals contained
therein.
15.17 Other National and Provincial Level Laws and Regulations
DECHENG PRC is subject to changing regulations under many other laws and
regulations administered by government authorities at national, provincial and municipal
levels, some of which are or may become applicable to its business. DECHENG PRC is
also subject to numerous additional state and local laws relating to matters such as
manufacturing practices and fire hazard control.
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16.
GENERAL INFORMATION ON THE COMPANY AND DECHENG
16.1 Incorporation, Entry in the Commercial Register, Company Name and Registered
Office
The Company is a German stock corporation (Aktiengesellschaft) and was incorporated
by means of a notarial deed of incorporation (Gründungsurkunde) dated 31 July 2013
(Roll of Deeds No. 1959/2013W of the notary public Dr. Westermeier, Munich, Germany)
as a so called shelf-company (Vorratsgesellschaft) with a registered share capital of
EUR 50,000. The founder of the Company is PROFI-START AG with its business
address at Widenmayerstr. 27, 80538 Munich, Germany. The formation of the Company
became legally effective by registration in the commercial register (Handelsregister) of the
local court (Amtsgericht) of Munich on 13 February 2014 under the registration number
HRB 210159.
Under the purchase agreement dated 4 March 2016, Mr. ZHU Xiaofang acquired all
shares in the Company.
On 8 March 2016 an extraordinary shareholders meeting resolved to change the
Company’s registered seat from Munich to Cologne. The seat change was applied for
registration with the commercial register on the same day by the acting notary public and
registered in the commercial register (Handelsregister) of the local court (Amtsgericht) of
Cologne on 31 March 2016 under the registration number HRB 87176.
In an extraordinary shareholders’ meeting held on 10 March 2016, an interims
supervisory board was elected. In its inaugural supervisory meeting, the supervisory
board replaced the management by appointing Mr. ZHU Xiaofang as sole member of the
management board (Vorstand). In a second shareholders’ meeting of the same day, the
name of the Company was changed to “Decheng Technology AG”. In the same
shareholders’ meeting, the business objectives of the Company as well as its articles of
association were revised completely.
In an extraordinary shareholders’ meeting held on 16 March 2016, a new supervisory
board was elected.
The application for registration of the change of the members in the management board
and the amendment of the Company's articles of association was signed on 17 March
2016 and then filed with the commercial register (Handelsregister) of the local court
(Amtsgericht) of Cologne together with the disclosure of the economic refoundation
(wirtschaftliche Neugründung) of the Company. The disclosure of the economic
refoundation to the commercial register is required, where a shelf company is acquired for
operational use and thereby loses its status as a shelf company. The changes applied for
registration were registered with the commercial register (Handelsregister) of the local
court (Amtsgericht) of Cologne on 14 April 2016 under the new registration number HRB
87176.The business name of the Company is Decheng Technology AG. The Company
acts under the commercial name “Decheng Technology AG”. The registered office of the
Company is at Cologne. The Company is registered with the commercial register of the
local court of Cologne under the registration number HRB 87176. The Company’s
business address is c/o RSM Altavis GmbH, Martin-Luther-Platz 26, 40212 Düsseldorf,
Germany, phone +49 (0) 211 / 30 143-0, fax +49 (0) 211 / 30 143-143, email: info(at)rsmaltavis.de.
The last amendment to the Company’s articles of association (Satzung) was resolved by
the general shareholders’ meeting on 26 April 2016.
16.2 Financial Year, Auditor and Duration
The Company’s financial year (Geschäftsjahr) is the calendar year (i.e. 1 January through
31 December).
The Company’s auditors are MSW GmbH Wirtschaftsprüfungsgesellschaft
Steuerberatungsgesellschaft, Straße des 17. Juni 106-108, 10623 Berlin, Germany
(“MSW GmbH”).
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The duration of the Company (Dauer der Gesellschaft) is unlimited.
The Company’s business object (Unternehmensgegenstand) as set forth in section 2 of
the Company’s articles of association (Satzung) is as follows:
The object of the Company is the management of companies and the administration of
interests in companies, in particular companies active in the following business fields:
development, production and distribution of polyurethane products.
The object of the Company shall include in particular the acquisition, holding and
administration as well as the sale of participations in companies, their combination under
common management and the provision of support and advice to them, including the
provision of services on behalf of such companies.
The activities of the companies shall not include business transactions and services
requiring approval.
The Company may itself as well be directly active in the business fields specified above.
The Company may engage in all kinds of business and take all measures that are related
to the business purpose or that it deems directly or indirectly useful for achieving that
purpose. In doing so, it may also establish branches, domestically and abroad, establish,
purchase or participate in other companies.
16.3 Current Structure of DECHENG
The Company is the ultimate holding company of the Group and the sole shareholder of
Hong Kong De Cheng Holding Company Limited (“DECHENG HK”) being a limited
liability company incorporated under the laws of Hong Kong. DECHENG HK is an
intermediate holding company and the sole direct shareholder of Quanzhou De Cheng
Tech Resin Co., Ltd (“DECHENG PRC”) being incorporated as a limited liability company
under the laws of the PRC. The operational business of DECHENG is carried out by
DECHENG PRC with its business address at Pu’an Leather Center, Quangang District,
Quanzhou City, Fujian Province, PRC.
The current structure of DECHENG is shown in the chart below:
(Germany)
100%
(Hong Kong)
- DECHENG HK -
100%
(PRC)
- DECHENG PRC -
16.4 Restructuring of DECHENG and Corporate History
The Group has recently been formed leading to the structure as presented under Section
16.3 above. The corporate history of the DECHENG companies (other than the Company)
and the steps of the restructuring are set out below.
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16.4.1
DECHENG HK
DECHENG HK is a limited liability company incorporated on 15 August 2014
under the name of Hong Kong De Cheng Holding Company Limited under the
laws of Hong Kong and registered with the Companies Registry of Hong Kong
under company number 2133355. The registered office of DECHENG HK is
Rooms C and D, 18/F Max Share Centre, 367-373 King's Road, North Point,
Hong Kong.
At incorporation, DECHENG HK has an issued share capital of HKD 10,000.00
(approx. EUR 1,160) comprising of 10,000 ordinary shares, which have been
fully paid up. Mr. ZHU Xiaofang held 10,000 ordinary shares in DECHENG HK
on the date of its incorporation.
On 1 April 2016, Mr. ZHU Xiaofang transferred 3,190 shares of DECHENG HK
to Xusheng International Trading Co., Limited, Kang Yu Investment Limited,
Leading Pop Limited, All-Time-Wonderful Limited, Rongshang Limited and
Mr. OOI Guan Hoe for a consideration of HKD 1.00 (approx. EUR 0.116),
respectively. Since then, Mr. ZHU Xiaofang, Xusheng International Trading Co.,
Limited, Kang Yu Investment Limited, Leading Pop Limited, All-Time-Wonderful
Limited, Rongshang Limited and Mr. OOI Guan Hoe held 6,810 shares, 490
shares, 490 shares, 490 shares, 683 shares, 683 shares and 354 shares in
DECHENG HK respectively.
On 4 May 2016, Xusheng International Trading Co., Limited, Kang Yu
Investment Limited and Leading Pop Limited transferred its entire shares in
DECHENG HK to Chen Capital Limited S.à r.l., Asia Small Capital V Limited S.à
r.l. and South China Fund II Limited S.à r.l. for a consideration of HKD 1.00
(approx. EUR 0.116), respectively. Since then, Chen Capital Limited S.à r.l.,
Asia Small Capital V Limited S.à r.l. and South China Fund II Limited S.à r.l.
each held 490 shares in DECHENG HK.
On 6 May 2016, the Existing Shareholders transferred 10,000 shares of
DECHENG HK to the Company in consideration of 29,950,000 shares of the
Company. As a result thereof, the Company has become the sole shareholder
of 10,000 shares in DECHENG HK.
There has been no further allotment of shares by DECHENG HK. The present
director of DECHENG HK is Mr. ZHU Xiaofang, appointed on 15 August 2014.
16.4.2
DECHENG PRC
DECHENG PRC is a limited liability company incorporated under PRC laws and
is registered with the Quanzhou Administration of Industry and Commerce with
business license number 350500400007529. Its registered address is at Pu’an
Leather Center, Quangang District, Quanzhou City, Fujian Province, PRC. The
business scope of DECHENG PRC is “manufacture of polyurethane resin and
high molecular material (excluding the dangerous chemicals). (The items within
the scope of business that are subject to approval as stipulated by laws and
regulations shall be submitted for approval according to laws.)”. DECHENG
PRC’s operation term will expire on 22 August 2021.
DECHENG PRC was established as a wholly foreign owned enterprise in the
form of a limited liability company by Golden Times Trading Co. (“Golden
Times”), incorporated in Centre Industrial Area, Quangang District, Quanzhou
City, Fujian Provence, PRC on 22 August 2001 with a total registered capital of
HKD 15,000,000 (approx. EUR 1,740,000) to be contributed in cash. Golden
Times held 100% of the share capital of DECHENG PRC.
On 7 March 2005, DECHENG PRC passed a Board of Directors’ resolution on
increasing the registered capital from HKD 15,000,000 (approx.
EUR 1,740,000) by HKD 35,000,000 (approx. EUR 4,070,000) to
HKD 50,000,000 (approx. EUR 5,800,000) and on changing the registered
address of DECHENG PRC to its current address Pu’an Leather Center,
Quangang District, Quanzhou City, Fujian Province, PRC. The capital increase
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and the change of the registered address were approved by the competent
authority on 17 March 2005 and registered with the competent authority on 6
April 2005. The increase of the registered capital was contributed in cash by
Golden Times. Thus, since then, Golden Times still held 100% of the share
capital in DECHENG PRC. The registered capital of HKD 50,000,000 (approx.
EUR 5,800,000) had been fully paid in on 21 September 2009.
On 1 December, 2009 DECHENG PRC passed a Board of Directors’ resolution
to change its initial name “Quanzhou Quangang Jinshi Leather Products Co.,
Ltd.” to its current name “Quanzhou De Cheng Tech Resin Co., Ltd.” and to
change its initial business scope “manufacturing of leather and leather chemical
materials” to “manufacture of urethane resin and high molecular material
(excluding the dangerous chemicals)”.The change of the company name and
business scope were registered at the competent authority on 15 January 2010.
On 13 November 2014, DECHENG PRC’s business scope was changed ex
officio to “manufacture of polyurethane resin and high molecular material
(excluding the dangerous chemicals). (The items within the scope of business
that are subject to approval as stipulated by laws and regulations shall be
submitted for approval according to laws.)” and the change of the business
scope was registered with the competent authority.
On 6 January 2015, Golden Times passed a shareholder’s resolution to transfer
its entire shares in DECHENG PRC to DECEHNG HK for a purchase price of
HKD 50,000,000 (approx. EUR 5,800,000). The share transfer was approved by
the competent authority on 26 January 2015 and registered with the competent
authority on 26 February 2015. Since then, DECHENG HK holds 100% of the
share capital in DECHENG PRC.
The legal representative of DECHENG PRC is Mr. ZHU Xiaofang. DECHENG
PRC has no board of directors, but one executive director, who is Mr. ZHU
Xiaofang (Chairman and CEO). Supervisor of DECHENG PRC is Mr. ZHU
Xiaolong, a brother of the Company’s CEO Mr. ZHU Xiaofang.
16.5 Share Transfer and Capital Increase by Contribution in Kind (Sachkapitalerhöhung)
On 25 April 2016, Mr. ZHU Xiaofang transferred part of his shares in the newly acquired
Company at nominal value to new shareholders. The shareholder structure of the
Company directly thereafter was as follows:
Shareholder
Mr. ZHU Xiaofang
Number of Shares
Percentage of Share Capital (%)
34,500
68.10
Chen Capital Limited S.à r.l.
2,450
4.90
Asia Small Capital V Limited S.à r.l.
2,450
4.90
South China Fund II Limited S.à r.l.
2,450
4.90
All-Time-Wonderful Limited
3,415
6.83
Rongshang Limited
3,415
6.83
Mr. OOI Guan Hoe
1,770
3.54
50,000
100
Total
i.e. 10,000 shares, to the Company against the issue of 29,950,000 new no par value
Page 175
ordinary bearer shares in the Company to the Existing Shareholders in relation to their
shareholding ratio in the Company (Einbringungsvertrag).
The contribution agreement and the capital increase by way of contribution in kind
(Sachkapitalerhöhung) were approved by an extraordinary shareholders’ meeting of the
Company on 26 April 2016 and has been registered with the commercial register
(Handelsregister) of the local court (Amtsgericht) of Cologne on 12 May 2016. The new
no par value ordinary bearer shares in the Company were issued to the Existing
Shareholder with a notional value of EUR 1.00 each. The total notional value of the newly
issued shares in the amount of EUR 29,950,000 is to be booked as registered share
capital of the Company.
16.6 Current Shareholder Structure of the Company
At the date of this Prospectus, the Company’s share capital amounts to EUR 30,000,000
divided into 30,000,000 no par value ordinary bearer shares (Inhaber-Stückaktien). Each
bearer share representing EUR 1.00 of the share capital and each vested with full
dividend rights for the financial year 2016. Each share confers one vote in the Company’s
general shareholders’ meeting (Hauptversammlung). No shareholder of the Company has
different voting rights.
Mr. ZHU Xiaofang currently holds directly 68.10%of the shares and the voting rights in the
Company and therefore with this majority controls the Company and has substantial
influence in the general meeting and in the resolutions presented to the general meeting.
As of the date of this Prospectus, the shareholder structure of the Company is as follows:
Existing Shareholder
Number of Shares
Percentage of Share Capital (%)
20,430,000
68.10
1,470,000
4.90
1,470,000
4.90
1,470,000
4.90
2,049,000
6.83
2,049,000
6.83
1,062,000
3.54
30,000,000
100
(3)
(4)
Total
(1) Mr. ZHU Xiaofang is a Hong Kong resident with resident address at: Flat J 24/F BLK 4, Bauhinia Garden,
Tseung Kwan O NT, Hong Kong.
(2) Chen Capital Limited S.à r.l. is a company incorporated under the laws of Luxembourg with its business
address at: 7 rue Robert Stümper, 2557 Luxembourg. Sole shareholder is Mr. CHEN Huocan.
(3) Asia Small Capital V Limited S.à r.l. is a company incorporated under the laws of Luxembourg with its
business address at: 7 rue Robert Stümper, 2557 Luxembourg. Sole shareholder is Mr. WU Qingquan.
(4) South China Fund II Limited S.à r.l. is a company incorporated under the laws of Luxembourg with its
business address at: 7 rue Robert Stümper, 2557 Luxembourg. Sole shareholder is Mr. ZHU Jianyang.
(5) All-Time-Wonderful Limited is a company incorporated under the laws of the British Virgin Islands with the
Company Number 1903057 and with its business address at: P.O. Box 957, Offshore Incorporations Centre,
Road Town, Tortola, British Virgin Islands. Sole shareholder is Mr. QIAN Jiangang.
(6) Rongshang Limited is a company incorporated under the laws of the British Virgin Islands with the Company
Number 1901222 and with its business address at: P.O. Box 957, Offshore Incorporations Centre, Road Town,
Tortola, British Virgin Islands. Sole shareholder is Mr. ZHU Yufang.
(7) Mr. OOI Guan Hoe is a Malaysian resident with resident address at: 89, Adora, 2A Persiaran Residen, Desa
Parkcity, 52200 Kepong, Kuala Lumpur, Malaysia.
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16.7 Notices
Pursuant to section 3 of the Company’s articles of association (Satzung), notices of the
Company will be made in the electronic version of the German Federal Gazette
(elektronischer Bundesanzeiger). Notices in connection with the approval of the
Prospectus or regarding amendments to the Prospectus will be made in accordance with
the provisions of the German Securities Prospectus Act (WpPG) and will be published in
the form intended for prospectuses, i.e., on the Internet website of the Company with a
printed version available at the offices of the Company and the Lead Manager.
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17.
SHAREHOLDER STRUCTURE OF THE COMPANY BEFORE AND AFTER
THE OFFERING
The table below sets out the shareholder structure of the Company prior to the Offering
and upon completion of the Offering, based on different scenarios (full placement of New
Shares).
Shareholdings
After completion of the Offering
(assuming full placement of the Offered
Shares)
Immediately
prior to the Offering
Shareholder
Mr. ZHU Xiaofang
Shares
in % Shares
in %
20,430,000
68.10
20,430,000
61.91
1,470,000
4.90
1,470,000
4.45
4.90
1,470,000
4.45
(1)
1,470,000
1,470,000
4.90
1,470,000
4.45
All-Time-Wonderful Limited
2,049,000
6.83
2,049,000
6.21
Rongshang Limited
2,049,000
6.83
2,049,000
6.21
1,062,000
3.54
1,062,000
3.22
0
0.00
3,000,000
9.10
30,000,000
100.00
33,000,000
100.00
(1)
Other Free Float
Total
(1) Counts as Free Float since below 5 % of the total share capital of the Company.
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18.
INFORMATION ON THE SHARE CAPITAL OF THE COMPANY AND
GENERAL RULES
18.1 Issued Share Capital
As at the date of this Prospectus, the Company’s registered share capital (gezeichnetes
Grundkapital) amounts to EUR 30,000,000. It is divided into 30,000,000 no par value
ordinary bearer shares (Inhaber-Stückaktien) each with a notional amount of EUR 1.00.
All shares have been fully paid in. Each share grants the holder one vote at the general
shareholder’s meeting (Hauptversammlung).
18.2 Development of Share Capital
The Company was established with a registered share capital of EUR 50,000 divided into
50,000 no par value ordinary bearer shares (Inhaber-Stückaktien).
On 26 April 2016 the share capital was increased by shareholders’ resolution through
contribution in kind (Sacheinlage) where the shareholders of DECHENG HK at that time
contributed 100% of the shares in DECHENG HK, i.e. 10,000 shares with a total issued
share capital of HKD 10,000 (approx. EUR 1,160), to the Company against the issuance
of 29,950,000 no par value ordinary bearer shares (Inhaber-Stückaktien) in the Company
each with a notional amount of EUR 1.00.
The Company’s current share capital, amounting to EUR 30,000,000 and divided into
30,000,000 no par value ordinary bearer shares (Inhaber-Stückaktien) with a notional
amount of EUR 1.00 each, is fully paid in.
18.3 Authorized Share Capital
According to section 5 subsection 1 of the Company’s articles of association (Satzung),
the management board (Vorstand) is authorized to increase the share capital of the
Company with the approval of the supervisory board (Aufsichtsrat) until 25 April 2021
once or several times by up to EUR 15,000,000 through the issuance of up to 15,000,000
new no par value ordinary bearer shares in cash or in contributions in kind (Authorized
Capital 2016). In each case ordinary shares and/or preference shares may be issued.
The management board (Vorstand) is further authorized, with the consent of the
supervisory board (Aufsichtsrat), to exclude the statutory subscription rights (gesetzliches
Bezugsrecht) of the shareholders of the Company in the following cases:

for fractional amounts;

if the new shares are issued against contribution in kind to acquire
enterprises, shares in enterprises or parts of an enterprise;

if the new shares are issued against cash provided that the shares are
issued at a price which is not substantially below the stock exchange
price and the exclusion of the subscription rights is only applied to new
shares that represent not more than 10% of the share capital, for the
calculation of the 10% threshold any other exclusion of the subscription
rights according to section 186 subsection 3 sentence 4 of the Stock
Cooperation Act (AktG) has to be taken into account;

for granting shares to employees and members of the management of
the Company or of an affiliated entity in relation to employee participation
programs, however the capital increase may not exceed 10% of the
share capital existing at the time of the capital increase out of the
authorized capital;

if a third party, which is not a financial institution pursuant to section 186
subsection 5 of the Stock Cooperation Act (AktG), subscribes for the new
shares and ensures that the shareholders are granted an indirect
subscription right (mittelbares Bezugsrecht).
Page 179
18.4 General Rules on the Increase of Share Capital
In accordance with the German Stock Corporation Act (Aktiengesetz - AktG), the share
capital of a German stock corporation (Aktiengesellschaft) may be increased by
shareholders’ resolution adopted by a majority of at least three-quarters of the share
capital represented in the vote. Moreover, the management board (Vorstand) may be
authorized by a shareholders’ resolution to increase the share capital of the Company in
a determined total amount within five years with the approval of the supervisory board
(Aufsichtsrat) by issuing shares (Genehmigtes Kapital). Eventually, shareholders may
resolve to create conditional capital, however, only to grant creditors of convertible bonds
conversion and subscription rights in order to prepare a merger with another company or
to grant employees and members of the management of the Company or of an affiliated
company subscription rights by way of an approving or authorizing resolution (Bedingtes
Kapital). The aforementioned shareholders’ resolutions concerning the creation of
authorized or conditional capital require a majority of three quarters of the share capital
represented during the vote. The nominal amount of the authorized capital created by the
shareholders may not exceed half of the share capital existing in the commercial register
on the date the authorized capital is entered. The total nominal amount of the conditional
capital created by the shareholders may not exceed half of the share capital existing on
the date the resolution concerning the conditional capital increase is adopted. The total
nominal amount of the conditional capital issued to grant subscription rights to employees
and management members of the Company or of affiliated companies may not exceed
10% of the share capital existing on the date of the resolution concerning the conditional
capital increase. If the share capital of the Company is increased by the Company’s own
assets, the conditional capital increases by operation of law in the same proportion as the
share capital.
18.5 General Rules on Subscription Rights
The German Stock Corporation Act (Aktiengesetz - AktG) provides that, in the case of a
capital increase - with the exception of a conditional capital increase - shareholders are,
in principle, entitled by law to subscription rights regarding new shares to be issued in the
course of a capital increase in accordance with their current equity quota (gesetzliches
Bezugsrecht). The same applies to the issue of convertible bonds, income bonds, profit
participation rights or bonds with warrants as well as in respect of the sale of treasury
shares. Subscription rights are freely transferable and the Company may determine that
the subscription rights may be traded on a German stock exchange during a fixed period
prior to the expiry of the subscription period.
The general shareholders’ meeting (Hauptversammlung)may partially or completely
exclude the subscription rights by means of a resolution passed with a majority of at least
three-quarters of the share capital represented at the time the resolution is adopted. The
management board (Vorstand) must present a written report to the shareholders’ meeting
justifying the exclusion of the subscription rights. An exclusion of subscription rights is
permissible if the Company’s interest in excluding the subscription rights outweighs the
shareholders’ interest in the conferral of the subscription rights. In the absence of such
justification, subscription rights may only be excluded in the case of a capital increase if
such capital increase has been effected in return for cash contributions, if the amount of
the capital increase does not exceed 10% of the existing share capital, and if the issue
price of the new shares is not substantially below the stock exchange price of the shares
already trading on the stock exchange.
18.6 General Rules Relating to Use of Profits and Dividend Payments
Under German law, the participation of the Company’s shareholders in profits is
determined on the basis of their respective interests in the share capital, unless the
Company’s articles of association (Satzung) provide for another profit allocation.
Distributions of dividends on shares for a given financial year are generally determined by
a process in which the management board (Vorstand) and supervisory board
(Aufsichtsrat) submit a proposal to the annual general shareholders’ meeting
(Hauptversammlung) held in the subsequent financial year and such annual shareholders’
meeting adopts a resolution. German Law provides that a resolution concerning dividends
Page 180
and distribution thereof may be adopted only on the basis of a balance sheet profit
(Bilanzgewinn) shown in the Company’s adopted annual individual financial statement
(festgestellter Jahresabschluss). In determining the profit available for distribution, the
result for the relevant year must be adjusted for profits and losses brought forward from
the previous year and for withdrawals from or transfers to reserves. Certain reserves are
required by law and must be deducted when calculating the profit available for distribution.
In a resolution regarding the utilization of balance sheet profits (Bilanzgewinn), the
general shareholders’ meeting (Hauptversammlung) can include further amounts in
retained earnings or carry them forward as profits. Future dividend distribution will depend
upon the results of operation of the Company, its financial condition, its need for cash and
the legal, tax and regulatory environment, as well as other factors.
Dividends on shares resolved by the general shareholders’ meeting (Hauptversammlung)
are paid annually, shortly after the annual shareholders’ meeting (Hauptversammlung), in
compliance with the rules of the respective clearing system. In accordance with the
general provisions of sections 195 and 199 subsection 1 of the German Civil Code
(Bürgerliches Gesetzbuch, BGB) dividend claims become time-barred three years after
the end of the year in which the general shareholders’ meeting (Hauptversammlung) has
taken
the
respective
resolution
on
the
distribution
of
profits
(Gewinnverwendungsbeschluss). After expiry of this period, the Company may refuse
payment of the respective dividend to a shareholder. In such case, the respective
dividend amount remains with the Company, which therefore benefits hereof. Details
concerning any dividends resolved by the annual shareholders’ meeting
(Hauptversammlung) and the respective paying agents specified by the Company will be
published in the electronic version of the Federal Gazette (elektronischer Bundesanzeiger)
and in at least one official national publication for statutory stock market notices approved
by the Frankfurt Stock Exchange.
18.7 General Rules Relating to a Liquidation of the Company
Apart from liquidation as a result of insolvency proceedings and other reasons as set forth
in the German Stock Corporation Act (Aktiengesetz - AktG), the Company may be
liquidated only upon resolution of the general shareholders’ meeting (Hauptversammlung)
to be adopted with a majority of at least 75% of the share capital represented at the
general shareholders’ meeting (Hauptversammlung) at which such resolution is adopted.
In such a case, the assets remaining following fulfillment of all of the Company’s liabilities
will be distributed among the shareholders according to their respective shares in the
share capital and in accordance with the German Stock Corporation Act (Aktiengesetz AktG).
Page 181
19.
CORPORATE BODIES AND MANAGEMENT
19.1 Overview
The governing bodies of the Company are the management board (Vorstand), the
supervisory board (Aufsichtsrat) and the general shareholders’ meeting
(Hauptversammlung). The powers of these governing bodies are set forth in the German
Stock Corporation Act (Aktiengesetz - AktG), the Company’s articles of association
(Satzung), and the respective rules of procedure of the management board (Vorstand)
and the supervisory board (Geschäftsordnungen für den Vorstand und den Aufsichtsrat).
The management board (Vorstand) is responsible for managing and representing the
Company, whilst the supervisory board (Aufsichtsrat) appoints and dismisses the
members of the management board (Vorstand) and supervises them. The management
board (Vorstand) and supervisory board (Aufsichtsrat) work independently from each
other. Membership in both bodies at the same time is not permitted, i.e. members of the
management board (Vorstand) may not at the same time be members of the supervisory
board (Aufsichtsrat) and vice versa. In addition, a member of the supervisory board
(Aufsichtsrat) must not be in an executive position of any of the Company’s subsidiaries
(also outside Germany).
The Company’s shareholders are represented in the general shareholders’ meeting
(Hauptversammlung). The shareholders are, with certain exceptions, not involved in the
day-to-day management of the Company.
The management board (Vorstand) and the supervisory board (Aufsichtsrat) shall
cooperate trustfully for the interests of the Company. To enable the supervisory board
(Aufsichtsrat) to carry out its monitoring functions, the management board (Vorstand) has
to report on a regular basis to the supervisory board (Aufsichtsrat). These management
reports form the basis of the monitoring activities of the supervisory board (Aufsichtsrat).
The management board (Vorstand) is obliged to report to the supervisory board
(Aufsichtsrat) about intended business policy and other fundamental matters of company
planning (particularly finance, investment and personnel planning), whereby deviations
from the actual development of targets reported at an earlier date and the reasons for
these deviations are to be reported. If the Company is also a parent company, then the
report also has to cover the Company’s subsidiaries and joint ventures. Furthermore, the
profitability of the Company, particularly the return on equity, must be reported to the
supervisory board (Aufsichtsrat). The management board (Vorstand) also regularly
reports on the course of business, particularly revenues and the condition of the company
as well as transactions of considerable importance. The supervisory board (Aufsichtsrat)
or individual supervisory board (Aufsichtsrat) members can also request separate reports
on matters which are of particular significance for the Company.
Both the members of the management board (Vorstand) and of the supervisory board
(Aufsichtsrat) must apply the due care of a prudent and conscientious manager in
performing their duties. Both the management board (Vorstand) and supervisory board
(Aufsichtsrat) have to take into account a number of interests, particularly those of the
Company, its shareholders, employees and creditors. The management board (Vorstand)
and supervisory board (Aufsichtsrat) members are moreover obligated to exercise good
faith vis-à-vis the Company and its shareholders and to maintain secrecy concerning
confidential information and secrets of the Company. The management board (Vorstand)
must also consider the concept of equal treatment of shareholders.
They must observe the Company’s interests at all times. If the members of the
management board (Vorstand) or of the supervisory board (Aufsichtsrat) breach their
duties, they are jointly and severally liable for any damages sustained by the Company. In
specific cases, the management board (Vorstand) can also be held personally liable by
third parties, e.g. non-payment of social security charges, damages resulting from tort,
incorrect statements in connection with corporate transactions.
The German Stock Corporation Act (Aktiengesetz - AktG) stipulates that the Company
cannot in advance limit or fully release the personal liability of the members of the
management board (Vorstand) for breaches of duty in the performance of their official
Page 182
tasks. The Company can waive its claim for damages for a breach of duty, or it can
propose an agreement on such claims only if more than three years have passed since
the date on which the claim arose. This is subject to the approval of the general
shareholders’ meeting (Hauptversammlung) and a minority of at least 10% of the
shareholders can block such a resolution.
The German Stock Corporation Act (AktG) further contains an exemplary list of acts
which directly trigger the management board’s (Vorstand) liability, e.g. in case of the
repayment of contributions to the shareholders or the unlawful distribution of the
Company’s assets.
Individual shareholders may in principle not sue members of the management board
(Vorstand) or supervisory board (Aufsichtsrat) for damage compensation (to themselves
or to the Company) in the event of a breach of duties vis-à-vis the Company. Rather,
damage compensation claims of the Company against management board (Vorstand) or
supervisory board (Aufsichtsrat) members may usually only be enforced by the Company
itself. In this event, the Company is represented by the supervisory board (Aufsichtsrat) in
the case of claims against management board (Vorstand) members and by the
management board (Vorstand) in the case of claims against supervisory board
(Aufsichtsrat) members. If the board entitled to represent the Company decides against
pursuing the claim, compensation claims of the Company against management board
(Vorstand) or supervisory board (Aufsichtsrat) members must nonetheless be asserted if
the shareholders so resolve in general meeting by simple majority. Shareholders with a
total share of at least 1% of the share capital or a notional value of the share capital of at
least EUR 100,000 may request in their own name that a law suit be admitted before the
regional court (Landgericht) at the Company’s registered address for enforcement of
claims for compensation brought by the Company. Among other things, a prerequisite for
admission of the action is that the shareholders of the Company have unsuccessfully
requested the competent board to bring an action, after setting an appropriate deadline,
and facts exist that justify the urgent suspicion that the Company has suffered damages
due to impropriety, dishonesty or gross violation of the law or the Company’s articles of
association (Satzung) and no overriding reasons of the Company will rule out asserting
the compensation claim. The Company is entitled at any time to enforce its claim for
compensatory damages itself. The bringing of an action by the Company makes a
pending approval procedure or action by the shareholders inadmissible.
The Company has entered into directors’ and officers’ insurance in its name, covering the
members of the management board (Vorstand) and supervisory board (Aufsichtsrat),
based on prevailing market conditions.
19.2 Management Board (Vorstand)
19.2.1
General Rules
The management board (Vorstand) legally represents the Company in court
and in dealings with third parties and bears the sole responsibility for managing
the day-to-day business of the Company.
The supervisory board (Aufsichtsrat) determines the size of the management
board (Vorstand) and appoints its members. According to the Company’s
articles of association (Satzung) the management board (Vorstand) must
consist of one or more members. The supervisory board (Aufsichtsrat) may
appoint one management board (Vorstand) member as chairman of the
management board (Vorstandsvorsitzender) and another member as deputy
chairman of the management board (Stellvertretender Vorstandsvorsitzender).
Furthermore, the supervisory board (Aufsichtsrat) may appoint further members
of the management board (Vorstand). The members of the management board
(Vorstand) are appointed for a maximum term of five years and this term can be
renewed for consecutive further periods of up to five years each. Prior to the
expiry of it term, the appointment can only be revoked for good cause by a
resolution of the supervisory board (Aufsichtsrat) such as gross breach of
fiduciary
duties
or
if
the
general
shareholders’
meeting
Page 183
(Hauptversammlung)adopts a no-confidence resolution in relation to the
member of the management board(Vorstand) in question.
The rights and obligations of the management board (Vorstand) of the
Company are specified in the German Stock Corporation Act (Aktiengesetz AktG), in the Company’s articles of association (Satzung), the rules of
procedure of the management board (Vorstand) (if any) and the service
contracts of the members of the management board (Vorstand). Further, the
management board (Vorstand) has to consider the German Corporate
Governance Code.
Neither the shareholders nor the supervisory board (Aufsichtsrat) members may
issue binding directions to the management board (Vorstand) regarding the
management of the Company. Thus, the management board (Vorstand) has a
strong independent position within the Company.
However, the powers of the members of the management board (Vorstand)
may be limited by e.g. the Company’s articles of association (Satzung) or by
rules of procedure of the management board by stipulating that certain matters
require the consent of the supervisory board (Aufsichtsrat) or the shareholders
in general shareholders’ meeting (Hauptversammlung). Such limitations do not,
however, affect the validity of the actions of the management board (Vorstand)
vis-à-vis third parties but the members of the management board (Vorstand)
might be liable internally in relation to the Company if they are in breach of such
stipulations.
According to the Company’s articles of association (Satzung), the Company is
legally represented by the members of the management board (Vorstand). In
case only one member exists, the Company is legally represented by the sole
member. In case the management board (Vorstand) is composed of two or
more members, the Company is legally represented by two members jointly or
by one member together with an authorized officer (Prokurist). The supervisory
board (Aufsichtsrat) can grant sole power of representation to any of the
members of the management board (Vorstand) and exempt any of the
members from the restrictions under section 181, second alternative of the
German Civil Code (Bürgerliches Gesetzbuch – BGB). Section 112 of the
German Stock Corporation Act (Aktiengesetz – AktG) remains unaffected. The
supervisory board (Aufsichtsrat) has granted sole power of representation to Mr.
ZHU Xiaofang and has exempted him from the restrictions under section 181
second alternative of the German Civil Code (Bürgerliches Gesetzbuch – BGB)
by resolution dated 10 March 2016.
The resolutions of the management board (Vorstand) are in principle passed by
simple majority of the votes cast, unless the applicable law or the Company’s
rules of procedure for the management board (Geschäftsordnung für den
Vorstand) provide otherwise.
19.2.2
Rules of Procedure for the Management Board
Under the Company’s articles of association (Satzung), the supervisory board
(Aufsichtsrat) may issue rules of procedure for the management board
(Geschäftsordnung für den Vorstand). By way of a written resolution of the
supervisory board (Aufsichtsrat) dated 24 May 2016, such rules of procedure for
the management board (Geschäftsordnung für den Vorstand) were adopted.
The Company’s rules of procedure for the management board
(Geschäftsordnung für den Vorstand) contain a list of transactions by the
management board (Vorstand), which require the consent of the supervisory
board (Aufsichtsrat), e.g. investments as well as sale of assets exceeding a
certain monetary threshold. The Company’s rules of procedure for the
management board (Geschäftsordnung für den Vorstand) also determine the
schedule of responsibilities of the members of the Company’s management
board (Vorstand) as amended from time to time.
Page 184
19.2.3
Members of the Management Board (Vorstand)
The management board (Vorstand) of the Company currently consists of three
members.
The members of the management board, their terms of appointment and their
current areas of responsibility are as follows:
Name
Age
Initially
appointed
on
Term
expires on
Responsibility
Mr. ZHU
Xiaofang
50
10 March
2016
9 March
2021
Chairman of the
management
board and Chief
Executive Officer
(CEO)
Mr. ZHU
Xiaohua
46
2 May 2016
1 May 2021
Chief Operations
Officer (COO)
Mr. OOI
Guan Hoe
41
2 May 2016
1 May 2021
Chief Financial
Officer (CFO)
The members of the management board (Vorstand) can be reached at the
company’s address of Pu’an Leather Center, Quangang District, Quanzhou
City, Fujian Province, Postal Code 362801, PRC.
19.2.4
Mr. ZHU Xiaofang
Mr. ZHU Xiaofang is the chairman of the management board
(Vorstandsvorsitzender) of the Company. He is the chief executive officer
(“CEO”) and in charge of the overall management, strategy and business
development and provides leadership to the whole management team.
Mr. ZHU Xiaofang is also vice president of the Quanzhou Quangang Chamber
of Commerce and the Chairman of Quanzhou polyurethane industry technology
innovation association.
Mr. ZHU Xiaofang has not been over the last five years and is currently not
partner in any partnership or member of any administrative, management or
supervisory body outside the Group.
19.2.5
Mr. ZHU Xiaohua
Mr. ZHU Xiaohua is the chief operations officer (“COO”). He is responsible for
the management of the operations at the plant.
Mr. ZHU Xiaohua graduated from Xiamen University in 2005 and has over 15
years of experience in the polyurethane resin industry. He has participated in
various science and technology projects in China.
Over the last five years, Mr. ZHU Xiaohua has been a partner in the following
partnership or a member of any administrative, management or supervisory
board of the following companies outside the Group.
Current
 Director of the Board of Directors of Quangang Pu’an Sewage Treatment
Factory
Past (last five years)
 None
Page 185
19.2.6
Mr. OOI Guan Hoe
Mr. OOI Guan Hoe is the Company’s chief financial officer (“CFO”) and is
responsible for the overall financial management.
Mr. OOI obtained his Bachelor Degree in Accountancy (Honors) from University
Putra Malaysia in 1999 and is a member of the Malaysian Institute of
Accountants. He attended the Harvard Business School Executive Education on
Private Equity and Venture Capital in 2011. He has more than 15 years of
experience in finance, accounting, corporate finance and investor relationship.
Since 1 January 2015 he is employed at DECHENG HK.
Over the last five years, Mr. OOI Guan Hoe has been a partner in the following
partnerships or a member of any administrative, management or supervisory
board of the following companies outside the Group.
Current
 Independent Director and Audit Committee Chairman of Only World Group
Berhad (listed on Malaysia Stock Exchange),
 Non-Executive Director and member of Audit Committee of Xingquan
International Sports Holdings Limited (listed on Malaysia Stock Exchange)
19.2.7
Remuneration of Management Board (Vorstand)
The services of Mr. ZHU Xiaofang, Mr. ZHU Xiaohua and Mr. OOI Guan Hoe
with the Company will be based on service agreements to be concluded with
the Company represented by Mr. Jürgen Schrollinger as chairman of the
supervisory board (Aufsichtsrat).
Under the respective service agreements with the Company, Mr. ZHU Xiaofang,
Mr. ZHU Xiaohua and Mr. OOI Guan Hoe will not be entitled to remuneration for
their service as members of the management board (Vorstand) of the
Company.
However, the members of the management board receive remuneration from
DECHENG HK or DECHENG PRC (cf. Section 20.2.5 “Remunerations for
members of the Management Board (Vorstand) and senior managers”) for their
services provided to DECHENG HK or DECHENG PRC respectively (cf.
Section 20.1 “Related Parties” and Section 19.2.6 “Mr. OOI Guan Hoe”).
19.2.8
Shareholdings and Options of the Members of the Management Board
(Vorstand)
As of the date of this Prospectus, the shareholding interests of the members of
the management board (Vorstand) are as follows:
Percentage of
Shareholder
Number of Shares
Share Capital (%)
Mr. ZHU Xiaofang
20,430,000
68.10
Mr. OOI Guan Hoe
1,062,000
3.54
The Company itself has not granted any options to acquire or subscribe for
shares in the Company to any of its members of the management board
(Vorstand) or employees.
Page 186
19.2.9
Conflict of Interests
Potential conflicts may arise from Mr. ZHU Xiaofang’s and Mr. OOI Guan Hoe’s
shareholding in the Company since they have personal interests in the
development of the value of their shares in the Company.
Apart from the one mentioned above, there exist no potential conflicts of interest
between any duties of the members of the management board to the Company
and their private interests and other duties.
19.3 Senior Management
The following provides for an overview on the senior management of the main operating
entity of DECHENG:
Name
Position /
Personal
Relationship
Years of
Experience
Background/Short CV
Mr. ZHU
Xinpei
Administration
manager / No
personal
relationship
30 years
Mr. ZHU Xinpei is responsible
for
the
office
support,
administration
and
human
resources. Mr. ZHU Xinpei
possesses more than 30 years
experience
in
corporate
management experience. Mr
ZHU Xinpei has worked in
various
companies
before
joining DECHENG in 2007.
Mr. HAN
Chun Woo
Research and
Development
Director / No
personal
relationship
27 years
Mr. HAN Chun Woo is
responsible for the research and
development
activities
of
DECHENG. Mr. HAN Chun
Woo graduated from Seoul
National University in 1989 and
experience in research and
development
activities
especially in polymer materials,
polyurethane resins, additives
and polyurethane adhesive
product. Mr. HAN Chun Woo
has participated in Quanzhou
Quangang techonolgy projects
in relation to "reaction type
containing P, N, Si flame
retardant
polyurethane
development", "high moisture
permeability of polyurethane
research and development"
projects and "high breathable
coating with a polyurethane
resin". Mr. HAN Chun Woo has
worked in various companies
before joining DECHENG in
2006.
Mr. CHEN
Shuo
Marketing Director
/ No personal
relationship
31 years
Mr. CHEN Shuo is responsible
for the marketing activities of
DECHENG. Mr. CHEN Shuo
experience
in
marketing
experience. Mr. CHEN Shuo
has
worked
in
various
companies
before
joining
Page 187
DECHENG in 2008.
Ms. XIAO
Lixia
Financial Manager
/ No personal
relationship
10 years
Ms. XIAO Lixia is responsible
for the finance and accounting
activities of DECHENG. Ms
XIAO Lixia has more than 10
years experience in financial
work experience. Ms. XIAO
Lixia joined DECHENG in 2005.
Mr. QIAN
Xianchun
Production
Manager / No
personal
relationship
35 years
Mr.
QIAN
Xianchun
is
responsible for the production
activities of DECHENG. Mr.
QIAN Xianchun possesses more
than 35 years experience in
production
and
safety
management experience. Mr.
QIAN Xianchun has worked in
various
companies
before
joining DECHENG in 2009.
The business address of the officers and senior managers is at Pu’an Leather Center,
Quangang District, Quanzhou City, Fujian Province, PRC.
Over the last five years, none of the senior managers has been a partner in a partnership
or a member of administrative, management or supervisory bodies outside the Group.
None of the members of the senior management, directly or indirectly, holds any shares
in the Company as of the date of this Prospectus. The Company has not granted any
options to acquire or subscribe for shares in the Company to any of the members of the
senior management.
Apart from the ones mentioned above, there exist no potential conflicts of interest
between any duties of the senior management to DECHENG and their private interests
and other duties.
19.4 Supervisory Board (Aufsichtsrat)
19.4.1
General Rules
Pursuant to section 11 of the Company’s articles of association (Satzung) and
in accordance with sections 95 and 96 of the German Stock Corporation Act
(AktG), the supervisory board (Aufsichtsrat) consists of three members
appointed by the general shareholders’ meeting (Hauptversammlung). Unless
otherwise determined by shareholders’ resolution, the term of each supervisory
board (Aufsichtsrat) member expires at the end of the annual general
shareholders’ meeting (Hauptversammlung) that formally approves the actions
of the supervisory board (Aufsichtsrat) members for the fourth financial year
following commencement of the member’s term of office. The financial year in
which the term commences is not included. Each member of the supervisory
board (Aufsichtsrat) can be re-elected. The general shareholders’ meeting
(Hauptversammlung) can provide for a shorter term of office. A successor to
any member of the supervisory board (Aufsichtsrat) retiring prior to the
expiration of his or her term is appointed for the remainder of the term of the
resigning the members of the supervisory board (Aufsichtsrat).
The general shareholders’ meeting (Hauptversammlung) not only appoints
members to the supervisory board (Aufsichtsrat) but can also remove them with
simple majority of the votes cast. Pursuant to section 10 of the Company’s
articles of association (Satzung), any supervisory board (Aufsichtsrat) member
may resign with at least one month’s prior written notice. The notice period can
be waived by mutual agreement. If the resignation is for good cause, it may take
immediate effect.
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The
supervisory
board
(Aufsichtsrat)
appoints
a
chairman
(Aufsichtsratsvorsitzender) and a deputy chairman (Stellvertretender
Aufsichtsratsvorsitzender) from among its members. The chairman
(Aufsichtsratsvorsitzender) or, if unable to attend, the deputy chairman
(Stellvertretender Aufsichtsratsvorsitzender), is obligated to convene and
conduct the meetings of the supervisory board (Aufsichtsrat).
The supervisory board (Aufsichtsrat) is not entrusted with the day-to-day
business and therefore cannot set binding directives for the management board
(Vorstand). However, according to the rules of procedure for the management
board (Geschäftsordnung für den Vorstand), certain transactions are subject to
the supervisory board’s (Aufsichtsrat) consent.
The supervisory board (Aufsichtsrat) is responsible for appointment of the
members of the management board (Vorstand) and can revoke their
appointment for good cause such as gross breach of fiduciary duties or if the
general shareholders’ meeting (Hauptversammlung)adopts a no-confidence
resolution in relation to the member of the management board(Vorstand) in
question.
The most important tasks of the supervisory board (Aufsichtsrat) is the advice,
control and supervision of the business operated by the management board
(Vorstand). This advisory and supervisory role covers all the activities of the
management board (Vorstand). In assessing the management board’s
(Vorstand) activities, the supervisory board (Aufsichtsrat) is not limited to the
assessment of the legitimacy of the activities but its supervision also includes
the appropriateness and economic consequences of the activities.
In order to enable the supervisory board (Aufsichtsrat) to fulfill its tasks, the
management board (Vorstand) is obliged to report to the supervisory board
(Aufsichtsrat) on a regular basis. The supervisory board (Aufsichtsrat) (and
each of its members) can request a report from the management board
(Vorstand) to the supervisory board (Aufsichtsrat) on the transactions of the
Company, on legal and business relations with affiliated companies and on the
course of business of these companies, in so far as they are of economic
importance to the Company. Every member of the supervisory board
(Aufsichtsrat) is entitled to review these reports.
The supervisory board (Aufsichtsrat) can also arrange for special audits and
investigations of the work of the management board (Vorstand), in particular the
examination of certain transactions and the books of the Company.
The supervisory board (Aufsichtsrat) has a limited right of representation. It
represents the Company in legal transactions and in the event of legal disputes
with members of the management board (Vorstand). Furthermore, the
supervisory board (Aufsichtsrat) represents the Company together with the
management board (Vorstand) in the event of an action to challenge a general
shareholders’ meeting (Hauptversammlung) resolution brought by a
shareholder.
The members of the supervisory board (Aufsichtsrat) are jointly responsible for
performing their duties. The tasks and duties of the members of the supervisory
board (Aufsichtsrat) can be further defined in rules of procedure for the
supervisory board (Geschäftsordnung für den Aufsichtsrat) and certain tasks
can be assigned to a committee or to individual members of the supervisory
board (Aufsichtsrat). The supervisory board (Aufsichtsrat) has to consider the
German Corporate Governance Code, which is mandatory for companies listed
in the General Standard segment of Frankfurt Stock Exchange.
The members of the supervisory board (Aufsichtsrat) are guided by the interests
of the Company. They represent neither solely the shareholders nor the
employees and must therefore consider the interests of the Company in their
decisions and actions. The interests of the Company include the interests of the
shareholders and the workforce and, to a certain extent, the interests of the
Page 189
public. The members of the supervisory board (Aufsichtsrat) act entirely
independently and on their own account.
The supervisory board (Aufsichtsrat) must hold a meeting twice in each half of
the calendar year. Resolutions of the supervisory board (Aufsichtsrat) are
generally passed in meetings. According to the German Stock Corporation Act
the supervisory board (Aufsichtsrat) has a quorum if at least three members of
the supervisory board (Aufsichtsrat) participate in a vote on a resolution.
Resolutions of the supervisory board require simple majority of the votes cast,
unless the applicable laws does not provide otherwise. However, resolutions
may also be passed outside of meetings, e.g. in writing, by telephone, in text
form, in electronic or other another comparable form, especially by
videoconference or in a combination of all above mentioned procedures, if this
is determined by the chairman of the supervisory board (Aufsichtsrat).
19.4.2
Rules and Procedures for the Supervisory Board
On 2 May 2016, the supervisory board (Aufsichtsrat) adopted rules of procedure
for the supervisory board (Geschäftsordnung für den Aufsichtsrat).
19.4.3
Members of the Supervisory Board
By means of resolutions dated 16 March 2016 and dated 15 April 2016, the
general shareholders’ meeting (Hauptversammlung) of the Company has
appointed Mr. Jürgen Schrollinger, Mr. TEO Cern Yong and Mr. ZHU Haibin as
members of the supervisory board (Aufsichtsrat) for a period until the expiration
of the general shareholders’ meeting (Hauptversammlung) exonerating the
management board (Vorstand) and the supervisory board (Aufsichtsrat) for the
financial year 2016. The supervisory board has elected Mr. Jürgen Schrollinger
as its chairman (Aufsichtsratsvorsitzender) and Mr. TEO Cern Yong as its
deputy chairman (Stellvertretender Aufsichtsratsvorsitzender) by resolution
dated 16 March 2016.
The members of the supervisory board (Aufsichtsrat) can be contacted at the
Company’s address.
The table below shows the current members of the supervisory board of the
Company and their respective terms of office:
Name and Position
Age
Mr. Jürgen Schrollinger
Chairman of the supervisory board
(Aufsichtsratsvorsitzender)
48
Mr. TEO Cern Yong
Deputy chairman of the
supervisory board
(Stellv. Aufsichtsratsvorsitzender)
41
Mr. ZHU Haibin
Member of the supervisory board
61
Initially appointed
on
Term expires
in*
16 March 2016
2017
16 March 2016
2017
15 April 2016
2017
(*) Term of office expires after the general shareholders meeting (Hauptversammlung) that formally
approves (entlastet) the actions of the members of the supervisory board of the financial year 2016.
19.4.4
Mr. Jürgen Schrollinger
Mr. Jürgen Schrollinger is
(Aufsichtsratsvorsitzender).
the
chairman
of
the
supervisory
board
Mr. Jürgen Schrollinger received a bankers training at BfG Bank AG in Munich
from 1988 to 1990. He studied International Business Management and
Strategy at San Diego State University in 1994 and graduated from the LudwigMaximilians-University Munich with a degree in business in 1995. From 1996 to
Page 190
1998, he worked as freelancer as scientific officer at the Catholic University in
Eichstätt with focus on research of new media and organization. During this
time, he also worked as project coordinator and supervisor of the project „new
media“ of BfG Bank AG in Frankfurt and strategy- and IPO-consultant for the
preparation of capital measures in several projects. From 1999 till 2000, Mr.
Jürgen Schrollinger was manager of JS Beratungs GmbH / active investment
management and worked among others in diverse renewable investment
projects. From 2000 till 2002, he was speaker of the executive board of b.i.s.
AG in Rimpar and responsible for the complete executive board and the sectors
finance, investor relations and strategy. In 2002, he was appointed as CEO of
b.i.s. AG in Rimpar after successful financial restructuring of the company and
return to the core business. From 2006 to 2007, he was chief representative of
Gebhard Wertpapierhandelsbank AG and CEO of Gebhard and Co. Corporate
Finance AG in Gräfelfing. Since 2008, Mr. Jürgen Schrollinger is Corporate
Finance Consultant for medium sized business, in particular Chinese
businesses, Chief Executive Officer of Lenz+Partner AG in Dortmund, Germany
and General Manager of Tijd Beursmedia in Bruxelles, Belgium and
Amsterdam, Netherlands.
Over the last five years, Mr. Jürgen Schrollinger has been a partner in the
following partnerships or a member of administrative, management or
supervisory bodies of the following companies outside the Company:
Current
 Chief Executive Officer of Lenz+Partner AG
 General Manager of JS Beratungs GmbH
 Chairman of the supervisory board (Aufsichtsrat) of Chang Run China
Investments Holding AG
 General Manager of Tijd Beursmedia (Bruxelles, Belgium and Amsterdam,
Netherlands)
 Chairman of supervisory board (Aufsichtsrat) of Inspire AG
19.4.5
Mr. TEO Cern Yong
Mr. TEO Cern Yong is the deputy chairman of the supervisory board
(Stellvertretender Aufsichtsratsvorsitzender).
Mr. TEO Cern Yong received a Bachelor of Accounting from the University of
Malaya in 1999. He became a Certified Public Accountant (CPA) in 2000, a
Chartered Accountant (CA) in 2002 and Chartered Financial Analyst (CFA) in
2003. He attended Harvard Business School’s Senior Management
Development Program in 2008.
Between 1999 and 2003, Mr. TEO Cern Yong worked for Arthur Andersen,
Kuala Lumpur in the Assurance & Corporate Finance department. Since 2004,
he worked for Devonshire Capital, Kuala Lumpur as a Senior Manager in the
corporate finance department. From May 2006 until May 2010 he was Vice
president of the Group strategy department of Sime Darby Berhad. Between
May 2010 and April 2011 he was Head of Group strategy of IOI Corporation
Berhad. Since 2011, Mr. TEO Cern Yong is Chief Financial Officer of Xingquan
International Holdings Limited, the first China based company listed on Bursa
Malaysia.
Over the last five years, Mr. TEO Cern Yong has not been a partner in a
partnership or a member of administrative, management or supervisory bodies
outside the Company:
Current

none
Page 191
 none
19.4.6
Mr. ZHU Haibin
Mr. ZHU Haibin is a member of the Supervisory Board.
Mr. ZHU Haibin is a polytechnic graduate from the Party School of Fujian
Province in 2005. Between December 1974 and December 1987 he was with
the army serving as a soldier, squad leader, chief engineer, mechanical and
electrical chief and captain. From January 1988 until October 2015 he worked
for the Administration of Industry and Commerce of Quanzhou City. During this
time he was promoted to the Director of the Industry and Commerce Bureau of
Quanzhou Licheng District, Director of Industry and Commerce Bureau of
Quanzhou Fengzhe District, Shishi City worker productivity Bureau and deputy
director of the Industry and Commerce Bureau of the Quanzhou City. In
October 2015 he retired.
Over the last five years, Mr. ZHU Haibin has not been a partner in the following
partnerships or a member of administrative, management or supervisory bodies
of the following companies outside the Company:
Current
 none
 none
19.4.7
Remuneration of the Supervisory Board Members
Mr. Jürgen Schrollinger as chairman of the supervisory board
(Aufsichtsratsvorsitzender) receives a gross remuneration of EUR 35,000 per
year and furthermore a one-time transfer of 15,000 shares in the Company by
Mr. ZHU Xiaofang as a third-party payment. Mr. TEO Cern Yong as deputy
chairman (Stellvertretender Aufsichtsratsvorsitzender) receives a gross
remuneration of EUR 35,000, while Mr. ZHU Haibin receives a gross
remuneration of EUR 6,800 per year.
If a person is a member of the supervisory board only for part of a financial
year, remuneration is determined for a proportionate period of time (pro rata
termporis). In addition, every member of the supervisory board (Aufsichtsrat) is
entitled to reimbursement for expenses incurred in performing the duties of its
office.
19.4.8
D&O Insurance
The Company has entered into directors’ and officers’ insurance in its name,
covering the members of the supervisory board and management board, based
on prevailing market conditions.
19.4.9
Shareholding and Options
None of the members of the supervisory board directly or indirectly holds any
shares in the Company.
The Company has not granted any options to acquire or subscribe for shares in
the Company to any of the members of the supervisory board.
19.4.10 Conflict of Interests
Potential conflicts may arise from Mr. Jürgen Schrollinger’s future shareholding
in the Company since he has personal interests in the development of the value
of his shares in the Company.
Page 192
Apart from the one mentioned above, there exist no potential conflicts of interest
between any duties of the members of the supervisory board (Aufsichtsrat) to
the Company and their private interests and other duties.
19.4.11 Committees
As at the date of this Prospectus, the supervisory board (Aufsichtsrat) of the
Company has not established an audit committee or remuneration committee.
19.5 Specific Information on the Members of the Supervisory Board (Aufsichtsrat), the
Management Board (Vorstand) and the Senior Management
For the previous five years no member of the management board (Vorstand), supervisory
board (Aufsichtsrat) or the senior management has been convicted in relation to a
fraudulent offence. Neither have any official accusations and/or sanctions been made in
relation to members of the management board (Vorstand), supervisory board
(Aufsichtsrat) or senior management by law enforcement agencies or regulatory
authorities. For the previous five years no member of the Company’s administrative,
management or supervisory bodies, in particular no member of the management board
(Vorstand), senior management and supervisory board (Aufsichtsrat) was associated with
any bankruptcies, receiverships or liquidations.
Furthermore, at no times for the previous five years there was any official public
incrimination and/or sanction of a member of the Company’s administrative, management
or supervisory body or senior management by statutory or regulatory authorities
(including designated professional bodies) and no such person has ever been disqualified
by a court from acting as a member of the administrative, management or supervisory
bodies (Aufsichtsräte) of an issuer or from acting in the management or conduct of the
affairs of an issuer for the previous five years.
The Company and DECHENG have not granted the members of the management boards
(Vorstände) and supervisory boards (Aufsichtsräte) any loans. The members of the two
boards have not concluded any transactions with the Company or DECHENG outside
DECHENG’s course of ordinary business.
No member of the management board (Vorstand) or supervisory board (Aufsichtsrat) or
senior management has entered into a service agreement with any company of
DECHENG providing for any special compensation upon the termination of the service
relation. In particular, no pension or retirement benefits will be provided. Besides the
family relationship between Mr. ZHU Xiaofang and Mr. ZHU Xiaohua, a brother of Mr.
ZHU Xiaofang, there exists no other family relationship, neither among the members of
the management board (Vorstand) or the supervisory board (Aufsichtsrat) or senior
management, nor between any members of the management board (Vorstand), any
members the supervisory board (Aufsichtsrat) and any members of the senior
management. Furthermore, there are no agreements or arrangements with majority
shareholders, customers, suppliers or other persons based on which any management
board (Vorstand) or supervisory board (Aufsichtsrat) or senior management member has
been appointed.
Mr. ZHU Xiaofang, the chairman of the management board (Vorstandsvorsitzender), and
Mr. OOI Guan Hoe, the chief financial officer (“CFO”), currently holds 68.10% and 3.54%
of the shares in the Company respectively (see Section 19.2.8 above ‘‘Directors’
Shareholdings and Options of the Member of the Management Board (Vorstand)’’).
19.6 General Shareholders’ Meeting (Hauptversammlung)
The general shareholder’s meeting (Hauptversammlung) is held at the Company’s
registered office, in a German city which has a stock exchange or in a German city with
more than 250,000 inhabitants. According to German Stock Corporation Law, the meeting
must be convened thirty days before the meeting itself. The invitation to the General
Shareholder’s Meeting (Hauptversammlung) has to be published in the electronic version
of the German Federal Gazette at least thirty days before the day of the meeting or at
least thirty days before notice of attendance has to be given, excluding the day of the
invitation and the day of the meeting or the day notice of attendance has to be given.
Page 193
Shortly after the convocation of the general shareholders' meeting (Hauptversammlung)
the Company must publish certain information on their website such as the content of the
invitation, an illustration if no resolution is concluded in regard to a certain point of the
agenda, the documents available in the meeting, the total amount of shares and of the
voting rights, including separate information on the different total amounts concerning the
varying classes of shares and - if necessary the formulas needed to vote by proxy or to
issue a postal vote.
The Company's articles of association (Satzung) regulate that shareholders who want to
attend the meeting and exercise their voting rights within the meeting must register six
days prior to the general shareholder’s meeting (Hauptversammlung), not counting the
day of the meeting and the day the registration is received. The registration must be
made to the Company under the address announced in the convocation. The registration
has to be issued in text form (section 126b German Civil Code), either in German or
English. Shareholders must provide proof regarding their eligibility to participate in the
general shareholders' meeting (Hauptversammlung). In this regard, a special confirmation
of shareholding by the custodian bank is required and sufficient. With regard to such
shares which are not deposited with a custodian bank, this special confirmation of
shareholding may also be provided by a German notary or credit institution. The special
confirmation of shareholding has to be submitted in text form (section 126b BGB), either
in German or English. This document must refer to the 21st day prior to the meeting and
must be submitted to the Company via the address stated in the convocation at least six
days prior to the meeting. The day of the general shareholders' meeting
(Hauptversammlung) and the day on which the registration is received is not to be
counted. Details on the proof of eligibility, the issue of admission tickets and registration
have to be announced in the convocation. The voting rights may be exercised by proxy.
The German Stock Corporation Act (AktG) and the Company's articles of association
(Satzung) state that if the shareholder empowers more than one person, the Company
may reject one or more of the so-empowered persons. Each no-par value share carries
one vote at the general shareholders' meeting (Hauptversammlung) of the Company.
Neither German law nor the Company’s articles of association (Satzung) restrict the rights
of foreign shareholders or shareholders who are not domiciled in Germany to hold shares
or to exercise the voting rights attached to them.
The general shareholders' meeting (Hauptversammlung) adopts resolutions regarding, in
particular:

The appointment of members of the supervisory board (Aufsichtsrat);

The appropriation of the retained earnings (Bilanzgewinn);

The formal approval of acts of the members of the management board
(Vorstand) and supervisory board;

The appointment of the auditor;

Amendments to the articles of association (Satzung);

Capital procurement and capital reduction measures;

The appointment of auditors to control the formation and management of
the Company; and

The liquidation of the Company.
Measures of the management board (Vorstand) can only be subject to a decision of the
general shareholders' meeting (Hauptversammlung) if the management board (Vorstand)
requests such decision.
Unless otherwise stipulated by mandatory statutory provisions or provisions of the
Company’s articles of association (Satzung), resolutions of the general shareholders'
meeting may be adopted by a simple majority of the votes cast. If statutory provisions in
non-mandatory form require a majority of the capital represented, a simple majority of the
capital represented at the adoption of the resolution is sufficient. Principally, this also
Page 194
applies to resolutions amending the Company's articles of association (Satzung) and to
capital increases and capital reductions, unless a different majority is required by law.
Stock corporation law constitutes that resolutions of fundamental importance must be
passed by a majority of at least three-quarters of the registered share capital represented
at the meeting. In such cases, the stipulated majority exceeds the majority prescribed by
the Company's articles of association (Satzung).
Resolutions of fundamental importance include the following:

Amendments to the Company's articles of association (Satzung);

Capital increases excluding shareholders' subscription rights; capital
reductions

The creation of authorized or conditional capital

The transfer of the Company’s entire assets (Übertragung des gesamten
Gesellschaftsvermögens) and reorganizations as laid down in the
German Transformation Act (Umwandlungsgesetz) such as mergers
(Verschmelzungen), spin-offs (Spaltungen) or transfers of the Company`s
assets and transformations of the Company’s corporate legal form
(Formwechsel);

The conclusion of inter-Company agreements (in particular control
agreements and profit pooling agreement); and

The dissolution of the Company.
The general shareholder’s meeting (Hauptversammlung) may be called by the
management board (Vorstand), the supervisory board (Aufsichtsrat) or by the
shareholders holding an aggregate of 5% of the registered share capital. The supervisory
board (Aufsichtsrat) must call a general shareholder`s meeting (Hauptversammlung) if the
best interests of the Company require so. The general shareholder`s meeting
(Hauptversammlung) must be held within the first eight months of each fiscal year.
19.7 Corporate Governance Code
The German Corporate Governance Code (the “Code”) presents essential statutory
regulations for the management and supervision of German listed companies and
contains internationally and nationally recognized standards for good and responsible
governance. The Code aims to make the German corporate governance system
transparent and understandable. Its purpose is to promote the trust of international and
national investors, customers, employees and the general public in the management and
supervision of listed German stock corporations.
Although there is no obligation under German law to comply with the recommendations
and suggestions of the Code, section 161 of the German Stock Corporation Act requires
the management board (Vorstand) and the supervisory board (Aufsichtsrat) of a listed
company to make an annual declaration of conformity that it followed and will follow the
recommendations of the Code or which of the recommendations were or will not to be
followed. In the last case the declaration of conformity must include the reasons for not
following the Code. According to the preamble of the Code, a well justified deviation from
a Code recommendation may be in the interest of good corporate governance. The
declaration has to be published on the company's website.
The Company has not intentionally complied with the recommendations and suggestions
contained in the Code yet because it has so far not been listed on any stock exchange
and therefore the Code did not apply to the Company. Once the Company is granted
admission to trade on the regulated market of the Frankfurt Stock Exchange, the
Company will annually issue and publish a declaration of conformity pursuant to section
161 of the German Stock Corporation Act (AktG) and will make it continuously available
on its website.
The management board (Vorstand) and the supervisory board (Aufsichtsrat) of the
Company identify with the goals of the Code to foster responsible and transparent
Page 195
corporate management and control, oriented to a sustained increase in Company value.
The members of the governing bodies declare that after the Listing they will largely follow
the recommendations of the Code as amended on 5 May 2015 and published in the
Federal Gazette on 12 June 2015 presumably except for the following:
Section 3.8 para. 3
Section 3.8 para. 3 of the Code recommends agreeing on a specified deductible in any
D&O (directors’ and officers’ liability insurance) policy to be taken out for members of the
supervisory board (Aufsichtsrat). In the Company’s opinion, the attitude of the supervisory
board members in responsible acting and complying with German law will not be
supported by such specified deductible. Also, a deductible would reduce the
attractiveness of supervisory board activities, and thus also the Company’s chances in
the competition to attract qualified candidates.
Section 4.1.5 sentence 1
Section 4.1.5 sentence 1 of the Code recommends taking diversity into consideration
when filling managerial positions, and, in particular, to aim for an appropriate
consideration of women. The Company is considering diversity. However, the focus here
is on the professional qualification of the candidates (men and women). Therefore, a
deviation from section 4.1.5 sentence 1 of the Code is declared preventively.
Section 4.2.3 para. 2
According to section 4.2.3 para. 2 of the Code, the monetary compensation elements for
the management board (Vorstand) shall comprise fixed and variable elements. The
supervisory board (Aufsichtsrat) must ensure that the variable compensation elements
are, in general, based on a multi-year assessment. Both positive and negative
developments shall be taken into account when determining variable compensation
components. All compensation components must be appropriate, both individually and in
total, and in particular must not encourage taking unreasonable risks. The amount of
compensation shall be capped, both overall and for individual compensation components.
The variable compensation components shall be related to demanding, relevant
comparison parameters. Changing such performance targets or the comparison
parameters retroactively shall be excluded. The Company deviates from the
aforementioned recommendations of the Code as the members of the management
board (Vorstand) are not entitled to remuneration for their service as members of the
management board (Vorstand) of the Company. The members of the management board
(Vorstand) only receive remuneration for their services as directors and/or officers of the
Company’s subsidiaries.
Section 5.1.2 para. 1 sentence 2
According to the recommendation in section 5.1.2 para. 1 sentence 2 of the Code, the
supervisory board (Aufsichtsrat) shall pay attention to the aspect of diversity with regard
to the composition of the management board (Vorstand). The supervisory board
(Aufsichtsrat) of the Company holds the view that the aspect of diversity is a goal to be
pursued; however, in the interest of the Company and its shareholders, the supervisory
board (Aufsichtsrat) considers the specialist know-how, capabilities and experiences of
the candidates in their respective fields of business and areas of responsibility to be
decisive with regard to the composition of the management board (Vorstand). On this
basis, a deviation from section 5.1.2 para. 1 sentence 2 of the Code is declared
preventively.
Section 5.3
As a legal requirement for the formation of a committee that takes decisions, the
committee must consist of at least three members. Since the supervisory board
(Aufsichtsrat) of the Company only consists of three members due to the size of the
Company, the formation of a committee is not necessary. Thus, the Company deviates
from the recommendation of section 5.3 of the Code.
Section 5.4.1 para. 2 and 3
Pursuant to section 5.4.1 para. 2 of the Code, the supervisory board (Aufsichtsrat) shall
Page 196
set specific objectives with regard to its composition that take into account the companyspecific situation, the international scope of the company’s business, potential conflicts of
interest, the number of independent members of the supervisory board (Aufsichtsrat)
pursuant to section 5.4.2 of the Code, a set age limit for members of the supervisory
board (Aufsichtsrat) to be specified and a regular limit of length of membership to be
specified for the members as well as diversity. Pursuant to section 5.4.1 para. 3 of the
Code, proposals issued by the members of the supervisory board to the responsible
corporate electoral bodies shall take those objectives into account and the objective
target shall be reported on in the Corporate Governance Report. In the interest of the
company, the supervisory board (Aufsichtsrat) will in each individual case solely base its
nomination proposals to the shareholders’ meeting on the skills, abilities and professional
expertise. In this regard, the Company deviates from section 5.4.1 para. 2 and 3 of the
Code.
Section 5.4.5 para. 2
Pursuant to section 5.4.5 para. 2 of the Code, the members of the supervisory board
(Aufsichtsrat) on their own take on the necessary training and further education measures
required for their tasks. They shall in this regard be supported by the company
appropriately. Due to the fact that the requirements of the term “angemessen”
(appropriate) are not clear, the Company declares its deviation from this recommendation
for reasons of caution.
Section 5.4.6 para. 1 sentence 2
Pursuant to section 5.4.6 para. 1 sentence 2 of the Code the exercising of the chair and
deputy chair positions in the supervisory board (Aufsichtsrat) as well as the chair and
membership in committees shall be considered with regard to the compensation of the
members of the supervisory board (Aufsichtsrat). Since the supervisory board
(Aufsichtsrat) of the Company did not form any committees, the Company deviates from
the recommendation of section 5.4.6 para. 1 sentence 2 of the Code.
Section 7.1.2
The consolidated financial statements will probably not be made available publicly within
90 days from the end of the financial year and the interim reports will probably not be
available within 45 days from the end of the reporting period as recommended in section
7.1.2 of the Code. The Company cannot guarantee that it can meet the deadlines
recommended by the Code in view of the need to include foreign companies in the
consolidated financial statements and interim reports. The consolidated financial
statements will, however, be available within four months from the end of the financial
year, while interim reports will be published within the statutory deadlines.
Page 197
20.
TRANSACTIONS AND LEGAL RELATIONS WITH RELATED PARTIES
20.1 Related Parties
This section describes the transactions between entities of DECHENG and related parties
concluded in the period between 1 January 2013 and the date of this Prospectus.
An entity or individual is considered a related party of the Company if: (i) it possesses the
ability, directly or indirectly, to control or exercise significant influence over the operating
and financial decision of the Company or vice versa; or (ii) it is subject to common control
or common significant influence.
Further, related parties of the Company include members of the management board
(Vorstand) and the supervisory board (Aufsichtsrat), including their close family members
and companies over which members of the management board (Vorstand) or supervisory
board (Aufsichtsrat) of the Company or their family members could exercise considerable
influence or hold a substantial amount of the voting rights.
The following related parties have concluded transactions with (other) entities of
DECHENG within the period between 1 January 2013 and the date of this Prospectus:
Related Party
Relationship / Type
of Business
Relation to DECHENG
Mr. Zhu Xiaofang
n/a
Majority direct shareholder of
the Company, chairman of the
management
board
of
DECHENG HK and executive
director of DECHENG PRC
Ms. ZHU Yuling
Wife of
Xiaofang
Mr. ZHU Xiaohua
Brother of Mr. ZHU
Xiaofang
COO of the Company and
General
Manager
of
DECHENG PRC
Mr. OOI Guan Hoe
n/a
Chief financial officer of the
Company
Mr.
ZHU
n/a
20.2 Related Party Transactions
To allow the investor to examine transactions between entities of DECHENG and their
related parties in the past, this section includes a summary of such transactions between
1 January 2014 and the date of this Prospectus.
20.2.1
Restructuring Agreement
On 25 April 2016, inter alia Mr. ZHU Xiaofang and Mr. OOI Guan Hoe entered
into a contribution agreement with the Company whereby they undertook to
transfer 68.10% and 3.54% of the shares in DECHENG HK respectively to the
Company against the issue of 20,395,950 and 1,060,230 new no par value
ordinary bearer shares in the capital of the Company respectively
(Einbringungsvertrag).
20.2.2
Bank Guarantees
The short term bank loans of DECHENG are, inter alia, collateralized with
personal guarantees granted by Mr. ZHU Xiaofang and his wife, Ms. ZHU
Yuling.
On 30 April 2014, Mr. ZHU Xiaofang and his wife Ms. ZHU Yuling entered into a
maximum guarantee agreement with CCB, under which they shall provide a
guarantee for securing a loan facility up to RMB 80,000,000 (approx.
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EUR 11,600,000) granted by CCB to DECHENG PRC from 30 April 2014 to 30
April 2015.
On June 8, 2015, Mr. ZHU Xiaofang, his wife Ms. ZHU Yuling and his brother
Mr. ZHU Xiaohua each entered into a maximum guarantee agreement with
CCB, under which Mr. ZHU Xiaofang, Ms. ZHU Yuling and Mr. ZHU Xiaohua
each shall provide a guarantee for securing the loan facility up to
RMB 80,000,000 (approx. EUR 11,600,000) granted by CCB to DECHENG
PRC from June 8, 2015 to June 8, 2016.
The guarantees were provided for no consideration.
20.2.3
Loans to DECHENG
Mr. ZHU Xiaofang has granted a non-interest bearing loan to DECHENG PRC
by paying operational costs in the amount of EUR 354,583, leading to an
amount due to a director.
20.2.4
Personal Undertakings
Mr. ZHU Xiaofang has given several personal undertakings pursuant to which
he, inter alia, undertook to reimburse DECHENG PRC (i) for any outstanding
payments requested by the competent authorities in connection with a failure to
pay taxes and fees, social insurance and housing funds contributions; (ii)
undertook to reimburse DECHENG PRC for any shareholders’ contribution
defect during the establishment of DECHENG PRC.
20.2.5
Remunerations for members of the Management Board (Vorstand) and
Senior Managers
The aggregate remuneration for the members of the management board
(Vorstand) in FY 2015 amounted to EUR 239,128:
Mr. ZHU Xiaofang
EUR 81,603
paid by DECHENG
PRC
Mr. ZHU Xiaohua
EUR 70,757
paid by DECHENG
PRC
Mr. OOI Guan Hoe
EUR 86,768
paid by DECHENG
HK
Total
EUR 239,128
The aggregate remuneration for the senior managers in FY 2015 amounted to
EUR 191,962:
Mr. ZHU Xinpei
EUR 27,287
paid by DECHENG
PRC
Mr. QIAN Xianchun
EUR 39,641
paid by DECHENG
PRC
Mr. CHEN Shuo
EUR 48,995
paid by DECHENG
PRC
Mr. HAN Chun Woo
EUR 45,504
paid by DECHENG
PRC
Mr. XIAO Lixia
EUR 30,535
paid by DECHENG
PRC
Total
EUR 191,962
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Not all of the related party transactions described in this Section 20.2 have been entered
into at current market conditions and have been concluded as arm’s length transactions
pursuant to the procedure of Article 3 of Regulation (EC) No. 1606/2002.
None of the related party transaction set out above were trade related.
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21.
TAXATION IN GERMANY
This section, ‘‘Taxation in Germany’’, contains a brief summary of some major principles
of German taxation which are or may become significant in connection with the
acquisition, holding or transfer of shares or subscription rights. It is not meant to be a
comprehensive and complete description of all tax-related circumstances which may be
of relevance for shareholders. This summary is based on the provisions of German tax
law in force at the date of this Prospectus and the double taxation treaties currently
concluded between the Federal Republic of Germany and other states. In both areas, the
relevant provisions may change, and under certain circumstances, even retroactively.
Potential investors in the shares are therefore advised to consult their tax advisors with
respect to the tax consequences of buying, holding or transferring shares or subscription
rights and with respect to the procedure which must be followed in case regarding a
possible refund of German dividend withholding tax (Abgeltungssteuer). Only such tax
advisors are in a position to adequately consider the specific tax situation of the individual
investor.
The corporate income tax is an annual tax (sec. 7 para. 3 Corporate Income Tax Act
(”CITA”). The tax is levied on the taxable income deriving from the corporate taxpayer’s
financial year. Usually, the financial year corresponds to the calendar year. The taxpayer
can choose a financial year deviating from the calendar year. Nevertheless, after having
chosen initially a financial year corresponding to the calendar year, the taxpayer needs
the prior consent of the tax office before changing his financial year end to deviate from
the calendar year (sec. 7 para. 4 sentence 3 CITA). If a company adopts an accounting
period that deviates from the calendar year, tax is assessed for the taxable income in the
financial year in the calendar year the financial years end.
When a new corporation is founded, the corporation has to be registered for tax purposes
and will receive a tax identification number (sec. 138 and 139a General Fiscal CodeGFC).
Annual tax returns must be filed on 31 May of the year following the calendar year in
which the financial year ended (sec. 149 para. 2 GFC). However, an extension of the
term may be granted upon application. If a licensed tax consultant prepares the tax
return, the filing date is automatically prolonged to 31 December.
After the local tax office has reviewed the tax return a formal assessment notice is issued
and sent to the taxpayer. Most of the time tax assessments are preliminary and subject to
later review by the tax authorities due to regular tax audits.
21.1 Taxation of the Company
The taxable income of corporations domiciled in Germany is in principle subject to
corporation tax (Körperschaftsteuer), solidarity surcharge (Solidaritätszuschlag) and trade
tax (Gewerbesteuer).
The Company’s taxable income is subject to German corporation tax (Körperschaftsteuer)
at a rate of 15% plus solidarity surcharge (Solidaritätszuschlag) of 5.5% assessed
thereon, totaling 15.825%. When determining the Company’s taxable income, basically all
of its earnings have to be included. German corporation tax, solidarity surcharge and
trade tax are not tax deductible. This basic principle, though, is subject to certain
modifications:
Dividends received by the Company from another corporation are exempt from German
corporation tax (Körperschaftsteuer) and solidarity surcharge (Solidaritätszuschlag) only if
the company has been holding at least 10% of the distributing company’s share capital
uninterruptedly since the beginning of the relevant assessment period. If the Company
only holds less than 10% of the distributing company’s share capital the free floats
dividends received are taxable in full (Streubesitzdividenden). In the case of tax exempt
dividends, 5% of the tax-exempt amounts are treated as non-deductible business
expenses, thereby economically leading to a minimum taxation of such 5% at the
corporation
tax
(Körperschaftsteuer)
rate
(including
solidarity
surcharge
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(Solidaritätszuschlag) of 15.825%. Expenses actually incurred which have an economic
connection with the dividends may be fully deducted. Write-offs on shares are not tax
deductible. The de facto 95% tax exemption for dividends received by corporations does
not apply to credit institutions and insurance companies as well as other entities which
may be considered financial institutions within the meaning of the German Banking Act
(see 21.4.4 below) if special requirements are met.
Further, the dividends received by the Company from another corporation will underlie the
participation exemption only if the dividend payment was not treated as a tax-deductible
expense at the level of the distributing company.
In addition, German corporations are subject to trade tax (Gewerbesteuer) for the trade
income earned in their German permanent establishments. For the purposes of trade tax
(Gewerbesteuer), dividends and other profit shares received from domestic and foreign
corporations and profits from the sale of shares in other corporations are generally
treated in the same manner as for corporate tax (Körperschaftsteuer) purposes. However,
dividends and profit shares are, in general, 95% tax-exempt only if the company has been
holding at least 15% of the distributing company’s share capital uninterruptedly since the
beginning of the relevant assessment period (Erhebungszeitraum). Otherwise also the
remaining 95% of the dividends are subject to German trade tax (Gewerbesteuer) due to
the so-called trade tax add-back. Trade income is determined by the taxable income for
income tax or corporate income tax purposes modified by certain additions and
deductions. The additions include one-fourth of the sum of the following items, which
must be added back when computing income for trade tax purposes, for example: loan
remuneration (e.g. interest), 20% of rental and leasing payments for movable fixed assets,
50% of rental and leasing payments for immovable fixed assets, 25% of the expenses for
the temporary use of rights (in particular licenses). The add-backs apply only to the extent
payments exceed an exemption amount of EUR 100,000. Deductions include for example
1.2% of 140% of the assessed value (Einheitswert) of real property as well as the
distributive share of profits from an interest in a domestic or foreign trading partnership.
Additional restrictions apply to dividends and other profit shares originating from foreign
corporations. The trade tax (Gewerbesteuer) amount owed is calculated by the trade
earnings (Gewerbeertrag), multiplied by the trade tax assessment rate
(Gewerbesteuermesszahl) and the local multiplier (Hebesatz) applied by the municipality
or municipalities in which the Company maintains a permanent establishment
(Betriebsstätte). The trade tax (Gewerbesteuer) assessment rate for corporations is
currently 3.5%. The relevant multiplier for each local municipality ranges with some
exceptions currently between 200% and 490%. For example the multiplier 490%, or factor
of 4.9, yields a tax rate of 17.15%. Trade tax is not tax-deductible. German partnerships
and sole proprietorships have a tax relief of EUR 24,500 in the trade tax base. If
partnership shares/sole proprietorships are hold as a private asset the sale of these is
trade tax exempted.
Negative earnings incurred by the company in one year may be carried back to the
immediately preceding assessment period up to an amount of EUR 1,000,000 for
corporate income tax purposes.
Tax losses carried forward can only be used subject to the minimum taxation policy
(Grundsatz der Mindestbesteuerung). According to this policy, corporation tax
(Körperschaftsteuer) and trade tax (Gewerbesteuer) losses carried forward may only be
fully offset against profits earned by the Company in any financial year up to a maximum
amount of EUR 1 million. If the taxable income (Gesamtbetrag der Einkünfte) of the
Company exceeds this maximum amount, only 60% of the exceeding amount may be
offset against tax losses carried forward. The remaining 40% of profits are subject to tax.
Exceeding tax losses must be carried forward. Tax losses carried forward which are not
utilized can in principle be carried forward indefinitely for corporation tax or trade tax
purposes and be offset with future taxable income, in each year again subject to the
minimum taxation policy.
Changes in the ownership of corporations can, however, cause forfeiture of losses for tax
purposes – so-called change-in-ownership rules. The restriction applies on two levels.
Acquisitions of more than 25% and no more than 50% of a corporation’s shares or voting
rights within a five year period by one person or parties related thereto trigger pro rata
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forfeiture of losses. The forfeiture of losses is total where more than 50% of the shares or
voting rights are transferred.
Interest expense is only deductible subject to the application of the so-called interest
barrier (Zinsschranke). The interest barrier restricts the deductibility of interest expense to
the amount of interest income plus 30% of the earnings before interest, taxes,
depreciation and amortization (EBITDA) determined for tax purposes for corporate
income tax and trade tax purposes. The non-deductible part of the interest expense can
be carried forward to future financial years and might reduce the taxable profit of the
company in the future if the interest expense in such period is deductible under the
interest barrier rule. There is a risk that the non-deductible part of interest expense might
be forfeited, for example in case of restructurings or in case of the termination of the
business. The interest barrier will not apply if the interest expense in one year is less than
EUR 3 million or in the event the company complies to the so-called “escape clause”,
provided there is no harmful shareholder debt financing. The escape clause stipulates the
complete deductibility of interest expense in the event that the company’s equity ratio is
not lower than on a consolidated group basis. However, exceptions to this escape clause
have to be considered. For the purpose of the equity ratios the financial statements as
per the end of the preceding business year end are relevant. Relevant financial
statements are, as a rule, those set up under IFRS; financial statements set up pursuant
to local (e.g. German) GAAP are acceptable under specific conditions only. Only in case
that there is no harmful shareholder debt financing, the escape clause will be applicable.
A harmful shareholder debt financing is existing if the shareholder (holding directly or
indirectly more than 25% of the shares) which is not a member of a consolidated group or
any related party hereto or any third party who has a right of recourse against the
shareholder or a related party hereto receives interest exceeding 10% of the negative
interest balance (difference between interest income and interest expenses) from the
respective corporation or from another affiliated company.
Remunerations accrued by the Company on services rendered by related parties are
subject to the general arm’s length principle. This covers for instance services rendered
by entities of DECHENG HK or DECHENG PRC to the Company. Remunerations
exceeding the level that would be accepted by the Company in relation to an unrelated
third party may be excluded from tax deductibility. This may also apply to remunerations
accrued without a sufficient written agreement entered into in advance.
The Company must hold available sufficient transfer pricing documentation pursuant to
detailed specific German tax rules covering inter alia the content and deadlines if certain
thresholds are exceeded.
21.2 Taxation of Shareholders
Shareholders are subject to tax in particular in connection with the holding of shares
(taxation of dividends), the disposal of shares (taxation of capital gains) and the
gratuitous or partially gratuitous transfer of shares (inheritance and gift tax).
21.3 Taxation of Dividends
21.3.1
Withholding Tax (Abgeltungssteuer)
Generally, dividends distributed to its shareholders are subject to a withholding
tax at a 25% flat tax rate plus a 5.5% solidarity surcharge (Solidaritätszuschlag)
on this flat tax amount, adding up to a total of 26.375%.
In case the shares are held in collective deposit at a central securities
depository (Wertpapiersammelbank) within Germany, in individual safe custody
or where dividends are paid or credited upon presentation of a dividend coupon,
the tax will be withheld by the German branch of the domestic or foreign bank or
financial institution or domestic securities trading institute or bank holding the
shares in trust or administering them or paying the dividends to the bearer of
the coupon or to a foreign institution. The Company does not assume any
responsibility for the withholding of the withholding tax at the source.
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Such withholding tax is levied and is to be withheld irrespective of whether and
to what extent the dividend distribution is taxable at the level of the shareholder
residing inside or outside Germany. Certain exceptions may apply if the
dividend is paid to corporations in another EU Member State to which the EU
Parent/Subsidiary Directive applies. Due to the EU Parent/Subsidiary Directive,
there is an exception for dividends by a German subsidiary to an EU parent. In
such a case, withholding tax is not levied upon application (sec. 43b para. 1
Income Tax Act (“ITA”) if (i) the parent is a corporation resident in the EU and
(ii) the parent holds a direct participation of at least 10% in its German
subsidiary and (iii) the participation is held for a 12-months period without
interruption. A partial exemption may also be available under a respective
double taxation treaty. In these cases the restrictive preconditions according to
sec. 50d para. 3 German Income Tax Act have to be fulfilled. According to sec.
50d para. 3 ITA a foreign company must have sufficient substance to be
recognized as a tax resident from a German perspective. Generally, in case of a
mere holding company without any active trade or business activities, among
others the formal requirements for substance (e.g. separate accounting, own
business space, employees) need to be fulfilled. Application forms may be
obtained from the German Federal Central Tax Office (Bundeszentralamt für
Steuern), An der Küppe 1, 53225 Bonn, Germany (www.bzst.bund.de).
For shareholders resident in Germany (that means, shareholders whose
residence, habitual abode, management, or domicile is located in Germany)
holding their shares as business assets as well as for shareholders residing
outside Germany (foreign shareholders) holding their shares in a permanent
establishment or a fixed base in Germany, or as assets for which a permanent
representative has been appointed in Germany, the tax withheld is credited
against the shareholders’ personal income tax or corporate income tax liability.
Any tax withheld in excess of the shareholder’s personal tax liability is refunded.
The same principles apply to the solidarity surcharge.
21.3.2
Taxation of Dividend Income of Investors Resident in Germany Holding
their Shares as Private Assets
For individual shareholders resident in Germany holding their shares as private
assets dividends are subject to the flat tax regime (Abgeltungsteuer). Under this
regime dividend income of private investors will be taxed at the withholding tax
of 25% plus a 5.5% solidarity surcharge thereon (aggregate tax burden:
26.375%) and church tax if applicable. Except for an annual lump sum
allowance (Sparerpauschbetrag) of EUR 801 (EUR 1,602 for married couples
filing jointly), private investors will not be entitled to deduct expenses incurred in
connection with the capital investments from their dividend income. If the tax
rate results in a higher tax burden as opposed to the private investor’s individual
tax rate the investor may opt for taxation at the individual tax rate. The
withholding tax will be credited against the income tax. Private investors are in
the case of a lower individual tax rate under the current rules not entitled to
deduct expenses incurred in connection with the capital investments from their
income except of the annual lump sum allowance even if they opt for taxation at
an individual tax rate. This option may be exercised only for all capital income
and married couples may only jointly exercise the option.
If the shareholder holds at least 25% of the shares in the Company, or holds at
least 1% and carries out an occupational activity for the Company, the
shareholder can opt for taxation of 60% of the dividend income at his individual
income tax rate (part-income system). In such event 60% of his expenses
related to the dividend income can be tax deducted.
21.3.3
Taxation of Dividend Income of Investors Resident in Germany Holding
their Shares as Business Assets
If shares are held as business assets of a shareholder, the taxation depends on
whether the shareholder is a corporation, a sole proprietor, or a partnership
(Mitunternehmerschaft):
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Corporations
Dividend distributions to corporate shareholders are exempt from corporate
income tax only if the company has been holding at least 10% of the distributing
company’s share capital uninterruptedly since the beginning of the relevant
assessment period. However, 5% of the tax-exempt dividend income is deemed
to be non-deductible business expense for tax purposes and is therefore
subject to corporate income tax (plus solidarity surcharge) and trade tax.
Business expenses actually incurred in connection with the shares are entirely
tax deductible. 95% of dividend income must be added back when determining
the trade taxable income and is therefore subject to trade tax unless the
investor holds at least 15% of the share capital of the company at the beginning
of the relevant assessment period.
Sole Proprietors
For sole proprietors holding their shares as business assets, generally 60% of
the dividend distributions are taxable. Correspondingly, only 60% of the
business expenses related to the dividend income are deductible for tax
purposes (subject to any other restrictions on deductibility). In addition,
dividends are entirely subject to trade tax if the shares are held as a business
asset of a permanent establishment in Germany and if the shareholder does not
hold at least 15% of the share capital of the company at the beginning of the
relevant assessment period. The trade tax levied – depending on the municipal
trade tax rate and the individual tax situation – is partly or entirely credited
against the shareholder’s personal income tax liability in a lump sum procedure.
Partnerships
If shares are held by a partnership, personal income tax or corporate income
tax is levied only on the level of the partners. If a partner is subject to corporate
income tax, dividends are tax-exempt to 95% only if the company has been
holding at least 10% of the distributing company’s share capital uninterruptedly
since the beginning of the relevant assessment period. If the partner is subject
to personal income tax, 60% of the dividends are taxable and only 60% of the
business expenses related to dividend income are deductible. At the level of a
partnership which is liable to trade tax, the entire dividends are subject to trade
tax if the partnership does not hold at least 15% of the share capital of the
company at the beginning of the relevant assessment period. However,
depending on the applicable municipal trade tax rate and individual
circumstances, the trade tax paid at the level of a partnership may partly or
entirely be credited against the personal income tax liability of the partners in a
lump sum procedure if the partners are natural persons.
Additional preconditions for the trade tax exemption of 95% have to be fulfilled
when a corporation, a sole proprietor or a partnership receives dividends from a
corporation which is seated outside of Germany.
21.3.4
Taxation of Dividend Income of Investors not Resident in Germany
Individual shareholders, who have neither a domicile nor a habitual place of
abode in Germany, and corporate shareholders, who have neither their legal
seat nor a place of general management in Germany (“German non-resident”),
are subject to limited tax liability for German income tax (Einkommensteuer or
Körperschaftsteuer, as the case may be) purposes. Accordingly, such
shareholders are taxed only on their 'domestic income' as defined and
catalogued by the German Income Tax Act (Einkommensteuergesetz - EStG).
For foreign shareholders who do not hold their shares in a permanent
establishment or a fixed base in Germany, or as an asset for which a
permanent representative has been appointed in Germany, the German tax
liability is, in principle, satisfied upon deduction of withholding tax (possibly
reduced by way of a refund under a double taxation treaty or the EU
Parent/Subsidiary Directive and subject to the restrictive preconditions of
section 50 d (3) German Income Tax Act).
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However, shareholders who hold their shares in a permanent establishment or
a fixed base in Germany, or as business assets for which a permanent
representative has been appointed in Germany, are subject to the same rules
described above for shareholders resident in Germany.
21.4 Taxation of Capital Gains
21.4.1
Taxation of Capital Gains of Investors Resident in Germany Holding their
Shares as Private Assets
Any gain from the sale or redemption of the shares will be subject to a
withholding tax (Abgeltungsteuer) of 25% plus a solidarity surcharge of 5.5%
thereon resulting in an aggregated tax burden of 26.375%. Except for an annual
lump sum allowance (Sparerpauschbetrag) of EUR 801 (EUR 1,602 for married
couples filing jointly) private investors will not be entitled to deduct expenses
incurred in connection with the capital investment from their capital gain. If the
flat tax results in a higher tax burden as opposed to the private investor’s
individual tax rate the investor may opt for taxation at his individual tax rate.
Private investors are not entitled to deduct expenses incurred in connection with
the capital investments from their income except for the annual lump sum
allowance even if they opt for taxation at an individual tax rate. The option may
only be exercised for all capital gains and income from capital investments and
married couples may only exercise the option jointly.
Losses from the disposition of the shares may only be offset against other
capital gains resulting from the disposition of shares. Offsetting of overall losses
with other income (for example business or rental income) and other capital
income is not possible. Such losses may be carried forward and offset against
positive capital gains deriving from the sale of shares in future years.
The general flat tax will not apply if the seller of the shares or, in case of
gratuitous transfer, its legal predecessor has held, directly or indirectly, at least
1% of the share capital of the company at any time during the five years prior to
the disposal. 60% of the capital gains are taxed at the individual tax rate upon
this disposal.
Capital gains are principally subject to withholding tax of 25% plus 5.5%
solidarity surcharge thereon (in total 26.375%) in the event a German credit or
financial institution (including a German branch of a foreign credit or financial
institution or German securities trading company or securities trading bank)
stores or administrates or carries out the sale of the shares and pays or credits
the capital income. If the shares have not been acquired through such German
credit or financial institution and administered thereafter, for example in case of
a change of administration (Depotwechsel), withholding tax may be levied on
30% of the sale proceeds if the actual acquisition costs of the shares cannot be
proved. However in general banks are obliged to inform the transferee bank
about the acquisition costs of the transferred shares.
21.4.2
Taxation of Capital Gains of Investors Resident in Germany Holding their
Shares as Business Assets
If shares are held as business assets of a shareholder, the taxation of capital
gains realized upon disposal depends on whether the shareholder is a
corporation, a sole proprietor, or a partnership:
Corporations
Capital gains realized by a corporate shareholder upon disposal of shares are
exempt from corporate income tax and trade tax. Capital gains for this purpose
is the amount by which the selling price or the equivalent value after deduction
of selling costs exceeds the tax value at the time of disposal. However, 5% of
the capital gain is deemed to be a non-deductible business expense and is
therefore subject to corporation and trade tax. Losses incurred upon the
disposal of shares or other impairments of the shares’ value or reduction of
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profit are not tax deductible. A reduction of profit is also defined as any losses
incurred in connection with a loan or security in the event the loan or the
security is granted by the shareholder or by a related person hereto or by a third
person with the right of recourse against the before mentioned persons and the
shareholder holds directly or indirectly 25% or more of the capital of the
company.
Sole Proprietors
If the shares are held by sole proprietors, 60% of the capital gains realized upon
disposal are taxed. Correspondingly, 60% of the business expenses related to
such capital gains and only 60% of any losses incurred upon disposal of shares
are tax deductible. In addition, 60% of the capital gains are subject to trade tax
if the sole proprietor is subject to trade tax. However, trade tax is partly or
entirely credited against the shareholder’s personal income tax liability
depending on the applicable municipal trade tax rate and individual
circumstances.
Partnerships
If the shareholder is a partnership, taxation on the level of the partners depends
on whether the partners are subject to personal income tax or corporate income
tax: If the partners are subject to corporate income tax, any capital gains are tax
exempt in amount of 95%. If the partners are subject to personal income tax,
60% of the capital gains are taxable. In addition, 60% of the capital gains are
subject to trade tax at the level of a partnership if the partnership is liable to
trade tax and the partners are individuals and 5% of the capital gains are
subject to trade tax if the partners are corporations. However, the trade tax paid
at the level of a partnership may partly or entirely be credited in a lump sum
procedure – depending on the applicable municipal trade tax rate and individual
circumstances – against the personal income tax liability of the partners who
are individuals.
21.4.3
Taxation of Capital Gains of Shareholders outside Germany
Capital gains realized upon disposal of shares by a shareholder resident
outside Germany are only subject to German income tax (plus solidarity
surcharge) in the event (i) the shares are held in a permanent establishment or
through a fixed base in Germany, or held as assets for which a permanent
representative has been appointed in Germany or (ii) the selling shareholders
or, in case of a gratuitous transfer, its legal predecessor has held, directly or
indirectly, at least 1% of the share capital of the company at any time during the
five year period prior to the disposal.
In this case:

5% of the capital gain is subject to corporate income tax and solidarity
surcharge, if the shareholder is a corporation; and

60% of the capital gain is taxed in all other cases.
However, some of the German double taxation treaties provide for a complete
exemption from German taxation (except in case (i)) in such cases and assign
the right to tax to the shareholder’s state of residence). An exemption from
withholding tax or a refund may be subject to the proof of foreign residency.
Capital gains realized upon disposal of shares held in a permanent
establishment or through a fixed base in Germany, or held as assets for which a
permanent representative has been appointed in Germany, are subject to the
same rules as described above for shareholders resident in Germany.
21.4.4
Special Rules for Banks, Financial Services Institutions, Financial
Institutions, Life and Health Insurance Companies, and Pension Funds
To the extent banks and financial services institutions hold shares that are
attributable to their trading book pursuant to § 1a of the German Banking Act
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(Kreditwesengesetz) in conjunction with Art. 102 to 106 of the EU regulation
No. 575/21013, the standard tax exemption for corporations does not apply to
dividend income received or to capital gains or losses realized upon the
disposal of shares, that means dividend income and capital gains are fully
subject to corporate income tax and, if applicable, to trade tax. The same
applies to shares that were acquired by financial institutions within the meaning
of the German Banking Act in order to realize short-term proprietary trading
gains. Furthermore, this applies to banks, financial services institutions and
financial institutions domiciled in another member state of the European
Community or another contracting party to the EEA Agreement. The standard
tax exemption for corporations neither applies to dividends received nor to
capital gains or losses if the shares are attributable to the capital investments
(Kapitalanlagen) of life and health insurance companies or pension funds.
Certain exceptions may apply to corporations if the EU Parent/Subsidiary
Directive (90/435/ EEC of 23 July 1990, as amended) applies.
According to a recent decision from the Federal Fiscal Court (dated 14 January
2009) holding companies also qualify as financial institutions (falling under the
German Banking Act), if they acquire shares with intent to make short term
profits. Capital gains arising from the sale of these shares are also 100%
taxable for corporate income tax and trade tax purposes. The intention to make
short term profits is typically given if shares are bought with the intent to sell
them in a short term and to realize a gain. Private Equity companies and
Venture Capital companies usually do not fall under sec. 8b para. 7 CITA
because they aim at investing in the medium-term rather than realizing short
term capital gains. A definition of “aiming at making short term profits” is not
provided by law. Some experts argue that only financial instruments (e.g.
shares) allocable to the current assets qualify for generating profits in the short
run, others suggest that financial instruments being held for less than 12
months not to qualify for the sec. 8b CITA exemption.
21.5 Inheritance and Gift Tax
The transfer of shares by way of gift or succession is subject to German inheritance and
gift tax only if one of the following criteria is met:
(i)
The testator, donor, heir, donee, or any other beneficiary has his or her
residence or habitual abode, registered domicile or place of management
in Germany at the time of the transfer or is a German citizen who has not
stayed abroad for more than five years without having a residence in
Germany (in case of a move to the US the relevant period is 10 years
according to the double taxation treaty between Germany and the US);
(ii)
Irrespective of these personal circumstances, the shares are held as
business assets for which a permanent establishment is maintained or a
permanent representative is appointed in Germany; or
(iii)
At the time of succession or donation, the testator or donor held, either
alone or with other closely related persons, directly or indirectly, at least
10 % of the registered share capital of the Company.
The few double taxation treaties on inheritance and gift tax which Germany has entered
into generally provide that German inheritance or gift tax is levied only in case (i) and,
with certain restrictions, in case (ii). Special provisions apply to certain German
expatriates and former German citizens.
21.6 Other Taxes
No German capital transfer tax, VAT, stamp duty, or similar tax is levied on the
acquisition, sale, or other forms of transferring shares. However, an entrepreneur may opt
for value-added tax being levied on a transaction that is normally tax-exempt if the
transaction is executed for the enterprise of another entrepreneur. Net wealth tax
(Vermögenssteuer) is currently not levied in Germany.
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22.
TAXATION IN LUXEMBOURG
The information given in this Prospectus concerning taxation in the Grand Duchy of
Luxembourg is solely of a general nature. The laws in force in Luxembourg as of the date
of this Prospectus form the basis for the presented information. The summary is subject
to any change in law that may take effect after such date. The information does not
represent a comprehensive description of all of the tax considerations that might be
relevant to an investment decision. To give preliminary information is its only purpose. In
neither case should the information be intended to be, nor should it be construed to be,
legal or tax advice. It is a description of the essential material Luxembourg tax
consequences with respect to the shares in the Company (hereafter referred to in this
section as “the shares”) and may not include tax considerations that arise from rules of
general application or that are generally assumed to be known to shareholders. It is
recommended that prospective investors in the shares should consult their professional
advisors with respect to particular circumstances, the effects of state, local or foreign laws
to which they may be subject and as to their tax position. The residence concept used
under the respective headings applies for Luxembourg income tax assessment purposes
only. The present section refers to Luxembourg tax law and/or concepts only. Thus any
references in the following passage to a tax, duty, levy impost or other charge or
withholding of a similar nature relate solely to Luxembourg tax law and/or concepts. It
should be kept in mind that a reference to Luxembourg income tax encompasses
corporate income tax (“CIT” - impôt sur le revenu des collectivités), municipal business
tax (“MBT” - impôt commercial communal), a solidarity surcharge (contribution au fonds
pour l’emploi), as well as personal income tax (impôt sur le revenu) generally. Corporate
shareholders may further be subject to net wealth tax (“NWT” - impôt sur la fortune) as
well as other duties, levies or taxes. CIT, MBT, NWT as well as the solidarity surcharge
invariably apply to most corporate taxpayer’s resident of Luxembourg for tax purposes.
22.1 Taxation of Income Derived from and Capital Gains Realized on the Shares Held by
Luxembourg Residents
22.1.1
Individual Holders of Shares
General Principle
Individual tax payers are generally subject to personal income tax (with a top
marginal rate of 40%) and the solidarity surcharge (7 % for the taxable income
up to EUR 150,000, 9% for the taxable income in excess of EUR 150,000 (or
EUR 300,000 in case of collective taxation)) (the top effective marginal rate
would thus be 43.6% for the year 2016). Should an individual taxpayer act in the
course of the management of a professional or business undertaking, municipal
business tax may apply under certain circumstances as well.
Taxation of dividends
Resident individuals shareholders who receive dividends and other payments
derived from the shares and act in the course of the management of either their
private wealth or their professional / business activity, are subject to income tax
at the progressive ordinary rate (with a top effective marginal rate of currently
43.6% for the year 2016). A tax credit is granted for foreign withholding taxes.
Precondition is that the tax credit does not exceed the corresponding
Luxembourg tax. Under current Luxembourg tax laws, 50% of the gross amount
of dividends received from EU resident companies covered by art. 2 of the
Parent-Subsidiary Directive 2011/96/EU as amended or from non-resident
capital companies resident in a state having concluded a double tax treaty with
Luxembourg and fully liable to a tax which corresponds to Luxembourg’s
corporate income tax by resident individuals is exempt from income tax.
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Taxation of capital gains
Resident individual shareholders who receive capital gains realized on the
disposal of the shares and who act in the course of the management of their
private wealth are not subject to income tax, unless said capital gains qualify
either as speculative gains or as gains on a substantial participation
(allowances of EUR 50,000 or EUR 100,000, in case of collective taxation,
apply over a period of 10 years). Capital gains are deemed to be speculative
gains and are subject to income tax at ordinary rates (with a top effective
marginal rate of 43.6% for the year 2016) if the shares are disposed of within 6
months after their acquisition or if their disposal precedes their acquisition. A
participation is deemed to be substantial where a resident individual
shareholder holds, either alone or together with his spouse and/or minor
children, directly or indirectly at any time within the 5 years preceding the
disposal, more than 10% of the share capital of the Company. Capital gains
realized on a substantial participation more than 6 months after the acquisition
thereof are subject to income tax according to the half-global rate method, (i.e.
the average rate applicable to the total income is calculated according to
progressive income tax rates and half of the average rate is applied to the
capital gains realized on the substantial participation). The top effective
marginal rate is currently 21.8% for the year 2016. A disposal may include a
sale, an exchange, a contribution or any other kind of alienation of the shares.
22.1.2
Luxembourg Resident Corporate Holders
General Principle
For the year 2016, Luxembourg resident companies are subject to Luxembourg
CIT on their worldwide income. The CIT rate is 21% (if the taxable income
exceeds EUR 15,000) in 2016, plus a surcharge of 7% of the amount of CIT
payable to the unemployment fund, which will lead to an effective CIT rate of
22.47%.
As a result, for the year 2016, a Luxembourg fully-taxable resident company is
subject to CIT and MBT at the current aggregate rate of 29.22% (if the statutory
seat is in Luxembourg City).
Foreign taxes suffered by a Luxembourg resident company could be credited,
totally or partially, against the tax liability of that company.
Taxation of dividend
A Luxembourg fully-taxable resident company which receives dividends and
other payments derived from the shares has to pay an income tax, unless the
conditions of the participation exemption regime, as described below, are
satisfied. Luxembourg tax laws provide that 50% of the gross amount of
dividends received by a Luxembourg fully-taxable resident company is exempt
from income tax.
The 50% dividend exemption generally applies when the minimum holding
condition of the participation exemption regime is not met.
Precondition is that the dividends are received from E.U. resident companies
covered by art. 2 of the Parent-Subsidiary Directive 2011/96/EU as amended or
from non-resident capital companies resident in a state having concluded a
double tax treaty with Luxembourg and fully liable to tax which corresponds to
Luxembourg’s corporate income tax. A tax credit is further granted for foreign
WHT, provided it does not exceed the corresponding Luxembourg tax.
Under the participation exemption regime, dividends derived from the shares by
a Luxembourg fully-taxable resident company may be exempt from income tax
if cumulatively (i) it has held or commits itself to hold the shares for an
uninterrupted period of at least 12 months, (ii) during this uninterrupted period
the shares represent a participation of at least 10% in the share capital of the
Company or a participation of an acquisition price of at least EUR 1,200,000.
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Liquidation proceeds are assimilated to a received dividend and may be exempt
under the same conditions.
Furthermore, any expenses in direct economic relationship with the dividends
received and any value reduction of the shares following the dividend
distribution will not be deductible up to the amount of the dividends exempt.
Shares held through a fiscally transparent entity are considered as being a
direct participation proportionally to the percentage held in the net assets of the
transparent entity.
The law of 18 December 2015 implemented into Luxembourg law (i) the
Directive 2014/86/EU of 8 July 2014 and which amends the E.U. Parent
Subsidiary regime so as to stop situations of double non-taxation created by the
use of certain hybrid instruments and (ii) the Directive 2015/121 of 27 January
2015 which introduces a de minimis GAAR. Since 2016, dividends received by
a Luxembourg company from another E.U. undertaking which falls within the
scope of the E.U. Parent-Subsidiary Directive no longer benefit from the CIT
and MBT exemption if the dividends are tax deductible in the other EU Member
State. However the implementation of the above Directive into Luxembourg law
will be neutral since §6 of the Luxembourg Steueranpassungsgesetz already
covers similar anti-abuse rule.
Taxation of capital gains
Capital gains realized by a Luxembourg fully-taxable resident company on the
shares are subject to income tax at ordinary rates, unless the conditions of the
participation exemption regime, as described below, are satisfied. Taxable
gains are determined as being the difference between the price for which the
shares have been disposed of and the lower of their cost or book value.
Under the participation exemption regime, capital gains realized on the shares
by a Luxembourg fully-taxable resident company may be exempt from income
tax if cumulatively (i) it has held or commits itself to hold the shares for an
uninterrupted period of 12 months and (ii) during this uninterrupted period of 12
months the shares represent a participation of at least 10% in the share capital
of the Company or a participation of an acquisition price of at least
EUR 6,000,000.00. Capital gains realized on the shares will remain taxable up
to the aggregate amount of expenses in direct economic relationship with the
shares including any value reduction of the shares that have reduced the
taxable basis of the company prior to the disposal of the shares. Shares held
through a fiscally transparent entity are considered as being a direct
participation proportionally to the percentage held in the net assets of the
transparent entity.
Expenses in direct economic relationship with the participations are tax
deductible.
However, a recapture system exists. Indeed, all the charges (previously)
deducted and related to the exempt income (i.e. dividend or capital gain), if any,
would be recaptured up to the tax exempt income. This results normally in a tax
neutral operation (offset of corresponding carry forward tax losses against the
recaptured income).
22.1.3
Taxation of Income Derived from and Capital Gains Realized on the
Shares by Luxembourg Non-residents
Individual shareholders, who are non-residents of Luxembourg and who have
neither a permanent establishment nor a permanent representative in
Luxembourg to which or whom the shares are attributable are not subject to
Luxembourg income tax.
Corporate shareholders which are non-resident but have a permanent
establishment or a permanent representative in Luxembourg, to which the
shares are attributable, have to include any income received on the shares,
including any capital gain realized on the sale, disposal or redemption of
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shares, in their taxable income for Luxembourg tax assessment purposes. The
same regulations apply to individuals, acting in the course of the management
of a professional or business undertaking, who have a permanent establishment
or a permanent representative in Luxembourg, to which the shares are
attributable. The difference between the sale, repurchase or redemption price
and the lower of the cost or book value of the shares sold or redeemed forms
the taxable gains.
22.2 Other Taxes
22.2.1
Net Wealth Tax
Luxembourg corporate entities (except undertaking for collective investment
governed by the law of 17 December 2010, specialized investment fund
governed by the law of 13 February 2007, and family wealth management
company governed by the law of 11 May 2007) should be subject to NWT. NWT
is calculated as 0.5% on the net assets of the Luxembourg company. As from
2016, a new reduced rate of 0.05% NWT is introduced and applies to the part of
the net wealth which exceeds EUR 500 million.
According to the paragraph 60 of the Luxembourg Evaluation Law,
shareholdings held by Luxembourg entities are excluded from the NWT basis
provided the following conditions are met:
(i)
The subsidiary is:

an undertaking resident of the EU whose legal form falls within the
scope of article 2 of the Parent-Subsidiary Directive (90/435/CEE); or
 a Luxembourg resident capital company fully liable to Luxembourg tax;
or
 a non-resident company liable to a tax corresponding to Luxembourg
corporate income tax. For that purpose, a taxation of at least 10.5% on
a basis comparable to the Luxembourg basis is usually required by the
Luxembourg tax authorities.
(ii)
The shareholding amounts to at least 10% in the capital of its subsidiary
or the acquisition price of which amounted to at least EUR 1,200,000.
As from 2016, the minimum CIT has been replaced by minimum NWT. The
minimum CIT was introduced in 2013 and depended on whether the company
was considered a SOPARFI or a non-SOPARFI.
The new regime of minimum NWT maintains the rules and amounts of the
minimum CIT regime. Consequently, companies currently exempt from NWT
should be subject to the minimum NWT (e.g SICARs, securitization companies,
SEPCAVS, ASSEPS).
As in the minimum CIT rules, the minimum NWT applicable should depend on
the balance sheet of the companies, except for SOPARFIs companies.
SOPARFIs are defined as entities (whether regulated or not) of which the
financial assets represent more than 90% of the total balance sheet and more
than EUR 350,000. The financial assets can be:

financial assets (shares in, and loans to, affiliated undertakings /
companies with participating interests, capitalized loans and
receivables, securities held as fixed assets etc.) – account number 23
of the Luxembourg GAAP;

amounts owed by affiliated undertakings and by companies with
participating interests – account number 41 of the Luxembourg GAAP;

transferable securities (e.g. shares, bonds) – account number 50 of the
Luxembourg GAAP; and
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
cash at bank, cash in postal cheque accounts, cheques and cash in
hand – account number 51 of the Luxembourg GAAP.
SOPARFIs will be subject to a minimum NWT of EUR 3,210.
Companies other than SOPARFIs will be subject to a minimum NWT varying
between EUR 535 and EUR 32,100 depending on the level of the total balance
sheet.
In case of tax consolidation, the total amount of minimum NWT of the
consolidated group could not exceed EUR 32,100 (instead of EUR 21,400 in the
past).
22.2.2
Registration Taxes and Stamp Duties
In principle, upon incorporation of a Luxembourg company, a EUR 75 of
registration duty will be due for each entity.
For increases/decreases in share capital of the Luxembourg entities a
registration duty of EUR 75 will be due.
22.2.3
Inheritance Tax and Gift Tax
Should an individual holder of shares who is a resident of Luxembourg for tax
purposes die, the shares are included in his or her taxable basis for the price at
the date of inheritance for inheritance tax purposes.
A gift or donation of the shares can be subject to a gift tax; if the gift is recorded
in a Luxembourg notarial deed.
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23.
UNDERWRITING
23.1 Underwriting Agreement
Within five bank working days after the date of this Prospectus inter alia the Company, Mr.
ZHU Xiaofang as the major shareholder and ACON Actienbank AG, Heimeranstraße 37,
80339 Munich, Germany (the “Underwriter”) will enter into an underwriting agreement
(the “Underwriting Agreement”) regarding the offer and the sale of the Offered Shares
in the course of the Offering.
Subject to the fulfillment of certain terms and conditions set out in the Underwriting
Agreement, the Company will agree to offer for subscription 3,000,000 New Shares from
a capital increase of the Company with a notional value of EUR 1.00 per share to the
Underwriter. The Underwriter will agree to subscribe for up to 3,000,000 New Shares at
the issue price (Ausgabebetrag) of EUR 1.00 per share (the “Issue Price”) as follows: the
number of New Shares to be subscribed for by the Underwriter will correspond to the
number of New Shares for which the Underwriter has received valid subscriptions from
investors in the Offering.
To ensure a timely delivery of the shares to the investors, Mr. ZHU Xiaofang will provide,
if required, the Underwriter with up to 3,000,000 no-par value ordinary bearer shares
each with a notional value of EUR 1.00 and with full dividend rights for the financial year
2016 by way of a securities loan free of charge. Against payment of the Offer Price the
investors will receive the number of shares allocated to them by way of book-entry. It is
expected that the Underwriter will subscribe for an equivalent number of New Shares at
the Issue Price on 20 June 2016 to be issued from a capital increase for a contribution in
cash expected to be resolved by an extraordinary general shareholders’ meeting of the
Company on 20 June 2016.
After the capital increase has been registered with the commercial register of the
Company and after the allocated shares have been delivered to the investors against
payment of the Offer Price, the Underwriter will pay the difference between the Offer
Price received from the investors and the Issue Price (less agreed commissions and
expenses) to the Company on or around 23 June 2016.
23.2 Commissions and Fees
For the placement of Offered Shares, the Underwriter receives a placement commission
of 5 % of the generated volume (number of shares time price of shares) from the sale of
the Offered Shares to investors at the Offer Price raised through ACON and a
management commission of 2 % raised by the Company and related parties. The
compensation to be paid to ACON has to be paid plus value-added tax, if and to the
extent applicable. The placement and management commission is owed by the Company.
No underwriting commission is due since placement by the Underwriter is done on a best
effort basis.
23.3 Conditions Precedent, Termination
The obligations of the Underwriter under the Underwriting Agreement, in particular in
respect of the subscription and offering of the Offered Shares, will be subject to certain
conditions precedents, in particular that no material adverse change occurred.
The following events constitute such a material adverse change:

since the due dates, which are definitive for the information contained in
the Prospectus, a significant impairment or foreseeable significant
impairment, or a material adverse change in the prospects, consolidated
financial position, or results of operations of the Company or its affiliates
have arisen, which is not mentioned in the Prospectus

a significant change in the management structure of the Company;

the entire or partial suspension of trading on the Frankfurt, London or
New York Stock Ex-change or a promulgation of a general moratorium on
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commercial banking activities in Frankfurt, London or New York or not
insignificant disruptions in securities settlement, paying or depository
services in Europe; and

a detrimental change in the financial, political, industrial, economic or
general legal conditions or capital market conditions or currency
exchange rates for the Euro, US-Dollar and/or British Pound, or
significant outbreaks or an escalation of militant or terrorist activities, in
each case in Germany, the United Kingdom or the United States
provided that such circumstances are, in the opinion of the Underwriter, so far-reaching
and serious as to cause the Underwriter to consider it inadvisable or unreasonable or
impracticable to implement or to continue the Offering in view of these circumstances.
The Underwriting Agreement will provide that the Underwriter may terminate the
Underwriting Agreement up to the time of the delivery of the Offered Shares to the
investors, if any of the conditions precedent as defined in the Underwriting Agreement
have not been met at the relevant time, or ceased to apply following its occurrence; such
termination shall be without liability of the Underwriter.
If the Underwriting Agreement is terminated, the obligations of the Underwriter will no
longer apply and the Offering will not take place. In such case, any allotments to investors
will become invalid and investors will have no claim for delivery. Claims relating to any
subscription fees paid and costs incurred by any investor in connection with the
subscription are governed solely by the legal relationship between the investor and the
institution to which the investor submitted its purchase order. Investors who have
engaged in short sales of shares will bear the risk of not being able to fulfil their delivery
obligations in connection with such sale.
23.4 Indemnification
The Company will agree in the Underwriting Agreement to indemnify on first demand the
Underwriter, its affiliated companies and its directors, staff, representatives and
contractors and each company (supposed to) control the Underwriter (in each case,
“Indemnified Person”) from any losses, damages and any claims filed against them,
which the respective Indemnified Person, even by third parties, is exposed to in relation to:

actual or alleged inaccuracies in respect of the guarantees contained in
the Underwriting Agreement, or

the Prospectus or other documents needed for the performance of the
Underwriting Agreement containing actual or allegedly incorrect,
incomplete or otherwise misleading details within the meaning of sec. 5, 7
and 21 WpPG; or

breaches by the Company or any persons acting on their behalf of (i)
obligations under the Underwriting Agreement or (ii) statutory or other
legal provisions in connection with the Underwriting Agreement.
23.5 Selling and Transfer Restrictions
The offering consists of public offerings in Germany and Luxembourg and private
placements outside Germany, Luxembourg and the United States. The shares have not
been and will not be registered under the U.S. Securities Act of 1933, as amended, and
are only being offered outside the United States in reliance on Regulation S under the
Securities Act.
This Prospectus does not constitute an offer, solicitation or invitation to subscribe for
shares in any jurisdiction in which such offer, solicitation or invitation is unlawful or is not
authorized or to any person to whom it is unlawful to make such offer, solicitation or
invitation. No action has been or will be taken under the requirements of the legislation or
regulations of, or of the legal or regulatory authorities of, any jurisdiction, except for the
filing and/or registration of this Prospectus in Germany and Luxembourg in order to permit
a public offering of the shares and the public distribution of this Prospectus in Germany
and Luxembourg. The distribution of this Prospectus and the Offering of the shares in
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certain jurisdictions may be restricted by the relevant laws in such jurisdictions. Persons
who may come into possession of this Prospectus are required by the Company to inform
themselves about, and to observe and comply with, any such restrictions at their own
expense and without any liability of the Company. Persons to whom a copy of this
Prospectus has been issued shall not circulate the same to any other person or
reproduce or otherwise distribute this Prospectus or any information herein for any
purpose whatsoever nor permit or cause the same to occur.
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24.
RECENT DEVELOPMENTS AND OUTLOOK
i.e. 10,000 shares with an issued share capital of HKD 10,000 (approx. EUR 1,160), to
the Company against the issue of 29,950,000 new no par value ordinary bearer shares in
the Company to the Existing Shareholders in relation to their shareholding ratio in the
Company (Einbringungsvertrag). The contribution agreement and the capital increase by
way of contribution in kind (Sachkapitalerhöhung) was approved by an extraordinary
shareholders’ meeting of the Company on 26 April 2016 and has been registered with the
commercial register (Handelsregister) of the local court (Amtsgericht) of Cologne on 12
May 2016.
On 25 January 2016, DECHENG PRC declared the dividend in the amount of RMB
85,000,000 (approx. EUR 12,292,000) to its shareholder DECHENG HK. On 5 February
2016, DECHENG HK received RMB 76,500,000 (approx. EUR 11,063,000) net of 10%
withholding tax and paid the same amount directly to its sole shareholder Mr. ZHU
Xiaofang.
The sales volume of DECHENG's products has increased by over 22.14% for the 3
months financial period ended 31 March 2016 (2016/Q1) compared to the 3 months
financial period ended 31 March 2015 (2015/Q1). Due to the drop in oil based raw
material prices, the selling price for most of DECHENG`s products though decreased
resulting in a decrease of revenue by 6.84% in RMB (10.56% in EUR) for the same
period. However, since the cost of sales for this period has also decreased by 6.62% in
RMB (10.35% in EUR) compared to 2015/Q1, in line with the decrease in revenue and
drop in raw material prices, the gross profit margin remained stable for 2016/Q1 at 39.30%
compared to 39.44% for 2015/Q1. Crude oil prices have started to increase again so that
this will have again a corresponding effect on the up-coming revenues for the FY 2016.
The figures regarding 2016/Q1 and 2015/Q1 are unaudited and have been provided by
the accounting department of DECHENG.
Apart from the abovementioned, from 31 December 2015 until the date of this Prospectus
no significant changes in the financial or trading position of DECHENG have occurred.
Globally, PU resin is gaining demand as a major intermediate materials for various
application areas such as building materials, electronics, shoes, clothing, and automotive
due to its properties of anti-abrasion, anti-aging, and high strength and toughness,
According to Market Research Report the global industry size of PU resin industry by
volume is estimated to be 17.5 million tons in 2015 and this is forecasted to grow to 24.0
million tons in 2020 at a CAGR of 6.5%. Simultaneously, total industry revenue in the PU
resin industry globally is also forecast to grow from USD 54.0 billion in 2015 to USD 74.7
billion in 2020 at a CAGR of 6.7%.
The key reason for growth in global PU market is expected to be derived from growth in
China, which is the world largest consuming country of PU resin. The market size of the
PU resin industry in China witnessed strong growth from RMB 115.8 billion (EUR 16.7
billion) in 2011 to RMB 156.0 billion (approx. EUR 22.6 billion) in 2013 at a CAGR of
16.1%, before slowing to RMB 131.5 billion (approx. EUR 19.0 billion) in 2015 due to
economic slowdown in the country. According to Market Research Report the PU resin
industry in China is expected to regain growth momentum from 2016 to grow from RMB
131.5 billion (approx. 19.0 billion) in 2015 to RMB 190.0 billion (approx. 27.5 billion) in
2020.
Besides robust domestic consumption and growing export demand for China PU resin
industry, further expansion in the use of PU foam resins, such as the flame-retardant
capability, is also expected to drive the growth of the PU resin industry in China in the
end-use application of building materials, synthetic leather furniture and functional
clothing textiles. Meanwhile, the Chinese government promotes green and low-carbon
production in traditional manufacturing industries in order to produce environmentallyfriendly products. Consequently, the shift from solvent-based to solvent-free and
waterborne PU resin is an inevitability indicating that solvent-free technology is likely to
be widely applied in the PU resin industry across China.
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The development of PU resin production is highly driven by the end-user product market.
In the end-use application of textile, China’s strong position as world’s largest textile and
clothing manufacturer, exporter and consumer, the change in lifestyle towards sports and
outdoor activities, as well as the Chinese government’s promotion of the textile industry
are factors expected to drive the demand for PU by the textile industry. As such, demand
for PU for synthetic fabrics in China is poise to grow at CAGR of 7.7% from 0.40 million
tons in 2015 to 0.58 million tons in 2020.
Similarly in the synthetic leather application, the demand for PU for synthetic leather
products in China is forecast to grow at a CAGR of 6.9% as a whole, from 1.93 million
tons in 2015 to 2.70 million tons in 2020. According to Market Research Report the
growth potential of PU resin demand in synthetic leather application is expected to be
driven by rising demand for synthetic leather as a result of increasing urbanization rate
and rising number of middle and upper middle population.
DECHENG’s R&D initiative in the solvent-free PU resin synthetic leather as well as fireretardant PU resin foams for building materials is in line with the direction by the Chinese
government to promote environmentally-friendly PU resins in the 13th Five Year Plan.
Moving forward, with the expectation that the standards for PU resin materials and end
products to be tightened between 2016 and 2020, DECHENG is in a favorable position
for further business opportunities in line with the expected growth in its key target markets
in the textile and leather end-use applications according to Market Research Report.
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25. FINANCIAL INFORMATION
Table of Contents
Quanzhou De Cheng Tech Resin Co., Ltd., People Republic of China (“DECHENG PRC”)
Single Entity Financial Statements for the years ended 31 December 2013, 31 December
2014 and 31 December 2015
A.
STATEMENT OF FINANCIAL POSITION
F-4
B.
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
F-5
C.
STATEMENT OF CHANGES IN EQUITY
F-6
D.
STATEMENT OF CASH FLOWS
F-7
E.
NOTES TO THE FINANCIAL STATEMENTS
F-8
F.
INDEPENDENT AUDITORS’ REPORT
F-45
Hong Kong De Cheng Holding Company Limited, Hong Kong (“DECHENG HK”) and its
subsidiary
Consolidated Financial Statements for the year ended 31 December 2015
A.
F-48
B.
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
F-49
C.
F-50
D.
STATEMENT OF CASH FLOWS
F-51
E.
F-52
F.
INDEPENDENT AUDITORS’ REPORT
F-87
Decheng Technology AG, Cologne
Single Entity Financial Statements for the short financial year
ended on 31 December 2013
(German Commercial Code) - (Translation of the German version)
A.
BALANCE SHEET (GERMAN COMMERCIAL CODE)
F-90
B.
PROFIT AND LOSS ACCOUNT (GERMAN COMMERCIAL CODE)
F-91
C.
NOTES (GERMAN COMMERCIAL CODE)
F-92
D.
AUDITORS’ REPORT
F-94
F-1
Single Entity Financial Statements for the financial year
A.
F-97
B.
F-98
C.
F-99
D.
AUDITORS’ REPORT
F-101
A.
F-104
B.
F-105
C.
F-106
D.
AUDITORS’ REPORT
F-108
(International Financial Reporting Standards and International Accounting Standards and
Interpretations as endorsed for application in the EU) - (“IFRS”)
A.
STATEMENT OF COMPREHENSIVE INCOME
F-111
B.
F-112
C.
F-113
D.
STATEMENTS OF CASH FLOWS
F-114
E.
F-115
F.
AUDITORS’ REPORT
F-120
F-2
QUANZHOU DE CHENG TECH RESIN CO., LTD.
(Incorporated in The People’s Republic of China)
Company No: 350500400007529
SINGLE ENTITY FINANCIAL STATEMENTS
For The Financial Years Ended
31 December 2013, 2014 and 2015
F-3
Company No: 350500400007529
A. STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2013, 2014 AND 2015
Note
ASSETS
Non-current assets
4
5
2015
EUR
2014
EUR
2013
EUR
2,362,871
355,463
2,652,786
345,716
2,781,757
314,067
2,718,334
2,998,502
3,095,824
1,377,462
7,786,092
235,672
31,748,448
2,250,694
6,617,591
19,867,121
1,964,568
4,493,267
75,713
11,306,180
41,147,674
28,735,406
17,839,728
TOTAL ASSETS
43,866,008
31,733,908
20,935,552
5,763,044
3,065,254
2,802,398
19,331,171
5,763,044
2,693,516
1,891,736
10,526,546
30,961,867
20,874,842
13,687,000
2,600,820
4,200,943
4,208,742
354,583
1,539,053
3,664,090
1,983,628
3,991,642
1,219,706
2,541,949
1,049,692
2,944,634
712,277
12,904,141
10,859,066
7,248,552
Total liabilities
12,904,141
10,859,066
7,248,552
TOTAL EQUITY AND LIABILITIES
43,866,008
31,733,908
20,935,552
Current assets
Inventories
Trade receivables
Other receivables
EQUITY
Capital
Statutory reserve
Translation reserve
Retained earnings
6
7
8
9
10
11
11
Total equity
LIABILITIES
Current liabilities
Trade payables
Other payables and accruals
Borrowings
Amount due to a Director
Tax payable
12
13
14
15
The annexed notes form an integral part of these financial statements.
5,763,044
1,373,189
(327,874)
6,878,641
F-4
Company No: 350500400007529
B. STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2013, 2014 AND 2015
Note
2015
EUR
2014
EUR
2013
EUR
Revenue
16
69,759,801
49,442,710
38,785,440
Cost of sales
17
(43,054,665)
(31,769,960)
(25,963,199)
26,705,136
17,672,750
12,822,241
Gross profit
Other income
18
250,037
177,079
44,979
19
(285,342)
(223,038)
(194,440)
20
(2,475,675)
(1,120,619)
(1,253,043)
Finance result
21
(178,697)
(165,551)
(151,665)
Profit before tax
Tax expense
22
Profit after tax
Other comprehensive income/(loss):- Exchange translation differences
Total comprehensive income for the financial years
24,015,459
16,340,621
11,268,072
(6,162,269)
(4,024,735)
(2,808,327)
17,853,190
12,315,886
8,459,745
910,662
2,219,610
18,763,852
14,535,496
(459,828)
7,999,917
Earning per share attributable to owner of the company
Earnings per ordinary share (Diluted/Undiluted)
N/A*
N/A*
N/A*
* Not applicable as for PRC regulations, there is no number of shares being accounted for the paid in capital.
F-5
Company No: 350500400007529
C. STATEMENT OF CHANGES IN EQUITY
Nondistributable
Note
Balance at 1 January 2013
Total comprehensive income/
(loss) for the financial year:Profit for the financial year
Foreign currency
translation differences
Transaction with owner:Dividend declared
23
Transfer to statutory reserve
Balance at 31 December 2013/
1 January 2014
Total comprehensive income for
the financial year:Profit for the financial year
Foreign currency
23
Balance at 31 December 2014/
1 January 2015
Foreign currency
Balance at 31 December 2015
23
Statutory
reserve
EUR
Capital
EUR
Distributable
Translation
reserve
EUR
Retained
earnings
EUR
Total
EUR
5,763,044
550,611
131,954
4,104,006
10,549,615
-
-
-
8,459,745
8,459,745
-
-
-
-
-
(4,862,532)
-
822,578
-
(822,578)
5,763,044
1,373,189
-
-
-
(459,828)
(459,828)
(4,862,532)
-
6,878,641
13,687,000
-
12,315,886
12,315,886
-
2,219,610
-
2,219,610
-
-
-
(7,347,654)
-
1,320,327
-
(1,320,327)
5,763,044
2,693,516
1,891,736
10,526,546
20,874,842
-
-
-
17,853,190
17,853,190
-
-
910,662
-
910,662
-
-
-
(8,676,827)
-
371,738
-
(371,738)
5,763,044
3,065,254
2,802,398
(327,874)
-
19,331,171
(7,347,654)
-
(8,676,827)
30,961,867
F-6
Company No: 350500400007529
D. STATEMENT OF CASH FLOWS
Note
OPERATING ACTIVITIES
Profit before tax
2015
EUR
24,015,459
Adjustments for:Depreciation of property, plant and equipment
Amortisation of prepaid land lease payments
Interest expenses
Interest income
Property, plant and equipment written off
445,727
9,273
258,867
(80,170)
3,309
2014
EUR
16,340,621
447,212
7,853
209,934
(44,383)
-
2013
EUR
11,268,072
439,757
7,796
180,236
(28,571)
-
24,652,465
16,961,237
11,867,290
Inventories
Payables
Director
Receivables
1,019,478
(6,328)
363,071
(1,073,874)
(31,471)
724,289
(1,337,750)
(47,272)
(404,798)
(1,137,509)
Cash from operations
24,954,812
16,316,305
10,277,711
Tax paid
(5,903,203)
(3,644,253)
(2,620,980)
19,051,609
12,672,052
7,656,731
Changes in working capital:-
INVESTING ACTIVITIES
Purchase of property, plant and equipment
Interest received
(4,443)
80,170
(3,463)
44,383
(153,291)
28,571
Net cash from/(used in) investing activities
75,727
40,920
(124,720)
FINANCING ACTIVITIES
Repayment of term loans
Drawdown of term loans
Interest paid
Dividend paid
(4,309,491)
4,309,491
(258,867)
(7,809,144)
(3,037,031)
3,649,335
(209,934)
(6,612,889)
(2,577,142)
3,014,770
(180,236)
(4,376,279)
(8,068,011)
(6,210,519)
(4,118,887)
CASH AND CASH EQUIVALENTS
Net change
Brought forward
11,059,325
822,002
19,867,121
6,502,453
2,058,488
11,306,180
3,413,124
(167,356)
8,060,412
31,748,448
19,867,121
Carried forward
23
9
11,306,180
F-7
Company No: 350500400007529
E. NOTES TO THE FINANCIAL STATEMENTS
1.
GENERAL INFORMATION
Quanzhou De Cheng Tech Resin Co., Ltd. (the “DECHENG PRC” or for the purpose of
these Notes E the “Company”) is a private limited liability company, incorporated and
domiciled in Fujian Province, The People’s Republic of China (“PRC”).
The Company’s principal activities are to manufacture and sale of polyurethane resin.
There have been no significant changes in the nature of these activities of the Company
during the financial years. The financial statements of the Company were prepared as a
single entity and no consolidated financial result was presented.
The proposed listing intended ultimate holding company is Decheng Technology AG, a
private limited liability company, incorporated and domiciled in Germany.
The immediate holding company is Hong Kong De Cheng Holding Company Limited, a
private limited liability company, incorporated and domiciled in Hong Kong.
The financial statements were authorised for the issue by the Board of Directors in
accordance with a resolution of the Directors dated 28 February 2016.
2.
BASIS OF PREPARATION
2.1
Statement of Compliance
The financial statements of the Company have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) as adopted by the European
Union (“EU”) and IFRS have been consistently applied throughout the financial years
ended 31 December 2013, 31 December 2014 and 31 December 2015.
2.2
Basis of Measurement
The financial statements of the Company are prepared under the historical cost
convention, unless otherwise indicated in the summary of significant accounting
policies.
2.3
Functional and Presentation Currency
The functional currency of the Company is Renminbi (“RMB”) which is the
business environment that the Company operated in.
The financial statements are presented in Euro (“EUR”) as the Company intends
to be brought-in into Decheng Technology AG which itself intends to be listed at
the Stock Exchange of Frankfurt am Main Germany.
F-8
Company No: 350500400007529
2.4
IFRS
2.4.1
First time adoption of IFRS
In the previous financial years, the financial statements of the Company were
prepared in accordance with China General Acceptable Accounting Practice.
These are the Company’s first financial statements prepared in accordance with
IFRS and International Accounting Standards (“IAS”) 1, First-time adoption of
International Financial Reporting Standards has been applied. The Company has
adopted all EU IFRS that were effective before 1 January 2016.
The explanation and financial impacts on transition to IFRSs are disclosed in Note
30 to the Financial Statements.
2.4.2
Relevant Standards Issued and Issued But Not Yet Effective
There were no new standards relevant to the Company’s business operations to be
applied for the first time in financial year 2015.
At the date of authorisation of these financial statements, certain new standards,
amendments and interpretations to existing standards have been published by the
International Accounting Standard Board (“IASB”) but are not yet effective, and
have not been adopted by the Company.
Management anticipates that all relevant pronouncements will be adopted in the
Company’s accounting policies for the first period beginning after the effective date
of the pronouncement. Information on new standards, amendments and
interpretations that are expected to be relevant to the Company’s financial
statements is provided below. Certain other new standards and interpretations
have been issued but are not expected to have a material impact on the
Company’s financial statements.
IFRS 9 ‘Financial Instruments’ (IFRS 9)
The IASB recently released IFRS 9 ‘Financial Instruments’ (2014), representing
the completion of its project to replace IAS 39 ‘Financial Instruments: Recognition
and Measurement’. The new standard introduces extensive changes to IAS 39’s
guidance on the classification and measurement of financial assets and
introduces a new ‘expected credit loss’ model for the impairment of financial
assets. IFRS 9 also provides new guidance on the application of hedge
accounting.
The Company’s management has yet to assess the impact of IFRS on these
financial statements. The new standard is required to be applied for annual
reporting periods beginning on or after 1 January 2018.
F-9
Company No: 350500400007529
IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 15 presents new requirements for the recognition of revenue, replacing IAS
18 ‘Revenue’, IAS 11 ‘Construction Contracts’ and several revenue-related
Interpretations. The new standard establishes a control-based revenue
recognition model and provides additional guidance in many areas not covered in
detail under existing IFRSs, including how to account for arrangements with
multiple performance obligations, variable pricing, customer refund rights, supplier
repurchase options, and other common complexities. The standard also
introduces new, extensive disclosures in the notes. Due to an amendment issued
in September 2015, the effective date has been deferred by one year until 1
January 2018.
The Company’s management has yet to assess the impact of IFRS on these
financial statements.
2.5
Significant Accounting Estimates and Judgements
Estimates, assumptions concerning the future and judgements are made in the
preparation of the financial statements. They affect the application of the
Company’s accounting policies and reported amounts of assets, liabilities, income
and expenses, and disclosures made. Estimates and underlying assumptions are
assessed on an on-going basis and are based on experience and relevant factors,
including expectations of future events that are believed to be reasonable under
the circumstances. The actual results may differ from the judgements, estimates
and assumptions made by the management, and will seldom equal the estimated
results.
Information about significant judgements, estimates and assumptions that have
the most significant effect on recognition and measurement of assets, liabilities,
income and expenses are discussed below:-
2.5.1
Estimation Uncertainty
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date that have significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below:Useful Lives of Depreciable Assets
The management estimates the useful lives of the property, plant and equipment
to be within 5 to 20 years and reviews the useful lives of depreciable assets at
each reporting date. The management assesses that the useful lives represent
the expected utility of the assets to the Company. The carrying amounts are
analysed in Note 4 to the Financial Statements. Actual results, however, may
vary due to change in the expected level of usage and technological
developments, which resulting the adjustment to the Company’s assets.
F-10
Company No: 350500400007529
The management expects that the expected useful lives of the property, plant
and equipment would not have material difference from the management’s
estimates hence it would not result in material variance in the Company’s profit
for the financial years.
Inventories
Inventories are measured at the lower of cost and net realisable value. In
estimating net realisable values, the management takes into account the most
reliable evidence available at the times the estimates are made. The Company’s
core business is subject to economical and technology changes which may cause
selling prices to change rapidly, and the Company’s profit to change.
The carrying amount of the Company’s inventories at the reporting date is
disclosed in Note 6 to the Financial Statements.
The management expects that the expected net realisable values of the
inventories would not have material difference from the management’s estimation
of net realisable values hence it would not result in material variance in the
Company’s profit for the financial years.
Impairment of Non-financial Assets
An impairment loss is recognised for the amount by which the asset’s or cashgenerating unit’s carrying amount exceeds its recoverable amount. To determine
the recoverable amount, management estimates expected future cash flows from
each cash-generating unit and determines a suitable interest rate in order to
calculate the present value of those cash flows. In the process of measuring
expected future cash flows management makes assumptions about future
operating results. The actual results may vary, and may cause significant
adjustments to the Company’s assets within the next financial year.
In most cases, determining the applicable discount rate involves estimating the
appropriate adjustment to market risk and the appropriate adjustment to assetspecific risk factors.
The Company assesses at each reporting date whether there is any objective
objective evidence of impairment, the Company considers factors such as the
Where there is objective evidence of impairment, the amount and timing of future
cash flows are estimated based on historical loss experience for assets with
similar credit risk characteristics.
The carrying amount of the Company’s receivables at the reporting date are
F-11
Company No: 350500400007529
disclosed in Note 7 and 8 to the Financial Statements.
Fair Value of Financial Instruments
Management uses valuation techniques in measuring the fair value of financial
instruments where active market quotes are not available. Details of the
assumptions used are given in the notes regarding financial assets and liabilities.
In applying the valuation techniques, the management makes maximum use of
market inputs, and uses estimates and assumptions that are, as far as possible,
consistent with observable data that market participants would use in pricing the
instrument. Where applicable data is not observable, management uses its best
estimate about the assumptions that market participants would make. These
estimates may vary from the actual prices that would be achieved in an arm’s
length transaction at the end of the reporting period.
In view of the Company’s financial instruments are short term in nature, hence,
any differences in the management’s estimation would not have material variance
in the Company’s profit for the financial years.
Income Tax
The Company has exposure to income taxes in numerous jurisdictions. Significant
judgment is involved in determining the Company’s provision for income taxes.
There are certain transactions and computations for which the ultimate tax
determination is uncertain during the ordinary course of business. The Company
recognises liabilities for expected tax issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these matters is
different from the amounts that were initially recognised, such differences will
impact the income tax and differed tax provisions in the period in which such
determination are made.
2.5.2
Significant Management Judgement
The following is the significant management judgement in applying the
accounting policies of the Company that has the most significant effect on the
Leases
In applying the classification of leases in IAS 17, the management considers its
leases of prepaid land lease payments as operating lease arrangements. In some
cases, the lease transaction is not always conclusive and the management uses
judgement in determining whether the lease is a finance lease arrangement that
transfers substantially all the risks and rewards incidental to ownership.
F-12
Company No: 350500400007529
3.
SIGNIFICANT ACCOUNTING POLICIES
3.1
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less accumulated
depreciation and accumulated impairment losses, if any. Historical cost includes
expenditure that is directly attributable to the acquisition of the items. Subsequent
costs are included in the asset’s carrying amount or recognised as a separate
asset, as appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Company and the cost of the item can be
measured reliably.
Depreciation is calculated using the straight-line method to allocate their cost, net
of residual value over their estimated useful lives, as follows:-
Buildings
Plant and machineries
Office equipment
Motor vehicles
Pipe-line equipment
Renovation
Estimated useful lives
20 years
10 years
5 years
5 years
5 years
20 years
Property, plant and equipment are eliminated if it is probable that no future
economic benefit associated with the item will flow to the Company through usage
or disposal. Disposed gains and losses arising from the difference between the
book value and the proceeds are recognised in the statements of profit or loss and
other comprehensive income on the date of the disposal.
The depreciation method, useful lives and residual values are reviewed, and
adjusted if appropriate, at each reporting date.
3.2
Leases
Operating Leases
Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged to
profit or loss on a straight-line basis over the period of the lease.
Lease Prepayments
Prepaid lease rentals for land under an operating lease are initially recorded at
acquisition cost at the lease’s commencement and amortised on a straight-line
basis over the period of the lease.
Prepaid land lease payments are amortised over the lease term of 50 years.
F-13
Company No: 350500400007529
3.3
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
determined using the weighted average cost method.
The cost of raw materials includes expenditure incurred in acquiring the raw
materials and bringing them to their existing location and condition.
The cost of finished goods and work-in-progress comprises design costs, raw
materials, direct labour, other direct costs and related production overheads
(based on normal operating capacity). It excludes costs of idle plant and abnormal
waste.
Net realisable value is the estimated selling price in the ordinary course of
business, less applicable variable selling expenses.
Inventories are reduced for the estimated losses arising from excess,
obsolescence, and the decline in value based on future customer demand with the
corresponding change to cost of goods sold. When inventories are sold, the
carrying amount of those inventories is recognised as an expense in the period in
which the related revenue is recognised.
3.4
Impairment of Non-Financial Assets
At each end of the reporting period, the Company reviews the carrying amounts of
its non-financial assets to determine whether there is any indication of impairment
by comparing its carrying amount with its recoverable amount. Recoverable
amount is the higher of an asset’s fair value less costs to sell and its value in use.
For the purpose of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash flows (cash generating units).
In assessing value-in-use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. Where
the carrying amount of an asset exceeds its recoverable amount, the asset is
written down to its recoverable amount. Impairment losses recognised in respect
of a cash-generating unit or groups of cash-generating units are allocated first to
reduce the carrying amount of any goodwill allocated to those units or group of
units and then, to reduce the carrying amount of the other assets in the unit or
groups of units on a pro-rate basis.
An impairment loss is recognised as an expense in profit or loss immediately.
An assessment is made at each end of the reporting period as to whether there is
any indication that previously recognised impairment losses for an asset may no
longer exist or may have decreased. If such indication exists, the recoverable
amount is estimated. A previously recognised impairment loss is reversed only if
there has been a change in the estimates used to determine the asset
recoverable amount since the last impairment loss was recognised. That
F-14
Company No: 350500400007529
increased amount cannot exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been recognised for the
asset in prior years. Such reversal is recognised in profit or loss.
3.5
Financial Instruments
3.5.1
Classification
The Company classifies its financial instruments in the following categories:
Financial assets and financial liabilities at fair value through profit or loss, loans
and receivables, available-for-sale, held-to-maturity investments and financial
liabilities measured at amortised cost. Management of the Company determines
the classification of its financial instruments at initial recognition. The Company
only has loans and receivables and financial liabilities measured at amortised
cost.
Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are included
in current assets, except for those with maturities greater than 12 months after the
end of the reporting period; such loans and receivables are classified as noncurrent assets.
Financial Liabilities Measured at Amortised Cost
The Company classifies non-derivative financial liabilities as financial liabilities
measured at amortised cost, except for financial liabilities at fair value through
profit or loss or financial liabilities that arise when a transfer of a financial asset
does not qualify for derecognition. In this case the transferred asset continues to
be recognised and a financial liability is measured as the consideration received,
financial liabilities measured at amortised cost are included in non-current
liabilities, except for maturities of less than 12 months after the end of the
reporting period, which are classified as current liabilities.
3.5.2
Recognition and Measurement
Financial Assets
Regular purchases and sales of financial assets are recognised on the trade date
– the date on which the Company commits to purchase or sell the asset.
Financial assets are initially recognised at fair value plus transaction costs for all
financial assets not carried at fair value through profit or loss.
Financial assets are derecognised when the rights to receive cash flows have
expired or have been transferred and the Company has transferred substantially
all risks and rewards of ownership.
F-15
Company No: 350500400007529
Loans and receivables are subsequently carried at amortised cost using the
effective interest method.
After the initial recognition, financial liability is classified as financial liability at fair
value through profit or loss or other financial liabilities measure at amortised cost
using the effective interest method.
A financial liability is derecognised when the obligation under the liability is
extinguished, discharged, cancelled or expired, or through amortisation process.
When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability, and the difference in the
respective carrying amount is recognised in profit or loss.
Other financial liabilities are subsequently measured at amortised cost using the
effective interest method. Financial liabilities are classified as current liabilities
unless the Company has an unconditional right to defer settlement of the liability
for at least 12 months after the end of the reporting period.
3.5.3
Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the
statements of financial position when there is legally enforceable right to offset the
recognised amounts and there is an intention to settle on a net basis, or realise
the asset and settle the liability simultaneously.
3.5.4
Impairment of Financial Assets
Assets Carried at Amortised Cost
The Company assesses at the end of each reporting period whether there is
objective evidence that a financial asset or a group of financial assets is impaired.
A financial asset or a group of financial assets is impaired and impairment loss is
incurred only if there is objective evidence of impairment as a result of one or
more events that occurred after the initial recognition of the asset (a ‘loss event’)
and that loss event (or events) has an impact on the estimated future cash flows
of the financial asset or group of financial assets that can be reliably estimated.
The amount of the loss is measured as the difference between asset’s carrying
amount and the present value of estimated future cash flows discounted at the
financial asset’s original effective interest rate. The carrying amount of the asset is
reduced and the amount of the loss recognised in profit or loss. As a practical
expedient, the Company may measure impairment on the basis of an instrument’s
fair value using an observable market price.
F-16
Company No: 350500400007529
If, in a subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment
was recognised (such as an improvement in the debtor’s credit rating), the
reversal of the previously recognised impairment loss is recognised in the
statements of profit or loss and other comprehensive income.
3.6
Government Grant
Government grants are not recognised until there is reasonable assurance that
the Company will comply with the conditions attaching to them and that the grants
will be received.
Government grants are recognised in profit or loss in which the Company
recognises as expenses the related costs for which the grants are intended to
compensate.
Government grants that are receivable as compensation for expenses or losses
already incurred or for the purpose of giving immediate financial support to the
Company with no future related costs are recognised in profit or loss in the period
in which they become receivable.
3.7
Cash and Cash Equivalents
In the financial statements, cash and cash equivalents include cash in hand,
deposits held at call with a bank and other short term highly liquid investments
with original maturities of three months or less.
3.8
Equity and Reserves
An equity instrument is any contract that evidences a residual interest in the
assets of the Company after deducting all of its liabilities.
Capital represents registered capital that have been paid-up.
Retained earnings include all current and prior period retained earnings.
3.9
Statutory Reserve
In accordance with the relevant laws and regulations of the PRC, the Company is
required to transfer 10% of its profit after tax prepared in accordance with the
accounting regulation of the PRC to the statutory reserve until the reserve balance
reaches 50% of the registered capital. Such reserve may be used to offset
retained earnings or increase the registered capital of the Company, subject to the
approval from the PRC authorities, and are not available for dividend distribution
to the owner of the Company.
F-17
Company No: 350500400007529
3.10
Provision
Provisions are recognised when the Company has a present legal or constructive
obligation as a result of past events; it is probable that an outflow of resources will
be required to settle the obligation; and the amount has been reliably estimated.
Provisions are measured at the present value of the expenditures expected to be
required to settle the obligation using a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the obligation.
The increase in the provision due to passage of time is recognised as interest
expense.
When there is a probability that an outflow of economic benefits will occur due to a
present obligation resulting from a past event, and whose amount is reasonably
estimable, a corresponding amount of provision is recognised in the financial
statements. However, when such outflow is dependent upon a future event, is not
certain to occur, or cannot be reliably estimated, a disclosure regarding the liability
is made in the notes to the financial statements.
3.11
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs. Borrowings
are subsequently measured at amortised cost and any difference between cost and
the redemption value is recognised in the statements of profit or loss and other
comprehensive income over the period of the borrowings using the effective interest
method. If the Company has an indefinite right to defer payment for a period longer
than 12 months after the end of the reporting date, such liabilities are recorded as
non-current liabilities. Otherwise, they are recorded as current liabilities.
Borrowing costs directly attributable to the acquisition, construction or production
of a qualifying asset are capitalised during the period of time that is necessary to
complete and prepare the asset for its intended use or sale. Capitalisation of
borrowing costs commences when the activities to prepare the asset for its
intended use or sale are in progress and the expenditures and borrowing costs
are incurred. Borrowing costs are capitalised until the assets are substantially
completed for their intended use or sale.
Other borrowing costs are expensed in the period in which they are incurred.
Borrowing costs consist of interest and other costs that the Company incurred in
connection with the borrowings of funds.
3.12
Revenue Recognition
The Company recognises revenue when specific recognition criteria have been
met for the Company’s activities as described below. The Company bases its
estimates on historical results, taking into consideration the type of customer, the
type of transaction and the specifics of each arrangement.
F-18
Company No: 350500400007529
Sales of Goods
Sales of products and merchandise are recognised upon delivery when the
significant risks and rewards of ownership of goods have transferred to the buyer;
continuing managerial involvement usually associated with ownership and
effective control have ceased; the amount of revenue can be measured reliably; it
is probable that the economic benefits associated with the transaction will flow to
the Company; and the costs incurred or to be incurred in respect of the
transaction can be measured reliably. The Company records reductions to
revenue for special pricing arrangements, price protection, value-added tax and
other volume based discounts.
Interest Income
Interest income is recognised using the effective interest method.
Rental Income
Rental income is accounted for on a straight-line basis over the lease terms. The
aggregate costs of incentives provided to lessees are recognised as a reduction of
rental income over the lease term on a straight-line basis.
3.13
Employee Benefits
The Company recognises wages and salaries, bonuses and profit-sharing and
non-monetary compensations when employees render services to the Company
on accrual basis.
The Company contributes a percentage of wages and salaries to the local social
security bureau according to the related social security laws. The amount of
monthly contribution to the local state government is expensed as incurred.
3.14
Current Tax
Current tax expense is recognised in profit or loss, except to the extent that it
relates to items recognised in other comprehensive income or directly in equity. In
this case, the tax is recognised in other comprehensive income or directly in
equity, respectively.
The current income tax charge is calculated on the basis of the tax law enacted or
substantively enacted at the reporting date in the country where the Company
operates and generates taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation.
It establishes provisions where appropriate on the basis of amounts expected to
be paid to tax authorities.
F-19
Company No: 350500400007529
3.15
Value Added Tax (“VAT”)
The domestic sale of goods in PRC is subjected to VAT at the applicable tax rate
of 17%. Input VAT on purchases can be deducted from output VAT. The net
amount of VAT recoverable from, or payable to, the tax authority is included as
part of “other receivables” or “other payables” in the statements of financial
position.
Revenues, expenses and assets are recognised net of the amount of VAT
except:
where the VAT incurred on the purchase of assets or services is not
recoverable from the tax authority, in which case the VAT is recognised as
part of the cost of acquisition of the asset or as part of the expense item as
applicable; and

3.16
receivables and payables are stated with the amount of VAT included.
Deferred Tax
Deferred tax liabilities and assets are provided for under the liability method in
respect of all temporary differences at the reporting date between the carrying
amount of an asset or liability in the statement of financial position and its tax
base including unused tax losses and capital allowances.
Deferred tax liabilities are recognised for all temporary differences, except:-
where the deferred tax liability arises from the initial recognition of goodwill or
of an asset or liability in a transaction that is not a business combination and,
at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss; and
-
in respect of taxable temporary differences associated with investment in
subsidiary companies and interest in joint ventures, where the timing of the
reversal of the temporary differences can be controlled and it is probable that
the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences,
carried forward of unused tax credits and unused tax losses, to the extent that it
is probable that taxable profit will be available against which the deductible
temporary differences, and the carried forward unused tax credits and unused tax
losses can be utilised except:-
where the deferred tax asset relating to the deductible temporary difference
arises from the initial recognition of an asset or liability in a transaction that is
not a business combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss; and
Deferred tax assets are recognised for all deductible temporary differences, carry
forward of unused tax credits and unused tax losses, to the extent that it is
F-20
Company No: 350500400007529
probable that taxable profit will be available against which the deductible
temporary differences, and the carry forward unused tax credits and unused tax
losses can be utilised except (cont’d):-
in respect of deductible temporary differences associated with investment in
subsidiary companies and interest in joint ventures, deferred tax assets are
recognised only to the extent that it is probable that the temporary differences
will reverse in the foreseeable future and taxable profit will be available
against which the temporary differences can be utilised.
The carrying amount of a deferred tax asset is reviewed at each reporting date. If
it is no longer probable that sufficient taxable profit will be available to allow all or
part of the deferred tax asset to be utilised, the carrying amount of the deferred
tax asset will be reduced accordingly. When it becomes probable that sufficient
taxable profit will be available, such reductions will be reversed to the extent of
the taxable profit. Unrecognised deferred tax assets are reassessed at each
reporting date and are recognised to the extent that it has become probable that
future taxable profit will allow the deferred tax assets to be utilised.
Deferred tax is measured at the tax rates that are expected to apply in the period
when the asset is realised or the liability is settled, based on tax rates that have
been enacted or substantively enacted by the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised
outside profit or loss. Deferred tax items are recognised in correlation to the
underlying transaction either in other comprehensive income or directly in equity
and deferred tax arising from a business combination is adjusted against goodwill
on acquisition.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable
right exists to set off current tax assets against current tax liabilities and the
deferred taxes relate to the same taxable entity and the same taxation authority.
3.17
Contingencies
Where it is not probable that an inflow or an outflow of economic benefits will be
required, or the amount cannot be estimated reliably, the asset or the obligation is
not recognised in the statements of financial position and is disclosed as a
contingent asset or contingent liability, unless the probability of inflow or outflow of
economic benefits is remote. Possible obligations, whose existence will only be
confirmed by the occurrence or non-occurrence of one or more future events, are
also disclosed as contingent assets or contingent liabilities unless the probability
of inflow or outflow of economic benefits is remote.
3.18
Related Parties
A related party is a person or entity that is related to the entity that is preparing its
financial statements (“the reporting entity”). A related party transaction is a
F-21
Company No: 350500400007529
transfer of resources, services or obligations between the reporting entity and its
related party, regardless of whether a price is charged.
(a)
A person or a close member of that person’s family is related to the
reporting entity if that person:(i)
(ii)
(iii)
(b)
An entity is related to the reporting entity if any of the following conditions
applies:(i)
(ii)
(iii)
(iv)
(v)
(vi)
3.19
Has control or joint control over the reporting entity;
Has significant influence over the reporting entity; or
Is a member of the key management personnel of the reporting
entity.
The entity and the reporting entity are members of the same group;
One entity is an associate or joint venture of the reporting entity;
Both the entities are joint ventures of the same third party;
One entity is a joint venture of a third entity and the other entity is
an associate of the third entity;
The entity is controlled or jointly-controlled by a person identified in
the preceeding paragraph above; or
A person who has control or joint control over the reporting entity
has significant influence over the entity or is a member of the key
management personnel of the entity.
Research and Development Costs
Research costs are expensed as incurred.
Development costs arising from development expenditures on an individual
project are expensed as incurred unless when the Company can demonstrate the
technical feasibility of completing the intangible asset so that it will be available for
use or sale, its intention to complete and its ability to use or sell the asset, how the
asset will generate future economic benefits, the availability of resources to
complete and the ability to measure reliably the expenditures during development.
3.20
Foreign Currencies
The Company conducts its business in the PRC and hence its functional currency
is the RMB.
Foreign currency transactions are measured and recorded in the functional
currency using the exchange rates prevailing at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are translated at
the closing rates ruling at the respective reporting dates. Foreign exchange gains
and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the profit or loss.
F-22
Company No: 350500400007529
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates as at the dates of the initial
transactions.
The presentation currency of the Company is EUR, being the presentation
currency of its with respect to the proposed listing intended ultimate Germany
domiciled legal parent and holding company, and therefore the financial
information has been translated from RMB to EUR, Hong Kong Dollar (“HKD”) to
EUR and Ringgit Malaysia (“RM”) to EUR at the following rates:Financial years
ended
Currency
31.12.2012
31.12.2013
31.12.2014
31.12.2015
31.12.2015
31.12.2015
Year end rates
per EUR
1.00
RMB
RMB
RMB
RMB
HKD
RM
Average rates
per EUR
1.00
8.3302
8.4221
7.4656
7.0805
8.4513
4.6859
8.1163
8.2262
8.1659
6.9150
8.6067
4.3272
Foreign currency differences are recognised in other comprehensive income and
accumulated in the foreign currency translation reserve in equity.
4.
PROPERTY, PLANT AND EQUIPMENT
Buildings
EUR
Plant and
machineries
EUR
Motor
Pipe-line
vehicles equipment
EUR
EUR
Office
Renovaequipment
tion
EUR
EUR
At 1 January 2013
Additions
Translation differences
2,303,978
(25,139)
2,487,460
81,783
(29,044)
170,677
60,566
(3,271)
109,984
(1,201)
134,763
10,942
(1,725)
286,008
(3,121)
5,492,870
153,291
(63,501)
At 31 December 2013
Additions
2,278,839
291,966
2,540,199
1,222
325,567
227,972
29,208
108,783
13,938
143,980
2,241
18,657
282,887
36,243
5,582,660
3,463
715,579
At 31 December 2014
Additions
Written off
2,570,805
139,825
2,866,988
1,746
155,893
257,180
(33,090)
14,761
122,721
6,675
164,878
2,697
8,904
319,130
17,358
6,301,702
4,443
(33,090)
343,416
At 31 December 2015
2,710,630
3,024,627
238,851
129,396
176,479
336,488
6,616,471
Total
EUR
Cost
F-23
Company No: 350500400007529
Buildings
EUR
Plant and
machineries
EUR
Motor
Pipe-line
Office
vehicles equipment equipment
EUR
EUR
EUR
Renovation
EUR
Total
EUR
Accumulated depreciation
At 1 January 2013
Charge for the financial year
605,393
116,656
(9,318)
1,536,718
256,097
(22,726)
102,402
28,220
(1,775)
100,359
2,977
(1,164)
51,131
21,326
(1,054)
1,534
14,481
(354)
2,397,537
439,757
(36,391)
At 31 December 2013
712,731
117,517
102,337
1,770,089
257,797
250,967
128,847
32,747
19,580
102,172
2,999
13,372
71,403
21,564
11,170
15,661
14,588
3,375
2,800,903
447,212
400,801
At 31 December 2014
Written off
932,585
138,776
47,480
2,278,853
235,792
118,431
181,174
33,640
(29,781)
9,764
118,543
3,542
6,364
104,137
16,750
5,272
33,624
17,227
1,427
3,648,916
445,727
(29,781)
188,738
1,118,841
2,633,076
194,797
128,449
126,159
52,278
4,253,600
At 31 December 2015
Buildings
EUR
Plant and
machineries
EUR
Motor
Pipe-line
vehicles equipment
EUR
EUR
Office
equipment Renovation
EUR
EUR
Total
EUR
Net carrying amount
31 December 2015
1,591,789
391,551
44,054
947
50,320
284,210
2,362,871
31 December 2014
1,638,220
588,135
76,006
4,178
60,741
285,506
2,652,786
31 December 2013
1,566,108
770,110
99,125
6,611
72,577
267,226
2,781,757
The buildings with the carrying amount of EUR 1,230,848 (2014: EUR 1,255,288 and
2013: EUR 1,190,670) of the Company are pledged to a bank as a security for a banking
facility granted to the Company.
5.
PREPAID LAND LEASE PAYMENTS
2015
2014
2013
EUR
EUR
EUR
380,687
48,774
429,461
384,887
(4,200)
380,687
Cost
At 1 January
Translation difference
At 31 December
Accumulated amortisation
At 1 January
Amortisation charge
during the financial years
At 31 December
Net carrying amount
429,461
23,358
452,819
83,745
66,620
59,657
9,273
4,338
7,853
9,272
7,796
(833)
97,356
83,745
66,620
355,463
345,716
314,067
F-24
Company No: 350500400007529
Amount to be amortised:Not later than one year
Later than one year but not later
five years
Later than five years
9,056
8,589
7,614
36,226
310,181
34,357
302,770
30,455
275,998
355,463
345,716
314,067
The prepaid land lease payments with the carrying amount of EUR 355,463 (2014:
EUR 345,716 and 2013: EUR 314,067) have been pledged to a bank as a security for a
banking facility granted to the Company.
6.
INVENTORIES
Consumables
Raw materials
Finished goods
2015
2014
2013
EUR
EUR
EUR
60,513
1,000,133
316,816
26,036
1,327,065
897,593
11,514
1,306,321
608,924
-
-
37,809
1,377,462
2,250,694
1,964,568
Work in progress
7.
TRADE RECEIVABLES
Trade receivables are unsecured, bear no interest and the normal trade credit terms granted
by the Company to the trade receivables ranges from 30 days to 90 days (2014: 60 days to
180 days and 2013: 60 days to 90 days).
The entire trade receivables balances are denominated in RMB.
8.
OTHER RECEIVABLES
2015
2014
2013
EUR
EUR
EUR
74,414
161,258
-
75,713
-
235,672
-
75,713
Other receivables are unsecured, bear no interest and repayable on demand.
F-25
Company No: 350500400007529
The currency exposure profile of other receivables are as follow (foreign currency
balances are unhedged):-
RMB
RM
EUR
9.
2015
2014
2013
EUR
EUR
EUR
74,414
81,080
80,178
-
75,713
-
235,672
-
75,713
CASH AND BANK BALANCES
Cash on hand
Cash at bank
2015
2014
2013
EUR
EUR
EUR
10,751
31,737,697
6,597
19,860,524
5,052
11,301,128
31,748,448
19,867,121
11,306,180
The entire cash and bank balances are denominated in RMB.
10.
CAPITAL
2015
HKD
Authorised
(Registered):Brought
forward/
Carried
forward
50,000,000
2015
EUR
7,501,678
2014
HKD
50,000,000
2014
EUR
2013
HKD
2013
EUR
7,501,678
50,000,000
7,501,678
5,763,044
50,000,000
5,763,044
Paid up:Brought
forward/
Carried
forward
50,000,000
5,763,044
50,000,000
The contributors of capital are entitled to receive dividends as and when declared by the
Company. Prior to 6 January 2015, the shareholder of the Company was Golden Times
Trading Co. (“Golden Times”) which was wholly owned by Mr. Zhu Xiao Fang. On 6
January 2015, the shareholder of Decheng PRC approved that Golden Times transferred
100% of the equity interest to Hong Kong De Cheng Holding Company Limited (“Decheng
HK”), which was also wholly owned by Mr. Zhu Xiao Fang. This reorganization was
completed on 26 February 2015.
F-26
Company No: 350500400007529
11.
RESERVES
Statutory reserve
In accordance with the relevant laws and regulations of the PRC, the Company is
required to transfer 10% of its profit after tax prepared in accordance with the accounting
regulation of the PRC to the statutory reserve until the reserve balance reaches 50% of
the registered capital. Such reserve may be used to offset retained earnings or increase
the registered capital of the Company, subject to the approval from the PRC authorities,
and are not available for dividend distribution to the owner of the Company.
Translation reserve
The translation reserve represents exchange differences arising from the translation of
the financial statements of the Company from its functional currency to the Company’s
presentation currency and is the only component of other comprehensive income.
12.
TRADE PAYABLES
Trade payables are unsecured, bear no interest and the normal credit terms granted
by the trade payables ranges from 30 days to 90 days (2014: 30 days to 90 days
and 2013: 30 days to 120 days).
The entire trade payables balances are denominated in RMB.
13.
OTHER PAYABLES AND ACCRUALS
2015
EUR
Accrual of expenses
Withholding tax on
dividend payable
Non-trade payables
VAT payable
2014
EUR
2013
EUR
491,289
184,016
153,261
2,259,727
943,996
505,931
1,339,477
191,939
268,196
474,941
260,625
160,865
4,200,943
1,983,628
1,049,692
Other payables are unsecured, bear no interest and repayable on demand.
The currency exposure profile of other payables are as follow (foreign currency balances
are unhedged):-
EUR
RMB
2015
2014
2013
EUR
EUR
EUR
241,694
3,959,249
1,983,628
1,049,692
-
4,200,943
1,983,628
1,049,692
F-27
Company No: 350500400007529
14.
BORROWINGS
2015
2014
2013
EUR
EUR
EUR
4,208,742
3,991,642
2,944,634
Current
Not later than one year
Secured:Term loans
The term loans of the Company are secured by:(a) The Company’s buildings and prepaid land lease payments as disclosed in Note 4 and
5 to the Financial Statements;
(b) Personal guarantee by a Director;
(c) Corporate guarantee by a third party; and
(d) Personal guarantee by a person connected to a Director.
Interest is charged at rates ranging from 5.89% to 6.30% (2014: 6.00% to 6.30% and 2013:
6.00% to 8.53%) per annum.
There is no breach of covenant of bank borrowings.
The entire borrowings balances are denominated in RMB.
15.
AMOUNT DUE TO A DIRECTOR
Amount due to a Director is non-trade in-nature, unsecured, bears no interest and
repayable on demand.
The currency exposure profile of amount due to a Director are as follow (foreign currency
balances are unhedged):2015
EUR
RM
EUR
81,080
273,503
354,583
16.
REVENUE
Revenue represents the net invoiced value of goods sold, after allowance for trade
discounts, sales rebates and VAT.
F-28
Company No: 350500400007529
17.
COST OF SALES
Raw materials and supplementary
materials
Changes in inventories of finished
goods and work-in-progress
2014
2013
EUR
EUR
EUR
39,226,477
29,739,764
24,326,780
Low value consumable goods
644,667
350,523
(153,593)
198,555
(183,614)
162,962
Fuel
571,743
390,059
287,696
Utilities
376,731
189,759
156,156
Depreciation
391,553
393,957
390,946
Staff salaries and related costs
852,488
610,138
510,129
Sales supplement tax
607,315
376,176
289,608
33,168
25,145
22,536
43,054,665
31,769,960
25,963,199
Others
18.
2015
OTHER INCOME
Rental income
Government grant
2015
2014
2013
EUR
EUR
EUR
52,061
44,086
43,763
197,976
132,993
1,216
250,037
177,079
44,979
Government grant is an incentive given by the local government to the enterprise. It is
granted upon conditions and upon approval of the local government.
19.
SELLING AND DISTRIBUTION EXPENSES
Others
2015
2014
2013
EUR
EUR
EUR
221,242
171,973
147,672
64,100
51,065
46,768
285,342
223,038
194,440
F-29
Company No: 350500400007529
20.
ADMINISTRATION EXPENSES
2015
2014
2013
EUR
EUR
EUR
681,184
483,036
362,473
Social security insurance (Defined
contribution plans)
Depreciation
112,464
54,174
75,527
53,255
63,426
48,811
Directors’ remuneration
95,348
80,013
139,282
Entertainment fees
60,958
49,139
37,180
666,326
73,629
286,960
435,019
370,202
306,020
314,911
2,475,675
1,120,619
1,253,043
2015
2014
2013
EUR
EUR
EUR
Research and development fee cost
Audit fee and initial public offering costs
Others
21.
22.
FINANCE RESULT
Interest income
(80,170)
(44,383)
(28,571)
Interest expenses
258,867
209,934
180,236
178,697
165,551
151,665
TAX EXPENSE
Current year’s provision
Under provision in prior year
2015
2014
2013
EUR
EUR
EUR
6,160,922
1,347
4,023,671
1,064
2,807,233
1,094
6,162,269
4,024,735
2,808,327
F-30
Company No: 350500400007529
Reconciliation between the statutory and effective tax expenses is as follows:2015
EUR
Profit before tax
Income tax on rate of 25%
2014
EUR
24,015,459
2013
EUR
16,340,621
11,268,072
6,003,865
4,085,155
2,817,018
1,347
1,064
1,094
(61,484)
(9,785)
Tax effects in respect of:Under provision in prior years
Expenses not deductible for tax
purposes
Income not subject to tax
157,057
6,162,269
-
4,024,735
2,808,327
The provision for income tax is calculated for the Company based on statutory income
tax at a rate of 25% in accordance with the applicable tax rate in PRC.
23.
DIVIDENDS
2015
2014
2013
EUR
EUR
EUR
In respect of financial year ended
31 December 2012 declared on 31
January 2013 and paid on 4 March 2013
-
-
4,862,532
-
7,347,654
-
8,676,827
-
-
In respect of financial year ended 31
December 2013 declared on 1 February
2014 and paid on 7 March 2014
In respect of financial year ended 31
December 2014 declared on 3 February
2015 and paid on 2 March 2015
Dividends to be paid generally have to be approved by Chinese government bodies. In
addition, dividends are only payable if Chinese statutory reserves satisfy the related local
legal requirements.
24.
EMPLOYEE BENEFITS EXPENSE
Salaries, wages and other emoluments
Defined contribution plans
2015
2014
2013
EUR
EUR
EUR
1,750,964
112,464
1,260,739
75,527
1,018,835
63,426
1,863,428
1,336,266
1,082,261
F-31
Company No: 350500400007529
Included in the above are Director’s emoluments of the Company amounting to
EUR 95,348 (2014: EUR 80,014 and 2013: EUR 139,282).
Defined contribution plans refer to the social insurance contribution made by the Company
in accordance to PRC law. It consists of retirement insurance, unemployment insurance,
medical insurance, accident insurance and maternity insurance.
25.
RELATED PARTY DISCLOSURES
(a)
Related party transactions
There are no related party transactions during the financial years.
(b)
Compensation of key management personnel
Key management includes Director and general manager.
The remuneration of Director and other members of key management personnel
during the financial years are as follow:-
Salaries, wages and other
Emoluments
(c)
2015
2014
2013
EUR
EUR
EUR
175,750
1,930
147,697
1,307
138,032
1,250
177,680
149,004
139,282
Outstanding balances arising from related party transactions
There are no outstanding balances arising from related party transactions.
26.
CONTINGENT LIABILITIES
Social Insurance Back Payments
According to PRC law, in particular, Chinese regulations for social insurance and housing
funds, the Company is required to make contributions for the social insurance and for the
housing funds to their employees. The Company considers the risk for additional
payments for prior periods to be not probable.
F-32
Company No: 350500400007529
27.
CATEGORIES OF FINANCIAL INSTRUMENTS
The table below provides an analysis of financial instruments categorised as followed:i. Loans and receivables (“L&R”); and
ii. Other liabilities measured at amortised cost (“AC”).
Carrying
Amount
2015
EUR
L&R
AC
EUR
EUR
Financial assets
Trade receivables
7,786,092
7,786,092
-
Other receivables
235,672
235,672
-
31,748,448
31,748,448
-
39,770,212
39,770,212
-
Financial liabilities
Trade payables
2,600,820
-
2,600,820
4,200,943
-
4,200,943
Borrowings
4,208,742
-
4,208,742
354,583
-
354,583
11,365,088
-
11,365,088
Amount due to a Director
2014
Financial assets
Trade receivables
6,617,591
19,867,121
6,617,591
19,867,121
-
26,484,712
26,484,712
-
Trade payables
3,664,090
-
3,664,090
1,983,628
-
1,983,628
Borrowings
3,991,642
-
3,991,642
9,639,360
-
9,639,360
F-33
Company No: 350500400007529
2013
Financial assets
Trade receivables
4,493,267
4,493,267
-
Other receivables
75,713
75,713
-
11,306,180
11,306,180
-
15,875,160
15,875,160
-
Trade payables
2,541,949
2,541,949
1,049,692
Borrowings
2,944,634
-
6,536,275
-
6,536,275
28.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
28.1
Financial risks
1,049,692
2,944,634
The Company is exposed to financial risks arising from its operations and the use of financial
instruments. Financial risk management policy is established to ensure that adequate
resources are available for the development of the Company’s business whilst managing its
credit risk, liquidity risk, interest rate risk and market risk. The Company operates within clearly
defined policies and procedures that are approved by the Board of Directors to ensure the
effectiveness of the risk management process.
The main areas of financial risks faced by the Company and the policy in respect of the
major areas of treasury activity are set out as follows:(a)
Credit risk
Credit risk is the risk of a financial loss to the Company if a customer or
counterparty to a financial instrument fails to meet its contractual obligations.
The Company exposure to credit risk is monitored on an ongoing basis. The credit
risk is controlled by monitoring procedures. An internal credit review is conducted if
the credit risk is material. The Company does not require collateral in respect of
financial assets.
It is the Company’s policy that all customers who wish to trade on credit terms are
subject to credit verification procedures. The Company does not offer credit terms
without the approval of the general manager.
With a credit policy in place to ensure the credit risk is monitored on an ongoing
basis, the management has taken reasonable steps to ensure that receivables are
F-34
Company No: 350500400007529
stated at their realisable values. A significant portion of the receivables are regular
customers that have been transacting with the Company. The Company uses
ageing analysis to monitor the credit quality of the receivables. Any receivables
having significant balances past due more than credit terms granted are deemed to
have higher credit risk, and are monitored individually.
The areas where the Company is exposed to credit risk are as follow:Trade receivables
The net carrying amount of trade receivables is considered a reasonable
approximate of its fair value.
Concentration of credit risk
Concentration of credit risk exists when changes in economic, industry and
geographical factors similarly affect the group of counterparties whose aggregate
credit exposure is significant in relation to the Company’s total credit exposure. The
Company’s portfolio of financial instrument is broadly diversified along geographical
lines and transactions are entered into with diverse creditworthy counterparties,
thereby mitigate any significant concentration of credit risk.
The Company has no significant concentration of credit risk with any single counter
party.
Ageing analysis of trade receivables
The ageing analysis for trade receivables is as follow:Individually
Gross
impaired
Net
EUR
EUR
EUR
2015
Within credit terms
Past due 0 to 30 days
Past due more 90 days
7,667,473
118,619
-
-
7,667,473
118,619
-
7,786,092
-
7,786,092
6,610,305
7,286
-
-
6,610,305
7,286
-
6,617,591
-
6,617,591
2014
Within credit terms
F-35
Company No: 350500400007529
Individually
Gross
impaired
Net
EUR
EUR
EUR
2013
Within credit terms
4,493,267
-
4,493,267
-
-
-
-
-
-
-
-
-
4,493,267
-
4,493,267
Financial assets that are neither past due nor impaired
Trade receivables that are neither past due nor impaired are creditworthy trade
receivables with good payment records with the Company. None of the Company’s
trade receivables that are neither past due nor impaired have been renegotiated
during the financial years.
Financial assets that are past due but not impaired
The Company has trade receivables amounting to EUR 118,619 (2014: EUR 7,286
and 2013: EUR Nil) that are past due at the reporting date but not impaired. These
relate to a number of independent customers from whom there is no recent history
of default.
Financial assets that are impaired
There are no trade receivables that are impaired.
Other receivables
The net carrying amount of other receivables are considered a reasonable
The Company has no significant concentration of credit risk with any single counter
party.
Other receivables that are neither past due nor impaired are creditworthy other
receivables. None of the other receivables that are neither past due nor impaired
have been renegotiated during the financial year.
There are no other receivables that are past due but not impaired.
F-36
Company No: 350500400007529
There are no other receivables that are impaired.
Deposits with bank
The Company has no significant concentration of credit risk with any single bank
except for 100% (2014: 100% and 2013: 100%) with a financial institution.
Deposits with bank that are neither past due nor impaired are placed with a
reputable financial institution with high credit ratings and no history of default.
As at the reporting date, there was no indication that the deposits with bank are not
recoverable.
There are no deposits with bank of the Company that are past due but not impaired.
There are no deposits with bank of the Company that are impaired.
(b)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial
obligations as and when they fall due as a result of shortage of funds. In managing
its exposures to liquidity risk arises principally from its various payables, the
Company maintains a level of cash and cash equivalents deemed adequate by the
management to ensure, as far as possible, that it will have sufficient liquidity to meet
its liabilities when they fall due.
The Company aims to maintain a balance of sufficient cash and deposits and
flexibility in funding by keeping diverse sources of committed and uncommitted
credit facilities.
The financial liabilities of the Company are matured within 12 months from the
reporting date.
(c)
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of the Company’s
financial instruments will fluctuate because of change in market interest rates.
F-37
Company No: 350500400007529
The Company’s floating rate borrowings are exposed to a risk of change in its fair
value due to changes in interest rates. Short term receivables and payables are not
significantly exposed to interest rate risk.
The Company manages its interest rate exposure by maintaining a prudent mix of
fixed and floating rate borrowings. The objectives for the mix between fixed and
floating rate borrowings are set to reduce the impact of upward changes in interest
rates while enabling benefits to be enjoyed if interest rates fall.
The carrying amount of the Company’s significant interest-bearing financial
instruments, as at the reporting date is as follows:-
Fixed rate
Instruments
Borrowings
Average interest rate
2015
2014
2013
EUR
EUR
EUR
4,208,742
6.09%
3,991,642
2,944,634
6.15%
7.26%
Sensitivity analysis for fixed rate instruments
The Company does not account for any fixed rate financial assets and liabilities at
fair value through profit or loss, and the Company does not designate derivatives as
hedging instruments under a fair value hedge accounting model. Therefore, a
change in interest rates at the reporting date would not affect profit or loss.
The Company has to pay an interest for its bank borrowings, therefore, a change of the
interest rate at the end of the reporting period by 100 basis points (“bp”) would have an
effect.
The following shows the effect on profit for the financial years:-
+100 bps
-100 bps
(d)
2015
2014
2013
EUR
EUR
EUR
(42,087)
42,087
(39,916)
39,916
(29,446)
29,446
Market risk
As the Company prepares its financial statements in EUR and therefore their results
and net assets position are exposed to retranslation risk as a result of fluctuation in
the EUR exchange rate. Therefore, a change of the exchange rate at the end of the
reporting period by 100 basis points (“bp”) would have an effect.
F-38
Company No: 350500400007529
The following shows the effect for the financial years:-
28.2
2015
2014
2013
EUR
EUR
EUR
Profit
+100 bps
-100 bps
(176,970)
176,970
(122,042)
122,042
(83,831)
83,831
Net assets
+100 bps
-100 bps
(296,465)
296,465
(206,801)
206,801
(135,482)
135,482
Fair value of financial instruments
The carrying amounts of short term receivables, payables, cash and cash equivalents and
borrowings approximate their fair value due to the relatively short term nature of these
financial instruments and insignificant impact of discounting.
28.3
Fair value of hierarchy
No fair value hierarchy has been disclosed as the Company does not have any financial
instruments measured at fair value.
29.
CAPITAL MANAGEMENT
The Company’s objectives when managing capital are:(a)
(b)
(c)
To safeguard the Company’s ability to continue as a going concern, so that it
continues to provide returns for shareholders and benefits other stakeholders;
To support the Company’s stability and growth; and
To provide capital for the purpose of strengthening the Company’s risk management
capability.
The Company actively and regularly reviews and manages its capital structure to ensure
optimal capital structure and shareholders returns, taking into consideration the future
capital requirements of the Company and capital efficiency.
The Company currently does not adopt any formal dividend policy.
30.
EXPLANATION AND FINANCIAL IMPACTS ON TRANSITION TO IFRS
As stated in Note 2.4.1 to the Financial Statements, these are the first financial
statements of the Company prepared in accordance with IFRS.
F-39
Company No: 350500400007529
The accounting policies set out in Note 3 to the Financial Statements have been applied
consistently in preparing the financial statements of the Company for the financial years
ended 31 December 2013, 31 December 2014 and 31 December 2015.
The financial impacts of the transition to IFRS on statement of financial position and profit
or loss and other comprehensive income are presented in this section and are further
explained in the following notes.
30.1
Reconciliation of statement financial position
Note
As at 31.12.2013
Effect of
transition
As at
31.12.2013
per China GAAP
to IFRSs
per IFRSs
EUR
EUR
EUR
ASSETS
Non-current assets
(a)
(b)
Current assets
Inventories
Trade receivables
Other receivables
2,773,908
323,427
7,849
(9,360)
3,097,335
(c)
(d)
1,964,568
4,463,165
530,824
11,306,180
2,781,757
314,067
3,095,824
30,102
(455,111)
1,964,568
4,493,267
75,713
11,306,180
18,264,737
17,839,728
TOTAL ASSETS
21,362,072
20,935,552
EQUITY
Share capital
Statutory reserve
Translation reserve
Retained earnings
(e)
(f)
(g)
Total equity
LIABILITIES
Current liabilities
Trade payables
Borrowings
Tax payable
5,763,044
(201,305)
8,657,596
1,373,189
(126,569)
(1,778,955)
14,219,335
(h)
(i)
2,578,570
907,256
2,944,634
712,277
5,763,044
1,373,189
(327,874)
6,878,641
13,687,000
(36,621)
142,436
2,541,949
1,049,692
2,944,634
712,277
7,142,737
7,248,552
Total liabilities
7,142,737
7,248,552
21,362,072
20,935,552
F-40
Company No: 350500400007529
30.2
Reconciliation of profit or loss and other comprehensive income for financial year ended 31
December 2013
Note
Per China GAAP
EUR
Revenue
Cost of sales
38,785,440
(j)
Gross profit
Other income
Selling and distribution
expenses
(k)
Finance result
Profit before tax
Tax expense
(l)
Profit for the financial year
30.3
Effect of
transition to
IFRSs
EUR
(25,923,929)
Per IFRSs
EUR
38,785,440
(39,270)
(25,963,199)
12,861,511
12,822,241
44,979
44,979
(194,440)
(194,440)
(1,331,453)
78,410
(1,253,043)
(151,665)
(151,665)
11,228,932
11,268,072
(2,807,233)
(1,094)
8,421,699
Other comprehensive
income for the financial
year, net of tax
(333,259)
Total comprehensive
income for the financial
year
8,088,440
(2,808,327)
8,459,745
(126,569)
(459,828)
7,999,917
Notes to reconciliation
(a)
31.12.2013
EUR
Reclassification between property, plant and equipment and prepaid
land lease payments (b)
Reclassification between property, plant and equipment and other
receivables (d)
Adjustment on opening cost (g)
Adjustment on opening accumulated depreciation (g)
Adjustment on depreciation (g)
Exchange differences (g)
20,422
272,773
10,226
(247,172)
(52,200)
3,800
7,849
F-41
Company No: 350500400007529
(b)
31.12.2013
EUR
Reclassification between prepaid land lease payments and property,
plant and equipment (a)
Adjustment on opening accumulated amortisation (g)
(20,422)
11,184
(122)
9,360
(c)
Trade receivables
31.12.2013
EUR
Reclassification between trade receivables and other payables and
accruals (i)
(d)
30,102
Other receivables
31.12.2013
EUR
Adjustment on opening other receivables (g)
Reclassification between other receivables and trade payables (h)
(351,099)
75,713
Reclassification between other receivables and property, plant and
equipment (a)
Adjustment on renovation expenses (g)
Adjustment on research and development expenses (g)
(272,773)
96,541
(5,200)
1,707
(455,111)
(e)
Statutory reserve
31.12.2013
EUR
Reclassification between statutory reserve and retained earnings (g)
1,373,189
(f)
Translation reserve
31.12.2013
EUR
Property, plant and equipment (a)
Prepaid land lease payments (b)
Other receivables (c)
Retained earnings (g)
(3,800)
122
(1,707)
131,954
126,569
F-42
Company No: 350500400007529
(g)
Retained earnings
31.12.2013
EUR
Adjustment on opening cost of property, plant and equipment (a)
Adjustment on opening accumulated depreciation of property, plant
and equipment (a)
Adjustment on opening accumulated amortisation of prepaid land lease
payment (b)
Adjustment on depreciation (a)
Adjusment on opening other receivables (d)
Adjustment on renovation expenses (d)
Adjustment on research and development expenses (d)
Adjustment on tax expenses (l)
Adjustment on opening retained earnings
Reclassification between retained earnings and statutory reserve (e)
Exchange differences (f)
(10,226)
(247,172)
11,184
(52,200)
(351,099)
96,541
(5,200)
(1,094)
21,546
(1,373,189)
131,954
(1,778,955)
(h)
Trade payables
31.12.2013
EUR
Reclassification between other receivables and trade payables (d)
Reclassification between trade payables and other payables and
accruals (i)
75,713
(112,334)
(36,621)
(i)
31.12.2013
EUR
Reclassification between other payables and accruals and trade
receivables (c)
Reclassification between other payables and accruals and trade
payables (h)
30,102
112,334
142,436
(j)
Cost of sales
31.12.2013
EUR
(39,270)
F-43
Company No: 350500400007529
(k)
31.12.2013
EUR
Adjustment on research and development
expenses (d)
Adjustment on renovation expenses
12,931
5,200
(96,541)
(78,410)
(l)
Tax expense
31.12.2013
EUR
Adjustment on prior year tax expense
31.
(1,094)
SUBSEQUENT EVENTS
On 25 January 2016, Decheng PRC has declared the final dividend of RMB 85,000,000
(EUR 12,292,000 based on the average of rate for the financial year ended 31 December
2015). On 5 February 2016, Decheng HK has received RMB 76,500,000
(EUR 11,063,000 based on the average rate for the financial year ended 31 December
2015) net of 10% withholding tax and paid the same amount directly to its sole
shareholder, Mr. ZHU Xiaofang.
Quanzhou (PRC), 28 February 2016
On behalf of the board of directors:
Mr. ZHU Xiaofang, Chairman
F-44
Company No: 350500400007529
F. INDEPENDENT AUDITORS’ REPORT
YEARS ENDED 31 DECEMBER 2013, 2014 AND 2015
Independent Auditor`s Report
To QUANZHOU DECHENG TECH RESIN CO., LTD.
(Incorporated in The People’s Republic of China) Company No: 350500400007529:
We have audited the accompanying financial statements of QUANZHOU DECHENG TECH
RESIN CO. LTD, China, which comprise the statements of financial position as at
31 December 2013, 31 December 2014 and 31 December 2015 and the statements of profit or
loss and other comprehensive income, statements of changes in equity and statements of cash
flows for the years then ended, and the notes to the consolidated financial statements. .
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial
statements in accordance with International Financial Reporting Standards and for such internal
control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An
audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the financial statements.
.
F-45
Company No: 350500400007529
YEARS ENDED 31 DECEMBER 2013, 2014 AND 2015
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial
position of QUANZHOU DECHENG TECH RESIN CO., LTD as at 31 December 2013,
31 December 2014 and 31 December 2015 and of its financial performance and cash flows for
the years then ended in accordance with International Financial Reporting Standards as
adopted by the European Union (EU).
Berlin, 29 February 2016
MSW GmbH
Wirtschaftsprüfungsgesellschaft
Steuerberatungsgesellschaft
________________
Mantay
Wirtschaftsprüfer
(German Public Auditor)
________________
Mallison
Wirtschaftsprüfer
.
F-46
HONG KONG DE CHENG HOLDING COMPANY LIMITED
(Incorporated in Hong Kong)
Company No: 2133355
AND ITS SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
For The Financial Year Ended
31 December 2015
.
F-47
Company No: 2133355
AND ITS SUBSIDIARY
A. CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 DECEMBER 2015
Note
2015
EUR
ASSETS
Non-current assets
4
2,362,871
5
355,463
2,718,334
Current assets
Inventories
6
1,377,462
Trade receivables
7
7,786,092
Other receivables
8
235,672
9
31,748,448
41,147,674
TOTAL ASSETS
43,866,008
EQUITY
Capital
10
1,062
Capital reserve
11
6,004,567
Statutory reserve
11
3,065,254
Translation reserve
11
Retained earnings
2,647,556
19,242,304
Total equity
30,960,743
LIABILITIES
Current liabilities
Trade payables
12
2,600,820
13
4,202,067
Borrowings
14
4,208,742
Amount due to a shareholder
15
354,583
Tax payable
1,539,053
12,905,265
Total liabilities
12,905,265
43,866,008
The accompanying notes form an integral part of the consolidated financial statements.
.
F-48
Company No: 2133355
AND ITS SUBSIDIARY
B. CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2015
Note
2015
EUR
Revenue
16
69,759,801
Cost of sales
17
(43,054,665)
Gross profit
26,705,136
Other income
18
250,037
19
(285,342)
20
(2,563,680)
Finance result
21
(178,697)
Profit before tax
23,927,454
Tax expense
22
(6,162,269)
17,765,185
Profit after tax
Other comprehensive income:Item that will be subsequently reclassified to profit or loss
- Exchange translation differences
755,858
Total comprehensive income for the financial year
18,521,043
Earnings per share attributable to owner of the Company
Earnings per ordinary share (Diluted/ Undiluted)
23
1,776.52
.
F-49
Company No: 2133355
AND ITS SUBSIDIARY
C. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Nondistributable
Note
Balance at 1 January 2015
Distributable
Capital
Statutory
Translation
Retained
Capital
reserve
reserve
reserve
earnings
Total
EUR
EUR
EUR
EUR
EUR
EUR
5,764,106
-
2,693,516
1,891,698
10,525,684
20,875,004
-
-
-
-
17,765,185
17,765,185
-
-
-
755,858
-
755,858
-
-
-
-
-
-
-
-
(5,763,044)
6,004,567
-
-
-
6,004,567
371,738
-
3,065,254
2,647,556
Foreign currency
24
(8,676,827)
(8,676,827)
Deemed arising from
restructuring
Loan waived by a shareholder
Balance at 31 December 2015
10
11
(5,763,044)
1,062
6,004,567
(371,738)
19,242,304
30,960,743
.
F-50
Company No: 2133355
AND ITS SUBSIDIARY
D. CONSOLIDATED STATEMENT OF CASH FLOW
Note
2015
EUR
OPERATING ACTIVITIES
Profit before tax
23,927,454
Adjustments for:Depreciation of property, plant and equipment
445,727
Amortisation of prepaid land lease payments
9,273
Interest expenses
258,867
Interest income
(80,170)
3,309
24,564,460
Changes in working capital:Inventories
1,019,478
Payables
57,433
Receivables
(1,073,874)
Shareholder
382,687
Cash from operations
24,950,184
Tax paid
(5,903,203)
19,046,981
INVESTING ACTIVITIES
Purchase of property, plant and equipment
(4,443)
Interest received
80,170
Net cash from investing activities
75,727
FINANCING ACTIVITIES
Repayment of term loans
(4,309,491)
Drawdown of term loans
4,309,491
Interest paid
(258,867)
Dividend paid
24
(7,809,144)
(8,068,011)
CASH AND CASH EQUIVALENTS
Net change
11,054,697
826,630
Brought forward
19,867,121
Carried forward
9
31,748,448
.
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E. NOTES TO CONSOLIDATED FINANCIAL STATEMENT
1.
BACKGROUND AND BASIS OF PRESENTATION
1.1
THE GROUP
Hong Kong De Cheng Holding Company Limited (“Decheng HK” or for the purpose of
these Notes K “Company”) has been established in Hong Kong on August 15, 2014.
Decheng HK is acting as the holding company for the Group.
The consolidated financial statements of the “Group”, as defined as follows, comprise
Decheng HK and its subsidiary. Decheng HK holds 100% of equity interest in Quanzhou
Decheng Tech Resin Co., Ltd. (“Decheng PRC”).
The principal activity of Decheng HK is investment holding.
The principal activities of the subsidiary are to manufacture and sale of polyurethane
resin.
There have been no significant changes in the nature of these activities of the Company
and of the subsidiary during the financial year.
The proposed listing intended holding company is Decheng Technology AG, a private
limited liability company, incorporated and domiciled in Germany.
The Group conducts its business in the PRC and hence its functional currency is the
Renminbi (“RMB’).
The consolidated financial statements are presented in Euro (“EUR”) as the Group
intends to be brought-in into Decheng Technology AG, Berlin, which itself intends to be
listed at the Stock Exchange of Frankfurt am Main, Germany. Amounts are stated in EUR
except where otherwise indicated.
The consolidated financial statements were authorised for issue by the Director in
accordance with a resolution of the Director on 30 March 2016.
1.2
THE REORGANISATION
A reorganisation exercise was undertaken by the Group to rationalise and streamline the
business operations and corporate structure for an initial public offering (“the
Reorganisation”). The following steps were undertaken in reorganisation exercise:On 13 June 2001, Golden Times Trading Co. (“Golden Times”) which was wholly owned
by Zhu Xiao Fang formulated an Articles of Association, under which Golden Times set
up Decheng PRC as a limited liability company. In accordance with the Articles of
Association, Golden Times should contribute all capital and hold 100% equity interest of
Decheng PRC. Upon establishment, the business scope of Decheng PRC is
manufacturing of leather and leather chemical materials, and the operation term of
Decheng PRC is from 22 August 2001 to 22 August 2021.
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On 19 June 2001, Quanzhou Quangang Foreign Trade and Economic Corporation
Bureau approved the establishment of the Decheng PRC. On 22 August 2011, Decheng
PRC obtained a business license from Quanzhou State Administration For Industry and
Commerce of the PRC.
Decheng HK was incorporated on 15 August 2014 which was also wholly owned by Zhu
Xiao Fang.
On 6 January 2015, the shareholder of Decheng PRC approved that Golden Times
transferred 100% of the equity interest to Decheng HK.
The Reorganisation was completed on 26 February 2015 and the Group Structure is as
follows:-
Decheng HK
100%
Decheng PRC
The Group is regarded as a continuing entity resulting from the Reorganisation since the
management of all the entities which took part in the Reorganisation were controlled by
the same Director and under common shareholders before and immediately after the
Reorganisation. Consequently, immediately after the Reorganisation, there was a
continuation of the control over the entities’ financial and operating policy decisions and
risks and benefits to the ultimate shareholder that existed prior to the Reorganisation.
The Reorganisation has been accounted for as a reorganisation under common control in
a manner similar to pooling of interests and there was no recognition of any goodwill or
excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets,
liabilities and contingent liabilities over cost at the time of the common control
combination. Accordingly, the consolidated financial statements for the financial year
ended 31 December 2015 has been prepared on the basis of merger accounting and
comprise the financial statements of the subsidiary which were under common control of
the ultimate shareholder and Director that existed prior to the Reorganisation during the
relevant periods or since their respective dates of incorporations.
1.3
DIVIDEND AND FOREIGN EXCHANGE RESTRICTIONS
Dividend to be paid by the operating Chinese subsidiary generally has to be approved by
the Chinese government bodies. In addition, dividends are only payable if Chinese
statutory reserves are in accordance with local regulatory requirements.
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2.
BASIS OF PREPARATION
2.1
Statement of Compliance
The consolidated financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards (“IFRS”) as adopted
by the European Union (“EU”) and IFRS have been consistently applied
throughout the financial year ended 31 December 2015.
2.2
Basis of Measurement
The consolidated financial statements of the Group are prepared under the
historical cost convention, unless otherwise indicated in the summary of significant
accounting policies.
2.3
Functional and Presentation Currency
The functional currency of the Group is RMB which is the business environment
that the Group operated in.
The consolidated financial statements are presented in EUR as the Group intends
to be brought-in into Decheng Technology AG which itself intends to be listed at
the Stock Exchange of Frankfurt am Main Germany.
2.4
IFRS
2.4.1
Standards Issued and Effective
Initial application of the relevant new and revised IFRS is not expected to have
any material impact on the consolidated financial statements of the Group.
2.4.2
Relevant Standards Issued and Issued But Not Yet Effective
There were no new standards relevant to the Company’s business operations to be
applied for the first time in financial year 2015.
At the date of authorisation of these consolidated financial statements, certain new
standards, amendments and interpretations to existing standards have been
published by the International Accounting Standard Board (“IASB”) but are not yet
effective, and has not been adopted by the Group.
Management anticipates that all relevant pronouncements will be adopted in the
Group’s accounting policies for the first period beginning after the effective date of
the pronouncement. Information on new standards, amendments and
interpretations that are expected to be relevant to the Group’s consolidated
financial statements is provided below. Certain other new standards and
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interpretations have been issued but are not expected to have a material impact on
the Group’s consolidated financial statements.
IFRS 9 ‘Financial Instruments’ (IFRS 9)
The IASB recently released IFRS 9’Financial Instruments’ (2014), representing the
completion of its project to replace International Accounting Standards (“IAS”) 39
‘Financial Instruments: Recognition and Measurement’. The new standard
introduces extensive changes to IAS 39’s guidance on the classification and
measurement of financial assets and introduces a new ‘expected credit loss’
model for the impairment of financial assets. IFRS 9 also provides new guidance
on the application of hedge accounting.
The Group’s management has yet to assess the impact of IFRS on these
consolidated financial statements. The new standard is required to be applied for
annual reporting periods beginning on or after 1 January 2018.
IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 15 presents new requirements for the recognition of revenue, replacing IAS
18 ‘Revenue’, IAS 11 ‘Construction Contracts’ and several revenue-related
Interpretations. The new standard establishes a control-based revenue
recognition model and provides additional guidance in many areas not covered in
detail under existing IFRSs, including how to account for arrangements with
multiple performance obligations, variable pricing, customer refund rights, supplier
repurchase options, and other common complexities. The standard also
introduces new, extensive disclosures in the notes. Due to an amendment issued
in September 2015, the effective date has been deferred by one year until 1
January 2018.
The Group’s management has yet to assess the impact of IFRS on these
consolidated financial statements.
2.5
Significant Accounting Estimates and Judgements
Estimates, assumptions concerning the future and judgements are made in the
preparation of the consolidated financial statements. They affect the application of
the Group’s accounting policies and reported amounts of assets, liabilities, income
and expenses, and disclosures made. Estimates and underlying assumptions are
assessed on an on-going basis and are based on experience and relevant factors,
including expectations of future events that are believed to be reasonable under
the circumstances. The actual results may differ from the judgements, estimates
and assumptions made by the management, and will seldom equal the estimated
results.
Information about significant judgements, estimates and assumptions that have
the most significant effect on recognition and measurement of assets, liabilities,
income and expenses are discussed below:F-55
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2.5.1
Estimation Uncertainty
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date that have significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below:Useful Lives of Depreciable Assets
The management estimates the useful lives of the property, plant and equipment
to be within 5 to 20 years and reviews the useful lives of depreciable assets at
each reporting date. The management assesses that the useful lives represent
the expected utility of the assets to the Group. The carrying amounts are
analysed in Note 4 to the Consolidated Financial Statements. Actual results,
however, may vary due to change in the expected level of usage and
technological developments, which resulting the adjustment to the Group’s
assets.
The management expects that the expected useful lives of the property, plant
and equipment would not have material difference from the management’s
estimates hence it would not result in material variance in the Group’s profit for
the financial year.
Inventories
Inventories are measured at the lower of cost and net realisable value. In
estimating net realisable values, the management takes into account the most
reliable evidence available at the times the estimates are made. The Group’s
core business is subject to economical and technology changes which may cause
selling prices to change rapidly, and the Group’s profit to change.
The carrying amount of the Group’s inventories at the reporting date is disclosed
in Note 6 to the Consolidated Financial Statements.
The management expects that the expected net realisable values of the
inventories would not have material difference from the management’s estimation
of net realisable values hence it would not result in material variance in the
Group’s profit for the financial year.
Impairment of Non-financial Assets
An impairment loss is recognised for the amount by which the asset’s or cashgenerating unit’s carrying amount exceeds its recoverable amount. To determine
the recoverable amount, management estimates expected future cash flows from
each cash-generating unit and determines a suitable interest rate in order to
calculate the present value of those cash flows. In the process of measuring
expected future cash flows management makes assumptions about future
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operating results. The actual results may vary, and may cause significant
adjustments to the Group’s assets within the next financial year.
In most cases, determining the applicable discount rate involves estimating the
appropriate adjustment to market risk and the appropriate adjustment to assetspecific risk factors.
The Group assesses at each reporting date whether there is any objective
objective evidence of impairment, the Group considers factors such as the
Where there is objective evidence of impairment, the amount and timing of future
cash flows are estimated based on historical loss experience for assets with
similar credit risk characteristics.
The carrying amount of the Group’s receivables at the reporting date are
disclosed in Note 7 and 8 to the Consolidated Financial Statements.
Fair Value of Financial Instruments
Management uses valuation techniques in measuring the fair value of financial
instruments where active market quotes are not available. Details of the
assumptions used are given in the notes regarding financial assets and liabilities.
In applying the valuation techniques, the management makes maximum use of
market inputs, and uses estimates and assumptions that are, as far as possible,
consistent with observable data that market participants would use in pricing the
instrument. Where applicable data is not observable, management uses its best
estimate about the assumptions that market participants would make. These
estimates may vary from the actual prices that would be achieved in an arm’s
length transaction at the end of the reporting period.
In view of the Group’s financial instruments are short term in nature, hence, any
differences in the management’s estimation would not have material variance in
the Group’s profit for the financial year.
Income Tax
The Group has exposure to income taxes in numerous jurisdictions. Significant
judgment is involved in determining the Group’s provision for income taxes. There
are certain transactions and computations for which the ultimate tax determination
is uncertain during the ordinary course of business. The Group recognises
liabilities for expected tax issues based on estimates of whether additional taxes
will be due. Where the final tax outcome of these matters is different from the
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amounts that were initially recognised, such differences will impact the income tax
and differed tax provisions in the period in which such determination are made.
2.5.2
Significant Management Judgement
The following is the significant management judgement in applying the accounting
policies of the Group that has the most significant effect on the consolidated
Leases
In applying the classification of leases in IAS 17, the management considers its
leases of prepaid land lease payments as operating lease arrangements. In some
cases, the lease transaction is not always conclusive and the management uses
judgement in determining whether the lease is a finance lease arrangement that
transfers substantially all the risks and rewards incidental to ownership.
3.
SIGNIFICANT ACCOUNTING POLICIES
3.1
Basis of Consolidation
Consolidation
The consolidated financial statements of the Group include the audited financials
of the Company and its subsidiary made up to the end of the financial year.
All inter-company balances and significant inter-company transactions and
resulting unrealised profits or losses are eliminated on consolidation and the
consolidated financial statements reflect external transactions and balances only.
The results of subsidiary acquired or disposal of during the financial year are
included in or excluded from the consolidated profit or loss from the effective
date in which control is transferred to the Group or in which control ceases
respectively.
The consolidated financial statements of the Group for the financial year were
prepared in manner similar to the “pooling of interest” method or merger method.
For the consolidation of the Group, the book value accounting is applied. Such
manner of presentation reflects the economic substance of the combining
companies, which were under common control throughout the relevant period, as
a single economic enterprise, although the legal parent-subsidiary relationships
were not established.
Common Control Business Combination Outside The Scope of IFRS 3
A business combination involving entities under common control is a business
combination in which all the combining entities or businesses are ultimately
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controlled by the same party or parties both before and after the business
combination, and that control is not transitory. A business combination involving
common control entities, and accordingly the accounting principles are used to
include the assets, liabilities, results equity changes and cash flows of the
combining entities in the consolidated financial statements.
In applying merger accounting, consolidated financial statement items of the
combining entities or businesses for the reporting years in which the common
control combination occurs, and for any comparative years disclosed, are
included in the consolidated financial statements of the combined entity as if the
combination had occurred from the date when the combining entities first came
under the control of the controlling party or parties prior to the common control
combination.
A single uniform set of accounting policies is adopted by the combined entity.
Therefore, the combined entity recognises the assets, liabilities assumed using
the book values and equity of the combining entities or business at the carrying
amounts in the consolidated financial statements of the controlling party or
parties to the common control combination.
The carrying amounts are included as if such consolidated financial statements
had been prepared by the controlling party, including adjustments required for
conforming the combined entity’s accounting policies and applying those policies
to all years presented. There is no recognition of any goodwill or excess of the
acquirer’s interest in the net fair value of the acquiree’s identifiable assets,
liabilities and contingent liabilities over cost at the time of the common control
combination. The effects of all transactions between the combining entities or
businesses, whether occurring before or after the combination, are eliminated in
preparing the consolidated financial statements of the combined entity.
Under the merger method of accounting, the results of subsidiary are presented
as if the merger had been effected throughout the current and previous years.
The combined assets and liabilities are accounted for based on the carrying
amounts/book values from the perspective of the common control shareholders
at the date of transfer. On combination, the cost of the merger is cancelled with
the values of the shares received. Any resulting credit difference is classified as
equity and regarded as a non-distributable reserve. Any resulting debit difference
is adjusted against any suitable reserve. Any share premium, capital redemption
reserve and any other reserves which are attributable to share capital of the
merged entities, to the extent that they have not been capitalised by a debit
difference, are reclassified and presented as movement in other capital reserves.
3.2
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less accumulated
depreciation and accumulated impairment losses, if any. Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a
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separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the item
can be measured reliably.
Depreciation is calculated using the straight-line method to allocate their cost,
net of residual value over their estimated useful lives, as follows:Buildings
Plant and machineries
Office equipment
Motor vehicles
Pipe-line equipment
Renovation
Estimated useful lives
20 years
10 years
5 years
5 years
5 years
20 years
Property, plant and equipment are eliminated if it is probable that no future
economic benefit associated with the item will flow to the Group through usage or
disposal. Disposed gains and losses arising from the difference between the book
value and the proceeds are recognised in the consolidated statement of profit or
loss and other comprehensive income on the date of the disposal.
The depreciation methods, useful lives and residual values are reviewed, and
adjusted if appropriate, at each reporting date.
3.3
Leases
Operating Leases
Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged to
profit or loss on a straight-line basis over the period of the lease.
Lease Prepayments
Prepaid lease rentals for land under an operating lease are initially recorded at
acquisition cost at the lease’s commencement and amortised on a straight-line
basis over the period of the lease.
Prepaid land lease payments are amortised over the lease term of 50 years.
3.4
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
determined using the weighted average cost method.
The cost of raw materials includes expenditure incurred in acquiring the raw
materials and bringing them to their existing location and condition.
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The cost of finished goods and work-in-progress comprises design costs, raw
materials, direct labour, other direct costs and related production overheads
(based on normal operating capacity). It excludes costs of idle plant and abnormal
waste.
Net realisable value is the estimated selling price in the ordinary course of
business, less applicable variable selling expenses.
Inventories are reduced for the estimated losses arising from excess,
obsolescence, and the decline in value based on future customer demand with the
corresponding change to cost of goods sold. When inventories are sold, the
carrying amount of those inventories are recognised as an expense in the period
in which the related revenue is recognised.
3.5
Impairment of Non-Financial Assets
At each end of the reporting period, the Group reviews the carrying amounts of its
non-financial assets to determine whether there is any indication of impairment by
comparing its carrying amount with its recoverable amount. Recoverable amount
is the higher of an asset’s fair value less costs to sell and its value in use. For the
purpose of assessing impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash flows (cash generating units).
In assessing value-in-use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. Where
the carrying amount of an asset exceeds its recoverable amount, the asset is
written down to its recoverable amount. Impairment losses recognised in respect
of a cash-generating unit or groups of cash-generating units are allocated first to
reduce the carrying amount of any goodwill allocated to those units or group of
units and then, to reduce the carrying amount of the other assets in the unit or
groups of units on a pro-rate basis.
An impairment loss is recognised as an expense in profit or loss immediately.
An assessment is made at each end of the reporting period as to whether there is
any indication that previously recognised impairment losses for an asset may no
longer exist or may have decreased. If such indication exists, the recoverable
amount is estimated. A previously recognised impairment loss is reversed only if
there has been a change in the estimates used to determine the asset
recoverable amount since the last impairment loss was recognised. That
increased amount cannot exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been recognised for the
asset in prior years. Such reversal is recognised in profit or loss.
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3.6
Financial Instruments
3.6.1
Classification
The Group classifies its financial instruments in the following categories: Financial
assets and financial liabilities at fair value through profit or loss, loans and
receivables, available-for-sale, held-to-maturity investments and financial liabilities
measured at amortised cost. Management of the Group determines the
classification of its financial instruments at initial recognition. The Company only
has loans and receivables and financial liabilities measured at amortised cost.
Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are included
in current assets, except for those with maturities greater than 12 months after the
end of the reporting period; such loans and receivables are classified as noncurrent assets.
Financial Liabilities Measured at Amortised Cost
The Group classifies non-derivative financial liabilities as financial liabilities
measured at amortised cost, except for financial liabilities at fair value through
profit or loss or financial liabilities that arise when a transfer of a financial asset
does not qualify for derecognition. In this case the transferred asset continues to
be recognised and a financial liability is measured as the consideration received,
financial liabilities measured at amortised cost are included in non-current
liabilities, except for maturities of less than 12 months after the end of the
reporting period, which are classified as current liabilities.
3.6.2
Recognition and Measurement
Financial Assets
Regular purchases and sales of financial assets are recognised on the trade date
– the date on which the Group commits to purchase or sell the asset.
Financial assets are initially recognised at fair value plus transaction costs for all
financial assets not carried at fair value through profit or loss.
Financial assets are derecognised when the rights to receive cash flows have
expired or have been transferred and the Group has transferred substantially all
risks and rewards of ownership.
Loans and receivables are subsequently carried at amortised cost using the
effective interest method.
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After the initial recognition, financial liability is classified as financial liability at fair
value through profit or loss or other financial liabilities measure at amortised cost
using the effective interest method.
A financial liability is derecognised when the obligation under the liability is
extinguished, discharged, cancelled or expired, or through amortisation process.
When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability, and the difference in the
respective carrying amount is recognised in profit or loss.
Other financial liabilities are subsequently measured at amortised cost using the
effective interest method. Financial liabilities are classified as current liabilities
unless the Group has an unconditional right to defer settlement of the liability for
at least 12 months after the end of the reporting period.
3.6.3
Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the
consolidated statement of financial position when there is legally enforceable right
to offset the recognised amounts and there is an intention to settle on a net basis,
or realise the asset and settle the liability simultaneously.
3.6.4
Impairment of Financial Assets
Assets Carried at Amortised Cost
The Group assesses at the end of each reporting period whether there is objective
evidence that a financial asset or a group of financial assets is impaired.
A financial asset or a group of financial assets is impaired and impairment loss is
incurred only if there is objective evidence of impairment as a result of one or
more events that occurred after the initial recognition of the asset (a ‘loss event’)
and that loss event (or events) has an impact on the estimated future cash flows
of the financial asset or group of financial assets that can be reliably estimated.
The amount of the loss is measured as the difference between asset’s carrying
amount and the present value of estimated future cash flows discounted at the
financial asset’s original effective interest rate. The carrying amount of the asset is
reduced and the amount of the loss recognised in profit or loss. As a practical
expedient, the Group may measure impairment on the basis of an instrument’s fair
value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment
was recognised (such as an improvement in the debtor’s credit rating), the
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reversal of the previously recognised impairment loss is recognised in the
consolidated statement of profit or loss and other comprehensive income.
3.7
Government Grant
Government grants are not recognised until there is reasonable assurance that
the Group will comply with the conditions attaching to them and that the grants will
be received.
Government grants are recognised in profit or loss in which the Group recognises
as expenses the related costs for which the grants are intended to compensate.
Government grants that are receivable as compensation for expenses or losses
already incurred or for the purpose of giving immediate financial support to the
Group with no future related costs are recognised in profit or loss in the period in
which they become receivable.
3.8
In the consolidated financial statements, cash and cash equivalents include cash
in hand, deposits held at call with a bank and other short term highly liquid
investments with original maturities of three months or less.
3.9
Equity and Reserves
An equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities.
Share capital represents the nominal value of shares that have been issued.
Retained earnings include all current and prior period retained earnings.
3.10
Statutory Reserve
In accordance with the relevant laws and regulations of the PRC, the PRC
subsidiary of the Group is required to transfer 10% of its PRC subsidiary profit
after tax prepared in accordance with the accounting regulation of the PRC to the
statutory reserve until the reserve balance reaches 50% of the registered capital
of the PRC subsidiary. Such reserve may be used to offset retained earnings or
increase the registered capital of the PRC subsidiary of the Group, subject to the
approval from the PRC authorities, and are not available for dividend distribution
to the owner of the Group.
3.11
Provision
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of past events; it is probable that an outflow of resources will
be required to settle the obligation; and the amount has been reliably estimated.
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Provisions are measured at the present value of the expenditures expected to be
required to settle the obligation using a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the obligation.
The increase in the provision due to passage of time is recognised as interest
expense.
When there is a probability that an outflow of economic benefits will occur due to a
present obligation resulting from a past event, and whose amount is reasonably
estimable, a corresponding amount of provision is recognised in the consolidated
financial statements. However, when such outflow is dependent upon a future
event, is not certain to occur, or cannot be reliably estimated, a disclosure
regarding the liability is made in the notes to the consolidated financial
statements.
3.12
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs. Borrowings
are subsequently measured at amortised cost and any difference between cost and
the redemption value is recognised in the consolidated statement of profit or loss and
other comprehensive income over the period of the borrowings using the effective
interest method. If the Group has an indefinite right to defer payment for a period
longer than 12 months after the end of the reporting date, such liabilities are
recorded as non-current liabilities. Otherwise, they are recorded as current liabilities.
Borrowing costs directly attributable to the acquisition, construction or production
of a qualifying asset are capitalised during the period of time that is necessary to
complete and prepare the asset for its intended use or sale. Capitalisation of
borrowing costs commences when the activities to prepare the asset for its
intended use or sale are in progress and the expenditures and borrowing costs
are incurred. Borrowing costs are capitalised until the assets are substantially
completed for their intended use or sale.
Other borrowing costs are expensed in the period in which they are incurred.
Borrowing costs consist of interest and other costs that the Group incurred in
connection with the borrowings of funds.
3.13
Revenue Recognition
The Group recognises revenue when specific recognition criteria have been met
for the Group’s activities as described below. The Group bases its estimates on
historical results, taking into consideration the type of customer, the type of
transaction and the specifics of each arrangement.
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Sales of Goods
Sales of products and merchandise are recognised upon delivery when the
significant risks and rewards of ownership of goods have transferred to the buyer;
continuing managerial involvement usually associated with ownership and
effective control have ceased; the amount of revenue can be measured reliably; it
is probable that the economic benefits associated with the transaction will flow to
the Group; and the costs incurred or to be incurred in respect of the transaction
can be measured reliably. The Group records reductions to revenue for special
pricing arrangements, price protection, value-added tax and other volume based
discounts.
Interest Income
Interest income is recognised using the effective interest method.
Rental Income
Rental income is accounted for on a straight-line basis over the lease terms. The
aggregate costs of incentives provided to lessees are recognised as a reduction of
rental income over the lease term on a straight-line basis.
3.14
Employee Benefits
The Group recognises wages and salaries, bonuses and profit-sharing and nonmonetary compensations when employees render services to the Group on
accrual basis.
The PRC subsidiary contributes a percentage of wages and salaries to the local
social security bureau according to the related social security laws. The amount of
monthly contribution to the local state government is expensed as incurred.
3.15
Current Tax
Current tax expense is recognised in profit or loss, except to the extent that it
relates to items recognised in other comprehensive income or directly in equity. In
this case, the tax is recognised in other comprehensive income or directly in
equity, respectively.
The current income tax charge is calculated on the basis of the tax law enacted or
substantively enacted at the reporting date in the country where the Group
operates and generates taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation.
It establishes provisions where appropriate on the basis of amounts expected to
be paid to tax authorities.
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Company No: 2133355
AND ITS SUBSIDIARY
3.16
Value Added Tax (“VAT”)
The domestic sale of goods in PRC is subjected to VAT at the applicable tax rate
of 17%. Input VAT on purchases can be deducted from output VAT. The net
amount of VAT recoverable from, or payable to, the tax authority is included as
part of “other receivables” or “other payables” in the consolidated statement of
financial position.
Revenues, expenses and assets are recognised net of the amount of VAT
except:
where the VAT incurred on the purchase of assets or services is not
recoverable from the tax authority, in which case the VAT is recognised as
part of the cost of acquisition of the asset or as part of the expense item as
applicable; and

3.17
receivables and payables are stated with the amount of VAT included.
Deferred Tax
Deferred tax liabilities and assets are provided for under the liability method in
respect of all temporary differences at the reporting date between the carrying
amount of an asset or liability in the consolidated statement of financial position
and its tax base including unused tax losses and capital allowances.
Deferred tax liabilities are recognised for all temporary differences, except:-
where the deferred tax liability arises from the initial recognition of goodwill or
of an asset or liability in a transaction that is not a business combination and,
at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss; and
-
in respect of taxable temporary differences associated with investment in
subsidiary companies and interest in joint ventures, where the timing of the
reversal of the temporary differences can be controlled and it is probable that
the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences,
carried forward of unused tax credits and unused tax losses, to the extent that it
is probable that taxable profit will be available against which the deductible
temporary differences, and the carried forward unused tax credits and unused tax
losses can be utilised except:-
where the deferred tax asset relating to the deductible temporary difference
arises from the initial recognition of an asset or liability in a transaction that is
not a business combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss; and
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Company No: 2133355
AND ITS SUBSIDIARY
-
in respect of deductible temporary differences associated with investment in
subsidiary companies and interest in joint ventures, deferred tax assets are
recognised only to the extent that it is probable that the temporary differences
will reverse in the foreseeable future and taxable profit will be available
against which the temporary differences can be utilised.
The carrying amount of a deferred tax asset is reviewed at each reporting date. If
it is no longer probable that sufficient taxable profit will be available to allow all or
part of the deferred tax asset to be utilised, the carrying amount of the deferred
tax asset will be reduced accordingly. When it becomes probable that sufficient
taxable profit will be available, such reductions will be reversed to the extent of
the taxable profit. Unrecognised deferred tax assets are reassessed at each
reporting date and are recognised to the extent that it has become probable that
future taxable profit will allow the deferred tax assets to be utilised.
Deferred tax is measured at the tax rates that are expected to apply in the period
when the asset is realised or the liability is settled, based on tax rates that have
been enacted or substantively enacted by the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised
outside profit or loss. Deferred tax items are recognised in correlation to the
underlying transaction either in other comprehensive income or directly in equity
and deferred tax arising from a business combination is adjusted against goodwill
on acquisition.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable
right exists to set off current tax assets against current tax liabilities and the
deferred taxes relate to the same taxable entity and the same taxation authority.
3.18
Contingencies
Where it is not probable that an inflow or an outflow of economic benefits will be
required, or the amount cannot be estimated reliably, the asset or the obligation is
not recognised in the consolidated statement of financial position and is disclosed
as a contingent asset or contingent liability, unless the probability of inflow or
outflow of economic benefits is remote. Possible obligations, whose existence will
only be confirmed by the occurrence or non-occurrence of one or more future
events, are also disclosed as contingent assets or contingent liabilities unless the
probability of inflow or outflow of economic benefits is remote.
3.19
Related Parties
A related party is a person or entity that is related to the entity that is preparing its
financial statements (“the reporting entity”). A related party transaction is a
transfer of resources, services or obligations between the reporting entity and its
related party, regardless of whether a price is charged.
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Company No: 2133355
AND ITS SUBSIDIARY
(a)
A person or a close member of that person’s family is related to the
reporting entity if that person:(iv)
(v)
(vi)
(b)
An entity is related to the reporting entity if any of the following conditions
applies:(i)
(ii)
(iii)
(iv)
(v)
(vi)
3.20
Has control or joint control over the reporting entity;
Has significant influence over the reporting entity; or
Is a member of the key management personnel of the reporting
entity.
The entity and the reporting entity are members of the same group;
One entity is an associate or joint venture of the reporting entity;
Both the entities are joint ventures of the same third party;
One entity is a joint venture of a third entity and the other entity is
an associate of the third entity;
The entity is controlled or jointly-controlled by a person identified in
the preceeding paragraph above; or
A person who has control or joint control over the reporting entity
has significant influence over the entity or is a member of the key
management personnel of the entity.
Research and Development Costs
Research costs are expensed as incurred.
Development costs arising from development expenditures on an individual
project are expensed as incurred unless when the Group can demonstrate the
technical feasibility of completing the intangible asset so that it will be available for
use or sale, its intention to complete and its ability to use or sell the asset, how the
asset will generate future economic benefits, the availability of resources to
complete and the ability to measure reliably the expenditures during development.
3.21
Foreign Currencies
The Group conducts its business in the PRC and hence its functional currency is
the RMB.
Foreign currency transactions are measured and recorded in the functional
currency using the exchange rates prevailing at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are translated at
the closing rates ruling at the respective reporting dates. Foreign exchange gains
and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates as at the dates of the initial
transactions.
F-69
Company No: 2133355
AND ITS SUBSIDIARY
The presentation currency of the Group is EUR, being the presentation currency
of its with respect to the proposed listing intended ultimate Germany domiciled
legal parent and holding company, and therefore the financial information has
been translated from RMB, Hong Kong Dollar (“HKD”) and Ringgit Malaysia
(“RM”) to EUR at the following rates:Financial year
Ended
31.12.2015
31.12.2015
31.12.2015
Currency
Year end rates
per EUR
1.00
Average rates
per EUR
1.00
RMB
HKD
RM
7.0805
8.4513
4.6859
6.9150
8.6067
4.3272
Foreign currency differences are recognised in other comprehensive income and
accumulated in the foreign currency translation reserve in equity.
3.22
Operating Segment
The Group manages only one operating segment. Therefore, no separate
segment information is recorded. Information relating to geographical area of
assets, revenues from external customers by product lines, geographical area and
major customers are included in the respective notes.
4.
PROPERTY, PLANT AND EQUIPMENT
Buildings
EUR
Plant and
machineries
EUR
Motor
Pipe-line
vehicles equipment
EUR
EUR
Office
equipment
EUR
At 1 January 2015
Additions
Written off
2,570,805
139,825
2,866,988
1,746
155,893
257,180
(33,090)
14,761
122,721
6,675
164,878
2,697
8,904
319,130
17,358
6,301,702
4,443
(33,090)
343,416
At 31 December 2015
2,710,630
3,024,627
238,851
129,396
176,479
336,488
6,616,471
Renovation
EUR
Total
EUR
Cost
Accumulated depreciation
At 1 January 2015
Written off
At 31 December 2015
932,585
138,776
47,480
2,278,853
235,792
118,431
181,174
33,640
(29,781)
9,764
118,543
3,542
6,364
104,137
16,750
5,272
33,624
17,227
1,427
3,648,916
445,727
(29,781)
188,738
1,118,841
2,633,076
194,797
128,449
126,159
52,278
4,253,600
1,591,789
391,551
44,054
947
50,320
284,210
2,362,871
Net carrying amount
31 December 2015
The buildings with the carrying amount of EUR 1,230,848 of the Group are pledged to a bank as
a security for a banking facility granted to the Group.
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Company No: 2133355
AND ITS SUBSIDIARY
5.
PREPAID LAND LEASE PAYMENTS
2015
EUR
Cost
At 1 January
429,461
23,358
At 31 December
452,819
Accumulated amortisation
At 1 January
Amortisation charge
during the financial year
At 31 December
Net carrying amount
Amount to be amortised:Not later than one year
Later than one year but not later five years
Later than five years
83,745
9,273
4,338
97,356
355,463
9,056
36,226
310,181
355,463
The prepaid land lease payments with the carrying amount of EUR 355,463 have been pledged
to a bank as a security for a banking facility granted to the Group.
6.
INVENTORIES
2015
EUR
Consumables
Raw materials
Finished goods
60,513
1,000,133
316,816
1,377,462
7.
TRADE RECEIVABLES
Trade receivables are unsecured, bear no interest and the normal trade credit terms
granted by the Group to the trade receivables ranges from 30 days to 90 days.
The entire trade receivables balances are denominated in RMB.
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Company No: 2133355
AND ITS SUBSIDIARY
8.
OTHER RECEIVABLES
2015
EUR
74,414
161,258
235,672
Other receivables are unsecured, bear no interest and repayable on demand.
The currency exposure profile of other receivables are as follow (foreign currency
balances are unhedged):2015
EUR
RMB
RM
EUR
9.
74,414
81,080
80,178
235,672
CASH AND BANK BALANCES
2015
EUR
Cash on hand
Cash at bank
10,751
31,737,697
31,748,448
The entire cash and bank balances are denominated in RMB.
10.
CAPITAL
2015
HKD
2015
EUR
Authorised and paid-up:Decheng HK
Brought forward/Carried forward
Register and paid-up:Decheng PRC
Brought forward
Reorganisation on 26 February 2015
Carried forward
Total
10,000
50,000,000
(50,000,000)
1,062
5,763,044
(5,763,044)
-
-
10,000
1,062
The contributors of capital are entitled to receive dividends as and when declared by the
Group.
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Company No: 2133355
AND ITS SUBSIDIARY
The holder of ordinary shares are entitled to receive dividends as and when declared by
the Company. All ordinary shares carry one vote per share without restrictions and rank
equally with regard to the Company’s residual assets.
11.
RESERVES
Capital reserve
On 31 December 2015, the loan to the Company amounting to EUR6,004,567 was waived
by the sole shareholder Mr. Zhu Xiao Fang and the total amount of the loan waived was
credited as the capital reserve of the Company.
Statutory reserve
In accordance with the relevant laws and regulations of the PRC, the PRC subsidiary of
the Group is required to transfer 10% of its profit after tax prepared in accordance with
the accounting regulation of the PRC to the statutory reserve until the reserve balance
reaches 50% of the registered capital. Such reserve may be used to offset retained
earnings or increase the registered capital of the PRC subsidiary of the Group, subject to
the approval from the PRC authorities, and are not available for dividend distribution to
the owner of the Group.
Translation reserve
The translation reserve represents exchange differences arising from the translation of
the financial statements of the subsidiary from its functional currency to the Group’s
presentation currency and is the only component of other comprehensive income.
12.
TRADE PAYABLES
Trade payables are unsecured, bear no interest and the normal credit terms granted by the
trade payables ranges from 30 days to 90 days.
The entire trade payables balances are denominated in RMB.
13.
OTHER PAYABLES AND ACCRUALS
2015
EUR
Accruals of expenses
Withholding tax on dividend payable
Non-trade payables
VAT payable
492,413
2,259,727
943,996
505,931
4,202,067
Other payables are unsecured, bear no interest and repayable on demand.
F-73
Company No: 2133355
AND ITS SUBSIDIARY
The currency exposure profile of other payables are as follow (foreign currency balances
are unhedged):2015
EUR
EUR
RMB
HKD
241,694
3,959,249
1,124
4,202,067
14.
BORROWINGS
2015
EUR
Current:
Not later than one year
Secured:Term loans
4,208,742
The term loans of the Group are secured by:(a) The Group’s buildings and prepaid land lease payments as disclosed in Note 4 and 5
to the Consolidated Financial Statements;
(b) Personal guarantee by a Director;
(c) Corporate guarantee by a third party; and
(d) Personal guarantee by a person connected to a Director.
Interest is charged at rates ranging from 5.89% to 6.30% per annum.
There is no breach of covenant of bank borrowings.
The entire borrowing balances are denominated in RMB.
15.
AMOUNT DUE TO A SHAREHOLDER
Amount due to a shareholder is non-trade in-nature, unsecured, bears no interest and
repayable on demand.
The currency exposure profile of amount due to a shareholder are as follow (foreign
currency balances are unhedged):2015
EUR
RM
EUR
81,080
273,503
354,583
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Company No: 2133355
AND ITS SUBSIDIARY
16.
REVENUE
Revenue represents the net invoiced value of goods sold, after allowance for trade
discounts, sales rebates and VAT.
17.
COST OF SALES
2015
EUR
Raw materials and supplementary materials
Changes in inventories of finished goods and work-in-progress
Low value consumable goods
Fuel
Utilities
Depreciation
Sales supplement tax
Others
39,226,477
644,667
350,523
571,743
376,731
391,553
852,488
607,315
33,168
43,054,665
18.
OTHER INCOME
2015
EUR
Rental income
Government grant
52,061
197,976
250,037
Government grant is an incentive given by the local government to the enterprise. It is
granted upon conditions attaching to the grant and upon approval of the local
government.
19.
SELLING AND DISTRIBUTION EXPENSES
2015
EUR
Others
221,242
64,100
285,342
F-75
Company No: 2133355
AND ITS SUBSIDIARY
20.
ADMINISTRATION EXPENSES
2015
EUR
Social security insurance (Defined contribution plans)
Depreciation
Directors’ remuneration
Entertainment fees
Research and development fee
Audit fee and initial public offering costs
Others
650,662
112,464
54,174
95,348
60,958
666,326
435,019
488,729
2,563,680
21.
FINANCE RESULT
2015
EUR
Interest income
Interest expenses
(80,170)
258,867
178,697
22.
TAX EXPENSE
2015
EUR
Current year’s provision
Under provision in prior year
6,160,922
1,347
6,162,269
Reconciliation between the statutory and effective tax expenses is as follows:2015
EUR
Profit before tax
Income tax on rate of 25%
23,927,454
5,981,864
Tax effects in respect of:Under provision in prior years
Expenses not deductible for tax purposes
1,347
179,058
6,162,269
F-76
Company No: 2133355
AND ITS SUBSIDIARY
The provision for income tax is calculated for the Group based on statutory income tax at
a rate of 25% in accordance with the applicable tax rate in PRC in view of the operation is
in PRC.
23.
EARNING PER SHARE (DILUTED/UNDILUTED)
Basic earnings per ordinary share (Diluted/Undiluted)
The calculation of basic earnings per ordinary share was based on the profit attributable
to ordinary equity holder of the Group and assumes weighted average number of ordinary
shares issued calculated is as follows:2015
EUR
Profit for the financial year attributable to the owner of the Group
Weighted average number of ordinary shares in issue
Basis earnings share (Diluted/Undiluted)
17,765,185
10,000
1,776.52
The weighted average number of ordinary shares is based on assumed number of shares
of 10,000 in Decheng HK as at 31 December 2015.
There were no dilutive potential equity instruments in issue as at reporting date that gave
diluted effect to the earnings per share.
24.
DIVIDENDS
2015
EUR
In respect of financial year ended 31 December 2014 declared on 3 February 2015 and
paid on 2 March 2015
8,676,827
Dividends to be paid generally have to be approved by Chinese government bodies. In
addition, dividends are only payable if Chinese statutory reserves satisfy the related local
legal requirements.
25.
EMPLOYEE BENEFITS EXPENSE
2015
EUR
Salaries, wages and other emoluments
1,837,603
112,464
1,950,067
Included in the above are Director’s emoluments of the Group amounting to EUR 95,348.
F-77
Company No: 2133355
AND ITS SUBSIDIARY
Defined contribution plans refer to the social insurance contribution made by the Company
in accordance to PRC law. It consists of retirement insurance, unemployment insurance,
medical insurance, accident insurance and maternity insurance.
26.
RELATED PARTY DISCLOSURES
(a)
Related party transactions
There are no related party transactions during the financial year.
(b)
Compensation of key management personnel
Key management includes Director, general manager and chief financial officer.
The remuneration of Director and other members of key management personnel
during the financial year are as follow:2015
EUR
Salaries, wages and other
emoluments
262,389
1,930
264,319
(c)
Outstanding balances arising from related party transactions
There are no outstanding balances arising from related party transactions.
27.
CONTINGENT LIABILITIES
Social Insurance Back Payments
According to PRC law, in particular, Chinese regulations for social insurance and housing
funds, the Group is required to make contributions for the social insurance and for the
housing funds to their employees. The Group considers the risk for additional payments
for prior periods to be not probable.
F-78
Company No: 2133355
AND ITS SUBSIDIARY
28.
CATEGORIES OF FINANCIAL INSTRUMENTS
The table below provides an analysis of financial instruments categorised as followed:i.
Loans and receivables (“L&R”); and
ii. Other liabilities measured at amortised cost (“AC”).
Carrying
2015
amount
L&R
AC
EUR
EUR
EUR
Financial assets
Trade receivables
Other receivables
Trade payables
Amount due to a shareholder
Borrowings
7,786,092
7,786,092
-
235,672
235,672
-
31,748,448
31,748,448
-
39,770,212
39,770,212
-
2,600,820
4,202,067
354,583
4,208,742
-
2,600,820
4,202,067
354,583
4,208,742
11,366,212
-
11,366,212
29.
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
29.1
Financial risks
The Group is exposed to financial risks arising from their operations and the use of financial
instruments. Financial risk management policy is established to ensure that adequate
resources are available for the development of the Group business whilst managing its credit
risk, liquidity risk, interest rate risk and market risk. The Group operates within clearly defined
policies and procedures that are approved by the Board of Directors to ensure the
effectiveness of the risk management process.
The main areas of financial risks faced by the Group and the policy in respect of the major
areas of treasury activity are set out as follows:(a)
Credit risk
Credit risk is the risk of a financial loss to the Group if a customer or counterparty to
a financial instrument fails to meet its contractual obligations.
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Company No: 2133355
AND ITS SUBSIDIARY
The Group exposure to credit risk is monitored on an ongoing basis. The credit risk
is controlled by monitoring procedures. An internal credit review is conducted if the
credit risk is material. The Group does not require collateral in respect of financial
assets.
It is the Group’s policy that all customers who wish to trade on credit terms are
subject to credit verification procedures. The Group does not offer credit terms
without the approval of the general manager.
With a credit policy in place to ensure the credit risk is monitored on an ongoing
basis, the management has taken reasonable steps to ensure that receivables are
stated at their realisable values. A significant portion of the receivables are regular
customers that have been transacting with the Group. The Group uses ageing
analysis to monitor the credit quality of the receivables. Any receivables having
significant balances past due more than credit terms granted are deemed to have
higher credit risk, and are monitored individually.
The areas where the Group are exposed to credit risk are as follow:Trade receivables
The net carrying amount of trade receivables are considered a reasonable
Concentration of credit risk exists when changes in economic, industry and
geographical factors similarly affect the group of counterparties whose aggregate
credit exposure is significant in relation to the Group’s total credit exposure. The
Group’s portfolio of financial instrument is broadly diversified along geographical
lines and transactions are entered into with diverse creditworthy counterparties,
thereby mitigate any significant concentration of credit risk.
The Group has no significant concentration of credit risk with any single counter
party.
The ageing analysis for trade receivables is as follow:Individually
Gross
impaired
Net
EUR
EUR
EUR
2015
Within credit terms
7,667,473
118,619
-
-
7,667,473
118,619
-
7,786,092
-
7,786,092
F-80
Company No: 2133355
AND ITS SUBSIDIARY
Trade receivables that are neither past due nor impaired are creditworthy trade
receivables with good payment records with the Group. None of the Group’s trade
receivables that are neither past due nor impaired have been renegotiated during
the financial year.
The Group has trade receivables amounting to EUR 118,619 that are past due at
the reporting date but not impaired. These relate to a number of independent
customers from whom there is no recent history of default.
There are no trade receivables that are impaired.
Other receivables
The net carrying amount of other receivables are considered a reasonable
The Group has no significant concentration of credit risk with any single counter
party.
Other receivables that are neither past due nor impaired are creditworthy other
receivables. None of the Group’s other receivables that are neither past due nor
impaired have been renegotiated during the financial year.
There are no other receivables of the Group that are past due but not impaired.
There are no other receivables that are impaired.
Deposits with bank
The Group has no significant concentration of credit risk with any single bank except
for 100% with a financial institution.
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Company No: 2133355
AND ITS SUBSIDIARY
Deposits with bank that are neither past due nor impaired are placed with a
reputable financial institution with high credit ratings and no history of default.
As at the reporting date, there was no indication that the deposits with bank are not
recoverable.
There are no deposits with bank of the Group that are past due but not impaired.
There are no deposits with bank of the Group that are impaired.
(b)
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial
obligations as and when they fall due as a result of shortage of funds. In managing
its exposures to liquidity risk arises principally from its various payables, the Group
maintains a level of cash and cash equivalents deemed adequate by the
management to ensure, as far as possible, that it will have sufficient liquidity to meet
its liabilities when they fall due.
The Group aims to maintain a balance of sufficient cash and deposits and flexibility
in funding by keeping diverse sources of committed and uncommitted credit
facilities.
The financial liabilities of the Group are matured within 12 months from the reporting
date.
(c)
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of the Group’s
financial instruments will fluctuate because of change in market interest rates.
The Group’s floating rate borrowings are exposed to a risk of change in its fair value
due to changes in interest rates. Short term receivables and payables are not
significantly exposed to interest rate risk.
The Group manages its interest rate exposure by maintaining a prudent mix of fixed
and floating rate borrowings. The objectives for the mix between fixed and floating
rate borrowings are set to reduce the impact of upward changes in interest rates
while enabling benefits to be enjoyed if interest rates fall.
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Company No: 2133355
AND ITS SUBSIDIARY
The carrying amount of the Group’s significant interest-bearing financial instruments,
as at the reporting date is as follows:2015
EUR
Fixed rate
Instruments
Borrowings
Average interest rate
4,208,742
6.09%
Sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair
value through profit or loss, and the Group does not designate derivatives as
hedging instruments under a fair value hedge accounting model. Therefore, a
change in interest rates at the reporting date would not affect profit or loss.
The Group has to pay an interest for its bank borrowings, therefore, a change of the
interest rate at the end of the reporting period by 100 basis point (“bp”) would have an
effect.
The following shows the effect on profit for the financial years:-
2015
EUR
+100 bps
-100 bps
(d)
(42,087)
42,087
Market risk
As the Company prepares its financial statements in EUR and therefore their results
and net assets position are exposed to retranslation risk as a result of fluctuation in
the EUR exchange rate. Therefore, a change of the exchange rate at the end of the
reporting period by 100 basis points (“bp”) would have an effect.
F-83
Company No: 2133355
AND ITS SUBSIDIARY
The following shows the effect for the financial year2015
EUR
29.2
Profit
+100 bps
-100 bps
(176,098)
176,098
Net assets
+100 bps
-100 bps
404,103
(404,103)
Fair value of financial instruments
The carrying amounts of short term receivables, payables, cash and cash equivalents and
borrowings approximate their fair value due to the relatively short term nature of these
financial instruments and insignificant impact of discounting.
29.3
Fair value of hierarchy
No fair value hierarchy has been disclosed as the Group does not have any financial
instruments measured at fair value.
30.
SEGMENTAL
(i)
Business segment
For management purposes, the Group is organised into one major business
units based on their products and services which comprises the following:(a)
Manufacturing
-
(b)
Investment
-
Manufacture and sale of polyurethane
resin
Investment holding
Management monitors the operating results to its business units separately for the
purpose of making decisions about resources allocation and performance assessment.
Segment performance is evaluated based on operating profit or loss which, in certain
respects as explained in the table below, is measured differently from operating profit or
loss in the consolidated financial statements.
F-84
Company No: 2133355
AND ITS SUBSIDIARY
Transfer prices between operating segments are on negotiated basis.
Note
Manufacturing
Investment
Elimination
Total
EUR
EUR
EUR
EUR
2015
Revenue:External revenue
69,759,801
-
-
69,759,801
Total revenue
69,759,801
-
-
69,759,801
80,170
-
-
80,170
Finance costs
(258,867)
-
-
(258,867)
Depreciation and
amortisation
(455,000)
-
-
(455,000)
(3,309)
-
-
(3,309)
Tax expense
(6,162,269)
-
-
(6,162,269)
Segment profit
17,853,190
-
17,765,185
Results:Interest income
Other non-cash
expenses
Additions to noncurrent assets
Segment assets
Liabilities:Segment liabilities
(a)
(88,005)
(b)
4,443
43,866,008
-
-
4,443
43,866,008
12,904,141
1,124
-
12,905,265
Notes:(a) Notes to other non-cash expenses consist of the following item:2015
EUR
(3,309)
(b) Additions to non-current assets consist of:-
(ii)
2015
EUR
4,443
Geographical information
Non-current assets and revenue information by geographical segment is not
presented as Group’s activities are conducted principally in China.
F-85
Company No: 2133355
AND ITS SUBSIDIARY
(iii)
Information about major customers
None of the customer’s revenue are more 10% of the consolidated revenue.
31.
CAPITAL MANAGEMENT
The Group’s objectives when managing capital are:(a)
To safeguard the Group’s ability to continue as a going concern, so that it
continues to provide returns for shareholders and benefits other stakeholders;
(b)
To support the Group’s stability and growth; and
(c)
To provide capital for the purpose of strengthening the Group’s risk management
capability.
The Group actively and regularly reviews and manages its capital structure to ensure
optimal capital structure and shareholders returns, taking into consideration the future
capital requirements of the Group and capital efficiency.
The Group currently does not adopt any formal dividend policy.
32.
COMPARATIVE INFORMATION
There are no comparative figures of the Group prepared as the Group only existed during
the financial year ended 31 December 2015 after the completion of the Reorganisation as
disclosed in Note 1.2 to the Consolidated Financial Statements.
33.
SUBSEQUENT EVENTS
On 25 January 2016, Decheng PRC has declared the final dividend of RMB 85,000,000
(EUR 12,292,000 based on the average of rate for the financial year ended 31 December
2015). On 5 February 2016, Decheng HK has received RMB 76,500,000 (EUR
11,063,000 based on the average rate for the financial year ended 31 December 2015)
net of 10% withholding tax and paid the same amount directly to its sole shareholder, Mr.
ZHU Xiaofang.
Hong Kong 30 March 2016
On behalf of the board of directors:
Mr. ZHU Xiaofang, Chairman
F-86
Company No: 2133355
AND ITS SUBSIDIARY
YEAR ENDED 31 DECEMBER 2015
Independent Auditor`s Report
To HONG KONG DE CHENG HOLDING COMPANY LIMITED
(Incorporated in Hong Kong) Company No: 2133355:
We have audited the accompanying consolidated financial statements of HONG KONG DE
CHENG HOLDING COMPANY LIMITED, Hongkong and its subsidiaries, which comprise the
consolidated statement of financial position as at December 31, 2015 and the consolidated
statement of profit or loss and other comprehensive income, statement of changes in equity and
statement of cash flows for the year then ended, and the notes to the consolidated financial
statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards and for such
internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud
or error.
Our responsibility is to express an opinion on these consolidated financial statements based on
our audit. We conducted our audit in accordance with International Standards on Auditing.
Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are
free from material misstatement.
disclosures in the consolidated financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates
F-87
Company No: 2133355
AND ITS SUBSIDIARY
made by management, as well as evaluating the overall presentation of the consolidated
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of HONG KONG DE CHENG HOLDING COMPANY LIMITED and its
subsidiaries as at December 31, 2015 and of their financial performance and cash flows for the
year then ended in accordance with International Financial Reporting Standards as adopted by
the European Union (EU).
Berlin, 30 March 2016
MSW GmbH
________________
Mantay
Wirtschaftsprüfer
________________
Mallison
Wirtschaftsprüfer
F-88
(formerly 49 Profi-Start Vermögensverwaltungs AG)
Single Entity Financial Statements for the period from 31 July until 31 December
2013
F-89
A. BALANCE SHEET (German Commercial Code)
AS OF 31 DECEMBER 2013
(Translation of the German Version)
ASSETS
31 Dec. 2013
EUR
Current assets
I. Receivables and other assets
Called-up but not fully paid capital
12,500
12,500
SHAREHOLDER’S EQUITY AND LIABILITIES
31 Dec. 2013
EUR
Equity
I.
Issued capital
./.
Called-up capital
50,000
(37,500)
12,500
12,500
F-90
B. PROFIT AND LOSS ACCOUNT (German Commercial Code)
FOR THE SHORT FINANCIAL YEAR FROM 31 JULY TO 31 DECEMBER 2013
31 Jul. - 31 Dec. 2013
EUR
1.
Revenues
0
2.
Overall performance
0
3.
Operating expenses
0
4.
Income/(loss) from ordinary activities
0
5.
Net income/(loss) for the year
0
F-91
C. NOTES (German Commercial Code)
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013
I. General information
The annual financial statements of 49 Profi-Start Vermögensverwaltungs AG have been
prepared in accordance with the rules and regulations set in the German Commercial Code
(HGB).
In addition to these regulations the rules in the German Stock Corporation Act (AktG) were
also considered.
For the income statement the total cost method has been selected.
The Company is a micro corporation according to the size classes defined in Sec. 267a HGB.
The Company is incorporated on 31 July 2013. Therefore, these are the financial statements
for the shortened fiscal year from 31 July 2013 to 31 December 2013. A corresponding
disclosure of the figures for the previous period couldn’t be given.
II. Accounting and Valuation Methods
The receivables are evaluated taking into account all recognizable risks.
III. Notes to the balance sheet
Receivables and other assets
Receivables from the not fully paid but called-up capital are presented with the nominal
amount of the called-up capital. The disclosure is in accordance with Sec. 272 Para. 1 sent. 3
sub-sent. 2 HGB.
Equity
The Issued capital consists of EUR 50,000 of no-par value bearer shares. The nominal value
amounts to EUR 1.00 per share. An amount of EUR 12,500 of the equity is called up as of
31 December 2013.
F-92
IV. Additional statements
Supervisory Board
Michael Meier, Tax advisor, Chairman (until March 10, 2016)
Ramona Berger, Tax advisor, Deputy Chairman (until March 10, 2016)
Eric Bichlmeier, Degree as a Business Economist (until March 10, 2016)
Philipp Dietz, Lawyer (since March 10 until March 16, 2016)
Fabian Mimberg, Lawyer (since March 10 until March 16, 2016)
Dr. Gregor Wecker, Lawyer (since March 10 until March 16, 2016)
Jürgen Schrollinger, Financial advisor (since March 16, 2016)
TEO Cern Yong, Accountant (since March 16, 2016)
Daniel Jansen, Lawyer (since March 16, 2016)
Board of Directors
Ivonne Uhlig-Möser, Paralegal (until March 16, 2016)
Xiaofang Zhu, Businessmen (since March 16, 2016)
Cologne, 13 April 2016
Board of Directors
F-93
D. INDEPENDENT AUDITOR’S OPINION (German Commercial Code)
To 49 Profi-Start Vermögensverwaltungs AG (in future: Decheng Techonlogy AG), Cologne:
“We have audited the annual financial statements, comprising the balance sheet, the income
statement and the notes to the financial statements, together with the bookkeeping system of 49
Profi-Start Vermögensverwaltungs AG, Cologne, for the fiscal year from 31 July to 31 December
2013. The maintenance of the books and records and the preparation of the annual financial
statements in accordance with German commercial law are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the annual financial statements,
together with the bookkeeping system, based on our audit.
We conducted our audit of the annual financial statements in accordance with section 317 HGB
(“Handelsgesetzbuch”: German Commercial Code) and German generally accepted standards
for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of
Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit
such that misstatements, whether due to error or fraud, materially affecting the presentation of
the net assets, financial position and results of operations in the annual financial statements in
accordance with German principles of proper accounting are detected with reasonable
assurance. Knowledge of the business activities and the economic and legal environment of the
Company and expectations as to possible misstatements are taken into account in the
determination of audit procedures. The effectiveness of the accounting-related internal control
system and the evidence supporting the disclosures in the books and records, the annual
financial statements are examined primarily on a test basis within the framework of the audit.
The audit includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the annual financial statements.
We believe that our audit provides a reasonable basis for our opinion.
F-94
Our audit has not led to any reservations.
In our opinion, based on the findings of our audit, the annual financial statements comply with
the legal requirements and give a true and fair view of the net assets, financial position and
results of operations of 49 Profi-Start Vermögensverwaltungs AG in accordance with German
principles of proper accounting.
Berlin, 13 April 2016
MSW GmbH
________________
Mantay
Wirtschaftsprüfer
________________
Mallison
Wirtschaftsprüfer
F-95
Single Entity Financial Statements for the financial year ended 31 December 2014
F-96
ASSETS
31 Dec. 2014
EUR
31 Dec. 2013
EUR
0
12,500
12,500
0
12,500
12,500
31 Dec. 2014
EUR
31 Dec. 2013
EUR
50,000
(37,500)
12,500
50,000
(37,500)
12,500
12,500
12,500
Current assets
I.
Receivables and other assets
Called-up but not fully paid capital
II. Cash and cash equivalents
Equity
I.
Issued capital
./.
Capital (PY: Called-up capital)
F-97
FOR THE SHORT FINANCIAL YEAR ENDED 31 DECEMBER 2014
1 Jan. - 31 Dec. 2014
EUR
31 Jul. - 31 Dec. 2013
EUR
1. Revenues
0
0
2. Overall performance
0
0
3. Operating expenses
0
0
4. Income/(loss) from ordinary activities
0
0
5. Net income/(loss) for the year
0
0
F-98
(HGB).
also considered.
The receivables are evaluated taking into account all recognizable risks.
The cash and cash equivalents are stated at nominal values.
Equity
The issued capital consists of EUR 50,000 of no-par value bearer shares. The nominal value
amounts to EUR 1.00 per share. An amount of EUR 12,500 of the equity is paid up as of
31 December 2014.
Supervisory Board
F-99
Board of Directors
Board of Directors
F-100
Profi-Start Vermögensverwaltungs AG, Cologne, for the fiscal year from 1 January to 31
December 2014. The maintenance of the books and records and the preparation of the annual
financial statements in accordance with German commercial law are the responsibility of the
Company’s management. Our responsibility is to express an opinion on the annual financial
statements, together with the bookkeeping system, based on our audit.
such that misstatements, whether due to error or fraud, materially affecting the presentation of
the net assets, financial position and results of operations in the annual financial statements in
F-101
MSW GmbH
________________
Mantay
Wirtschaftsprüfer
________________
Mallison
Wirtschaftsprüfer
F-102
F-103
ASSETS
31 Dec. 2015
EUR
31 Dec. 2014
EUR
12,500
12,500
12,500
12,500
31 Dec. 2015
EUR
31 Dec. 2014
EUR
50,000
(37,500)
12,500
50,000
(37,500)
12,500
12,500
12,500
Current assets
II. Cash and cash equivalents
Equity
I.
Issued capital
./.
Capital
F-104
FOR THE SHORT FINANCIAL YEAR ENDED 31 DECEMBER 2015
1 Jan. - 31 Dec. 2015
EUR
1 Jan. - 31 Dec. 2014
EUR
1. Revenues
0
0
2. Overall performance
0
0
3. Operating expenses
0
0
4. Income/(loss) from ordinary activities
0
0
5. Net income/(loss) for the year
0
0
F-105
I. General Information
(HGB).
also considered.
The cash and cash equivalents are stated at nominal values.
Equity
The issued capital consists of EUR 50,000 of no-par value bearer shares. The nominal value
amounts to EUR 1.00 per share. An amount of EUR 12,500 of the equity is paid up as of
31 December 2015.
Supervisory Board
F-106
Board of Directors
Board of Directors
F-107
Profi-Start Vermögensverwaltungs AG, Cologne, for the fiscal year from 1 January to 31
December 2015. The maintenance of the books and records and the preparation of the annual
financial statements in accordance with German commercial law are the responsibility of the
Company’s management. Our responsibility is to express an opinion on the annual financial
statements, together with the bookkeeping system, based on our audit.
such that misstatements, wether due to error or fraud, materially affecting the presentation of the
net assets, financial position and results of operations in the annual financial statements in
F-108
MSW GmbH
________________
Mantay
Wirtschaftsprüfer
________________
Mallison
Wirtschaftsprüfer
F-109
(“IFRS”)
F-110
A. STATEMENT OF FINANCIAL POSITION (“IFRS”)
AT 31 DECEMBER 2015
ASSETS
31 Dec. 2015
EUR
31 Dec. 2014
EUR
12,500
12,500
12,500
12,500
31 Dec. 2015
EUR
31 Dec. 2014
EUR
50,000
50,000
(37,500)
12,500
(37,500)
12,500
12,500
12,500
Current assets
Equity
Issued capital
F-111
B. STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME (“IFRS”)
1 Jan. - 31 Dec. 2015
EUR
1 Jan. - 31 Dec. 2014
EUR
Revenues
0
0
Cost of sales
0
0
Selling expenses
0
0
Other operating income
0
0
Other operating expenses
0
0
Fair value adjustments on financial assets
0
0
Financial income
0
0
Financial expense
0
0
Profit/(Loss) before tax
0
0
Income taxes
0
0
Other taxes
0
0
Net income/(loss) for the year
0
0
Other comprehensive income
0
0
Total comprehensive profit/(loss)
0
0
F-112
C. STATEMENT OF CHANGES IN EQUITY (“IFRS”)
Number of
Shares
Equity as at 1 January 2014
50,000
Share Capital
50,000
Not fully paid
capital
Capital
Reserve
(50,000)
Sum
Retained
Earnings
EUR
0
0
0
0
0
0
Share capital issue
Results brought forward
Net income for the year
Other comprehensive income
Payments of capital
Equity as at 31 December 2014
12,500
50,000
Number of
Shares
Equity as at 1 January 2015
50,000
Share Capital
(37,500)
Not fully paid
capital
Capital
Reserve
Sum
Retained
Earnings
EUR
50,000
50,000
(37,500)
0
0
12,500
50,000
50,000
(37,500)
0
0
12,500
Share capital issue
Results brought forward
Comprehensive income for the year
Dividend payment
Equity as at 31 December 2015
F-113
D. STATEMENT OF CASH FLOWS (“IFRS”)
1 Jan. 2015 31 Dec. 2015
EUR
1 Jan. 2014 31 Dec. 2014
EUR
=
Cash flow from regular operating activities
0
0
=
Cash flow from investing activities
0
0
+
Payments of capital
=
Cash flow from financing activities
0
12,500
=
Total of the cash flows
0
12,500
+
Cash and equivalents - beginning of the year
12,500
0
=
Cash and equivalents - end of the year
12,500
12,500
12,500
F-114
E. NOTES TO THE FINANCIAL STATEMENTS (“IFRS”)
49 Profi-Start Vermögensverwaltungs AG, hereafter called the “Company”, is incorporated in
Germany with its principal place of business in Cologne and registered office at Martin-LutherPlatz 26, 40547 Dusseldorf under German law on 31 July 2013 and has been registered in the
commercial register on 13 February 2014.
The financial year of the Company begins on January 1 and ends on December 31 each year.
The first financial year of the Company started on 31 July 2013 and ended on December 31,
2013.
The Company presents financial statements as at 31 December 2015 in Euro (EUR)
The purpose of the Company is management of own assets.
The sole shareholder of the Company is the Profi-Start AG.
Financial Reporting Framework
In the previous financial years 2013 and 2014 as well as the financial year 2015, the financial
statements of the Company were prepared in accordance with German Commercial Code
(HGB).
Beside the preparation of the financial statements in accordance with German Commercial
Code (HGB), the financial statements as of 31 December 2015 are prepared in accordance
with the International Financial Reporting Standards (“IFRS”) as adopted by the European
Union (“EU”) and the consideration of the first-time adoption requirements of IFRS 1.
As sole deviation arising from the conversion from German Commercial Code (HGB) to the
International Financial Reporting Standards (IFRS) the following adjustment has been made
to the opening balance figures as of 1 January 2014:
All not fully paid capital is deducted from issued capital according to IFRS. The not fully paid
but called-in capital which could be presented also as an asset (other assets) according to
German Commercial Code (HGB), could not be applied in compliance with IFRS.
All IFRS which were adopted until 31 December 2015 were applied for the financial years
2014 and 2015.
F-115
At the date of authorization of these annual financial statements, certain new standards,
amendments and interpretations to existing standards have been published by the
International Accounting Standard Board (“IASB”) but are not yet effective, and have not been
adopted by the Company.
According to current knowledge, the application of issued but not yet effective new and
amended standards and interpretations for the Company would not have any significant
impact on recognition, measurement and statement of individual statement of financial
position items as well as the scope of information contained in the notes.
II. Accounting policies
General principles
The financial statements of the Company as at 31 December 2015 have been prepared in
accordance with IFRS as adopted in the European Union.
In the financial statements, cash and cash equivalents include cash in hand, deposits held at
call with a bank and other short term highly liquid investments are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.
Equity
An equity instrument is any contract that evidences a residual interest in the assets of an
entity after deducting all of its liabilities. Not fully paid capital is deducted from issued capital.
The exceeding portion represents registered capital that has been paid-up.
Cost-of-sales method
The cost-of-sales method is selected as the presentation method for the income statements.
III. Discretionary decisions and assessments
The preparation of the financial statements under IFRS requires assumptions for several
items that have a corresponding impact on recognition and measurement in the statements of
financial position, in the income statement of the financial statements and regarding the
disclosure of contingent liabilities. The actual results may deviate from these estimates.
F-116
IV. Notes to statement of financial positions
The bank current accounts amount to EUR 12,500 (PY: EUR 12,500) which include solely the
paid-up amounts of issued capital. Regarding the development of cash, we refer to the cash
flow statement.
Issued capital
The issued capital consists of EUR 50,000 (PY: EUR 50,000) of no-par value bearer shares
exclusively hold by Profi-Start AG. The capital is not fully paid. An amount of EUR 37,500 has
been deducted as not fully paid capital. The carrying amount of the equity amounts to
EUR 12,500.
V. Additional statements
Risk management
The management maintains a risk management system to fulfil company law regulation. The
Company utilizes an effective management and control system to measure the existing risks
and the future risks.
Financial commitments
There are no financial commitments which have any material effects on the assets, liabilities,
financial position and profit or loss of the Company as at 31 December 2015.
Uncertain liabilities
There are no uncertain liabilities as at 31 December 2015.
Related party disclosures
Predicting that no related party transaction occurred in the fiscal year 2015 the related party
relationships include the following parties:
Control relationship:
For the fiscal year 2015 ultimate parent company was Profi-Start AG, Munich, represented by
the board of directors. Since 4 March 2016 all shares of the company are held by Mr.
Xiaofang Zhu.
F-117
Supervisory Board:
For the fiscal year 2015 the supervisory board consists of three members:
Michael Meier, Tax advisor (until March 10, 2016)
Ramona Berger, Tax advisor (until March 10, 2016)
Eric Bichlmeier, Diplom Betriebswirt (until March 10, 2016)
After the balance sheet date the following changes to the supervisory board were made:
Member of the supervisory board for the period of 10 March to 16 March 2016:
Philipp Dietz, Lawyer
Fabian Mimberg, Lawyer
Dr. Gregor Wecker, Lawyer
Member of the supervisory board since 16 March 2016:
Jürgen Schrollinger, Financial advisor
TEO Cern Yong, Accountant
Daniel Jansen, Lawyer
Board of Directors:
Ivonne Uhlig-Möser, Rechtsanwaltsfachangestellte (until March 10, 2016)
Events after the reporting date
Based on the purchase agreement dated 4 March 2016 Mr. Xiaofang Zhu acquired 100% of
the company shares from Profi-Start AG, Munich.
Prior to date of the purchase agreement Profi-Start AG, Munich paid-in the remaining part of
the issued capital amounting to EUR 37,500 on 2 March 2016.
In the extraordinary general meeting held on 10 March 2016 it was decided to change the
name, domicile and object of the company and to amend the statute. The members of the
supervisory board Mr. Meier, Mrs. Berger and Mr. Bichlmeier were voted out. The persons Mr.
Dietz, Mr. Mimberg and Dr. Wecker were elected to the supervisory board in another
extraordinary meeting on 10 March 2016.
F-118
The company changed the name into Decheng Technology AG. The new company´s name is
not yet effective, as the change of the name is not yet published by the company register as of
13 April 2016.
In the subsequent supervisory board meeting held on 10 March 2016 Mr. Xiaofang Zhu was
appointed to the Board of directors. The management board member, Ms. Uhlig-Moser,
resigned her position.
In the extraordinary general meeting of 16 March 2016 Mr. Schrollinger, Mr. Teo and Mr.
Jansen were appointed to supervisory board members and the present supervisory board
members were voted out.
In the course of the preparation procedures for the initial public offering the company is
obliged to prepare these IFRS annual financial statemens as well as have a voluntary audit of
the annual financial statements in accordance with both German GAAP for the fiscal years
2013 to 2015 and IFRS for the fiscal year 2015. All costs for the preparation and audit of the
financial statements are estimated to not exceed EUR 15,000. As the purchase and the
change of the company’s origin are events effecting the fiscal year 2016. No accruals have
been posted to the statement of financial position as at 31 December 2015.
Except the above, there have been no material events after the reporting date that require
adjustment to, or disclosure in the financial statements.
Cologne, 13. April 2016
Xiaofang Zhu
Board of Directors
F-119
F. INDEPENDENT AUDITORS’ REPORT (“IFRS”)
We have audited the accompanying annual financial statements
of 49 Profi-Start
Vermögensverwaltungs AG (in future: Decheng Techonlogy AG), Cologne and its subsidiaries,
which comprise the statement of financial position as at 31 December 2015, the statement of
profit or loss and other comprehensive income, the statement of changes in equity and the
statement of cash flows for the year then ended 31 December 2015 and the notes to the
Management’s Responsibility for the Annual Financial Statements
The Management is responsible for the preparation and fair presentation of these financial
statements in accordance with International Financial Reporting Standards as adopted by the
European Union (EU), and for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
Our responsibility is to express an opinion on these annual financial statements based on our
audit. We conducted our audit in accordance with International Standards on Auditing. Those
standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the annual financial statements are free from
material misstatement.
disclosures in the annual financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the annual financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the annual
financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.
F-120
F. INDEPENDENT AUDITORS’ REPORT (“IFRS”)
Opinion
In our opinion, the annual financial statements present fairly, in all material respects, the
financial position of 49 Profi-Start Vermögensverwaltungs AG (in future: Decheng Techonlogy
AG), Cologne at 31 December 2015 and of their financial performance and cash flows for the
year then ended 31 December 2015 in accordance with International Financial Reporting
Standards as adopted by the European Union (EU).
MSW GmbH
________________
Mantay
Wirtschaftsprüfer
________________
Mallison
Wirtschaftsprüfer
F-121
26.
GLOSSARY
1.4BG
1.4 Butanediol
AA
Pure adipic acid
ACON
ACON Actienbank AG, Heimeranstraße 37, 80339 Munich,
Germany
AIC
Administration for industry and commerce of the PRC
AktG
German Stock Corporation Act (Aktiengesetz)
Allocation Rules
lungsgrundsätze
/
Zutei-
“Principles for the Allotment of Share Issues to Private Investors” ("Grundsätze für die Zuteilung von Aktienemissionen an
Privatanleger") which were issued on 7 June 2000 by the Exchange Expert Commission (Börsensachverständigenkommission) of the German Federal Ministry of Finance (Bundesministerium der Finanzen)
Annual Financial Statements /
Jahresabschlüsse
Financial statements of DECHENG PRC, as at and for the financial years ended on 31 December 2013, 31 December 2014
and 31 December 2015 as well as of DECHENG HK as at and
for the financial year ended on 31 December 2015 under IFRS
as endorsed by the EU.
BaFin
German Federal Financial Supervisory Authority (Bundesanstalt
für Finanzdienstleistungsaufsicht)
BGB
German Civil Code (Bürgerliches Gesetzbuch)
Bookrunner
ACON
CAGR
Compounded Annual Growth Rate
Catalogue
Guidance Catalogue of Industries for Foreign Investment
CCB
China Construction Bank, Quanzhou Quangang Branch
G-1
CEO
Chief Executive Officer
CFO
Chief Financial Officer
China / PRC /
VR China
People’s Republic of China , which, for the purposes of this Prospectus excludes Hong Kong and Macau
Circular 7
Notice Concerning the Enterprise Income Tax with respect to
the Indirect Equity Transfers by Non-resident
Circular 19
Enterprises Circular of the State Administration of Foreign Exchange Concerning the Reform of the Administrative Approaches to Settlement of Foreign Exchange Capital of Foreigninvested Enterprises
CITA
Corporate Income Tax Act
Code
German Corporate Governance Code
Company /
Gesellschaft
Company's Lock-Up / Lock-Up
der Gesellschaft
Restrictions under the market protection agreements
COO
Chief Operations Officer
CSRC
China Securities and Regulatory Commission
DECHENG
The Company together with its direct and indirect subsidiaries
DECHENG HK
Hong Kong De Cheng Holding Company Limited (香港德誠控股
有限公司)
DECHENG PRC
Quanzhou De Cheng Tech Resin Co., Ltd (泉州市德诚高新树脂
有限公司)
Designated Sponsor
ACON
DMF
Dimethylformamide
G-2
EBITDA
Earnings before interest, taxes, depreciation and amortization
EEA / EWR
European Economic Area
EIT
Enterprise Income Tax
EIT Law
The PRC Law on Enterprise Income Tax
EPS
Expanded polystyrene
Equity Interests
Equity interests or other similar interests
EStG
German Income Tax Act (Einkommenssteuergesetz)
EU
European Union
EUR
Euro, the official currency of the Eurozone and the EU institutions
Executives
Any person entrusted with managerial responsibilities
Existing Shareholders /
Bestehende Aktionäre
Mr. ZHU Xiaofang, Chen Capital Limited S.à .r.l., Asia Small
Capital V Limited S.à .r.l., South China Fund II Limited S.à .r.l. ,
All Time Wonderful Limited, Rongshang Limited, Mr. OOi Guan
Hoe
Existing Shares /
Bestehende Aktien
30,000,000 existing ordinary bearer shares (InhaberStückaktien) in the Company issued and existing as at the date
of this Prospectus
FIE
Foreign-invested enterprises
Fujian Material Structure Institute
Haixi Institute of Chinese Academy of Sciences (Fujian Material
Structure Institute)
Frost & Sullivan
Frost & Sullivan GIC Malaysia Sdn Bhd, with its business address at Suite C-11-02, Block C, Plaza Mont’ Kiara, 2, Jalan Kiara, Mont’ Kiara, 50480 Kuala Lumpur, Malaysia
FY / GJ
Financial Year
G-3
GDP
Gross Domestic Product
GFC
General Fiscal Code
Global Coordinator
ACON
Golden Times
Golden Times Trading Co
Group / Gruppe
The Company together with its direct and indirect subsidiaries
HKD
Hong Kong Dollar, the currency of Hong Kong
IFRIC
International Financial Reporting Interpretations Committee
IFRS
International Financial Reporting Standards and International
Accounting Standards and Interpretations as endorsed for application in the EU
IMF
International Monetary Fund
Indemnified Person
Underwriter, its affiliated companies and its directors, staff, representatives and contractors and each company (supposed to)
control the Underwriter
Implementing Rules
Implementing Rules of the EIT Law
ISIN
International Securities Identification Number
Issue Price
New Shares at the issue price of EUR 1.00 per share
ITA
Income Tax Act
Kg
Kilogram
Kg/h
Kilogram per hour
Lead Manager
ACON
G-4
Listing
Admission to trading to the regulated market segment (Regulierter Markt) of the Frankfurt Stock Exchange (General Standard)
Lock-Up
Restrictions under the market protection agreements
M&A Provisions
Provisions on the Mergers and Acquisitions of Domestic Enterprises by Foreign Investors
Market Research Report
Market research report “Polyurethane Resin Industry”, dated
March 2016, prepared by Frost & Sullivan GIC with its business
address at Malaysia Sdn Bhd,Suite C-11-02, Block C, Plaza
Mont’ Kiara, 2, Jalan Kiara, Mont’ Kiara, 50480 Kuala Lumpur
MEG
Ethylene Glycol
MDI
Methylene diphenyl diisocyanate
MOFCOM
Ministry of Commerce of the PRC
MSW GmbH
MSW GmbH Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft, Straße des 17. Juni 106 -108, 10623 Berlin, Germany
N/A
Not applicable
New Shares / Neuen Aktien
3,000,000 newly issued no par value ordinary bearer shares
from a capital increase for a contribution in cash expected to be
resolved by an extraordinary general shareholders’ meeting of
the Company on 20 June 2016
NDRC
National Development and Reform Commission of the PRC
Notice 698
Notice on Strengthening Administration of Enterprise Income
Tax for Share Transfers by Non-PRC Resident Enterprises
NPC
National People´s Congress of the PRC
OEM
Original Equipment Manufacturer
Offer Price
The final selling price for the Offered Shares
G-5
Offer Terms / Angebotsbedingungen
The right to reduce the number of Offered Shares, to lower or
raise the Offer Price and/or to extend or shorten the Offering
Period
Offered Shares / Angebotsaktien
The Offering consists of 3,000,000 no par value ordinary bearer
shares (lnhaber-Stückaktien) of the Company, each with a notional value of EUR 1.00 and carrying full dividend rights for the
financial year 2016
Offering
For the purposes of the public offering in Germany and Luxembourg and private placement in certain other jurisdictions this
Prospectus covers 3,000,000 ordinary bearer shares, each such
share with no par value and a notional value of EUR 1.00 each
in the share capital and full dividend rights for the financial year
2016
Offering Period / Angebotsfrist
The Offering is expected to commence on 6 June 2016 and to
end on 20 June 2016
OK-412
Acematt
Overseas Enterprises
Any PRC resident enterprise registered outside the PRC
PCT
Patent Cooperation Treaty
PE-20
Polyethylene glycol
Placement Volume
The number of shares to be allocated to the investors
PMMA
Polymethyl methacrylate
PRC GAAP
Generally accepted accounting principles in the PRC
Principal Shareholder
A shareholder holding 95% of the share capital
Prospectus
This prospectus
PTMEG
Polytetramethylene ether glycol
PU
Polyurethane
G-6
PVC
Polyvinyl chloride
Quangang Petrochemical Research Institute
Quangang Petrochemical Research Institute of Fujian Normal
University
Regulation
Regulation for Foreign Exchange Controls of the PRC
Relevant PRC Residents
PRC residents who establish or control an SPV for raising financing or investment outside of the PRC
RMB
Renminbi, the currency of the PRC
SAFE
The PRC State Administration of Foreign Exchange
SAFE Notice 37
Notice on Issues concerning Foreign Exchange Management in
Financing and investment by PRC Residents by Overseas Special Purpose Vehicle and Roundtrip Investments
SAIC
State Administration for Industry and Commerce of the PRC
SAT
State Administration of Taxation of the PRC
SIPO
State Intellectual Property Office of the PRC
SPV
Special Purpose Vehicle
Sqm / m
2
Square meters
TDI
Toluene diisocyanate
TOL
Toluene
TPU
Thermoplastic polyurethane
Trading Participant
Depositary bank which (i) has been admitted as a trading participant to the Frankfurt Stock Exchange or has access to trading
on the Frankfurt Stock Exchange via an accredited trading participant; (ii) is connected to Xetra, and (iii) is authorized and able
to use the Xetra–Subscription Functionality according to the
G-7
terms and conditions for use of the Frankfurt Stock Exchange
Transaction / Transaktion
The Offering and the Listing of the Company’s shares
TRE
Tax Resident Enterprise
Underwriter
ACON
Underwriting
Agreement
Übernahmevertrag
/
Agreement between, inter alia, the Company, Mr. ZHU Xiaofang
and the Underwriter which will be concluded within five bank
working days after the date of this Prospectus
United States / US
United States of America
USD
United States dollar, the official currency of the United States of
America
VAT
Value Added Tax
WFOE
Wholly foreign-owned enterprise established under the PRC
laws
WKN
German Securities Identification Number
WpHG
German Securities Trading Act (Wertpapierhandelsgesetz)
WpPG
German Securities Prospectus Act (Wertpapierprospektgesetz)
WpÜG
German Securities Acquisition and Takeover Act (Wertpapiererwerbs- und Übernahmegesetz)
WTO
World Trade Organization
Xinhuifu
Xinhuifu Shoes and Garment Co., Ltd
XPS
Extruded polystyrene
G-8
27. SIGNATURES
signed by
ZHU Xiaofang
Management Board (Vorstand)
S-1

Approval of the Prospectus

Transcription

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